NATIONAL AND UST MORTGAGE
PRACTICE EXAM 1 QUESTIONS AND
CORRECT ANSWERS
WhichA2ofA2theA2followingA2isA2intendedA2toA2ensureA2thatA2consumersA2areA2providedA2wit
hA2informationA2onA2theA2natureA2andA2costsA2ofA2theA2settlementA2process?A2-A2Ans--
TheA2answerA2isA2RESPA.A2
TheA2purposeA2ofA2RESPAA2andA2RegulationA2XA2isA2toA2helpA2consumersA2becomeA2bett
erA2shoppersA2forA2settlementA2(closing)A2servicesA2byA2providingA2themA2withA2informatio
nA2onA2theA2natureA2andA2costsA2ofA2theA2settlementA2process.A2RESPAA2andA2Regulation
A2XA2areA2alsoA2intendedA2toA2eliminateA2kickbacksA2andA2referralA2feesA2thatA2unnecessa
rilyA2increaseA2theA2costsA2ofA2certainA2settlementA2services.
WhichA2ofA2theA2followingA2bestA2describesA2aA2loanA2withA2aA2principalA2balanceA2exceed
ingA2FannieA2MaeA2orA2FreddieA2MacA2guidelines?A2-A2Ans--TheA2answerA2isA2jumbo.A2
ConventionalA2loansA2thatA2conformA2toA2theA2eligibilityA2guidelinesA2forA2purchaseA2byA2F
annieA2MaeA2orA2FreddieA2MacA2areA2consideredA2conformingA2loans.A2FannieA2MaeA2an
dA2FreddieA2MacA2haveA2aA2maximumA2loanA2limitA2forA2loansA2theyA2willA2purchase,A2whi
chA2isA2adjustedA2annually.A2LoansA2toA2personsA2withA2satisfactoryA2creditA2butA2thatA2ex
ceedA2thisA2loanA2limitA2areA2calledA2jumboA2loansA2orA2nonconformingA2loans.A2BecauseA
2theseA2loansA2cannotA2beA2soldA2toA2FannieA2MaeA2orA2FreddieA2Mac,A2theyA2oftenA2have
A2aA2higherA2interestA2rateA2thanA2conformingA2loans.
AA2borrowerA2receivesA2$1,000A2perA2monthA2inA2rentalA2income.A2HowA2muchA2ofA2theA2i
ncomeA2mayA2beA2usedA2toA2qualifyA2theA2borrowerA2forA2aA2loan?A2-A2Ans--
TheA2answerA2isA2$750.A2
Generally,A275%A2ofA2rentalA2incomeA2mayA2beA2usedA2toA2qualifyA2aA2borrowerA2forA2aA2l
oan.A2ThisA2formulaA2isA2basedA2onA2anA2industryA2standardA2thatA2taxes,A2insurance,A2an
dA2maintenanceA2costsA2willA2equalA2aboutA225%A2ofA2theA2incomeA2thatA2aA2propertyA2ge
nerates.A2InA2thisA2case,A275%A2×A2$1,000A2=A2$750.
AssumeA2aA2borrowerA2completesA2anA2onlineA2loanA2application,A2includingA2allA2sixA2req
uiredA2elements,A2butA2neverA2hitsA2"submit."A2WhichA2ofA2theA2followingA2isA2trueA2regardi
ngA2theA2lender'sA2obligationA2toA2issueA2aA2LoanA2Estimate?A2-A2Ans--
TheA2answerA2isA2theA2lenderA2isA2notA2requiredA2toA2issueA2aA2LoanA2Estimate.A2
AA2lenderA2mustA2provideA2theA2LoanA2EstimateA2eitherA2inA2personA2orA2byA2placingA2itA2i
nA2theA2mailA2noA2moreA2thanA2threeA2businessA2daysA2afterA2receiptA2ofA2theA2consumer'
sA2applicationA2ANDA2noA2laterA2thanA2sevenA2businessA2daysA2priorA2toA2consummation.A
2IfA2aA2loanA2applicationA2hasA2notA2beenA2submitted,A2aA2lenderA2isA2notA2requiredA2toA2is
sueA2aA2LoanA2Estimate.
