NMLS SAFE TEST QUESTIONS & ANSWERS
Bait and Switch - Answer -is an illegal sales practice in which a lower-priced item is
used to attract customers who are then encouraged to buy a similar product at a higher
price. (advertising tactic)
Bait and Switch Example - Answer -Real estate. Craigslist teems with ads for below-
market prices on rents and for-sale properties. Often, they're the ads without photos,
because the properties don't exist. Sometimes, though, advertisers will boldly post a
photo of a gorgeous, four-bedroom, three bath home at a crazy price. Often, the photo
is somewhat blurry or there will be a date from several years ago on it. When you call to
see the property, they sold it and someone should have removed that ad, the
saleswoman replies.
Disparate Impact - Answer -means that a seemingly neutral standard is established but
that when it is applies, the impact is discriminatory
Disparate Impact Example - Answer -For example, a credit check may unintentionally
screen out minority applicants who often come from lower-income areas and therefore
have not had an opportunity to build up a good credit score.
Hypothecation - Answer -To pledge property as security for an obligation or loan
without giving up possession of it.
Qualified Mortgage - Answer -is an entity approved by the HUD Secretary that is
capable of servicing, as well as originating FHA-insured mortgages, and is not
suspended or debarred by the Secretary, is not suspended or on probation imposed by
HUD's Mortgage Review Board, and is not in default under any government National
Mortgage Association obligation
Qualified Mortgage Example - Answer -Any loan that meets the product feature
requirements with a debt-to-income ratio of 43% or less is a QM.
Redlining - Answer -A process by which banks draw lines on a map and refuse to lend
money to purchase or improve property within the boundaries.
Redlining Example - Answer -The term refers to the presumed practice of mortgage
lenders of drawing red lines around portions of a map to indicate areas or
neighborhoods in which they do not want to make loans.
Regulation Z - Answer -Implements the Truth in Lending Act requiring credit institutions
to inform borrowers of the true cost of obtaining credit.
Regulation Z examples - Answer -Regulation Z protects consumers from misleading
practices by the credit industry and provides them with reliable information about the
,costs of credit. It applies to home mortgages, home equity lines of credit, reverse
mortgages, credit cards, installment loans, and certain kinds of student loans.
Subprime Mortgage - Answer -A mortgage provided to a "high-risk" consumer with low
credit scores; higher debt ratios, a recent adverse credit even, or other risk factors
Subprime Mortgage Examples - Answer -Interest only loans, adjustable rate loans,
fixed rate loan, dignity loan
______ contained the Safeguards Rule requiring businesses to have procedures in
place to protect consumer's information, established the privacy notice requirement, and
contained a provision whereby a consumer must be able to opt out of sharing his or her
personal information - Answer -GLB Act
__________ created a registry where consumers could sign up to avoid receiving calls
from telemarketers. - Answer -Do-Not-Call Act
__________ established the CFPB and enhanced verification requirements of the
borrowers ability to repay - Answer -Dodd-Frank Wall Street Reform Act
_______ requires many disclosures to be made to consumers based upon the specific
loan type they were applying for and is designed to make shipping around for loans
easier as buyers would be able to compare products. - Answer -TILA
Made it mandatory for mortgage loan originators employed by non-depositories to be
state-licensed. - Answer -SAFE Act
What are the two things that RESPA prohibits? - Answer -Bait and Switch and
Kickbacks
What did FACTA amend? - Answer -FCRA - Fair Credit Report Act
What is disparate impact? - Answer -When a neutral policy has a discriminatory impact
What is redlining? - Answer -When financing options may be unavailable based on
location
What is disparate treatment? - Answer -When a consumer is treated differently based
on race, sex, gender or any protected class they are in
Disparate impact VS disparate treatment - Answer -impact - unintentional
discrimination treatment - intentional
What does NMLS track? - Answer -Licenses
What is the penalty for violating the Do - Not - Call Act - Answer -40,000 per violation
,What topic does the MARS act cover? - Answer -Foreclosure rescue scams
Which of the following statements states the relationship correctly? - Answer -Mortgage
bankers are not bankers; they are "financial intermediaries" that serve parties on
opposite ends of the mortgage lending transaction by moving capital or money.
