Question # 1
Which of the following is an example of a non-fluctuating income source?
| A. Salaried W-2 position
| B. Self-employed income
| C. Commission-based W-2 income
| D. Part-time work with irregular hours
|
A. Salaried W-2 position
Explanation:
A salaried W-2 position is an example of non-fluctuating income because the borrower receives a consistent, fixed salary each pay period. This type of income is easy to verify and predict, making it ideal for mortgage qualification.
Other types of fluctuating income:
Self-employed income (B) and commission-based income (C) vary based on the nature of work and can fluctuate month to month.
Part-time work with irregular hours (D) also fluctuates due to varying work hours, making it inconsistent.
References:
Fannie Mae Selling Guide for income verification
Freddie Mac's Loan Product Advisor for employment income documentation
Question # 2
Illegal fee splitting occurs when:
| A. two service providers split a fee.
| B. wages are split by two employees.
| C. fees are split between lender and broker.
| D. three companies split a fee but one did no work.
|
D. three companies split a fee but one did no work.
Explanation:
Illegal fee splitting occurs when a fee is divided among multiple parties and at least one party does not perform any actual work or service to earn the fee. Under RESPA (Real Estate Settlement Procedures Act), Section 8 prohibits fee splitting, kickbacks, and unearned fees in any federally related mortgage loan transaction. If three companies split a fee, but one company did no work, this would constitute an illegal fee split.
Fee splitting (A, C) can be legal if all parties involved provide legitimate services.
References:
RESPA Section 8 - Prohibition on fee splitting and unearned fees
CFPB RESPA Guidelines
Question # 3
A mortgage loan originator (MLO) cannot be approved for licensure if the applicant has:
| A. been convicted of a felony within the past seven years.
| B. had an MLO license suspended in any governmental jurisdiction.
| C. taken and failed the SAFE MLO National Test three times within the last year.
| D. never been licensed or registered as an MLO in any governmental jurisdiction.
|
A. been convicted of a felony within the past seven years.
Explanation:
Under the SAFE Act, a mortgage loan originator (MLO) cannot be approved for licensure if they have been convicted of a felony within the past seven years, or at any time if the felony involved fraud, dishonesty, breach of trust, or money laundering. This provision ensures that individuals with serious criminal backgrounds are not permitted to operate as MLOs.
Other factors, such as failing the SAFE MLO test (C) or having never been licensed (D), do not automatically disqualify an applicant from obtaining an MLO license.
References:
SAFE Act, 12 USC §5104
NMLS Licensing Requirements
Question # 4
Which of the following property value approaches does an appraiser use on a rental property?
| A. Cost approach
| B. Income approach
| C. Annual approach
| D. Sales comparison approach
|
B. Income approach
Explanation:
For rental properties, an appraiser will typically use the Income Approach to estimate the property's value. This method is based on the income-generating potential of the property, which is most relevant for investment properties, including rentals.
The Income Approach assesses the property's ability to generate future cash flow by evaluating the income that can be derived from renting it. The formula often involves determining the net operating income (NOI) and applying a capitalization rate (cap rate) to estimate value.
This method is most appropriate for rental properties because their value is inherently tied to their profitability.
Other methods:
Cost approach: More suited for unique properties or new construction.
Sales comparison approach: Often used for owner-occupied properties, comparing recent sales of similar properties.
References:
Uniform Standards of Professional Appraisal Practice (USPAP)
Fannie Mae's Appraisal Guidelines for Rental Properties
Question # 5
A woman and her son meet with a mortgage loan originator (MLO) about refinancing the mother's home. During the meeting, the MLO senses that the mother is against the transaction and may be being unfairly coerced into the procedure. In which of the following ways should the MLO proceed?
