, Question 1
A mortgage loan originator is reviewing a loan application where the
borrower's total monthly income is $6,000, total monthly debts are $2,400, and
the proposed PITI is $1,800. According to the Qualified Mortgage (QM)
General Ability-to-Repay (ATR) standards, which statement correctly evaluates
the borrower's debt-to-income (DTI) ratio and the loan's compliance?
A. The DTI is 40%, which exceeds the 43% limit for a Qualified
Mortgage under the General QM rule, making the loan non-compliant.
B. The DTI is 40%, which is within the 43% limit for a Qualified
Mortgage under the General QM rule, and the loan is compliant if other
ATR factors are met.
C. The DTI is 30%, which is within the 43% limit, and the loan
automatically qualifies as a Qualified Mortgage.
D. The DTI is 40%, but the 43% limit only applies to FHA loans, so the
loan is compliant under conventional QM standards.
Correct Answer: B - The DTI is 40%, which is within the 43%
limit for a Qualified Mortgage under the General QM rule, and
the loan is compliant if other ATR factors are met.
RATIONALE
The DTI is calculated as $2,400 / $6,000 = 40%, which is below the
43% threshold for a General QM loan. Under the General QM rule,
the loan must also meet other ATR factors, and the 43% limit applies
to conventional loans, not just FHA. Options A and C miscalculate the
DTI, and D incorrectly states the limit only applies to FHA.
Question 2
Which of the following scenarios would require a mortgage loan originator to
provide a Loan Estimate (LE) to the borrower within three business days?
A. A borrower submits a complete application for a reverse mortgage.
B. A borrower requests pre-qualification for a mortgage but has not
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, provided any documentation.
C. A borrower applies for a home equity line of credit (HELOC) at a
credit union.
D. A borrower submits a complete application for a commercial real
estate loan.
Correct Answer: A - A borrower submits a complete application
for a reverse mortgage.
RATIONALE
The Loan Estimate must be provided within three business days of
receiving a complete application for a mortgage, including reverse
mortgages. Pre-qualification requests without documentation do not
trigger an LE, HELOCs are exempt under TRID, and commercial
loans are not covered by TRID. Option A correctly identifies a
covered transaction.
Question 3
A loan originator is discussing loan options with a borrower who has a credit
score of 620 and a 10% down payment. The borrower is considering an FHA
loan versus a conventional loan. Which statement accurately reflects the
mortgage insurance requirements for these two options?
A. FHA loans require upfront and annual mortgage insurance premiums,
while conventional loans with less than 20% down typically require
private mortgage insurance (PMI).
B. FHA loans do not require mortgage insurance if the down payment is
at least 10%, whereas conventional loans always require PMI regardless
of down payment.
C. Conventional loans with less than 20% down require FHA mortgage
insurance, while FHA loans require PMI.
D. Both FHA and conventional loans require mortgage insurance only if
the down payment is less than 5%.
Correct Answer: A - FHA loans require upfront and annual
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, mortgage insurance premiums, while conventional loans with less
than 20% down typically require private mortgage insurance
(PMI).
RATIONALE
FHA loans require both upfront and annual mortgage insurance
premiums regardless of down payment, while conventional loans with
less than 20% down typically require PMI. Option B is false because
FHA always requires MIP. Option C confuses the insurance types, and
D is incorrect because conventional loans require PMI up to 20%
down.
Question 4
An MLO is completing a loan application for a borrower who is self-employed
and reports income from a sole proprietorship. Which of the following
documents is most critical for verifying the borrower's stable monthly income?
A. Two most recent pay stubs
B. Two years of signed federal income tax returns with all schedules
C. A letter from the borrower's accountant stating projected income
D. Six months of personal bank statements showing deposits
Correct Answer: B - Two years of signed federal income tax
returns with all schedules
RATIONALE
For self-employed borrowers, lenders typically require two years of
signed federal tax returns with schedules to verify stable income. Pay
stubs are not applicable, a letter from an accountant is not sufficient,
and bank statements alone do not establish stable income. Tax returns
provide the most reliable evidence of self-employment income.
Question 5
Under the Home Mortgage Disclosure Act (HMDA), which of the following
loans is exempt from reporting requirements?
