NMLS SAFE EXAMINATION WITH
CORRECT ANSWERS PROVIDED
Mortgage Loan Originator ✅✅-takes a residential mortgage loan application and
offers or *negotiates rates and terms* of a residential mortgage loan *for compensation
or gain*
-can describe a company, branch office, an individual or a mortgage broker.
Loan Origination Companies ✅✅(employ individuals who serve as individual loan
originators)
-*both* the company and the people who work directly with consumers negotiating loans
must be licensed if the company is a non-depository institution
Individual Loan Originators ✅✅(us after we take this course, prepare for exam and
pass the test)
-a person who takes a residential mortgage loan application and *offers or negotiates
rates and terms* of a residential mortgage loan *for compensation or gain*
Mortgage Brokers ✅✅Loan originators who work independently of lenders.
-originate mortgages for the customer and find THEN find a lender to provide the loan.
(can also be companies or individuals)
-serve as a "middleman" between borrowers and companies
-MLO's who sell their originated applications to companies
Person ✅✅company, corporation, LLC, partnership, natural person, etc.
Natural Person ✅✅an individual human being
Processor ✅✅a person who works for a mortgage loan originator and *provided
clerical functions*
-collecting documents
-verifying information with borrowers
Processor VS MLO ✅✅a processor does NOT negotiate rates and terms with
borrowers and no special licensing is required for this role (unless they work for a
company as an independent contractor)
Underwriter ✅✅works for the MLO.
-reviews loan applications to determine the risk associated with granting the borrower a
mortgage loan.
-paid by borrower as part of borrowers closing cost
-also not allowed to negotiate rates and terms with the borrower (and also not required
to be licensed unless they work for a company as an independent contractor)
,Appraiser ✅✅works independently of the MLO.
- provides service of determining property's value
-determination can be provided in a variety of ways (physical visit to the property and by
comparing the home to similar properties.)
-the appraisal is often paid for by the borrower as part of the borrower's closing costs.
-follow guidelines of USPAP (Uniform Standards of Professional Appraisal Practice)
-licensed at the state level and may need to register or be licensed by local jurisdictions.
Title Agent ✅✅-referred to as abstractors or title attorneys
- works independently of MLO's
-chosen by the borrower
-typically paid for in closing costs
- *they research the ownership associated with the property upon which the loan is
made*
Real Estate Agent ✅✅*independent party working on behalf of the buyer/seller in a
*purchase* transaction
-AKA realtor or real estate broker
-focus is sale of the property
Lender ✅✅person/company that makes loans for real estate.
AKA *mortgagee*
*it is not a requirement for lenders to write their own loans* although some do, such as
Quicken Loans (being a direct lender, we fund and originate the loans we write.)
Investor ✅✅a person or organization that puts money into financial arrangements,
property etc. with expectation of achieving profit.
Regulator ✅✅person/institution that supervises and controls a financial system in
order to *guarantee fair and efficient markets and financial stability.*
-both state and federal regulators
Customer ✅✅someone who is in an *ongoing* process or relationship with a financial
services provider.
Consumer ✅✅individual who may obtain financial services (they are shopping
around)
Simple Interest Rate (Nominal Interest Rate) ✅✅*the fee or cost charged to the
borrower by the lender for the borrower's use of the lender's money*
-provided as a % of the principal amount
,FORMULA: principal x interest rate x duration of loan (in years) = simple interest
Simple Interest Rate EXAMPLE ✅✅Lender has a bag w/ $100,000 on it and the
borrower wants to use that $100,000 to buy something. the lender agrees to allow the
borrower to use that $100,000 for 5 years. At the end of the 5 years, the borrower must
not only repay that $100,000 but also 5% for each year of use of the money.
($100,000 x 5% x 5) = $25,000,
$100,000 + $25,000= $125,000= total amount to pay lender back.
Annual Percentage Rate (APR) ✅✅includes fees known as cost of financing
-includes simple interest as well as these fees. *When these costs are added together
for the full term of the loan, distributed on an annual basis and expressed as a
percentage in relation to the loan's initial principal balance* = *APR*
*FORMULA*: ALL financing costs/loan term/initial principal balance = Annual
Percentage Rate
Simple Interest VS Annual Percentage Rate (APR) ✅✅APR includes all of the
financing costs, therefore provided a clearer picture of the cost of the loan.
-APR is dependent on the length of the loan (important to compare loans w/ same
length of term)
Annual Percentage Rate (APR) EXAMPLE: ✅✅borrower is borrowing $100,000 at
5% for 5 years w/ additional finance chargers of $3,000. Total financing costs in this
case = $28,000.
to determine the APR, we divide $28,000 by 5 and divide that by principal amount to
determine the APR of 5.6%.
($25,000 + $3,000)= $28,000
$28,000/5 = 5.6%
Amortization ✅✅*periodic payments on a loan requiring payment of enough *principal
and interest* to ensure complete repayment of the loan by then end of the loan term.
