SAFE Mortgage Loan Originator
Exam Prep UPDATED ACTUAL
Exam Questions and CORRECT
Answers
15-year loan - CORRECT ANSWER - A nontraditional mortgage product that shortens the
standard mortgage term from 30 years to 15 years
Ex. Jose and Maria received an inheritance that they used as a down payment on their new home
so they only needed a 15-year loan.
2-1 buy-down - CORRECT ANSWER - A type of mortgage product with two set initial interest
rates that increase by steps until reaching the permanent rate; the rate is lowered by two points in
the first year and one point in the second year, then increases to the final and permanent rate
Ex. This type of buy-down may be used to attract buyers with a lower initial interest rate.
Ability-to-Repay/Qualified Mortgage Rule - CORRECT ANSWER - Lenders must make a
reasonable and good faith effort to determine whether borrowers will be able to repay a
mortgage loan under the agreed-upon terms
Ex. Lenders must research, consider, and document a borrower's income, assets,
employment, credit history, and monthly expenses in order to conform with the terms of the
Ability-to-Repay/Qualified Mortgage (ATR/QM) rule.
accrued expense items - CORRECT - Expenses that have been incurred but
ANSWER aren't due yet (e.g., property taxes)
Ex. At closing, accrued items must be accounted for on the settlement statement. If the seller has
accrued expenses not yet payable, the amount accrued will be a seller debit and buyer credit.
accrued interest - CORRECT ANSWER - The amount of interest incurred as of a specific date
on a loan; the amount of interest earned by the lender between payments of a loan
Ex. A portion of a borrower's loan payment is used to pay off the daily interest that has
accrued since the last payment.
,acquisition cost - CORRECT ANSWER - The total cost paid by the borrower to completely
purchase a property, including the loan amount, down payment, and closing costs
Ex. Jamie took out an 80/20 loan on a $300,000 property. He also paid $5,000 in closing
costs, so the acquisition cost for the property ended up being $305,000.
adjustable-rate mortgage (ARM) - CORRECT ANSWER - A nontraditional mortgage product
with a rate that changes, usually annually, based on the behavior of the economic index with
which it is associated (e.g., the Consumer Price Index)
Ex. Caleb had a 5/1 ARM. His loan had a fixed interest rate for the first five years, and after
five years, it could change based on the CPI for the remainder of the loan term.
adverse action - CORRECT ANSWER - A lender's decision to deny a loan application,
provide a borrower with an unfavorable change to an existing account, or terminate an account
Ex. Creditors may take adverse action based on an incomplete credit application or based upon a
borrower's negative credit information.
affiliated business arrangement - CORRECT ANSWER - Under RESPA, involves referrals for
closing services from one business entity to another that provides such services and with which
the referring entity has a relationship
Ex. A real estate company has an affiliated business relationship with a mortgage company
because they're both owned by the same corporate entity, and they swap referrals.
alt-a loans - CORRECT ANSWER - A type of mortgage that has a risk profile that falls
between that of prime and subprime mortgage loans
Ex. Alt-a loans can be a good solution for borrowers who have good credit scores but low income
levels since these loans feature lower down payments and higher debt-to-income ratios.
American Association of Residential Mortgage Regulators (AARMR) - CORRECT
ANSWER - A national organization representing residential mortgage regulators and
promoting the exchange of information to administer and regulate residential mortgage lending,
servicing, and brokering
Ex. MLOs must follow guidance from the AARMR when originating mortgage loans.
,amortization - CORRECT ANSWER - The paying off of a debt with regular installments
over a fixed repayment schedule
Ex. A 30-year fixed rate loan provides amortization for the debt. In 30 years, it is fully paid off.
annual percentage rate (APR) - CORRECT ANSWER - A rate derived according to a
government formula; intended to reflect the true cost of financing, and includes financing fees,
so it will always be higher than the actual interest rate on a loan
Ex. An interest rate of 6% may sound better than one at 6.25%, but it's important to also
compare APR figures to see the true cost of financing.
appraisal - CORRECT - An estimate of value as of a specific date and for a
ANSWER specific use
Ex. The appraisal on Myra's property was for its current use as a bed-and-breakfast.
appraiser - CORRECT ANSWER - One who performs an appraisal for a fee
Ex. Vladimir the appraiser is certified to provide real estate appraisals for his clients in which he
determines a property's value.
