RULES & REGULATIONS
Under RESPA Section 8, a mortgage broker refers a borrower to a title company and receives a $300 “marketing fee” that was never disclosed to the consumer. The payment was made only because of the referral and not for actual work performed. Which of the following best describes this situation?
A. Permissible affiliated business arrangement
B. Legal marketing agreement
C. Illegal kickback
D. Secondary market compensation
Answer: C. Illegal kickback
An MLO asks a borrower to complete the standard residential loan application used by both Fannie Mae and Freddie Mac. This document collects employment, income, assets, liabilities, and property information. Which document is being completed?
A. Closing Disclosure
B. Uniform Residential Loan Application (URLA/1003)
C. Promissory Note
D. Security Instrument
Answer: B. Uniform Residential Loan Application (URLA/1003)
A borrower earns $6,000 per month before taxes. Their proposed housing expense is $1,800 monthly. What is the borrower’s front-end debt-to-income ratio?
A. 20%
B. 25%
C. 30%
D. 36%
Answer: C. 30%
A veteran wants to purchase a primary residence with no down payment and no monthly mortgage insurance. Which loan program BEST fits this situation?
A. Conventional
B. FHA
C. USDA
D. VA
Answer: D. VA
A borrower signs a document giving the lender the right to accelerate the debt if payments are not made according to the agreement. Which clause gives the lender this right?
A. Habendum Clause
B. Defeasance Clause
C. Acceleration Clause
D. Subordination Clause
Answer: C. Acceleration Clause
A lender advertises “3% down and payments as low as $1,200 per month!” in an online ad. Because the lender used these trigger terms, additional disclosures are required under Regulation Z. Which disclosure below must also appear in the advertisement?
A. Loan officer compensation
B. APR and repayment terms
C. Borrower credit score
D. Property tax estimate
Answer: B. APR and repayment terms
A borrower receives a document showing estimated closing costs, projected payments, taxes, insurance, and loan terms shortly after applying for a mortgage. Which disclosure is the borrower MOST likely reviewing?
A. Loan Estimate
B. Appraisal Report
C. Mortgage Note
D. Deed
Answer: A. Loan Estimate
A borrower purchases a home for $400,000 and makes a 10% down payment. What is the approximate loan amount?
A. $320,000
B. $340,000
C. $360,000
D. $390,000
Answer: C. $360,000
A borrower with limited savings and a 590 credit score wants to purchase a home with a low down payment option. Which loan type is MOST commonly associated with this borrower profile?
A. Jumbo
B. FHA
C. Conventional
D. Bridge Loan
Answer: B. FHA
A mortgage loan that allows the lender to periodically adjust the interest rate based on market conditions is known as:
A. Fixed-Rate Mortgage
B. Balloon Mortgage
C. Adjustable-Rate Mortgage
D. Reverse Mortgage
Answer: C. Adjustable-Rate Mortgage
A borrower submits all six pieces of information that legally constitute a mortgage application. The lender now must issue a Loan Estimate within a certain timeframe under TRID rules. How long does the lender generally have to provide the Loan Estimate?
A. 24 hours
B. 3 business days
C. 7 business days
D. 10 calendar days
Answer: B. 3 business days
At closing, the borrower signs a legal promise agreeing to repay the debt according to the loan terms and interest rate. Which mortgage document creates this repayment obligation?
A. Deed of Trust
B. Loan Estimate
C. Promissory Note
D. Initial Escrow Disclosure
Answer: C. Promissory Note
A borrower has total monthly debt obligations of $2,700 and gross monthly income of $7,500. What is the borrower’s back-end DTI ratio?
A. 28%
B. 32%
C. 36%
D. 42%
Answer: C. 36%
A rural homebuyer meets certain income limitations and wants 100% financing. Which mortgage program is MOST likely available?
A. FHA
B. USDA
C. Conventional
D. HELOC
Answer: B. USDA
A borrower owes more on the mortgage than the property is currently worth due to declining market values. This situation is commonly known as:
A. Equity stripping
B. Negative equity
C. Escrow shortage
D. Loan seasoning
Answer: B. Negative equity
An MLO tells a borrower that an adjustable-rate mortgage “will never change,” even though the note clearly allows future rate adjustments. The statement causes the borrower to misunderstand the product terms. Which federal rule most directly prohibits this conduct?
A. SAFE Act
B. MAP Rule
C. ECOA
D. HMDA
Answer: B. MAP Rule
A borrower receives a disclosure comparing the final loan terms and actual closing costs shortly before consummation. The borrower notices the APR and cash-to-close figures are listed clearly. Which document contains this information?