The _________ was in essence a precursor to lien theory and was an integral part of
mortgage lending in Roman Law - Answer -Hypotheca
The passage of which of the following laws allowed federally chartered institutions to
make real estate loans? - Answer -Federal Reserve Act
The National Housing Act established which of the following institutions? - Answer -
Federal Housing Administration (FHA)
The secondary mortgage market as we know it today was created with the
establishment of which instituion? - Answer -Fannie Mae (Federal National Mortgage
Association)
The Consumer Credit Protection Act of 1968 was important in that it_______. - Answer
-Set forth specific requirements for disclosures to borrowers
___________ set standard required settlement cost procedures and required that a
Loan Estimate (LE) be sent to borrowers. - Answer -RESPA/TRID
_________ made it illegal to discriminate against borrowers on a prohibited basis, such
as race, when extending credit. - Answer -ECOA
Which of the following are duties of a mortgage loan originator? - Answer -Educate the
client on loan programs/types to select
Which of these statements is correct with respect to originating a loan for a potential
borrower? - Answer -If a potential customer drops by the office of a loan originator, it is
acceptable for the originator to do business with that customer
A loan application should be completed _______________
a. When the prospective borrower is ready to buy a particular home
b. When the prospective borrower is ready to refinance a home
when the borrower desires to apply for a loan pre qualification and is ready to search for
a home to buy - Answer -All of the above
Prequlaification is __________ preapproval - Answer -Not the same as
, When consulting with an originator about options for loans, the borrower with respect to
the loan program type and loan product type selection process ________. - Answer -
Should have the final say
Which of the following statements about conventional loans is TRUE?
a. They are not guaranteed or insured by the federal government or its agencies.
b. They never require private mortgage insurance (PMI)
c. The real estate cannot be financed by a bank or institutional lender.
d. They are government loans like FHA and VA. - Answer -They are not guaranteed or
insure by the federal government or its agencies
A borrower who meets lending guidelines may qualify for a loan insured by FHA
___________.
a. As long as he or she is a veteran
b. Regardless of his or her income level
c. As long as the subject property is a single-family home
d. only if its located in a rural or underserved area - Answer -Regardless of his or her
income level
Which of the following descriptions apply to a VA loan?
a. The most important requirement for approval is military eligibility.
b. Most VA loans involve lending money directly to borrowers
c. Any spouse of a veteran is eligible for a VA loan.
d. Borrowers who served in the Coast Guard are not eligible. - Answer -The most
important requirement for approval is military eligibility
Which of these government loan programs is the best suited for low-income buyers in
rural areas?
a. FHA loan
b. VA Loan
c. USDA Section 502 Loan
d. FHA and VA - Answer -USDA Section 502 loan
A-minus and ALT- A Loans are examples of loans that _______;
a. Exceed the max in conforming loan limits of Fannie and Freddie
b. Accommodate slightly higher risk to borrowers
c. Are absolutely unsalable on the secondary market
d. Accommodate a subprime borrower - Answer -Accommodate slightly higher risk to
borrowers
_____ allows a buyer the flexibility to not have to go through with buying the new home
he is in contract to buy until his old home is sold first.
a. Joint and several liability
b. purchase contract contingencies
c. Derogatory credit items - Answer -Purchase contract contingencies
Bait and Switch - Answer -is an illegal sales practice in which a lower-priced item is
used to attract customers who are then encouraged to buy a similar product at a higher
price. (advertising tactic)
Bait and Switch Example - Answer -Real estate. Craigslist teems with ads for below-
market prices on rents and for-sale properties. Often, they're the ads without photos,
because the properties don't exist. Sometimes, though, advertisers will boldly post a
photo of a gorgeous, four-bedroom, three bath home at a crazy price. Often, the photo
is somewhat blurry or there will be a date from several years ago on it. When you call to
see the property, they sold it and someone should have removed that ad, the
saleswoman replies.
Disparate Impact - Answer -means that a seemingly neutral standard is established but
that when it is applies, the impact is discriminatory
Disparate Impact Example - Answer -For example, a credit check may unintentionally
screen out minority applicants who often come from lower-income areas and therefore
have not had an opportunity to build up a good credit score.
Hypothecation - Answer -To pledge property as security for an obligation or loan
without giving up possession of it.
Qualified Mortgage - Answer -is an entity approved by the HUD Secretary that is
capable of servicing, as well as originating FHA-insured mortgages, and is not
suspended or debarred by the Secretary, is not suspended or on probation imposed by
HUD's Mortgage Review Board, and is not in default under any government National
Mortgage Association obligation
Qualified Mortgage Example - Answer -Any loan that meets the product feature
requirements with a debt-to-income ratio of 43% or less is a QM.
Redlining - Answer -A process by which banks draw lines on a map and refuse to lend
money to purchase or improve property within the boundaries.
Redlining Example - Answer -The term refers to the presumed practice of mortgage
lenders of drawing red lines around portions of a map to indicate areas or
neighborhoods in which they do not want to make loans.
Regulation Z - Answer -Implements the Truth in Lending Act requiring credit institutions
to inform borrowers of the true cost of obtaining credit.
Regulation Z examples - Answer -Regulation Z protects consumers from misleading
practices by the credit industry and provides them with reliable information about the
,costs of credit. It applies to home mortgages, home equity lines of credit, reverse
mortgages, credit cards, installment loans, and certain kinds of student loans.