| A. Ask to speak to the mother privately to inquire whether she Is a willing participant in the transaction
| B. Consider the issue to be a private family matter and proceed with the next steps in the application process
| C. Suggest that the son be listed as a co-borrower on the mortgage to ensure he assumes part of the risk of the loan
| D. Tell the mother that she needs to sign a power of attorney so that her son may complete the transaction on her behalf
|
A. Ask to speak to the mother privately to inquire whether she Is a willing participant in the transaction
Explanation:
When an MLO suspects that a borrower, such as the mother in this case, may be under duress or being coerced into a transaction, they have a duty to ensure that all parties are willingly participating. The ethical approach would be to ask to speak privately with the mother to verify her intentions and comfort level with the transaction. This ensures that the loan is compliant with consumer protection laws such as the Truth in Lending Act (TILA) and the Equal Credit Opportunity Act (ECOA), which protect against unfair lending practices.
Ignoring the situation (Option B) could lead to participation in a coerced or fraudulent transaction.
Suggesting that the son be a co-borrower (Option C) or signing a power of attorney (Option D) are inappropriate if the mother is unwilling to proceed.
Verifying her willingness safeguards the integrity of the loan process and ensures compliance with fair lending practices.
References:
Truth in Lending Act (TILA)
Equal Credit Opportunity Act (ECOA)
CFPB guidelines on elder financial abuse
Question # 6
A mortgage loan originator (MLO) received a salary of 1% per loan plus a bonus of $5,000 for closing the most loans in the office last year. In addition, he received a trip to Hawaii based on closing 100 or more transactions with an interest rate of 5% or higher. Is the MLO's compensation prohibited?
| A. His compensation is permitted as compensation only includes salary and his salary is not based on loan terms.
| B. His compensation is permitted as compensation only includes salary and bonuses and his salary and bonus is not based on loan terms.
| C. His compensation is not permitted as compensation only includes salary and his salary is based on loan terms.
| D. His compensation is not permitted as compensation includes all financial incentives and his trip was awarded based on closing the most loans with certain loan terms.
|
D. His compensation is not permitted as compensation includes all financial incentives and his trip was awarded based on closing the most loans with certain loan terms.
Explanation:
Under Dodd-Frank Act regulations and Regulation Z (TILA), mortgage loan originators (MLOs) cannot be compensated based on the terms of the loan, such as interest rates, loan amount, or product type. This includes any financial incentives, like bonuses or rewards, tied to loan terms. In this case:
The trip to Hawaii was awarded based on closing loans with an interest rate of 5% or higher, which directly ties the MLO's compensation to a specific loan term (the interest rate).
This violates the Loan Originator Compensation Rule, which prohibits compensating MLOs based on the terms or conditions of a loan, in order to protect borrowers from steering into unfavorable loan products.
Therefore, all forms of compensation—including bonuses, trips, or other rewards—are scrutinized if they are tied to loan terms, making the MLO's trip to Hawaii an illegal incentive under current law.
References:
Dodd-Frank Act - Loan Originator Compensation Rules
TILA/Regulation Z - Anti-Steering and Loan Terms Compensation Rules
Question # 7
For an FHA loan, which of the following payments must a borrower make to protect a lender in case of a foreclosure?
| A. Down payment
| B. Hazard insurance premium
| C. Mortgage insurance premium
| D. Homeowners association dues
|
C. Mortgage insurance premium
Explanation:
For FHA loans, borrowers are required to pay a Mortgage Insurance Premium (MIP). This insurance protects the lender in case of default or foreclosure. FHA loans are backed by the Federal Housing Administration, and MIP is mandatory for borrowers due to the lower down payment requirements and increased risk to lenders.
Mortgage Insurance Premium (MIP): FHA loans require an upfront MIP at closing (usually 1.75% of the loan amount) and annual MIP, which is divided into monthly installments and added to the mortgage payment.
The MIP protects lenders by providing insurance coverage in the event the borrower defaults, reducing the lender’s loss.
Other options:
Down payment (A) is required but does not protect the lender.
Hazard insurance premium (B) protects the property, not the lender in foreclosure.
Homeowners association dues (D) are unrelated to lender protection.
References:
FHA Single-Family Housing Policy Handbook
U.S. Department of Housing and Urban Development (HUD) guidelines
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