A. Uniform Settlement Statement
B. Closing Disclosure
C. Mortgage Insurance Disclosure
D. Servicing Transfer Notice
Answer: B. Closing Disclosure
A home appraises for $250,000 and the borrower requests a loan amount of $200,000. What is the loan-to-value ratio?
A. 70%
B. 75%
C. 80%
D. 90%
Answer: C. 80%
A borrower completed a Chapter 7 bankruptcy and now wants to apply for a conventional mortgage loan. Generally, how long is the standard waiting period after discharge?
A. 6 months
B. 1 year
C. 2 years
D. 4 years
Answer: D. 4 years
A borrower sells a property for less than the amount owed on the mortgage after receiving lender approval. Which transaction is being described?
A. Refinancing
B. Foreclosure rescue
C. Short sale
D. Assignment
Answer: C. Short sale
A creditor receives a completed mortgage application and later denies the loan due to insufficient income. The borrower must receive an adverse action notice explaining the decision. Under ECOA, when must this notice generally be sent?
A. Within 3 business days
B. Within 10 business days
C. Within 30 days
D. At closing
Answer: C. Within 30 days
A lender requires a borrower to sign IRS Form 4506-T during processing. The form allows the lender to verify information directly with the IRS. What is the PRIMARY purpose of this document?
A. Verify tax transcripts and income documents
B. Transfer servicing rights
C. Request flood insurance
D. Record ownership interest
Answer: A. Verify tax transcripts and income documents
A borrower takes out a $180,000 interest-only mortgage at 6% interest. Ignoring taxes and insurance, what is the approximate monthly interest payment?
A. $600
B. $750
C. $900
D. $1,100
Answer: C. $900
A borrower applies for a conventional loan with a 97% loan-to-value ratio. Which additional requirement is MOST likely necessary?
A. VA Funding Fee
B. USDA Guarantee Fee
C. Private Mortgage Insurance
D. Seller carryback financing
Answer: C. Private Mortgage Insurance
A lender evaluates whether a borrower has sufficient income and assets to reasonably repay the mortgage loan. This requirement is commonly known as:
A. Qualified servicing
B. Ability to Repay
C. Predatory lending
D. Margin analysis
Answer: B. Ability to Repay
A lender originates a high-cost mortgage loan covered under HOEPA. The loan contains a balloon payment due after five years and includes negative amortization features. Which statement below is MOST accurate?
A. The loan is permissible if the borrower signs a waiver
B. The balloon payment is acceptable on all owner-occupied loans
C. HOEPA restricts these features on high-cost loans
D. Negative amortization is encouraged on HOEPA loans
Answer: C. HOEPA restricts these features on high-cost loans
An MLO provides a booklet explaining how adjustable-rate mortgages work, including rate caps, indexes, and payment changes. Federal law requires this booklet for ARM transactions. Which booklet is being provided?
A. ECOA Handbook
B. CHARM Booklet
C. CFPB Fraud Guide
D. HMDA Disclosure Notice
Answer: B. CHARM Booklet
A borrower’s monthly income is $8,000. Their proposed mortgage payment is $2,000 and other monthly debts total $1,200. What is the borrower’s back-end DTI ratio?
A. 32%
B. 36%
C. 40%
D. 45%
Answer: C. 40%
An underwriter reviews a borrower’s assets, employment history, credit profile, and debt obligations before issuing a loan decision. What is the PRIMARY purpose of underwriting?
A. Determine property tax liability
B. Evaluate overall loan risk
C. Market the loan on the secondary market
D. Transfer servicing rights
Answer: B. Evaluate overall loan risk
A borrower’s property taxes and insurance are collected monthly with the mortgage payment and held by the servicer until bills become due. What is this account called?
A. Reserve account
B. Escrow account
C. Impound waiver
D. Settlement account
Answer: B. Escrow account
A servicer transfers the servicing rights of a mortgage loan to another company. The borrower accidentally sends the next payment to the old servicer during the transfer period. Under RESPA, what protection does the borrower generally receive?
A. The payment must automatically be forgiven
B. No late fee may be charged during the protected period
C. The borrower must refinance the loan
D. The payment is considered a default
Answer: B. No late fee may be charged during the protected period
A borrower signs a document pledging the home as collateral for the mortgage loan. If the borrower defaults, the lender may use this document to pursue foreclosure rights. Which document serves this purpose?
A. Mortgage or Deed of Trust
B. Loan Estimate
C. Initial Escrow Statement
D. Verification of Employment
Answer: A. Mortgage or Deed of Trust
A borrower purchases a property for $500,000 using a first mortgage of $400,000 and a second mortgage of $50,000. What is the combined loan-to-value ratio (CLTV)?
A. 80%
B. 85%
C. 90%
D. 95%
Answer: C. 90%
A borrower currently owns a home and wants temporary financing while waiting for that home to sell before purchasing another property. Which loan type BEST fits this scenario?
