Private Tutoring Session Outline
4-Day Plan
Day 1: 2 hours
Overview of NMLS National Test
Federal Laws
RESPA
ECOA
TILA
Practice Test Questions
Question and Answer Period
Day 2: 2 hours
Federal Laws
SAFE Act
HMDA
FCRA/FACTA
Privacy/DNC
Red Flag Rules
Federal Law Recap
Practice Test Questions
Question and Answer Period
General Mortgage Knowledge
Mortgage programs
Day 3: 2 hours
General Mortgage Knowledge
Practice Test Questions
Question and Answer Period
Loan Origination Activities
Question and Answer Period
Day 4: 2 hours
Loan Origination Activities
Practice Test Questions
Question and Answer Period
Ethics
Practice Test Questions
Question and Answer Period
M
Module
e 1: Fed
deral Mortgag
ge-Rela
ated Law
ws
A
At-A-Gla
ance
Real Esstate Settle
ement Proc
cedures Ac
ct (RESPA)/Regulatio
on X
R
RESPA
Overv
view


Enacted inn 1974 to provid
de consumers with
w informatioon
on costs off closing so theey can shop forr settlement
services. Established
E
man
ndatory disclossure requiremeents
to ensure consumers
c
receeive this inform
mation.
Section 8 prohibits
p
referrral fees, kickbaacks, fee splittinng
and markuups

Prottects consumerrs from excessiive settlement costs and
unearned fees

Reggulated by HUD
D

Appplies to “federaally regulated mortgage
m
loanss” – broad
defiinition covers nearly
n
all residdential loans
L
Loans
NOT Covered
C
by RESPA
R

Loans for 25
2 acres or mo
ore

Loaans secured by vacant land

Loans for business,
b
comm
mercial or agriccultural purposses


Temporaryy financing, succh as bridge looans
Loaan assumptionss that do not reqquire lender appproval
and loan conversioons where no new
n note is reqquired
R
RESPA
Disclo
osures

Good Faithh Estimate (GF
FE)

HUD-1 Settlemennt Statement

Settlementt Cost Booklet (Information Booklet)
B

Initiial Escrow Staatement

Mortgage Servicing
S
Discclosure Statemeent

Annnual Escrow Sttatement

Affiliated Business
B
Arran
ngement Discloosure

Servvicing Transferr Statement
L
Lending
Prac
ctices Prohib
bited by RESP
PA

Giving or accepting
a
a feee, kickback or “a
“ thing of valuue” in exchangge for the referrral of settlemennt business

Seller mayy not require a homebuyer
h
to use
u a particulaar title insurancce company as a condition of sale

Lender/brooker may not ch
harge a fee forr the preparatioon of Truth-in-L
Lending docum
ments, HUD-1 and escrow staatements

Prohibits referrals to affilliates without providing
p
an afffiliated busineess arrangemennt disclosure

Lender/brooker may not ch
harge fees otheer than a creditt report fee unttil the loan applicant receives the GFE

HUD-1 maay not list charges in excess of
o the amount that
t the settlem
ment service proovider actuallyy received

Markups are
a explicitly prrohibited

Servicers may
m not requiree a borrower too maintain morre than one-sixxth the amount of annual taxees/insurance (tw
wo
months) inn an escrow acccount
S
Section
6 & Section
S
10 off RESPA

Section 6 applies
a
to loan servicing – proovisions pertaiin to correctionn of errors in reesponse to conssumer complaiints

Section 10 protects consu
umers by ensurring lenders doo not overchargge borrowers foor escrow paym
ments
P
Penalties
for Violation of RESPA

Up to $10,000 and one yeear in prison foor receipt of prrohibited fees/kkickbacks (Secction 8)

Up to $10,000 in individu
ual action and up to $500,0000 in class actioon suits for servvicing violationns (Section 6)

$55 for eacch violation up
p to $100,000 within
w
a 12-moonth period for escrow violations (Section 10)
F
Federal
Mortgage-Related Law
ws: At-A-Glance
e
1
M
Module
e 1: Fed
deral Mortgag
ge-Rela
ated Law
ws
A
At-A-Gla
ance
Eq
qual Creditt Opportun
nity Act (EC
COA)/Reg
gulation B
E
ECOA
Overv
view

Enacted inn 1974 to elimin
nate discriminaatory treatmentt of
credit appllicants

Federal Reeserve Board isssues regulationns – enforcemeent
is handled by individual federal
f
agenciees which regulaate
financial inndustry (FDIC,, NCUA, etc.)

