SAFE MLO Test National Content Outline Exam Questions and Answers

RESPA was enacted in 1974 for what purposes? - ANSWER-Allow consumers to obtain information on the costs of closing so that they can shop for settlement services Protect consumers from excessive settlement costs and unearned fees RESPA's current regulations serve to: - ANSWER-Protect consumers from excessive settlement costs Limit the amount of funds that creditors can require consumers to deposit into escrow accounts Establish disclosures, policies, and procedures to facilitate timely communications between loan servicers and consumers Define Mortgage Brokers - ANSWER-Primarily a liaison between borrowers and lenders by referring applicants to select lenders or by offering borrowers a variety of loan products from a number of lending institutions Section 8(a) of RESPA - ANSWER-prohibits anyone from giving or accepting things of value unless unless work is preformed to earn the fee. The Servicing Rules create an exemption for small servicers that is - ANSWER-- A housing finance agency - A nonprofit entity that services 5,000 or fewer mortgage loans, Servicers must maintain policies and procedures to: - ANSWER-- Provide accurate and timely disclosures to borrowers - Investigate and correct borrower complaints and respond with accurate information - Submit current and accurate information requested during a foreclosure process - Promptly identify and communicate with the successor in interest upon notification of the death of a borrower - Oversee and periodically review service providers - Ensure the timely transfer of information and documents to a transferee servicer - Identify information and documents that were not transferred by a transferor servicer How long must servicers retain documents that relate to a borrowers mortgage? - ANSWER-1 year after the date on which the loan is discharged OR servicing is transferred to another servicer An Initial Escrow Statement contains - ANSWER-An Initial Escrow Statement contains - Amount of the borrowers mortgage payment and the portion that is deposited - Itemized taxes, insurance, and other payment to be made from the escrow account during the computation year - Amount that the servicer has selected as a cushion - A "trial running balance" Annual Escrow Statement contains - ANSWER-- An Account history and a projection of the payments for the coming year - A statement showing both last years and the current years monthly mortgage payment and the amount of the payment that is deposited into the escrow account - The total amount paid both into and out of the escrow account for the past computation year - The escrow account balance at the end of the period and an explanation of how the servicer is handling any surplus - Explanation of how the borrowe is to pay any deficiency RESPA applies to - ANSWER-federally-regulated mortgage loans: • funds insured by the federal government • collateral insured by federal government • depository institutions regulated by FDIC or NCUA • intended sale to Fannie or Freddie • creditor regulated under TILA • mortgage broker and assigned to a creditor Initial Escrow Statement - ANSWER-Must be given to borrower at closing or in 45 days after closing. Annual Escrow Statement - ANSWER-Due 30 days of completion of escrow account. Section 8 (b) of RESPA - ANSWER-prohibits fee splitting where fees are received for services not actually performed Servicing includes - ANSWER-receiving a borrower's periodic payment, making payments to the owner of the Loan and making payments to 3rd parties finance charge - ANSWER-the cost of credit expressed as a dollar amount Referral fees - ANSWER-any referral of a settlement service is not a compensable service Fee splitting - ANSWER-any portion,split, or percentage of any charge made for the rendering of a settlement service...other than for services actually performed Exchange of "things of value" for business referrals - ANSWER-include any payment, advance, loan, or service, including money, discounts, commissions, salaries, stock, opportunities, special banking terms, tickets to theater or sporting events, services at special rates, and trips at another's expense Agreement or understanding - ANSWER-when a thing of value is repeatedly received and is in any way connected with the volume or value of business referred, the receipt of that thing of value is evidence that it is made pursuant to an agreement or understanding for the referral of business Exempt RESPA Loans - ANSWER-• loans for business, agriculture, or commercial • temporary financing, construction loans • loans secured by vacant land • assumptions that are permissible with out lender approval • sale of a loan into the secondary market • loan conversions Disclosures required by RESPA - ANSWER-- Special information booklet - Affiliated Business Disclosure - Disclosures related to mortgage servicing - Disclosures related to escrow accounts Yield Spread Premiums (YSPs) - ANSWER-Borrower credit is a fee paid to the borrower by the lender when a loan is originated at a higher interest rate than the lowers rate for which the borrower qualifies. Borrower credit or YSPs are used for - ANSWER-Subsidizing closing costs such as: Origination fee, or broker fee, because it is financed out-of-pocket closing costs are "borrowed" from the lender Loans covered by ECOA - ANSWER-transactions for the extension of credit by any person who regularly extends, renews or continues credit. Should