A. Balloon Mortgage
B. Reverse Mortgage
C. Bridge Loan
D. HELOC
Answer: C. Bridge Loan
A mortgage lender uses a third-party individual to apply for a loan because the real purchaser would not qualify independently. This person is commonly called a:
A. Non-occupant co-borrower
B. Straw buyer
C. Beneficiary
D. Trustee
Answer: B. Straw buyer
An MLO refuses to take a mortgage application from a borrower because the borrower receives public assistance income. The borrower otherwise meets the lender’s guidelines. Which law is MOST directly violated?
A. RESPA
B. ECOA
C. TILA
D. SAFE Act
Answer: B. ECOA
A lender orders an appraisal to determine whether the property value supports the requested loan amount. The report is completed by a licensed professional and delivered to the borrower before closing. What is the PRIMARY purpose of the appraisal?
A. Estimate future tax increases
B. Verify borrower income
C. Determine fair market value
D. Calculate prepaid interest
Answer: C. Determine fair market value
A borrower wants to avoid private mortgage insurance on a conventional loan. Generally, what minimum down payment is needed to avoid PMI?
A. 3%
B. 5%
C. 10%
D. 20%
Answer: D. 20%
A borrower chooses an ARM with an initial fixed period followed by annual adjustments tied to an index plus a margin. Which component generally fluctuates with market conditions?
A. Margin
B. Index
C. Origination fee
D. Loan term
Answer: B. Index
An investor purchases a property, quickly resells it at an artificially inflated value, and relies on a fraudulent appraisal to support the new price. This scheme is BEST described as:
A. Chunking
B. Buy and bail
C. Illegal property flipping
D. Reverse redlining
Answer: C. Illegal property flipping
A lender fails to provide the borrower with the Closing Disclosure at least three business days before consummation. The borrower signs the documents the next morning anyway. Which statement is MOST accurate?
A. The timing requirement was still violated
B. The borrower waived all TRID protections
C. The lender only violated RESPA
D. The violation disappears once the loan funds
Answer: A. The timing requirement was still violated
A borrower receives an Initial Escrow Disclosure Statement showing projected taxes, insurance premiums, and expected monthly escrow payments for the first year. Which regulation primarily governs escrow limitations and disclosures?
A. Regulation B
B. Regulation V
C. Regulation X
D. Regulation P
Answer: C. Regulation X
A borrower has gross monthly income of $9,000. FHA guidelines suggest a maximum housing ratio of approximately 31%. What is the highest housing payment the borrower could generally support?
A. $2,170
B. $2,490
C. $2,790
D. $3,100
Answer: C. $2,790
A borrower’s mortgage payment starts low and gradually increases over time, causing negative amortization during the early years of the loan. Which mortgage product is MOST associated with this structure?
A. Fixed-Rate Mortgage
B. Graduated Payment Mortgage
C. FHA Streamline Refinance
D. Construction Loan
Answer: B. Graduated Payment Mortgage
A borrower receives a mortgage requiring one large lump-sum payment at the end of the loan term after smaller periodic payments throughout the loan. This is known as:
A. Reverse mortgage
B. Balloon mortgage
C. Construction loan
D. Open-end credit
Answer: B. Balloon mortgage
A mortgage company advertises “guaranteed approval regardless of income or credit history.” In reality, the company still performs underwriting and declines many applicants. Regulators would MOST likely consider this advertisement:
A. A compliant trigger term
B. A permissible teaser advertisement
C. A misleading commercial communication
D. A secondary market disclosure violation
Answer: C. A misleading commercial communication
During underwriting, a processor requests a Verification of Employment (VOE) from the borrower’s employer. The underwriter uses the document to confirm stability and consistency of income. Why is this document important?
A. It establishes property ownership
B. It confirms the borrower’s employment and earnings
C. It transfers title rights
D. It calculates mortgage insurance premiums
Answer: B. It confirms the borrower’s employment and earnings
A borrower buys a home for $350,000 and finances 96.5% through FHA financing. Approximately how much is the borrower’s down payment before closing costs?
A. $7,000
B. $10,500
C. $12,250
D. $15,750
Answer: C. $12,250
A lender sells closed mortgage loans to investors in order to replenish funds and continue originating new loans. This activity primarily occurs in which market?
A. Primary market
B. Wholesale market
C. Secondary market
D. Retail market
Answer: C. Secondary market
A homeowner facing foreclosure transfers title to another party who promises the borrower they can later repurchase the property, but the arrangement is actually designed to strip equity from the homeowner. This is MOST likely:
A. A legal bridge financing arrangement
B. A foreclosure rescue scheme
C. An assumable mortgage
D. A standard refinance transaction
Answer: B. A foreclosure rescue scheme