TheA2RedA2FlagsA2RuleA2identifiesA2allA2ofA2theA2followingA2asA2possibleA2redA2flags,A2exc
ept:A2-A2Ans--TheA2answerA2isA2theA2borrowerA2isA2buyingA2anA2investmentA2property.A2
,TheA2RedA2FlagsA2RuleA2requiresA2financialA2institutionsA2(includingA2mortgageA2lenders)A
2thatA2holdA2anyA2consumerA2account,A2orA2otherA2accountA2forA2whichA2thereA2isA2aA2reas
onablyA2foreseeableA2riskA2ofA2identityA2theft,A2toA2developA2andA2implementA2anA2Identity
A2TheftA2PreventionA2Program.A2SignsA2indicatingA2possibleA2identityA2theftA2includeA2pres
entationA2ofA2suspiciousA2documentsA2andA2personalA2identifyingA2informationA2(e.g.,A2an
A2addressA2thatA2doesA2notA2matchA2anyA2addressA2inA2theA2consumerA2report).A2BuyingA2
anA2investmentA2propertyA2isA2not,A2inA2itself,A2aA2redA2flag.
UnderA2whichA2ofA2theA2followingA2circumstancesA2wouldA2theA2lenderA2onA2aA2convention
alA2loanA2beA2requiredA2toA2dropA2theA2mortgageA2insurance?A2-A2Ans--
TheA2answerA2isA2theA2loanA2reachesA278%A2LTVA2basedA2onA2theA2originalA2purchaseA2p
rice.A2
Generally,A2aA2conventionalA2loanA2ofA2upA2toA280%A2ofA2theA2property'sA2valueA2willA2beA2
madeA2withoutA2privateA2mortgageA2insurance.A2TheA2annualA2premiumsA2andA2theA2insur
anceA2stopA2automaticallyA2onceA2theA2loanA2isA2paidA2downA2toA278%,A2orA2mayA2beA2can
celedA2atA2theA2borrower'sA2requestA2onceA2theA2loanA2balanceA2reachesA280%A2ofA2theA2
valueA2ofA2theA2propertyA2atA2theA2timeA2theA2loanA2wasA2made.
TheA2S.A.F.E.A2ActA2appliesA2toA2mortgageA2loanA2originatorsA2whoA2takeA2applicationsA2f
or,A2orA2offerA2orA2negotiateA2termsA2of,A2residentialA2mortgageA2loans,A2whichA2wouldA2in
clude:A2-A2Ans--
TheA2answerA2isA2aA2mobileA2homeA2toA2beA2usedA2asA2aA2residence,A2evenA2ifA2itA2isA2not
A2attachedA2toA2theA2land.A2
TheA2S.A.F.E.A2ActA2definesA2aA2mortgageA2loanA2originatorA2asA2anA2individualA2whoA2ta
kesA2residentialA2mortgageA2loanA2applications,A2orA2offersA2orA2negotiatesA2termsA2ofA2re
sidentialA2mortgageA2loansA2forA2compensationA2orA2gain.A2TheA2S.A.F.E.A2Act'sA2definitio
nA2ofA2"residentialA2mortgageA2loan"A2includesA2aA2loanA2securedA2byA2aA2consensualA2se
curityA2interestA2onA2aA2dwellingA2andA2cross-
referencesA2theA2definitionA2ofA2theA2termA2"dwelling"A2inA2theA2Truth-in-
LendingA2ActA2(TILA).A2RegulationA2Z,A2whichA2implementsA2TILA,A2definesA2aA2dwellingA
2asA2aA2residentialA2structureA2thatA2containsA2oneA2toA2fourA2units,A2whetherA2orA2notA2tha
tA2structureA2isA2attachedA2toA2realA2property.A2TheA2termA2includesA2anA2individualA2cond
ominiumA2unit,A2cooperativeA2unit,A2mobileA2home,A2andA2trailer,A2ifA2itA2isA2usedA2asA2aA2r
esidence.
