National and UST Mortgage Practice Exam 1 (Guaranteed Pass!)

Which of the following is intended to ensure that consumers are provided with information on the nature and costs of the settlement process? correct answers 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? correct answers 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? correct answers 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? correct answers 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: correct answers 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.