NMLS 4 Exam Practice Questions with Verified
Correct Answers
Tina Louise works as a clerk at a law firm and is paid bi-weekly in the amount of $1,700. Each
quarter, she also receives a bonus of exactly $3,200 for her share of a program specifically
designed to reward the excellent work by the firm's support staff. This bonus has been
consistent for three years. What is Tina's qualifying monthly income?
The answer is $4,750. To calculate qualifying income, first, annual salary is calculated, including
the bonus (in effect for three years), and then divided by 12 months. $1,700 × 26 = $44,200.
Then the bonus: $3,200 × 4 = $12,800. Add the two, $44,200 + $12,800 = $57,000. Divide
$57,000 by 12 = $4,750.
Under the Gramm-Leach-Bliley Act, which of the following is considered nonpublic
information?
The answer is a loan applicant's current loan balances. Under the Gramm-Leach-Bliley Act, a
loan applicant's current loan balances would be considered nonpublic information.
Which of the following debt-to-income ratios is used as a guideline for VA loans?
The answer is 41% back. A VA loan does not require any specific front-end ratio, but does use a
general back-end ratio requirement of 41%
An originator uses a contracted processor who charges $500 per file. The fee disclosed to the
borrower for processing is $800, a difference of $300 which the originator keeps for himself.
This is:
The answer is a unilateral markup, which is legal, but may be a violation of RESPA's prohibition
against unearned fees. RESPA requires compensation for settlement services to be earned. Any
compensation not in direct correlation with an actual service is likely a violation. However,
according to a 2012 case, the act of unilaterally marking up a fee and retaining the additional
earnings is not illegal, as long as fee-splitting is not involved.
The amount of income left over after debt is subtracted is called:
The answer is residual income. Residual income is money left over after debt is subtracted.
Don is refinancing his home in order to save money. If the loan goes through, his payment will
drop from $2,000/month (PITI) to $1,500/month (PITI). Don's gross income each month is
, $6,800, but he has a $300 car payment, a $150 credit card payment, and monthly alimony
payments of $1,300. What is Don's housing ratio on the proposed loan?
The answer is 22%. "Housing ratio" refers to the cost of Don's housing expenses monthly,
divided by his gross monthly income. In this case, his proposed housing expense (PITI) will be
$1,500/month. $1,500 / $6,800 = 22%.
Which of the following statements most accurately describes the HPML transactions that are
subject to the requirement to establish an escrow account?
The answer is escrow accounts are required for all first-lien HPMLs secured by the borrower's
principal dwelling. Escrow accounts are required for all first-lien HPMLs secured by the
borrower's principal dwelling.
Concerning ARMs, margin is best defined as:
The answer is a number, expressed as a percentage, that represents a lender's operating costs
and profit margin. Concerning ARMs, "margin" is best defined as a number, expressed as a
percentage, that represents a lender's operating costs and profit margin
A balloon rider, a prepayment penalty rider and a second-home rider may all be part of
The answer is a deed of trust. A deed of trust is used to secure a note. A deed can carry a rider,
or an addendum, which may include a balloon rider, a prepayment penalty rider and a second-
home rider, among others.
In the absence of caps, adjustments on an ARM loan would be determined solely by:
The answer is the fully-indexed rate. Caps prevent the adjustments on an ARM from going too
high too quickly, providing a safety net for both period adjustments and lifetime maximums. If
there were no caps involved, an ARM would adjust simply based on the movement of the fully-
indexed rate (margin + index). In theory, if caps were not involved, a loan could move from 4%
to 20% in one move.
Intentionally targeting borrowers in poor or underserved areas with expensive high-cost loans
is considered illegal under:
The answer is HOEPA. HOEPA prohibits the intentional targeting of poor or underserved areas
with expensive high-cost loans, which is a practice known as reverse redlining.
LL Mortgage Company is advertising "120% LTV Home Equity Loans!" In order to ensure
compliance with Regulation Z, which of the following statements is also required?