WhatA2isA2FreddieA2Mac'sA2automatedA2underwritingA2systemA2called?A2-A2Ans--
TheA2answerA2isA2LoanA2ProductA2Advisor.A2
FreddieA2Mac'sA2automatedA2underwritingA2systemA2isA2calledA2LoanA2ProductA2AdvisorA2
(formerlyA2knownA2asA2LoanA2Prospector),A2whileA2FannieA2Mae'sA2isA2calledA2DesktopA2
Underwriter.
WhichA2ofA2theA2followingA2situationsA2wouldA2beA2acceptableA2underA2RESPA?A2-A2Ans--
TheA2answerA2isA2aA2mortgageA2loanA2originatorA2refersA2allA2borrowersA2toA2useA2theA2titl
eA2companyA2whichA2isA2locatedA2inA2theA2sameA2buildingA2asA2theA2mortgageA2loanA2origi
nator,A2butA2withA2whichA2theA2mortgageA2loanA2originatorA2orA2theA2mortgageA2loanA2origi
nator'sA2companyA2hasA2noA2otherA2relationship.A2
, AnA2affiliateA2relationshipA2existsA2whenA2oneA2companyA2controls,A2isA2controlledA2by,A2o
rA2isA2underA2commonA2controlA2ofA2anotherA2company.A2UnderA2RESPA,A2whenA2aA2settl
ementA2serviceA2providerA2refersA2aA2borrowerA2toA2oneA2orA2moreA2affiliatesA2withA2whom
A2itA2hasA2anA2ownershipA2orA2otherA2beneficialA2interest,A2anA2AffiliatedA2BusinessA2Arran
gementA2(AfBA)A2DisclosureA2StatementA2mustA2beA2givenA2onA2aA2separateA2pieceA2ofA2
paperA2toA2theA2borrower.A2AmongA2otherA2things,A2theA2AfBAA2DisclosureA2informsA2theA2
borrowerA2thatA2he/
sheA2isA2generallyA2notA2requiredA2toA2useA2theA2affiliateA2andA2isA2freeA2toA2shopA2forA2oth
erA2providers.A2KickbacksA2andA2referralA2feesA2areA2alsoA2prohibitedA2underA2RESPA.
WhichA2ofA2theA2followingA2containsA2onlyA2itemsA2whichA2shouldA2beA2usedA2inA2calculati
ngA2aA2borrower'sA2debt-to-incomeA2ratio?A2-A2Ans--
TheA2answerA2isA2carA2payment,A2boatA2payment,A2childA2supportA2obligations.A2
AA2debt-to-
incomeA2ratioA2comparesA2anA2applicant'sA2totalA2monthlyA2debtA2toA2hisA2orA2herA2totalA2
monthlyA2income.A2TotalA2monthlyA2debtA2wouldA2includeA2simultaneousA2loans,A2debtA2o
bligations,A2alimony,A2andA2childA2support.A2TypicalA2livingA2expensesA2(e.g.,A2utilities,A2h
ealthA2andA2disabilityA2insurance,A2food,A2phoneA2orA2cableA2bills,A2etc.)A2areA2notA2includ
edA2whenA2calculatingA2DTI.
WhichA2ofA2theA2followingA2wouldA2NOTA2beA2requiredA2ifA2aA2mortgageA2companyA2wishe
sA2toA2utilizeA2electronicA2signaturesA2onA2requiredA2disclosures?A2-A2Ans--
TheA2answerA2isA2theA2companyA2mustA2recordA2theA2IPA2addressA2fromA2whichA2theA2doc
umentsA2wereA2accessed.A2
UnderA2theA2ElectronicA2SignaturesA2inA2GlobalA2andA2NationalA2CommerceA2ActA2(theA2E
-
SIGNA2Act),A2beforeA2obtainingA2aA2consumer'sA2consent,A2aA2financialA2institutionA2mustA
2provideA2aA2clearA2andA2conspicuousA2statementA2toA2consumers,A2informingA2themA2ofA2
theirA2rightA2orA2optionA2toA2haveA2theA2recordA2providedA2orA2madeA2availableA2onA2paper
A2orA2inA2aA2non-
electronicA2form.A2TheA2statementA2mustA2alsoA2explainA2theA2consumer'sA2rightA2toA2with
drawA2consent,A2includingA2applicableA2conditions,A2consequences,A2andA2fees.A2Consu
mersA2mustA2alsoA2beA2providedA2withA2informationA2aboutA2theA2hardwareA2andA2softwar
eA2requiredA2toA2allowA2themA2toA2accessA2andA2retainA2theA2electronicA2records.