appraiser trainee - CORRECT ANSWER - Qualified to appraise properties but may only do so
under the supervision of a qualified certified appraiser
Ex. As an appraiser trainee, Jordyn works under the supervision of a qualified certified
appraiser to gain knowledge and experience.
assessed value - CORRECT ANSWER - The dollar amount with which the local tax rate is
multiplied to determine property tax owed
Ex. Although the appraised value of Myra's bed-and-breakfast was $600,000, its assessed
value for her taxes was only $475,000.
assigned loan - CORRECT ANSWER - A loan that has been sold on the secondary market must
be assigned to the new owner, and the assignment itself must be recorded at the local registry;
once the funds have been paid and the assignment is recorded, the loan is considered assigned to
the new owner
, Ex. Loan assignments are disclosed to borrowers.
assumed business name - CORRECT - Any name a business uses to operate
ANSWER other than its legal name
Ex. Loan originators must register an assumed business name before using it to advertise.
average prime offer rate (APOR) - CORRECT ANSWER - According to Regulation Z, the
annual percentage rate is derived from average interest rates, points, and other loan pricing terms
offered to consumers by a representative sample of mortgage lenders for mortgage loan
transactions that have low risk pricing characteristics
Ex. APOR paints a picture of what a primary mortgage loan currently looks like in the
market, usually updated weekly.
bait-and-switch advertising - CORRECT ANSWER - Enticing consumers to respond to an
advertisement by including rates and terms that are too good to be true
Ex. Ann responded to an ad that stated, "Call now for this offer: Zero down, no payments"
but the ad was bait and switch advertising that failed to mention key loan terms.
balloon mortgage - CORRECT ANSWER - A nontraditional mortgage product that has
lower initial payments that do not amortize and require a "catch up" lump sum payment to be
paid at a specific time, usually at the end of a loan period
Ex. Jeb agreed to a balloon mortgage because he knew that in five years, when the balloon
payment was due, he would have money available from his trust fund to pay it off.
balloon payment - CORRECT ANSWER - A one-time payment, usually occurring at or near
the end of a loan term, that is larger than all the other payment amounts
Ex. Trinity's loan had low monthly payments, but a large balloon payment at the end of the
loan term.
Bank Secrecy Act (BSA) - CORRECT ANSWER - A federal law that requires financial
institutions to monitor transactions in order to spot and report suspicious activities
Exam Prep UPDATED ACTUAL
Exam Questions and CORRECT
Answers
15-year loan - CORRECT ANSWER - A nontraditional mortgage product that shortens the
standard mortgage term from 30 years to 15 years
Ex. Jose and Maria received an inheritance that they used as a down payment on their new home
so they only needed a 15-year loan.
2-1 buy-down - CORRECT ANSWER - A type of mortgage product with two set initial interest
rates that increase by steps until reaching the permanent rate; the rate is lowered by two points in
the first year and one point in the second year, then increases to the final and permanent rate
Ex. This type of buy-down may be used to attract buyers with a lower initial interest rate.
Ability-to-Repay/Qualified Mortgage Rule - CORRECT ANSWER - Lenders must make a
reasonable and good faith effort to determine whether borrowers will be able to repay a
mortgage loan under the agreed-upon terms
Ex. Lenders must research, consider, and document a borrower's income, assets,
employment, credit history, and monthly expenses in order to conform with the terms of the
Ability-to-Repay/Qualified Mortgage (ATR/QM) rule.
accrued expense items - CORRECT - Expenses that have been incurred but
ANSWER aren't due yet (e.g., property taxes)
Ex. At closing, accrued items must be accounted for on the settlement statement. If the seller has
accrued expenses not yet payable, the amount accrued will be a seller debit and buyer credit.
accrued interest - CORRECT ANSWER - The amount of interest incurred as of a specific date
on a loan; the amount of interest earned by the lender between payments of a loan
Ex. A portion of a borrower's loan payment is used to pay off the daily interest that has
accrued since the last payment.