Appplies to transacctions for the exxtension of creedit by any
persson who regulaarly extends, reenews or continnues
creddit. Also appliees to a person who
w “regularlyy refers
appplicants to credditors or selectss creditors to whom
w
requuests for creditt can be made.”

Creditors/lenders may
m obtain infformation on etthnicity,
sex,, marital statuss and age of appplicants for thee purposes
of federal
f
monitorring programs (such
(
as HMD
DA)

Appplicants must be
b advised that information iss only
obtaained for monitoring purposees and will be reported
r
baseed on visual obbservation if thhe applicant reffuses to
provvide it

Asssume a woman of childbearinng age will stopp work to
raise children

Makke statements (including
(
adveertisements) which
w
disccourage prospeective applicantts – called “steeering”

Refu
fuse loans to appplicants who have
h
exercised their
righhts under the Consumer Crediit Protection Act
A (i.e.
partticipation in creedit counselingg)
R
Requirement
ts of ECOA
Creditors/lendeers may not maake inquiries orr statements abbout
C
p
prohibited
charracteristics. Characteristics innclude:

Race

Maritaal status

Color

Religioon

National orrigin

Sex

Childbearinng/rearing

Age
C
Creditors/lende
ers may not:

Discriminaate against loan
n applicants baased on prohibiited
characterisstics – includess community baased
discriminattion such as “rredlining”

Refuse to consider
c
publicc assistance as income

Refuse to consider
c
pensio
on, annuity or retirement
r
income

Refuse to consider
c
alimony or child suppport income
E
ECOA
Disclosures

Notice of Action
A
Taken

Nottice of Right too Receive Apprraisal Report

Notice of Adverse
A
Action
n

Discclosures regardding governmeent monitoring programs

Notice of Incomplete
I
Application
P
Penalties
for Violation of ECOA

Civil penallties of $5,000 per day

Penalties up
u to $25,000 if a pattern of discrimination
d
e
exists

Punitive daamages of up to $10,000 for individual
i
actions

For class actions,
a
punitiv
ve damages of up
u to the lesserr of $500,000 or
o 1% of the crreditor’s net woorth
F
Federal
Mortgage-Related Law
ws: At-A-Glance
e
1
M
Module
e 1: Fed
deral Mortgag
ge-Rela
ated Law
ws
A
At-A-Gla
ance
Truth-in
n-Lending Act (TILA)/Regulatio
on Z
TTILA Overview
w
 Enacted inn 1968 under th
he Consumer Credit
C
Protectioon
Act (CCPA
A) to protect co
onsumers by diisclosing the coosts
and terms of
o credit
 Creates unniform standard
ds for stating coost of credit to
encourage consumers to compare differrent options
 Also ensurres that advertising is truthfull and gives
consumerss the right to rescind certain looan transactionns
TTILA Disclosu
ures
 Truth-in-L
Lending Disclo
osure Statemennt
 Notice off Right to Canccel (Rescind)
 Separate program
p
disclo
osures for all vaariable rate
programs consumer is in
nterested in
Disclosing the Cost of Cre
D
edit on the TIL
T Disclosure
e
A
Annual
Percen
ntage Rate: co
ost of credit exppressed as a
p
percentage
ratee. Includes the interest
i
rate annd the costs of
f
financing
FFinance Cha
arges Include
e
 Interest
 Loan origgination fees an
nd consumer pooints
 Appraisall and credit rep
port fees (if nott part of an
applicatioon fee to chargeed to all appliccants)
 Premiumss for credit lifee, A&H or loss of income
insurancee
 Premiumss for property or
o liability insuurance

B
issues reggulations. The FTC
Fedderal Reserve Board
hanndles enforcemeent for mortgagge professionaals.
Appplies to all busiinesses that reggularly offer orr extend
creddit for personall, family or houusehold purposses
Doees not apply to business, agriccultural or orgaanization
creddit or credit in excess of $25,000 unless it iss secured
by real
r property/a dwelling