AA2loanA2originatorA2isA2discussingA2theA2featuresA2ofA2aA2homeA2equityA2consolidationA2lo
anA2withA2anA2applicant.A2InA2doingA2so,A2heA2relaysA2toA2theA2applicantA2thatA2theA2interes
tA2onA2theA2loanA2isA2taxA2deductible.A2ThisA2is:A2-A2Ans--
TheA2answerA2isA2notA2permissible,A2asA2theA2loanA2originatorA2isA2notA2qualifiedA2toA2prov
ideA2taxA2advice.A2
FromA2anA2ethicalA2andA2legalA2standpoint,A2loanA2originatorsA2mustA2takeA2careA2notA2toA
2provideA2borrowersA2adviceA2onA2topicsA2forA2whichA2theyA2lackA2theA2requiredA2qualificat
ions,A2suchA2asA2taxA2adviceA2andA2otherA2legalA2matters.
AA2loanA2whichA2allowsA2theA2borrowerA2toA2takeA2aA2lumpA2sumA2distributionA2withoutA2an
yA2monthlyA2repaymentA2requirementsA2isA2a(n):A2-A2Ans--TheA2answerA2isA2HECM.A2
PRACTICE EXAM 1 QUESTIONS AND
CORRECT ANSWERS
WhichA2ofA2theA2followingA2isA2intendedA2toA2ensureA2thatA2consumersA2areA2providedA2wit
hA2informationA2onA2theA2natureA2andA2costsA2ofA2theA2settlementA2process?A2-A2Ans--
TheA2answerA2isA2RESPA.A2
TheA2purposeA2ofA2RESPAA2andA2RegulationA2XA2isA2toA2helpA2consumersA2becomeA2bett
erA2shoppersA2forA2settlementA2(closing)A2servicesA2byA2providingA2themA2withA2informatio
nA2onA2theA2natureA2andA2costsA2ofA2theA2settlementA2process.A2RESPAA2andA2Regulation
A2XA2areA2alsoA2intendedA2toA2eliminateA2kickbacksA2andA2referralA2feesA2thatA2unnecessa
rilyA2increaseA2theA2costsA2ofA2certainA2settlementA2services.
WhichA2ofA2theA2followingA2bestA2describesA2aA2loanA2withA2aA2principalA2balanceA2exceed
ingA2FannieA2MaeA2orA2FreddieA2MacA2guidelines?A2-A2Ans--TheA2answerA2isA2jumbo.A2
ConventionalA2loansA2thatA2conformA2toA2theA2eligibilityA2guidelinesA2forA2purchaseA2byA2F
annieA2MaeA2orA2FreddieA2MacA2areA2consideredA2conformingA2loans.A2FannieA2MaeA2an
dA2FreddieA2MacA2haveA2aA2maximumA2loanA2limitA2forA2loansA2theyA2willA2purchase,A2whi
chA2isA2adjustedA2annually.A2LoansA2toA2personsA2withA2satisfactoryA2creditA2butA2thatA2ex
ceedA2thisA2loanA2limitA2areA2calledA2jumboA2loansA2orA2nonconformingA2loans.A2BecauseA
2theseA2loansA2cannotA2beA2soldA2toA2FannieA2MaeA2orA2FreddieA2Mac,A2theyA2oftenA2have
A2aA2higherA2interestA2rateA2thanA2conformingA2loans.
AA2borrowerA2receivesA2$1,000A2perA2monthA2inA2rentalA2income.A2HowA2muchA2ofA2theA2i
ncomeA2mayA2beA2usedA2toA2qualifyA2theA2borrowerA2forA2aA2loan?A2-A2Ans--
TheA2answerA2isA2$750.A2
Generally,A275%A2ofA2rentalA2incomeA2mayA2beA2usedA2toA2qualifyA2aA2borrowerA2forA2aA2l
oan.A2ThisA2formulaA2isA2basedA2onA2anA2industryA2standardA2thatA2taxes,A2insurance,A2an
dA2maintenanceA2costsA2willA2equalA2aboutA225%A2ofA2theA2incomeA2thatA2aA2propertyA2ge
nerates.A2InA2thisA2case,A275%A2×A2$1,000A2=A2$750.