,acquisition cost - CORRECT ANSWER - The total cost paid by the borrower to completely
purchase a property, including the loan amount, down payment, and closing costs
Ex. Jamie took out an 80/20 loan on a $300,000 property. He also paid $5,000 in closing
costs, so the acquisition cost for the property ended up being $305,000.
adjustable-rate mortgage (ARM) - CORRECT ANSWER - A nontraditional mortgage product
with a rate that changes, usually annually, based on the behavior of the economic index with
which it is associated (e.g., the Consumer Price Index)
Ex. Caleb had a 5/1 ARM. His loan had a fixed interest rate for the first five years, and after
five years, it could change based on the CPI for the remainder of the loan term.
adverse action - CORRECT ANSWER - A lender's decision to deny a loan application,
provide a borrower with an unfavorable change to an existing account, or terminate an account
Ex. Creditors may take adverse action based on an incomplete credit application or based upon a
borrower's negative credit information.
affiliated business arrangement - CORRECT ANSWER - Under RESPA, involves referrals for
closing services from one business entity to another that provides such services and with which
the referring entity has a relationship
Ex. A real estate company has an affiliated business relationship with a mortgage company
because they're both owned by the same corporate entity, and they swap referrals.
alt-a loans - CORRECT ANSWER - A type of mortgage that has a risk profile that falls
between that of prime and subprime mortgage loans
Ex. Alt-a loans can be a good solution for borrowers who have good credit scores but low income
levels since these loans feature lower down payments and higher debt-to-income ratios.
American Association of Residential Mortgage Regulators (AARMR) - CORRECT
ANSWER - A national organization representing residential mortgage regulators and
promoting the exchange of information to administer and regulate residential mortgage lending,
servicing, and brokering
Ex. MLOs must follow guidance from the AARMR when originating mortgage loans.
,amortization - CORRECT ANSWER - The paying off of a debt with regular installments
over a fixed repayment schedule
Ex. A 30-year fixed rate loan provides amortization for the debt. In 30 years, it is fully paid off.
annual percentage rate (APR) - CORRECT ANSWER - A rate derived according to a
government formula; intended to reflect the true cost of financing, and includes financing fees,
so it will always be higher than the actual interest rate on a loan
Ex. An interest rate of 6% may sound better than one at 6.25%, but it's important to also
compare APR figures to see the true cost of financing.
appraisal - CORRECT - An estimate of value as of a specific date and for a
ANSWER specific use
Ex. The appraisal on Myra's property was for its current use as a bed-and-breakfast.
appraiser - CORRECT ANSWER - One who performs an appraisal for a fee
Ex. Vladimir the appraiser is certified to provide real estate appraisals for his clients in which he
determines a property's value.
appraiser trainee - CORRECT ANSWER - Qualified to appraise properties but may only do so
under the supervision of a qualified certified appraiser
Ex. As an appraiser trainee, Jordyn works under the supervision of a qualified certified
appraiser to gain knowledge and experience.
assessed value - CORRECT ANSWER - The dollar amount with which the local tax rate is
multiplied to determine property tax owed
Ex. Although the appraised value of Myra's bed-and-breakfast was $600,000, its assessed
value for her taxes was only $475,000.
assigned loan - CORRECT ANSWER - A loan that has been sold on the secondary market must
be assigned to the new owner, and the assignment itself must be recorded at the local registry;
once the funds have been paid and the assignment is recorded, the loan is considered assigned to
the new owner
, Ex. Loan assignments are disclosed to borrowers.
assumed business name - CORRECT - Any name a business uses to operate
ANSWER other than its legal name
Ex. Loan originators must register an assumed business name before using it to advertise.
average prime offer rate (APOR) - CORRECT ANSWER - According to Regulation Z, the
annual percentage rate is derived from average interest rates, points, and other loan pricing terms
offered to consumers by a representative sample of mortgage lenders for mortgage loan
transactions that have low risk pricing characteristics
Ex. APOR paints a picture of what a primary mortgage loan currently looks like in the
market, usually updated weekly.
bait-and-switch advertising - CORRECT ANSWER - Enticing consumers to respond to an
advertisement by including rates and terms that are too good to be true
Ex. Ann responded to an ad that stated, "Call now for this offer: Zero down, no payments"
but the ad was bait and switch advertising that failed to mention key loan terms.
balloon mortgage - CORRECT ANSWER - A nontraditional mortgage product that has
lower initial payments that do not amortize and require a "catch up" lump sum payment to be
paid at a specific time, usually at the end of a loan period
Ex. Jeb agreed to a balloon mortgage because he knew that in five years, when the balloon
payment was due, he would have money available from his trust fund to pay it off.
balloon payment - CORRECT ANSWER - A one-time payment, usually occurring at or near
the end of a loan term, that is larger than all the other payment amounts
Ex. Trinity's loan had low monthly payments, but a large balloon payment at the end of the
loan term.
Bank Secrecy Act (BSA) - CORRECT ANSWER - A federal law that requires financial
institutions to monitor transactions in order to spot and report suspicious activities