- as payments continue, more money is allocated to the principal and less to the
interest, as total owed on the loan decreases
Amortization EXAMPLE: ✅✅a borrower has a 30-year fixed rate mortgage w/
$100,000 loan amount at 5% interest.
- if the full monthly mortgage payment is made on time each month, the loan will be
completely paid off w/ the final payment.
what does it take for a loan to be fully amortizing? ✅✅*both principal and interest are
paid with each payment*
, point (s) ✅✅a point is equal to 1% of the loan amount
-borrower is usually charged 1 point to originate the borrower's mortgage
-also used to paying their closing costs through a lender rebate
what helps the borrower reduce their interest rate? ✅✅points (discount points)
*even though a point is 1% of the loan amount, it does NOT equal one interest rate
percentage.)
cost of money/ value of interest rates / points largely depend on: ✅✅current market
lender rebate ✅✅when the lender increases the borrower's interest rate (at the
borrower's request) to cover closing costs.
EX: if borrower qualifies for a 4% rate, but does not have the money needed to pay
loan's closing costs, lender can offer a rebate tot he borrower to cover those costs.
lender rebate example ✅✅borrower has $100,000 mortgage loan and qualify for a
4% interest rate.
-they would like a lower monthly payment, and a 3.75% rate
- to get rate reduced to 3.75%, this will cost borrower $1,000 based on current value of
money in the market place.
(borrower is paying 1 discount point $1,000= 1% of 100,000 to "buy down" their rate
from 4% to 3.75%
par rate ✅✅zero point rate
permanent buydown ✅✅line above zero point rate (when a borrower pays one
discount point to reduce their rate)
Homeowner's Loan Corporation ✅✅created by roosevelt
-refinance loans made previously in the private sector
Federal Deposit Insurance ✅✅created to reassure lenders in cases where borrowers
defaulted on their obligations
*precursor to the FHA (Federal Housing Administration)*
what popularized the 30-yr mortgage product we have today? (AKA traditional
mortgage) ✅✅the FHA (federal housing administration)
glass-steagall act ✅✅maintained a barrier in the financial marketplace between
commercial investors and available for mortgage lending
gramm-leach bliley financial services modernization act ✅✅repealed some on glass-
steagall's hurdles for investors to actively participate in the funding of mortgages (thus
providing lenders with additional funds and making mortgages more available)
what did the deregulation of the 1990's lead to? ✅✅more elaborate forms of the MBS
available in the market and lenders along w/ investors took advantage of this
oppurtunity
Mortgage Back Securities
CORRECT ANSWERS PROVIDED
Mortgage Loan Originator ✅✅-takes a residential mortgage loan application and
offers or *negotiates rates and terms* of a residential mortgage loan *for compensation
or gain*
-can describe a company, branch office, an individual or a mortgage broker.
Loan Origination Companies ✅✅(employ individuals who serve as individual loan
originators)
-*both* the company and the people who work directly with consumers negotiating loans
must be licensed if the company is a non-depository institution
Individual Loan Originators ✅✅(us after we take this course, prepare for exam and
pass the test)
-a person who takes a residential mortgage loan application and *offers or negotiates
rates and terms* of a residential mortgage loan *for compensation or gain*
Mortgage Brokers ✅✅Loan originators who work independently of lenders.
-originate mortgages for the customer and find THEN find a lender to provide the loan.
(can also be companies or individuals)
-serve as a "middleman" between borrowers and companies
-MLO's who sell their originated applications to companies
Person ✅✅company, corporation, LLC, partnership, natural person, etc.
Natural Person ✅✅an individual human being
Processor ✅✅a person who works for a mortgage loan originator and *provided
clerical functions*
-collecting documents
-verifying information with borrowers
Processor VS MLO ✅✅a processor does NOT negotiate rates and terms with
borrowers and no special licensing is required for this role (unless they work for a
company as an independent contractor)
Underwriter ✅✅works for the MLO.
-reviews loan applications to determine the risk associated with granting the borrower a
mortgage loan.
-paid by borrower as part of borrowers closing cost
-also not allowed to negotiate rates and terms with the borrower (and also not required
to be licensed unless they work for a company as an independent contractor)
,Appraiser ✅✅works independently of the MLO.
- provides service of determining property's value
-determination can be provided in a variety of ways (physical visit to the property and by
comparing the home to similar properties.)
-the appraisal is often paid for by the borrower as part of the borrower's closing costs.
-follow guidelines of USPAP (Uniform Standards of Professional Appraisal Practice)
-licensed at the state level and may need to register or be licensed by local jurisdictions.
Title Agent ✅✅-referred to as abstractors or title attorneys
- works independently of MLO's
-chosen by the borrower
-typically paid for in closing costs
- *they research the ownership associated with the property upon which the loan is
made*
Real Estate Agent ✅✅*independent party working on behalf of the buyer/seller in a
*purchase* transaction
-AKA realtor or real estate broker
-focus is sale of the property
Lender ✅✅person/company that makes loans for real estate.