Coonsumer Handbbook on Adjusstable Rate Morrtgages
(C
CHARM Bookllet)
Diisclosures for Open-End
O
Creddit
Financee Charge: cost of credit, overr the life of a looan,
expresseed as a dollar amount.
a
Finance Charges DO
D NOT Inclu
ude
 Appplication fees charged to all applicants for credit
 Nootary, title insuurance and titlee examination fees
f
 Feees for preparinng loan documeents
 Feees charged forr membership participation
p
inn a credit
plaan
 Seeller’s points
Advertising Prohibitions
A
P
 Creditors are
a prohibited from
f
advertisinng terms that thhey do not actuually offer
 An advertisement that staates a rate of fiinance must staate the rate as an
a annual perceentage rate, usiing that term
 TILA prohhibits the misleading advertiseement of lendinng terms. In particular,
p
the laaw prohibits thhe advertisemeent of one
attractive term
t
of a loan, such as low monthly
m
paymennts, without dissclosure of othher less attractivve terms, such as a high
interest ratte. Terms that necessitate
n
addditional disclosuures are knownn as trigger term
ms.
Right to Resc
R
cind a Loan
 Applies to certain types of
o refinances annd home equityy lines of crediit – borrower must
m exercise right within thrree
business days
d
of closing
g (business days include Saturrdays)
 Extended three
t
year righ
ht exists if Trutth-in-Lending Disclosures arre not properly made
Penalties for Violations off TILA
P
 Individuall Civil Actionss: Recovery off actual damagees resulting froom the creditorr’s failure to coomply, statutoryy damages
equal to tw
wice the amoun
nt of the finance charge or dam
mages of not leess than $400 or
o more than $44,000 for closeed-end
transactionns secured by real property orr a dwelling.

Class Actiions: Total recovery limited to
t the lesser off $500,000 or 1% of the crediitor’s net worthh. Willful and knowing
k
violations are subject to a criminal penaalty of $5,000 and/or
a
a year im
mprisonment.
F
Federal
Mortgage-Related Law
ws: At-A-Glance
e
1
M
Module
e 1: Fed
deral Mortgag
ge-Rela
ated Law
ws
A
At-A-Gla
ance
Se
ecure and
d Fair Enforcement off Mortgage
e Licensing
g Act (S.A..F.E. Act)
S
S.A.F.E.
Act Overview
O

Enacted inn 2008 as Title V under the Housing and Ecoonomic Recovvery Act

Establishess application an
nd reporting reequirements forr state-regulateed loan originaators and mortggage brokers
S
S.A.F.E.
Requ
uirements
Licensing/Reggistration: Thro
L
ough the Natioonwide Mortgaage
L
Licensing
Systeem (NMLS)
Background Checks:
B
C
Includ
des fingerprintss – individuals
w felony connvictions in passt seven years (or felony frauud
with
c
convictions
at any
a time) are ineligible
i
for liicensing
M
of 200 hours initial education
e
Educatiion/Testing: Minimum
and 75%
% passing scoree on an exam. Minimum
M
of eiight hours
continuiing education.
Financial Responsibillity: Individuaal states set guidelines but
examplees include net worth,
w
surety bond,
b
payment in a state
fund andd minimum creedit scores
C
Consumer
Prrotection Und
der S.A.F.E.
S.A.F.E. Act crreated a numbeer of consumerr protection proovisions. In adddition to encouuraging responssible behavior within the
S
inndustry by manndating licensiing/registrationn and educationn requirementss, the Act also:

Provides coonsumers with
h access to infoormation about registrants/liceensees, such ass enforcement actions, etc.

Facilitates collection and
d distribution off consumer com
mplaints betweeen state regulaators
F
Federal
Mortgage-Related Law
ws: At-A-Glance
e
1
M
Module
e 1: Fed
deral Mortgag
ge-Rela
ated Law
ws
A
At-A-Gla
ance
Hom
me Mortga
age Disclossure Act (H
HMDA)/Re
egulation C
H
HMDA
Overv
view

Enacted inn 1975 to identiify discriminatoory lending
practices and
a to encourag
ge enforcementt of fair lendingg
laws

B
issues reggulations – enfforcement
Fedderal Reserve Board
is handled by indivvidual federal agencies whichh regulate
finaancial industry (FDIC, NCUA
A, etc.)

