Question # 1
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
Question # 2
How many days must a borrower's mortgage loan be delinquent before the mortgage company is permitted to submit the first notice filing in the foreclosure process?
| A. 30 days
| B. 60 days
| C. 90 days
| D. 120 days
|
D. 120 days
Explanation:
Under the CFPB mortgage servicing rules, a mortgage company cannot initiate foreclosure proceedings until a borrower’s loan is at least 120 days delinquent. This rule is designed to give borrowers sufficient time to explore loss mitigation options, such as loan modification, forbearance, or repayment plans, before facing foreclosure.
The 120-day delinquency rule applies to all residential mortgage loans, providing a mandatory grace period before foreclosure filing.
This requirement is part of the Dodd-Frank Act and is enforced under Regulation X.
References:
CFPB Mortgage Servicing Rules
12 CFR Part 1024 (Regulation X)
Question # 3
Which of the following types of income are considered as qualifying when applying for a mortgage loan?
| A. Reimbursed expenses
| B. Net rental income
| C. Family gifts
| D. Federal tax refund
|
B. Net rental income
Explanation:
Net rental income is considered qualifying income when applying for a mortgage, as it represents income generated from rental properties. Lenders typically calculate net rental income by subtracting property expenses from the total rental income, and they require documentation such as tax returns or lease agreements to verify this income.
Reimbursed expenses (A), family gifts (C), and federal tax refunds (D) are generally not considered qualifying income, as they are one-time or non-recurring sources of funds.
References:
Fannie Mae Selling Guide on qualifying income
Freddie Mac Guidelines for rental income
Question # 4
A borrower's monthly debt-to-income ratio is calculated by taking the:
| A. borrower's gross monthly housing expense divided by the principal, interest, and appraised value.
| B. eligible total monthly debt obligations, including the monthly housing expense, divided by the borrower's gross monthly income.
| C. eligible total monthly debt obligations for trade lines greater than 12 months multiplied by the borrower's net monthly income.
| D. D eligible total monthly debt obligations excluding the monthly housing expense divided by the borrower's net monthly income
|
B. eligible total monthly debt obligations, including the monthly housing expense, divided by the borrower's gross monthly income.
Explanation:
The debt-to-income (DTI) ratio is a key metric used by lenders to assess a borrower’s ability to manage monthly payments and repay a mortgage. It is calculated by dividing the borrower’s total monthly debt obligations, including:
Monthly housing expenses (principal, interest, taxes, and insurance, also known as PITI).
Any other recurring debt obligations (car loans, student loans, credit card payments, etc.).
This total is divided by the borrower’s gross monthly income (before taxes and deductions). This calculation helps determine whether the borrower meets lending standards, with most lenders preferring a DTI ratio below 43% for qualified mortgages.
References:
Fannie Mae and Freddie Mac guidelines on debt-to-income ratio
CFPB Qualified Mortgage Rules
Question # 5
When a mortgage loan originator notices multiple Social Security number discrepancies within the same loan file, it is considered a red flag of:
| A. Fair lending.
| B. Mortgage fraud.
| C. A forgetful borrower.
| D. Pricing discrepancies.
|
B. Mortgage fraud.
Explanation:
When multiple discrepancies in a borrower’s Social Security number (SSN) are found within the same loan file, it raises concerns of mortgage fraud. The Social Security number is a critical identifier used to verify a borrower's identity, credit history, and employment. Inconsistent or altered SSNs may suggest attempts to hide the true identity of the borrower, which can be an indicator of fraudulent activity.
Mortgage fraud involves deliberate misrepresentation of information on loan applications, documents, or other parts of the mortgage process. SSN discrepancies can point to identity theft or attempts to use multiple identities to obtain a loan fraudulently.
This is a serious concern under the Fair Credit Reporting Act (FCRA) and can lead to legal action if discovered during underwriting or later in the loan process.
Mortgage loan originators (MLOs) must report such discrepancies as they may violate federal laws like RESPA and TILA and lead to further investigation.
References:
Federal Trade Commission (FTC) guidelines on identity theft
Mortgage Acts and Practices (MAP) Rule
Question # 6
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 # 7
Which of the following statements is permissible in an advertisement?
| A. Current interest rates as low as 3.50% with an APR of 3.99%. Contact us today!
| B. Looking for a VA loan? We are endorsed by and affiliated with the VA administration.
| C. Take out a reverse mortgage loan with us, and you can stay in your home as long as you want and never make a payment.
| D. Close a mortgage loan with us within the next 60 days and when interest rates drop, we will refinance your loan at a lower rate guaranteed.
|
A. Current interest rates as low as 3.50% with an APR of 3.99%. Contact us today!
Explanation:
The statement "Current interest rates as low as 3.50% with an APR of 3.99%. Contact us today!" is permissible under TILA and Regulation Z, provided it accurately reflects the current rates and corresponding Annual Percentage Rate (APR).
Regulation Z requires that if an advertisement states an interest rate, it must also disclose the APR to ensure consumers understand the true cost of the loan, including fees and other finance charges.
The other statements are prohibited due to potential misrepresentation:
B (affiliation with the VA) could be misleading unless it is an actual endorsement, which is rare.
C (no payments with a reverse mortgage) could mislead consumers about the conditions of a reverse mortgage.
D (guaranteed refinancing) could be misleading as future refinancing depends on market conditions and the borrower's qualifications.
References:
Truth in Lending Act (TILA)
Regulation Z Advertising Rules
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