AssumeA2aA2borrowerA2completesA2anA2onlineA2loanA2application,A2includingA2allA2sixA2req
uiredA2elements,A2butA2neverA2hitsA2"submit."A2WhichA2ofA2theA2followingA2isA2trueA2regardi
ngA2theA2lender'sA2obligationA2toA2issueA2aA2LoanA2Estimate?A2-A2Ans--
TheA2answerA2isA2theA2lenderA2isA2notA2requiredA2toA2issueA2aA2LoanA2Estimate.A2
AA2lenderA2mustA2provideA2theA2LoanA2EstimateA2eitherA2inA2personA2orA2byA2placingA2itA2i
nA2theA2mailA2noA2moreA2thanA2threeA2businessA2daysA2afterA2receiptA2ofA2theA2consumer'
sA2applicationA2ANDA2noA2laterA2thanA2sevenA2businessA2daysA2priorA2toA2consummation.A
2IfA2aA2loanA2applicationA2hasA2notA2beenA2submitted,A2aA2lenderA2isA2notA2requiredA2toA2is
sueA2aA2LoanA2Estimate.
TheA2RedA2FlagsA2RuleA2identifiesA2allA2ofA2theA2followingA2asA2possibleA2redA2flags,A2exc
ept:A2-A2Ans--TheA2answerA2isA2theA2borrowerA2isA2buyingA2anA2investmentA2property.A2
,TheA2RedA2FlagsA2RuleA2requiresA2financialA2institutionsA2(includingA2mortgageA2lenders)A
2thatA2holdA2anyA2consumerA2account,A2orA2otherA2accountA2forA2whichA2thereA2isA2aA2reas
onablyA2foreseeableA2riskA2ofA2identityA2theft,A2toA2developA2andA2implementA2anA2Identity
A2TheftA2PreventionA2Program.A2SignsA2indicatingA2possibleA2identityA2theftA2includeA2pres
entationA2ofA2suspiciousA2documentsA2andA2personalA2identifyingA2informationA2(e.g.,A2an
A2addressA2thatA2doesA2notA2matchA2anyA2addressA2inA2theA2consumerA2report).A2BuyingA2
anA2investmentA2propertyA2isA2not,A2inA2itself,A2aA2redA2flag.
UnderA2whichA2ofA2theA2followingA2circumstancesA2wouldA2theA2lenderA2onA2aA2convention
alA2loanA2beA2requiredA2toA2dropA2theA2mortgageA2insurance?A2-A2Ans--
TheA2answerA2isA2theA2loanA2reachesA278%A2LTVA2basedA2onA2theA2originalA2purchaseA2p
rice.A2
Generally,A2aA2conventionalA2loanA2ofA2upA2toA280%A2ofA2theA2property'sA2valueA2willA2beA2
madeA2withoutA2privateA2mortgageA2insurance.A2TheA2annualA2premiumsA2andA2theA2insur
anceA2stopA2automaticallyA2onceA2theA2loanA2isA2paidA2downA2toA278%,A2orA2mayA2beA2can
celedA2atA2theA2borrower'sA2requestA2onceA2theA2loanA2balanceA2reachesA280%A2ofA2theA2
valueA2ofA2theA2propertyA2atA2theA2timeA2theA2loanA2wasA2made.