Also determ
mines how to distribute
d
publiic-sector
investmentts and if deposiitory institutionns are meetingg
the housingg needs of theiir communitiess

Covvers originationn of home purcchase loans, hoome
impprovement loanns and refinancces – pre-approovals on
eachh of these mustt also be reportted
Institutions Covered by HMDA
H
Non-depositoryy mortgage len
N
nders must repoort if they meett
thhe following criteria:
Depositoory institutionss must report iff they meet thee following
criteria:

Covered looans equal at leeast 10% of oriigination volum
me
in precedinng year


A home orr branch office is located in a Metropolitan
Area (as off Dec 31st of prreceding year)

Total assetts of more than
n $10,000,000 or
o origination of
o
at least 1000 covered loans in previous year
y

Asssets exceed Fedderal Reserve threshold
t
– insttitution
musst be federally insured/regulaated or make looans that
are insured/guarannteed by a fedeeral agency (orr intended
for sale to Fannie Mae/Freddie Mac)
M
Origgination of at least
l
one coverred loan withinn previous
caleendar year
E
Exemptions
f
from
HMDA Reporting
R

Institutionss that do not meet
m the HMDA
A criteria for eiither a depositoory institution or
o a non-depossitory mortgagee lenders

State-chartted/state-licenssed institutions subject to statte disclosure laaws that are subbstantially simiilar to HMDA
Information that
t
must be Reported

The type of
o loan or loan application
a

Ethnnicity, race, sex, and income of the applicannt

The purposse and amount of the loan


Whether thhe application was
w a request for
f pre-approvaal
and whetheer it resulted in
n a denial or ann origination

The locatioon of the propeerty related to the
t loan
Thee difference bettween the loann’s APR and thee yield on
Treaasury securitiees with comparable periods off maturity
if thhe difference iss greater than 3 percentage pooints for
firstt liens, or greatter than 5 perceentage points for
f loans
secuured by suborddinate liens

The occupancy status of the property

Idenntification of a loan that is suubject to HOEP
PA
P
Penalties
for Violation of HMDA
C
Civil
monetary penalties can result
r
from thee failure to:

Report data

Report dataa in a timely manner
m

Report dataa accurately
The regulatory agencies that monitor
T
m
complliance use a pennalty matrix annd consider thee following facctors in calculatting an
a
appropriate
pennalty:

Financial resources
r
of thee institution

Histtory of previouus violations

Good faithh of the institutiion

Corrrective measurres pursued by the institutionn

Gravity off the violation
F
Federal
Mortgage-Related Law
ws: At-A-Glance
e
1
x
M
Module
e 1: Fed
deral Mortgag
ge-Rela
ated Law
ws
A
At-A-Gla
ance
Faiir Credit Re
eporting Act
A (FCRA)
F
FCRA
Overview

Enacted inn 1970 to ensure the accuracy, fairness and
privacy of consumer’s peersonal informaation that is
assembled and used by co
onsumer reporrting agencies

a
Enfforcement is haandled by indivvidual federal agencies
whiich regulate finnancial industryy (FDIC, NCU
UA, etc.) –
FTC
C handles enforcement for moortgage professionals

Creates speecial obligation
ns and restrictiions for
Consumer Reporting Ageencies (CRAs) and for
furnishers and users of co
onsumers’ perssonal informatiion

Appplies to any trannsaction involvving use of creedit reports
or consumer
c
invesstigatory reportts/background checks

Am
mended in 2003 by the Fair annd Accurate Creedit
Trannsactions Act (FACTA)
(
D
Disclosures,
N
Notifications
s and Actions Required by
b FCRA
O
Obligations
off CRAs (i.e. Eq
quifax, Experiion and TranssUnion)

Disclosurees to Consumeers: Must incluude all informaation in the connsumer’s file, sources of the innformation,
identificatiion of person th
hat procured thhe report, summ
mary of consum
mer rights undeer FCRA. Musst be in writing.