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A mortgage loan originator is reviewing a loan application where the
borrower's total monthly income is $6,000, total monthly debts are $2,400, and
the proposed PITI is $1,800. According to the Qualified Mortgage (QM)
General Ability-to-Repay (ATR) standards, which statement correctly evaluates
the borrower's debt-to-income (DTI) ratio and the loan's compliance?
A. The DTI is 40%, which exceeds the 43% limit for a Qualified
Mortgage under the General QM rule, making the loan non-compliant.
B. The DTI is 40%, which is within the 43% limit for a Qualified
Mortgage under the General QM rule, and the loan is compliant if other
ATR factors are met.
C. The DTI is 30%, which is within the 43% limit, and the loan
automatically qualifies as a Qualified Mortgage.
D. The DTI is 40%, but the 43% limit only applies to FHA loans, so the
loan is compliant under conventional QM standards.
Correct Answer: B - The DTI is 40%, which is within the 43%
limit for a Qualified Mortgage under the General QM rule, and
the loan is compliant if other ATR factors are met.
RATIONALE
The DTI is calculated as $2,400 / $6,000 = 40%, which is below the
43% threshold for a General QM loan. Under the General QM rule,
the loan must also meet other ATR factors, and the 43% limit applies
to conventional loans, not just FHA. Options A and C miscalculate the
DTI, and D incorrectly states the limit only applies to FHA.
Question 2
Which of the following scenarios would require a mortgage loan originator to
provide a Loan Estimate (LE) to the borrower within three business days?
A. A borrower submits a complete application for a reverse mortgage.
B. A borrower requests pre-qualification for a mortgage but has not
Page 2
, provided any documentation.
C. A borrower applies for a home equity line of credit (HELOC) at a
credit union.
D. A borrower submits a complete application for a commercial real
estate loan.
Correct Answer: A - A borrower submits a complete application
for a reverse mortgage.
RATIONALE
The Loan Estimate must be provided within three business days of
receiving a complete application for a mortgage, including reverse
mortgages. Pre-qualification requests without documentation do not
trigger an LE, HELOCs are exempt under TRID, and commercial
loans are not covered by TRID. Option A correctly identifies a
covered transaction.
Question 3
A loan originator is discussing loan options with a borrower who has a credit
score of 620 and a 10% down payment. The borrower is considering an FHA
loan versus a conventional loan. Which statement accurately reflects the
mortgage insurance requirements for these two options?
A. FHA loans require upfront and annual mortgage insurance premiums,
while conventional loans with less than 20% down typically require
private mortgage insurance (PMI).
B. FHA loans do not require mortgage insurance if the down payment is
at least 10%, whereas conventional loans always require PMI regardless
of down payment.
C. Conventional loans with less than 20% down require FHA mortgage
insurance, while FHA loans require PMI.
D. Both FHA and conventional loans require mortgage insurance only if
the down payment is less than 5%.
Correct Answer: A - FHA loans require upfront and annual
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, mortgage insurance premiums, while conventional loans with less
than 20% down typically require private mortgage insurance
(PMI).
RATIONALE
FHA loans require both upfront and annual mortgage insurance
premiums regardless of down payment, while conventional loans with
less than 20% down typically require PMI. Option B is false because
FHA always requires MIP. Option C confuses the insurance types, and
D is incorrect because conventional loans require PMI up to 20%
down.
Question 4
An MLO is completing a loan application for a borrower who is self-employed
and reports income from a sole proprietorship. Which of the following
documents is most critical for verifying the borrower's stable monthly income?
A. Two most recent pay stubs
B. Two years of signed federal income tax returns with all schedules
C. A letter from the borrower's accountant stating projected income
D. Six months of personal bank statements showing deposits
Correct Answer: B - Two years of signed federal income tax
returns with all schedules
RATIONALE
For self-employed borrowers, lenders typically require two years of
signed federal tax returns with schedules to verify stable income. Pay
stubs are not applicable, a letter from an accountant is not sufficient,
and bank statements alone do not establish stable income. Tax returns
provide the most reliable evidence of self-employment income.
Question 5
Under the Home Mortgage Disclosure Act (HMDA), which of the following
loans is exempt from reporting requirements?
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