TheA2S.A.F.E.A2ActA2appliesA2toA2mortgageA2loanA2originatorsA2whoA2takeA2applicationsA2f
or,A2orA2offerA2orA2negotiateA2termsA2of,A2residentialA2mortgageA2loans,A2whichA2wouldA2in
clude:A2-A2Ans--
TheA2answerA2isA2aA2mobileA2homeA2toA2beA2usedA2asA2aA2residence,A2evenA2ifA2itA2isA2not
A2attachedA2toA2theA2land.A2
TheA2S.A.F.E.A2ActA2definesA2aA2mortgageA2loanA2originatorA2asA2anA2individualA2whoA2ta
kesA2residentialA2mortgageA2loanA2applications,A2orA2offersA2orA2negotiatesA2termsA2ofA2re
sidentialA2mortgageA2loansA2forA2compensationA2orA2gain.A2TheA2S.A.F.E.A2Act'sA2definitio
nA2ofA2"residentialA2mortgageA2loan"A2includesA2aA2loanA2securedA2byA2aA2consensualA2se
curityA2interestA2onA2aA2dwellingA2andA2cross-
referencesA2theA2definitionA2ofA2theA2termA2"dwelling"A2inA2theA2Truth-in-
LendingA2ActA2(TILA).A2RegulationA2Z,A2whichA2implementsA2TILA,A2definesA2aA2dwellingA
2asA2aA2residentialA2structureA2thatA2containsA2oneA2toA2fourA2units,A2whetherA2orA2notA2tha
tA2structureA2isA2attachedA2toA2realA2property.A2TheA2termA2includesA2anA2individualA2cond
ominiumA2unit,A2cooperativeA2unit,A2mobileA2home,A2andA2trailer,A2ifA2itA2isA2usedA2asA2aA2r
esidence.
WhatA2isA2FreddieA2Mac'sA2automatedA2underwritingA2systemA2called?A2-A2Ans--
TheA2answerA2isA2LoanA2ProductA2Advisor.A2
FreddieA2Mac'sA2automatedA2underwritingA2systemA2isA2calledA2LoanA2ProductA2AdvisorA2
(formerlyA2knownA2asA2LoanA2Prospector),A2whileA2FannieA2Mae'sA2isA2calledA2DesktopA2
Underwriter.
WhichA2ofA2theA2followingA2situationsA2wouldA2beA2acceptableA2underA2RESPA?A2-A2Ans--
TheA2answerA2isA2aA2mortgageA2loanA2originatorA2refersA2allA2borrowersA2toA2useA2theA2titl
eA2companyA2whichA2isA2locatedA2inA2theA2sameA2buildingA2asA2theA2mortgageA2loanA2origi
nator,A2butA2withA2whichA2theA2mortgageA2loanA2originatorA2orA2theA2mortgageA2loanA2origi
nator'sA2companyA2hasA2noA2otherA2relationship.A2
, AnA2affiliateA2relationshipA2existsA2whenA2oneA2companyA2controls,A2isA2controlledA2by,A2o
rA2isA2underA2commonA2controlA2ofA2anotherA2company.A2UnderA2RESPA,A2whenA2aA2settl
ementA2serviceA2providerA2refersA2aA2borrowerA2toA2oneA2orA2moreA2affiliatesA2withA2whom
A2itA2hasA2anA2ownershipA2orA2otherA2beneficialA2interest,A2anA2AffiliatedA2BusinessA2Arran
gementA2(AfBA)A2DisclosureA2StatementA2mustA2beA2givenA2onA2aA2separateA2pieceA2ofA2
paperA2toA2theA2borrower.A2AmongA2otherA2things,A2theA2AfBAA2DisclosureA2informsA2theA2
borrowerA2thatA2he/
sheA2isA2generallyA2notA2requiredA2toA2useA2theA2affiliateA2andA2isA2freeA2toA2shopA2forA2oth
erA2providers.A2KickbacksA2andA2referralA2feesA2areA2alsoA2prohibitedA2underA2RESPA.
WhichA2ofA2theA2followingA2containsA2onlyA2itemsA2whichA2shouldA2beA2usedA2inA2calculati
ngA2aA2borrower'sA2debt-to-incomeA2ratio?A2-A2Ans--
TheA2answerA2isA2carA2payment,A2boatA2payment,A2childA2supportA2obligations.A2
AA2debt-to-
incomeA2ratioA2comparesA2anA2applicant'sA2totalA2monthlyA2debtA2toA2hisA2orA2herA2totalA2
monthlyA2income.A2TotalA2monthlyA2debtA2wouldA2includeA2simultaneousA2loans,A2debtA2o
bligations,A2alimony,A2andA2childA2support.A2TypicalA2livingA2expensesA2(e.g.,A2utilities,A2h
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