Notificatioon to Furnisheers/Users: Must provide notiices to any persson who regulaarly furnishes information
i
to a CRA
and to any person who reeceives and usees a consumer report.
r
The nottice must advisse of responsibbilities under FC
CRA.
O
Obligations
off Furnishers (lloan servicers,, lenders and creditors
c
whoo receive paym
ments and repoort credit info)

Notificatioon to CRAs of corrections
c

Nottice regarding delinquencies
d

Notice of consumer
c
dispu
ute

Dutties after receippt of notice of dispute
d
O
Obligations
off Users (i.e. loa
an originatorss, mortgage brrokers, lenders)

Certificatiion of Permisssible Purpose: Must provide a certificationn stating the perrmissible purpoose for requestting the
consumer report
r

Notificatioon of Adverse Action: If advverse action is taken
t
based onn information inn a consumer report,
r
consum
mers must
receive nottification that includes
i
contacct information for the CRA thhat provided thhe report, a stattement that thee CRA did
not make the adverse deccision, the rightt of the consum
mer to obtain a free copy of his/her
h
report, and
a the right too contact
the CRA foor possible disp
pute
P
Practices
Pro
ohibited by FCRA
F

CRAs cannnot furnish a co
onsumer reportt for any reasonn other than a permissible
p
puurpose

Those whoo furnish inform
mation to a CR
RA cannot know
wingly providee inaccurate infformation

Consumer reports cannott be released without
w
written permission froom the consumer

CRAs cannnot furnish a co
onsumer reportt containing ouutdated negativve financial infformation, suchh as bankruptciies over 10
years old, paid
p tax liens and
a civil judgm
ments more thann seven years old,
o unless the data relates to a credit transaaction
involving a principal amo
ount of $150,000 or more

CRAs cannnot release disp
puted informattion in a consum
mer report withhout indicatingg the consumerr disputes the accuracy
a
P
Penalties
for Violation of FCRA

Willful Nooncompliance: Actual damagges ($100 - $1,,000), punitivee damages, couurt costs and atttorney’s fees

Negligent Noncomplian
nce: Actual dam
mages, courts costs
c
and attornney’s fees

Obtainingg Information Under False Pretenses:
P
Finnes and/or prisoon for up to two years

Unauthoriized Disclosurre of Informattion: Fines andd/or prison for up to two yearrs
F
Federal
Mortgage-Related Law
ws: At-A-Glance
e
1
M
Module
e 1: Fed
deral Mortgag
ge-Rela
ated Law
ws
A
At-A-Gla
ance
Prrivacy: Gra
amm-Leac
ch-Bliley
G
Gramm-Leac
ch-Bliley Overview
Enacted in 1999 to ensure financial institutions – includingg brokers and lenders
E
l
– proteect consumers’ nonpublic perrsonal
innformation. Reequires:

Advising consumers
c
of policies
p
regardiing the use andd exchange of personal
p
inform
mation

Offering coonsumers the opportunity
o
to limit
l
use and exchange
e
of theeir personal infformation

Creating a security progrram to protect personal
p
inform
mation from unnauthorized release and discloosure
N
Nonpublic
Pe
ersonal Inforrmation

Defined ass “…personallyy identifiable financial
fi
inform
mation provided by a consumer to a financiaal institution; resulting
r
from any trransaction with
h the consumerr or any servicce performed foor the consumeer; or otherwisee obtained by the
t
financial innstitution.” Ex
xamples includee information from
f
a credit reeport and inforrmation that a consumer
c
provvides to
obtain a loan.

Publically available inforrmation is not protected.
p
Exam
mples include government reeal estate recorrds, listed telephone
numbers annd information
n available in a public/unrestrricted website.
N
Notice
Requiirements of Gramm-Leac
G
ch-Bliley
I
Initial
Privacyy Notice

Notice not required for co
onsumers unleess the financiaal institution inntends to share consumer infoormation with nonn
affiliated thhird parties

Notice is always
a
due to customers
c
wheen the customerr relationship is
i established – for example when
w
a loan appplication
is completeed, when a con
nsumer obtainss a loan from a lender or whenn a financial innstitution obtainns loan serviciing rights

Notice must include desccriptions of the categories of nonpublic
n
perssonal informatiion that are colllected and discclosed as
well as a description
d
of policy
p
for how information is safeguarded
O
Opt-Out
Noticce

Consumerss and customerrs must have thhe right to opt-oout of sharing of their inform
mation – notice must include an
a
explanationn of this right