a borrower refuse to provide information for HMDA data collection an LO should - ANSWER-Use best judgement to guess Adverse Action - ANSWER-A refusal to grant credit in substantially the amount or on substantially the terms requested in an application unless the creditor makes a counter offer and the applicant expressly accepts the credit offered. Elderly as defined as ECOA - ANSWER-A person 62 years old or older. - ANSWER- Elderly - ANSWER-Any persons that is 62 years old or older Dwelling per TILA - ANSWER-A residential structure or mobile home which contains 1-4 family housing units or individual units of condos or cooperatives Residential Mortgage Loan - ANSWER-A consumer credit transaction secured by a mortgage or equivalent consensual security interest "on a dwelling or on residential real property that includes a dwelling". Higher Priced/Cost Mortgage - ANSWER-A consumer credit transaction secured by the consumer's principal dwelling with an APR that exceeds the APOR by 1.5 or more %points for a first lien, or 3.5 or more for a subordinate lien Loan Consumation - ANSWER-Happens 3 days after you acknowledge receipt of the CD Acceleration - ANSWER-An increase in rate Dwelling defined by HMDA - ANSWER-is not limited to the principal or other residence of the applicant or borrower, and includes vacation or second homes and investment properties, multifamily residential structure such as an apartment, condo, or cooperative building or complex. Fraud alert - ANSWER-A statement in the file of a consumer that notifies all prospective users of a consumer report relating to the consumer that the consumer may be a victim of fraud including identity theft Creditor - ANSWER-A person or company to whom money is owed Non-Conforming Loan - ANSWER-A loan that fails to meed bank criteria for funding Payment shock - ANSWER-Any significant increase in monthly liability that heightens the risk of loan default Subprime - ANSWER-referring to credit or loan arrangements for borrowers with a poor credit history, typically having unfavorable conditions such as high interest rates DTI Ratio Assesment - ANSWER-Dividing total recurring monthly debt by gross monthly income and is expressed as a % Construction loan - ANSWER-a short-term loan that provides funds to cover the cost of building or rehabilitating a home Junior Lien - ANSWER-A lien that is subordinate to another lien on the same property Subordinate loans - ANSWER-Loans that rank below other loans or securities with regard to claims on assets or earnings. Escrow Accounts - ANSWER-Ensures that the taxes and insurance will be paid on time Table funding - ANSWER-Lender buying the mortgage, funding the mortgage at closing not the mortgage bank or broker Rate lock agreement - ANSWER-protects the borrower from rate fluctuations for the duration of the lock period Early Payment Default (EPD) - ANSWER-Loans that become 60 days past due within the first 6 payments ECOA was enacted to - ANSWER-Eliminate discriminatory treatment of credit applicants. Due to anecdotal evidence, women were not treated equally when applying for credit. Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac) - ANSWER-Government Sponsored entity that buys certain types of mortgages from banks and uses them to collateralize mortgage-backed securities. Federal National Mortgage Association (FNMA or Fannie Mae) - ANSWER-Government Sponsored entity that buys certain types of mortgages from banks and uses them to collateralize mortgage-backed securities. Reasons for denied loans - ANSWER--Poor credit history -insufficient income/asset documentation -down payment too small -problems with the property -inadequate employment history acceptable income - ANSWER-salary, hourly, self-employed, child support, social security, commission, disability, retirement, investment, overtime, alimony adverse action notice time frame - ANSWER-5 business days Requirement of co-signers - ANSWER-This person's income, assets, and credit worthiness are taken into account to help qualify you for a mortgage, and they are liable to repay the loan as well. They do NOT have ownership interest in the house Disparate Treatment - ANSWER-Occurs when a creditor treats an applicant differently based on a prohibited basis such as race or national origin. Information required on a loan application - ANSWER-- Consumers name - social security number - income - the address of the property - An estimate of the value of the property - the loan amount sought Prohibited factors by ECOA - ANSWER-- Marital Status - Sex of Applicants - Bearing and Rearing of Children - Race or Color - Religion - National Origin - Age (unless loan applicant is too young to enter a contract) - The exercise of rights under the Consumer Credit Protection Act - Receipt of income from a public assistance program, although creditors may inquire for pertinent elements of credit worthiness Required disclosures when an application is denied - ANSWER-Notice of Adverse Action ECOA's Record Retention - ANSWER-A creditor mus preserve all written or recorded information connected with an application for 25 months (12 for business credit) after the date on which the creditor informed the applicant of action taken on an application or of incompleteness of an application When calculating repayment penalty the formula is - ANSWER-Multiply the original loan amount by the interest rate for the annual interest. Then divide by the amount of months needed for the transaction