National and UST Mortgage Practice Exam 1 questions with correct answers

National and UST Mortgage Practice Exam 1 questions with correct answers Which of the following is intended to ensure that consumers are provided with information on the nature and costs of the settlement process? - The answer is RESPA. The purpose of RESPA and Regulation X is to help consumers become better shoppers for settlement (closing) services by providing them with information on the nature and costs of the settlement process. RESPA and Regulation X are also intended to eliminate kickbacks and referral fees that unnecessarily increase the costs of certain settlement services. Which of the following best describes a loan with a principal balance exceeding Fannie Mae or Freddie Mac guidelines? - The answer is jumbo. Conventional loans that conform to the eligibility guidelines for purchase by Fannie Mae or Freddie Mac are considered conforming loans. Fannie Mae and Freddie Mac have a maximum loan limit for loans they will purchase, which is adjusted annually. Loans to persons with satisfactory credit but that exceed this loan limit are called jumbo loans or nonconforming loans. Because these loans cannot be sold to Fannie Mae or Freddie Mac, they often have a higher interest rate than conforming loans. A borrower receives $1,000 per month in rental income. How much of the income may be used to qualify the borrower for a loan? - The answer is $750. Generally, 75% of rental income may be used to qualify a borrower for a loan. This formula is based on an industry standard that taxes, insurance, and maintenance costs will equal about 25% of the income that a property generates. In this case, 75% × $1,000 = $750. Assume a borrower completes an online loan application, including all six required elements, but never hits "submit." Which of the following is true regarding the lender's obligation to issue a Loan Estimate? - The answer is the lender is not required to issue a Loan Estimate. A lender must provide the Loan Estimate either in person or by placing it in the mail no more than three business days after receipt of the consumer's application AND no later than seven business days prior to consummation. If a loan application has not been submitted, a lender is not required to issue a Loan Estimate. The Red Flags Rule identifies all of the following as possible red flags, except: - The answer is the borrower is buying an investment property. The Red Flags Rule requires financial institutions (including mortgage lenders) that hold any consumer account, or other account for which there is a reasonably foreseeable risk of identity theft, to develop and implement an Identity Theft Prevention Program. Signs indicating possible identity theft include presentation of suspicious documents and personal identifying information (e.g., an address that does not match any address in the consumer report). Buying an investment property is not, in itself, a red flag. Under which of the following circumstances would the lender on a conventional loan be required to drop the mortgage insurance? - The answer is the loan reaches 78% LTV based on the original purchase price. Generally, a conventional loan of up to 80% of the property's value will be made without private mortgage insurance. The annual premiums and the insurance stop automatically once the loan is paid down to 78%, or may be canceled at the borrower's request once the loan balance reaches 80% of the value of the property at the time the loan was made. The S.A.F.E. Act applies to mortgage loan originators who take applications for, or offer or negotiate terms of, residential mortgage loans, which would include: - The answer is a mobile home to be used as a residence, even if it is not attached to the land. The S.A.F.E. Act defines a mortgage loan originator as an individual who takes residential mortgage loan applications, or offers or negotiates terms of residential mortgage loans for compensation or gain. The S.A.F.E. Act's definition of "residential mortgage loan" includes a loan secured by a consensual security interest on a dwelling and cross-references the definition of the term "dwelling" in the Truth-in-Lending Act (TILA). Regulation Z, which implements TILA, defines a dwelling as a residential structure that contains one to four units, whether or not that structure is attached to real property. The term includes an individual condominium unit, cooperative unit, mobile home, and trailer, if it is used as a residence. What is Freddie Mac's automated underwriting system called? - The answer is Loan Product Advisor. Freddie Mac's automated underwriting system is called Loan Product Advisor (formerly known as Loan Prospector), while Fannie Mae's is called Desktop Underwriter. Which of the following situations would be acceptable under RESPA? - The answer is a mortgage loan originator refers all borrowers to use the title company which is located in the same building as the mortgage loan originator, but with which the mortgage loan originator or the mortgage loan originator's company has no other relationship. An affiliate relationship exists when one company controls, is controlled by, or is under common control of another company. Under RESPA, when a settlement service provider refers a borrower to one or more affiliates with whom it has an ownership or other beneficial interest, an Affiliated Business Arrangement (AfBA) Disclosure Statement must be given on a separate piece of paper to the borrower. Among other things, the AfBA Disclosure informs the borrower that he/she is generally not required to use the affiliate and is free to shop for other providers. Kickbacks and referral fees are also prohibited under RESPA. Which of the following contains only items which should be used in calculating a borrower's debt-to-income ratio? - The answer is car payment, boat payment, child support obligations. A debt-to-income ratio compares an applicant's total monthly debt to his or her total monthly income. Total monthly debt would include simultaneous loans, debt obligations, alimony, and child support. Typical living expenses (e.g., utilities, health and disability insurance, food, phone or cable bills, etc.) are not included when calculating DTI. Which of the following would NOT be required if a mortgage company wishes to utilize electronic signatures on required disclosures? - The answer is the company must record the IP address from which the documents were accessed. Under the Electronic S