Consumerss/customers mu
ust be given a “reasonable
“
means” (i.e. easyy to use forms or a toll-free number)
n
to opt--out and
must be givven a “reasonaable period of time”
t
to opt-ouut
P
Penalties
for Violation of the Gramm--Leach-Bliley
y Act
The Gramm-Leeach-Bliley Acct does not incluude specific peenalty provisioons for violationns of the law’ss privacy provisions.
T
H
However,
each of the regulato
ory agencies auuthorized to ennforce the law has
h the authoriity to bring enfforcement actioons and to
im
mpose penaltiees. For instancce, the Federal Trade Commission may imppose penalties of
o up to $10,0000 against morttgage
b
brokers
who violate the Act.
F
Federal
Mortgage-Related Law
ws: At-A-Glance
e
1
Privacy: Do-Not-Call
Do-Not-Call Overview
The Telemarketing Sales Rule (part of the Telemarketing Consumer Fraud and Abuse Prevention Act) was enacted in 1995 to
help consumer prevent unwanted telephone solicitations and telemarketing fraud. Amendments were made in 2000 to add the
Do-Not-Call provisions.
Consumer Protection Under Do-Not-Call Provisions

All calls made for the purpose of persuading consumers to purchase goods or services are covered

All businesses and individuals engaged in telemarketing sales must abide by the provisions of the Rule

Consumers must take the initiative to place their phone numbers on the Do-Not-Call Registry. Amendments in 2007
permit numbers to stay on the registry indefinitely.

Telemarketers must update their call lists every 31 days with consumers who have been added to the Registry

Rule prohibits calls made to consumers who have placed their phone number on the Registry. Calls made to customers
who have an established business relationship (within the past 18 months) are exempt from this provision.
Disclosures Required Under Do-Not-Call Provisions

The identity of the seller or telemarketer

The fact that the purpose of the call is to sell goods or services

The nature of the goods or services to be sold

Assurance that no purchase or payment is necessary
Disclosures Required Under Do-Not-Call Provisions

Use of threats, intimidation or profane language

Placing calls to consumers before 8:00 a.m. or after 9:00 p.m. – it is important to consider the local time of the consumer

Making false or misleading statements

Requiring payment of a fee in advance of obtaining a loan or other extension of credit

Charging a consumer for goods or services without consent

Failing to transmit a telephone number so that it can be read by a call recipient’s Caller ID

Initiating a call to a consumer listed on the Do Not Call Registry
Penalties for Violations of Telemarketing Sales Rules/Do-No-Call Provisions

Violations are regarded as unfair or deceptive trade practices under the Federal Trade Commission Act

Penalties are $11,000 for each violation

When violations are on-going, each day is considered a separate violation
Federal Mortgage-Related Laws: At-A-Glance
2
M
Module
e 1: Fed
deral Mortgag
ge-Rela
ated Law
ws
A
At-A-Gla
ance
FTC Re
ed Flag Rules
R
Red
Flag Rule
es Overview
w

Establishedd in conjunctio
on with FACTA
A with the
purpose off addressing ideentity theft

Rules require finaancial institutions and creditorrs to
m
estaablish an Identiity Theft Preveention Program

Apply to fiinancial institu
utions and crediitors. Creditorss
are those who
w regularly extend
e
or arrannge for credit (ii.e.
mortgage brokers).
b

Guiidelines on Idenntity Theft Dettection, Prevenntion and
Mitiigation issued by FTC


Apply to “covered accou
unts” – mortgagge loans are citted
as an exam
mple
Inteended to protecct customers – loan applicantss are
inclluded in the definition of custtomer
Identity Theftt Prevention Program
P
Program
established by financcial institution//creditor must have provisionns for:

Identifyingg patterns, pracctices, or speciffic activities thhat may indicatte the possible existence of iddentity theft

Detecting irregularities
i
when
w
obtainingg information frrom a person opening
o
an accoount

Preventingg and mitigating
g identity theftt by respondingg appropriatelyy risks

Updating the
t program peeriodically to iddentify new risks to the securrity of personall information
Identity Theftt Warning Sig
gns Included
d in Guidelines