The answer is consult a tax adviser regarding deductibility of interest. Advertising rules under
Regulation Z provide that advertisements for loans exceeding the home's fair market value must
Correct Answers
Tina Louise works as a clerk at a law firm and is paid bi-weekly in the amount of $1,700. Each
quarter, she also receives a bonus of exactly $3,200 for her share of a program specifically
designed to reward the excellent work by the firm's support staff. This bonus has been
consistent for three years. What is Tina's qualifying monthly income?
The answer is $4,750. To calculate qualifying income, first, annual salary is calculated, including
the bonus (in effect for three years), and then divided by 12 months. $1,700 × 26 = $44,200.
Then the bonus: $3,200 × 4 = $12,800. Add the two, $44,200 + $12,800 = $57,000. Divide
$57,000 by 12 = $4,750.
Under the Gramm-Leach-Bliley Act, which of the following is considered nonpublic
information?
The answer is a loan applicant's current loan balances. Under the Gramm-Leach-Bliley Act, a
loan applicant's current loan balances would be considered nonpublic information.
Which of the following debt-to-income ratios is used as a guideline for VA loans?
The answer is 41% back. A VA loan does not require any specific front-end ratio, but does use a
general back-end ratio requirement of 41%
An originator uses a contracted processor who charges $500 per file. The fee disclosed to the
borrower for processing is $800, a difference of $300 which the originator keeps for himself.
This is:
The answer is a unilateral markup, which is legal, but may be a violation of RESPA's prohibition
against unearned fees. RESPA requires compensation for settlement services to be earned. Any
compensation not in direct correlation with an actual service is likely a violation. However,
according to a 2012 case, the act of unilaterally marking up a fee and retaining the additional
earnings is not illegal, as long as fee-splitting is not involved.
The amount of income left over after debt is subtracted is called:
The answer is residual income. Residual income is money left over after debt is subtracted.
Don is refinancing his home in order to save money. If the loan goes through, his payment will
drop from $2,000/month (PITI) to $1,500/month (PITI). Don's gross income each month is
, $6,800, but he has a $300 car payment, a $150 credit card payment, and monthly alimony
payments of $1,300. What is Don's housing ratio on the proposed loan?
The answer is 22%. "Housing ratio" refers to the cost of Don's housing expenses monthly,
divided by his gross monthly income. In this case, his proposed housing expense (PITI) will be
$1,500/month. $1,500 / $6,800 = 22%.
Which of the following statements most accurately describes the HPML transactions that are
subject to the requirement to establish an escrow account?
The answer is escrow accounts are required for all first-lien HPMLs secured by the borrower's
principal dwelling. Escrow accounts are required for all first-lien HPMLs secured by the
borrower's principal dwelling.
Concerning ARMs, margin is best defined as:
The answer is a number, expressed as a percentage, that represents a lender's operating costs
and profit margin. Concerning ARMs, "margin" is best defined as a number, expressed as a
percentage, that represents a lender's operating costs and profit margin
A balloon rider, a prepayment penalty rider and a second-home rider may all be part of
The answer is a deed of trust. A deed of trust is used to secure a note. A deed can carry a rider,
or an addendum, which may include a balloon rider, a prepayment penalty rider and a second-
home rider, among others.
In the absence of caps, adjustments on an ARM loan would be determined solely by:
The answer is the fully-indexed rate. Caps prevent the adjustments on an ARM from going too
high too quickly, providing a safety net for both period adjustments and lifetime maximums. If
there were no caps involved, an ARM would adjust simply based on the movement of the fully-
indexed rate (margin + index). In theory, if caps were not involved, a loan could move from 4%
to 20% in one move.
Intentionally targeting borrowers in poor or underserved areas with expensive high-cost loans
is considered illegal under:
The answer is HOEPA. HOEPA prohibits the intentional targeting of poor or underserved areas
with expensive high-cost loans, which is a practice known as reverse redlining.
LL Mortgage Company is advertising "120% LTV Home Equity Loans!" In order to ensure
compliance with Regulation Z, which of the following statements is also required?
The answer is consult a tax adviser regarding deductibility of interest. Advertising rules under
Regulation Z provide that advertisements for loans exceeding the home's fair market value must
