, Question 1
A mortgage loan originator is completing a loan application for a borrower
purchasing a primary residence. The borrower's verified income is $12,500 per
month, and total monthly debts including the new mortgage payment are
$5,250. The loan is a Conventional conforming loan with a 45%
debt-to-income ratio. Under the Ability-to-Repay/Qualified Mortgage
(ATR/QM) rules, which of the following is the most critical factor in
determining if this loan meets the General QM definition?
A. The borrower's credit score must be at least 620.
B. The loan must be a safe harbor QM with an APR exceeding the
Average Prime Offer Rate by 2.25% or more.
C. The loan's pricing must not exceed the APR threshold for a rebuttable
presumption QM, and the DTI must be within the 43% limit or meet
agency guidelines.
D. The borrower must have at least six months of reserves.
Correct Answer: C - The loan's pricing must not exceed the APR
threshold for a rebuttable presumption QM, and the DTI must be
within the 43% limit or meet agency guidelines.
RATIONALE
General QM (as amended effective 2021) uses a price-based approach:
the APR must not exceed the APOR by 2.25 percentage points (for
first liens) to qualify as a safe harbor QM. If it exceeds that threshold,
it may still be a rebuttable presumption QM if it meets certain product
restrictions. A 45% DTI is permissible under the revised General QM
rule, which eliminated the 43% DTI limit as a hard cap. Options A, B,
and D are not required for General QM status.
Page 2
, Question 2
A mortgage broker receives a loan application from a self-employed borrower
who reports significant income from a foreign corporation. The borrower
provides tax returns showing income but no W-2s. Under the TILA-RESPA
Integrated Disclosure (TRID) rules, how should the broker handle the
verification of income for the Loan Estimate (LE) and Closing Disclosure
(CD)?
A. The broker may rely on the borrower's stated income without further
documentation for the LE, but must verify before the CD.
B. The broker must verify income using third-party documentation (e.g.,
tax transcripts) before issuing the LE, and any changes must be reflected
on the CD.
C. The broker can use the borrower's signed tax returns as sufficient
verification for both LE and CD.
D. The broker must obtain a written verification of employment (VOE)
from the foreign corporation.
Correct Answer: B - The broker must verify income using
third-party documentation (e.g., tax transcripts) before issuing
the LE, and any changes must be reflected on the CD.
RATIONALE
Under TRID, the LE must be based on the best information reasonably
available, and the lender must verify income using reliable third-party
records (e.g., IRS tax transcripts, business bank statements) for
self-employed borrowers. The CD must reflect the actual terms and
any changes from the LE. Option A violates the good-faith
requirement; C may not be sufficient if returns are not validated; D is
not always required for foreign corporations.
Page 3
, Question 3
A loan originator is reviewing a loan file for a refinance transaction. The
borrower's existing first mortgage has a balance of $300,000 at 4.5% interest.
The new loan is $320,000 at 5.0% with $8,000 in closing costs. The borrower's
primary goal is to lower monthly payments. Which of the following best
describes the loan originator's ethical obligation under the SAFE Act and
Regulation Z?
A. The originator must recommend the loan with the lowest interest rate
regardless of fees.
B. The originator must present all available loan options and disclose the
costs and benefits of each, ensuring the borrower makes an informed
decision.
C. The originator should only present the loan that maximizes the
originator's compensation.
D. The originator must advise the borrower against the refinance because
it increases the loan balance.
Correct Answer: B - The originator must present all available
loan options and disclose the costs and benefits of each, ensuring
the borrower makes an informed decision.
RATIONALE
The SAFE Act and Regulation Z require loan originators to present
loan options in a manner that allows borrowers to make informed
decisions. This includes disclosing all material terms and costs.
Option A is too narrow; C violates fiduciary principles; D is not
required as the borrower may have valid reasons for refinancing.
Page 4
A mortgage loan originator is completing a loan application for a borrower
purchasing a primary residence. The borrower's verified income is $12,500 per
month, and total monthly debts including the new mortgage payment are
$5,250. The loan is a Conventional conforming loan with a 45%
debt-to-income ratio. Under the Ability-to-Repay/Qualified Mortgage
(ATR/QM) rules, which of the following is the most critical factor in
determining if this loan meets the General QM definition?
A. The borrower's credit score must be at least 620.
B. The loan must be a safe harbor QM with an APR exceeding the
Average Prime Offer Rate by 2.25% or more.
C. The loan's pricing must not exceed the APR threshold for a rebuttable
presumption QM, and the DTI must be within the 43% limit or meet
agency guidelines.
D. The borrower must have at least six months of reserves.
Correct Answer: C - The loan's pricing must not exceed the APR
threshold for a rebuttable presumption QM, and the DTI must be
within the 43% limit or meet agency guidelines.
RATIONALE
General QM (as amended effective 2021) uses a price-based approach:
the APR must not exceed the APOR by 2.25 percentage points (for
first liens) to qualify as a safe harbor QM. If it exceeds that threshold,
it may still be a rebuttable presumption QM if it meets certain product
restrictions. A 45% DTI is permissible under the revised General QM
rule, which eliminated the 43% DTI limit as a hard cap. Options A, B,
and D are not required for General QM status.
Page 2
, Question 2
A mortgage broker receives a loan application from a self-employed borrower
who reports significant income from a foreign corporation. The borrower
provides tax returns showing income but no W-2s. Under the TILA-RESPA
Integrated Disclosure (TRID) rules, how should the broker handle the
verification of income for the Loan Estimate (LE) and Closing Disclosure
(CD)?
A. The broker may rely on the borrower's stated income without further
documentation for the LE, but must verify before the CD.
B. The broker must verify income using third-party documentation (e.g.,
tax transcripts) before issuing the LE, and any changes must be reflected
on the CD.
C. The broker can use the borrower's signed tax returns as sufficient
verification for both LE and CD.
D. The broker must obtain a written verification of employment (VOE)
from the foreign corporation.
Correct Answer: B - The broker must verify income using
third-party documentation (e.g., tax transcripts) before issuing
the LE, and any changes must be reflected on the CD.
RATIONALE
Under TRID, the LE must be based on the best information reasonably
available, and the lender must verify income using reliable third-party
records (e.g., IRS tax transcripts, business bank statements) for
self-employed borrowers. The CD must reflect the actual terms and
any changes from the LE. Option A violates the good-faith
requirement; C may not be sufficient if returns are not validated; D is
not always required for foreign corporations.
Page 3
, Question 3
A loan originator is reviewing a loan file for a refinance transaction. The
borrower's existing first mortgage has a balance of $300,000 at 4.5% interest.
The new loan is $320,000 at 5.0% with $8,000 in closing costs. The borrower's
primary goal is to lower monthly payments. Which of the following best
describes the loan originator's ethical obligation under the SAFE Act and
Regulation Z?
A. The originator must recommend the loan with the lowest interest rate
regardless of fees.
B. The originator must present all available loan options and disclose the
costs and benefits of each, ensuring the borrower makes an informed
decision.
C. The originator should only present the loan that maximizes the
originator's compensation.
D. The originator must advise the borrower against the refinance because
it increases the loan balance.
Correct Answer: B - The originator must present all available
loan options and disclose the costs and benefits of each, ensuring
the borrower makes an informed decision.
RATIONALE
The SAFE Act and Regulation Z require loan originators to present
loan options in a manner that allows borrowers to make informed
decisions. This includes disclosing all material terms and costs.
Option A is too narrow; C violates fiduciary principles; D is not
required as the borrower may have valid reasons for refinancing.
Page 4