Notificatioons or warningss from a CRA

Suspicious Activitty Related to thhe Covered Acccount

Suspiciouss Documents


Suspiciouss Personal Iden
ntifying Inform
mation
Nottices from Custtomer, Identityy Theft Victimss, Law
Enfforcement
F
Federal
Mortgage-Related Law
ws: At-A-Glance
e
1
Module 1: Fed
deral Mo
ortgage-R
Related Laws
At-A-Glance
Fed
deral Disclosures
Disclosure Name
N
When is itt due?
Good Faith Esstimate
Within three busiiness days of
applicattion
Seettlement Cost Inform
mation Booklet
RESPA
Sttates whether loan serrvicing can be sold oor transferred
At closiing
(or one day priorr if requested)
Within 45 days after
a
closing
Prrovides an account off funds placed in escrrow
Affiliated Business Arrangement
A
Disclosurre
At the time of a referral
r
to an
affiliatte
Prrovides notice of an ownership
o
interest beetween a loan originaator and a third party
seervice provider
Servicing Transferr Statement
15 days prior to
t transfer
Annual Escrow Statement
S
Annuallly
CHARM Booklet
Within three busiiness days of
applicattion
Variable
V
Rate Program
m Disclosures
Prrovides information on
o adjustable rate moortgages
Prrovides information on
o open-end credit pllans such as HELOCs
Seven days prio
or to closing
Notice of Right to
o Rescind
At closiing
Notice of Action Taken/N
Notice of Adverse
Action
o application
Within 30 days of
Federal Mortgage-Relate
ed Laws: At-A-Glance
Prrovides annual analyssis to prevent escrow
w overcharges
Prrovides information for
f each program a looan applicant has exp
pressed interest in
Final TIL Discclosure
Notice
N
of Right to Recceive Appraisal
Advises a borrower wh
hen servicing for his//her loan is being tran
nsferred
Prrovides the cost of crredit using APR and ffinance charge, as weell as other
traansaction terms
Op
pen-end Credit Disclo
osure (i.e. When
Your Home is on
n the Line)
EC
COA
Prrovides the actual cossts, in dollar amountss, associated with setttlement. The
HUD-1A is used for reefinance transactions.
Initial Escrow Statement
TIL Disclosure Statement
S
T
TILA
nts with an estimate oof the costs, in dollar amounts,
Prrovides loan applican
asssociated with settlem
ment
Fo
or purchase loans – explains
e
the settlemennt process and review
ws RESPA
Prrotections
Morrtgage Servicing Discclosure Statement
HUD-1 Settlementt Statement
W
What
is its purposse?
Ree-discloses the APR and finance charge fo
for the loan transactio
on
Advises of right to can
ncel certain lending trransactions such as reefinances and home
quity lines within threee days of closing. Tw
wo copies must be giiven to each person
eq
with ownership interesst.
on is taken, notice
Advises loan applicantt on status of applicattion – if adverse actio
prrovides additional infformation on rights, eetc.
Iff adverse action is tak
ken, provides applicannt with information on
o right to obtain a
opy of his/her appraissal. Applicant must reespond within 90 day
ys of disclosure.
co
1
M
Module
e 2: Gen
neral Mortgag
M
ge Know
wledge
e
A
At-A-Gla
ance
Mortga
age Progrrams
C
Conventio
nal/Confo
orming Loa
ans

A convenntional mortgage is a moortgage NOT
T obtained thhrough FHA
A, VA, or US
SDA

A convenntional mortgage conform
ms to loan liimits, down payment reqquirements, borrower
b
inccome
requirem
ments, debt-to
o-income rattios, and otheer underwritting guidelinnes establisheed by Fanniee Mae
and Fredddie Mac
I
Income
Quaalification

Income documentatio
d
on for salarieed and hourlly individualls includes paystubs
p
for the most reccent 30day periood and W-2ss for the mosst recent twoo-year periodd

Individuaals earning more
m
than 255% of their inncome in coommission, or
o owning more
m
than 25%
% of a
business,, must provid
de up to twoo years’ tax returns
r

Individuaals who earn
n certain typees of non-taxxed income (i.e.
( Social Security)
S
aree permitted too “gross
up” theirr earnings by
y 25%
Credit Quallification
C
C
Conforming
uire a comprrehensive revview of a potential borroower’s creditt history in order
o
to
lenders requ
d
determine
crredit capacity
y and credit character.
Seller Finan
S
ncing
S
Seller
concesssions are lim
mited to 6% for borroweers who makke a down paayment of 100% or higherr. Seller
c
concessions
are limited to
t 3% for boorrowers whoo make a dow
wn paymentt of less thann 10%.
G
Governme
ent Loans
F
FHA

FHA insuures loans

In the event of forecllosure lenderr is protectedd by mortgagge insurancee issued by government
g
f full
for
value of the
t loan

Advantagges of FHA loans includde low down payments, no
n prepaymeent penaltiess, and fee lim
mits on
closing costs
c

FHA loanns require a 3.5% borrow
wer investment and a moortgage insurance premiuum (MIP) too be paid
on each loan
l
for a peeriod of five years