Subprime Mortgage - Answer -A mortgage provided to a "high-risk" consumer with low
credit scores; higher debt ratios, a recent adverse credit even, or other risk factors
Subprime Mortgage Examples - Answer -Interest only loans, adjustable rate loans,
fixed rate loan, dignity loan
______ contained the Safeguards Rule requiring businesses to have procedures in
place to protect consumer's information, established the privacy notice requirement, and
contained a provision whereby a consumer must be able to opt out of sharing his or her
personal information - Answer -GLB Act
__________ created a registry where consumers could sign up to avoid receiving calls
from telemarketers. - Answer -Do-Not-Call Act
__________ established the CFPB and enhanced verification requirements of the
borrowers ability to repay - Answer -Dodd-Frank Wall Street Reform Act
_______ requires many disclosures to be made to consumers based upon the specific
loan type they were applying for and is designed to make shipping around for loans
easier as buyers would be able to compare products. - Answer -TILA
Made it mandatory for mortgage loan originators employed by non-depositories to be
state-licensed. - Answer -SAFE Act
What are the two things that RESPA prohibits? - Answer -Bait and Switch and
Kickbacks
What did FACTA amend? - Answer -FCRA - Fair Credit Report Act
What is disparate impact? - Answer -When a neutral policy has a discriminatory impact
What is redlining? - Answer -When financing options may be unavailable based on
location
What is disparate treatment? - Answer -When a consumer is treated differently based
on race, sex, gender or any protected class they are in
Disparate impact VS disparate treatment - Answer -impact - unintentional
discrimination treatment - intentional
What does NMLS track? - Answer -Licenses
What is the penalty for violating the Do - Not - Call Act - Answer -40,000 per violation
,What topic does the MARS act cover? - Answer -Foreclosure rescue scams
Which of the following statements states the relationship correctly? - Answer -Mortgage
bankers are not bankers; they are "financial intermediaries" that serve parties on
opposite ends of the mortgage lending transaction by moving capital or money.
The _________ was in essence a precursor to lien theory and was an integral part of
mortgage lending in Roman Law - Answer -Hypotheca
The passage of which of the following laws allowed federally chartered institutions to
make real estate loans? - Answer -Federal Reserve Act
The National Housing Act established which of the following institutions? - Answer -
Federal Housing Administration (FHA)
The secondary mortgage market as we know it today was created with the
establishment of which instituion? - Answer -Fannie Mae (Federal National Mortgage
Association)
The Consumer Credit Protection Act of 1968 was important in that it_______. - Answer
-Set forth specific requirements for disclosures to borrowers
___________ set standard required settlement cost procedures and required that a
Loan Estimate (LE) be sent to borrowers. - Answer -RESPA/TRID
_________ made it illegal to discriminate against borrowers on a prohibited basis, such
as race, when extending credit. - Answer -ECOA
Which of the following are duties of a mortgage loan originator? - Answer -Educate the
client on loan programs/types to select
Which of these statements is correct with respect to originating a loan for a potential
borrower? - Answer -If a potential customer drops by the office of a loan originator, it is
acceptable for the originator to do business with that customer
A loan application should be completed _______________
a. When the prospective borrower is ready to buy a particular home
b. When the prospective borrower is ready to refinance a home
when the borrower desires to apply for a loan pre qualification and is ready to search for
a home to buy - Answer -All of the above
Prequlaification is __________ preapproval - Answer -Not the same as
, When consulting with an originator about options for loans, the borrower with respect to
the loan program type and loan product type selection process ________. - Answer -
Should have the final say
Which of the following statements about conventional loans is TRUE?
a. They are not guaranteed or insured by the federal government or its agencies.
b. They never require private mortgage insurance (PMI)
c. The real estate cannot be financed by a bank or institutional lender.
d. They are government loans like FHA and VA. - Answer -They are not guaranteed or
insure by the federal government or its agencies
A borrower who meets lending guidelines may qualify for a loan insured by FHA
___________.
a. As long as he or she is a veteran
b. Regardless of his or her income level
c. As long as the subject property is a single-family home
d. only if its located in a rural or underserved area - Answer -Regardless of his or her
income level
Which of the following descriptions apply to a VA loan?
a. The most important requirement for approval is military eligibility.
b. Most VA loans involve lending money directly to borrowers
c. Any spouse of a veteran is eligible for a VA loan.
d. Borrowers who served in the Coast Guard are not eligible. - Answer -The most
important requirement for approval is military eligibility
Which of these government loan programs is the best suited for low-income buyers in
rural areas?
a. FHA loan
b. VA Loan
c. USDA Section 502 Loan
d. FHA and VA - Answer -USDA Section 502 loan
A-minus and ALT- A Loans are examples of loans that _______;
a. Exceed the max in conforming loan limits of Fannie and Freddie
b. Accommodate slightly higher risk to borrowers
c. Are absolutely unsalable on the secondary market
d. Accommodate a subprime borrower - Answer -Accommodate slightly higher risk to
borrowers
_____ allows a buyer the flexibility to not have to go through with buying the new home
he is in contract to buy until his old home is sold first.
a. Joint and several liability
b. purchase contract contingencies
c. Derogatory credit items - Answer -Purchase contract contingencies
