Question # 1
Which of the following sources of funds is acceptable to utilize for down payments, closing costs or financial reserves?
| A. Virtual currency funds
| B. Community second funds
| C. Personal unsecured loans
| D. Foreign assets located outside of the U.S. or its territories
|
B. Community second funds
Explanation:
Community second funds are an acceptable source of funds for down payments, closing costs, or financial reserves. These are subordinate loans provided by housing finance agencies, nonprofits, or government entities to help borrowers meet the required down payment or closing costs. These funds are often offered to low-to-moderate income borrowers or first-time homebuyers as part of affordable housing programs.
Virtual currency (A), such as Bitcoin, is not an acceptable source due to its volatility and challenges in verifying its stability.
Personal unsecured loans (C) are generally not allowed, as they increase the borrower’s debt and reduce their financial stability.
Foreign assets outside of the U.S. (D) are not typically acceptable unless they can be easily liquidated and transferred to the U.S.
References:
Fannie Mae Selling Guide on acceptable sources of funds
Freddie Mac Guidelines for down payment and closing costs
Question # 2
Upon becoming employed by a state-licensed mortgage company, an individual who works for a depository institution as a mortgage loan originator (MLO) shall not be deemed to have temporary authority to act as an MLO in an application state if which of the following events has occurred?
| A. The individual has been a witness in a trial at which the defendant was convicted of felony fraud.
| B. The individual has been subject to a court order for payment of child support.
| C. The individual had an application for an MLO license denied or an MLO license revoked or suspended in any Governmental jurisdiction.
| D. The individual has submitted an application to be a state-licensed MLO in the application state and was registered in the NMLS as an MLO by the prior employer.
|
C. The individual had an application for an MLO license denied or an MLO license revoked or suspended in any Governmental jurisdiction.
Explanation:
An individual who had their MLO license application denied, or had a license revoked or suspended in any governmental jurisdiction, is not eligible for temporary authority to act as a mortgage loan originator (MLO) under the SAFE Act. Temporary authority allows registered MLOs who move to a state-licensed mortgage company to act as MLOs while their application for a state license is being processed. However, individuals with disqualifying events, such as prior license denial or revocation, lose this privilege.
Other options:
Court orders for child support (B) and being a witness in a trial (A) do not disqualify individuals from obtaining temporary authority.
References:
SAFE Act, 12 USC §5101
NMLS Temporary Authority to Operate Guidelines
Question # 3
A borrower has told the mortgage loan originator that they had recently paid off an account that was listed on their credit report. Which of the following information will they need to provide the lender to prove the account has been paid off?
| A. Oral confirmation from the borrower
| B. An updated statement showing a zero balance
| C. A letter from the borrower explaining that they paid it off
| D. No additional information required
|
B. An updated statement showing a zero balance
Explanation:
To prove that an account listed on a credit report has been paid off, the borrower must provide an updated statement showing a zero balance. This is the most direct and verifiable method for a lender to confirm the account has been settled.
Oral confirmation (A) or a letter from the borrower (C) are not acceptable documentation, as they lack third-party verification.
No further documentation would be required if the credit report already reflects the zero balance, but until then, updated documentation is necessary.
References:
Fair Credit Reporting Act (FCRA)
Standard mortgage underwriting documentation guidelines
Question # 4
The practice of denying a creditworthy applicant a loan for housing because of the location of the property is sometimes referred to as:
| A. steering.
| B. redlining.
| C. appraising.
| D. low balling.
|
B. redlining.
Explanation:
Redlining is the discriminatory practice of denying loans or other financial services to otherwise creditworthy applicants based on the location of the property, often in minority or economically disadvantaged neighborhoods. This is illegal under the Fair Housing Act and Equal Credit Opportunity Act (ECOA), as it constitutes a form of racial or ethnic discrimination in housing and lending.
Steering (A) involves directing borrowers toward certain loan products for the lender’s benefit, while low balling (D) and appraising (C) are unrelated to this form of discrimination.
References:
Fair Housing Act
Equal Credit Opportunity Act (ECOA)
Question # 5
Which of the following loans is subject to the Real Estate Settlement Procedures Act (RESPA)?
| A. Federally related mortgage loan
| B. Standard county related mortgage loan
| C. State registration related mortgage loan
| D. Unified commerce related mortgage loan
|
A. Federally related mortgage loan
Explanation:
The Real Estate Settlement Procedures Act (RESPA) applies to federally related mortgage loans, which include:
Loans made by lenders insured by a federal agency (such as FHA or VA loans)
Loans intended for sale to Fannie Mae or Freddie Mac
Loans from lenders that are federally regulated or insured
RESPA's goal is to protect consumers by requiring disclosures related to the costs of real estate transactions, preventing kickbacks, and ensuring transparency in the settlement process. It applies to most residential mortgage loans.
Other options:
County-related mortgage loans (B), state registration loans (C), and unified commerce loans (D) are not standard terms under RESPA.
References:
Real Estate Settlement Procedures Act (RESPA)
12 CFR Part 1024, Regulation X
Question # 6
Which of the following acts provides a state licensing and regulatory agency to investigate and examine a mortgage company?
| A. SAFE Act
| B. Truth in Lending Act (TILA)
| C. Real Estate Settlement Procedures Act (RESPA)
| D. Home Ownership and Equity Protection Act (HOEPA)
|
A. SAFE Act
Explanation:
The SAFE Act (Secure and Fair Enforcement for Mortgage Licensing Act) establishes federal and state licensing standards for mortgage loan originators (MLOs) and mandates that each state creates a licensing and regulatory agency to oversee mortgage companies. This agency is responsible for investigating, examining, and enforcing compliance with mortgage regulations. The act aims to ensure that mortgage companies and MLOs operate with transparency, competency, and accountability.
The SAFE Act gives regulatory bodies the authority to conduct background checks, examinations, and audits of licensed mortgage companies.
Other Acts:
TILA and RESPA focus on disclosure requirements and fair lending practices but do not specifically regulate state licensing and examinations.
HOEPA regulates high-cost loans and predatory lending practices, not licensing.
References:
SAFE Act, 12 USC §5101
NMLS Licensing and Registration Requirements
Question # 7
Which of the following fees is a finance charge?
| A. A notary fee
| B. An origination fee
| C. An appraisal fee
| D. A late payment fee
|
B. An origination fee
Explanation:
An origination fee is considered a finance charge under TILA because it represents the cost of obtaining credit. A finance charge includes all fees that a borrower must pay as a condition of securing a loan, excluding certain exempt fees like notary or appraisal fees.
Notary fees (A) and appraisal fees (C) are typically excluded from the finance charge calculation.
Late payment fees (D) are not considered finance charges; they are penalties for delinquent payments.
References:
Truth in Lending Act (TILA), 12 CFR §1026.4 (Regulation Z)
CFPB Finance Charge Definitions
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