AKA *mortgagee*
*it is not a requirement for lenders to write their own loans* although some do, such as
Quicken Loans (being a direct lender, we fund and originate the loans we write.)
Investor ✅✅a person or organization that puts money into financial arrangements,
property etc. with expectation of achieving profit.
Regulator ✅✅person/institution that supervises and controls a financial system in
order to *guarantee fair and efficient markets and financial stability.*
-both state and federal regulators
Customer ✅✅someone who is in an *ongoing* process or relationship with a financial
services provider.
Consumer ✅✅individual who may obtain financial services (they are shopping
around)
Simple Interest Rate (Nominal Interest Rate) ✅✅*the fee or cost charged to the
borrower by the lender for the borrower's use of the lender's money*
-provided as a % of the principal amount
,FORMULA: principal x interest rate x duration of loan (in years) = simple interest
Simple Interest Rate EXAMPLE ✅✅Lender has a bag w/ $100,000 on it and the
borrower wants to use that $100,000 to buy something. the lender agrees to allow the
borrower to use that $100,000 for 5 years. At the end of the 5 years, the borrower must
not only repay that $100,000 but also 5% for each year of use of the money.
($100,000 x 5% x 5) = $25,000,
$100,000 + $25,000= $125,000= total amount to pay lender back.
Annual Percentage Rate (APR) ✅✅includes fees known as cost of financing
-includes simple interest as well as these fees. *When these costs are added together
for the full term of the loan, distributed on an annual basis and expressed as a
percentage in relation to the loan's initial principal balance* = *APR*
*FORMULA*: ALL financing costs/loan term/initial principal balance = Annual
Percentage Rate
Simple Interest VS Annual Percentage Rate (APR) ✅✅APR includes all of the
financing costs, therefore provided a clearer picture of the cost of the loan.
-APR is dependent on the length of the loan (important to compare loans w/ same
length of term)
Annual Percentage Rate (APR) EXAMPLE: ✅✅borrower is borrowing $100,000 at
5% for 5 years w/ additional finance chargers of $3,000. Total financing costs in this
case = $28,000.
to determine the APR, we divide $28,000 by 5 and divide that by principal amount to
determine the APR of 5.6%.
($25,000 + $3,000)= $28,000
$28,000/5 = 5.6%
Amortization ✅✅*periodic payments on a loan requiring payment of enough *principal
and interest* to ensure complete repayment of the loan by then end of the loan term.
- as payments continue, more money is allocated to the principal and less to the
interest, as total owed on the loan decreases
Amortization EXAMPLE: ✅✅a borrower has a 30-year fixed rate mortgage w/
$100,000 loan amount at 5% interest.
- if the full monthly mortgage payment is made on time each month, the loan will be
completely paid off w/ the final payment.
what does it take for a loan to be fully amortizing? ✅✅*both principal and interest are
paid with each payment*
, point (s) ✅✅a point is equal to 1% of the loan amount
-borrower is usually charged 1 point to originate the borrower's mortgage
-also used to paying their closing costs through a lender rebate
what helps the borrower reduce their interest rate? ✅✅points (discount points)
*even though a point is 1% of the loan amount, it does NOT equal one interest rate
percentage.)
cost of money/ value of interest rates / points largely depend on: ✅✅current market
lender rebate ✅✅when the lender increases the borrower's interest rate (at the
borrower's request) to cover closing costs.
EX: if borrower qualifies for a 4% rate, but does not have the money needed to pay
loan's closing costs, lender can offer a rebate tot he borrower to cover those costs.
lender rebate example ✅✅borrower has $100,000 mortgage loan and qualify for a
4% interest rate.
-they would like a lower monthly payment, and a 3.75% rate
- to get rate reduced to 3.75%, this will cost borrower $1,000 based on current value of
money in the market place.
(borrower is paying 1 discount point $1,000= 1% of 100,000 to "buy down" their rate
from 4% to 3.75%
par rate ✅✅zero point rate
permanent buydown ✅✅line above zero point rate (when a borrower pays one
discount point to reduce their rate)
Homeowner's Loan Corporation ✅✅created by roosevelt
-refinance loans made previously in the private sector
Federal Deposit Insurance ✅✅created to reassure lenders in cases where borrowers
defaulted on their obligations
*precursor to the FHA (Federal Housing Administration)*
what popularized the 30-yr mortgage product we have today? (AKA traditional
mortgage) ✅✅the FHA (federal housing administration)
glass-steagall act ✅✅maintained a barrier in the financial marketplace between
commercial investors and available for mortgage lending
gramm-leach bliley financial services modernization act ✅✅repealed some on glass-
steagall's hurdles for investors to actively participate in the funding of mortgages (thus
providing lenders with additional funds and making mortgages more available)
what did the deregulation of the 1990's lead to? ✅✅more elaborate forms of the MBS
available in the market and lenders along w/ investors took advantage of this
oppurtunity
Mortgage Back Securities