Originatiion fees on FHA
F
loans arre capped att 1% of the looan amount

203 (b) is
i FHA’s priimary prograam; it is a fixxed rate proggram used too purchase or
o refinance oneo
to
four-unitt family dwellings

The 251 program is FHA’s
F
adjusstable rate prrogram; it is based on 2003 (b). FHA offers a num
mber of
RMs, including one-, threee-, five-, seeven- and tenn-year versioons.
different types of AR
G
General
Mortga
age Knowledge
e: At-A-Glance
1

FHA permits borrowers to buy down the rate on their fixed rate loan under the 2-1 Buy Down
program. Lenders are required to qualify the borrower at the note rate and not the buy down rate. In
this type of buy down, the borrower deposits funds in an escrow account in order to offset lower
interest payments the first two years of the loan.
VA

VA guarantees home loans

Veterans who qualify for a VA loan must obtain a Certificate of Eligibility. Determinations of
eligibility are based on the length of service

Although there are a few exemptions, including exemptions for veterans with disabilities, most VA
loan include a funding fee, which the veteran can finance. The funding fee is considered nonrefundable unless the borrower is overcharged or inadvertently charged.

Origination fees on VA loans are capped at 1%

VA loans are made based on a total (back) debt ratio of 41%

The veteran is required to occupy the subject property as his or her primary residence, however VA
loans are assumable

The loan guaranty is based on the veteran’s entitlement; the VA will guarantee a loan amount four
times the amount of the eligibility listed on the veteran’s COE
USDA

Section 52 loans are made for the purpose of assisting low-income borrowers purchase homes in
rural areas

USDA loans are made for 30-year terms and there is no required down payment
Conventional/Nonconforming Loans
A non-conforming loan is a conventional mortgage loan that exceeds current maximum loan limits and
underwriting requirements established by Fannie Mae and Freddie Mac.
Examples of non-conforming loans include:

Jumbo loans

Alt-A

Subprime loans

Niche loans

Super Conforming Loans

Option ARMs
Guidance on Nontraditional Mortgage Product Risks
In November 2006, CSBS AARMR published their Guidance on Nontraditional Mortgage Product
Risks for State-Licensed Entities. Guidance includes:
General Mortgage Knowledge: At-A-Glance
2
Loan Terms and Underwriting Standards

Addresses the need for stricter underwriting standards for nontraditional mortgages, especially with
regard to the analysis of the repayment ability of the borrower

Defines nontraditional mortgage products as those that allow borrowers to exchange lower payments
during an initial period for higher payments during a later amortization period
Risk Management Practices

Suggests establishing appropriate limits on risk layering
Consumer Protection Issues

Suggests providing consumers with information on the risks of nontraditional mortgages

Suggests showing borrowers the consequences of accepting interest-only and payment-option loans
Statement on Subprime Lending
Six months after publishing the Guidance on Nontraditional Mortgage Product Risks, the Federal Bank
Regulatory Agencies determined that it was important to provide a direct response to the crisis unfolding
in the subprime lending market. Once again, CSBS and AARMR took part in drafting a parallel
statement for state-licensed loan originators. The Statement:

Identifies the riskiest loans as ARMs that include low introductory rates, high/no rate caps, lack of
borrower income documentation and high prepayment penalties

Strongly encourages complete communication with loan applicants

Both the Subprime Statement and the Nontraditional Mortgage Guidance issue strong warnings
against risk layering
Mortgage Loan Products
Fixed

With a fixed rate mortgage, the interest is set at the time of closing and does not change during the
life of the loan

Lenders will make fixed rate loans for terms of any length although 10-, 15-, 20-, 25- and 30-year
terms are common

Making a payment every two weeks (bi-weekly payment plan) is the same as making an extra
mortgage payment every year because there are 26 bi-weekly periods in a year (13 monthly
payments)
Adjustable

A variable rate or adjustable rate mortgage (ARM) is a mortgage with an interest rate that may
change one or more times during the life of the loan

All lending agreements for ARMs include an adjustment frequency

The specific index used to determine the rate adjustments must be disclosed to a potential borrower
on the early ARM disclosure provided at application. The index also appears on the promissory note
when the loan goes to closing.
General Mortgage Knowledge: At-A-Glance
3

Common indices include the Treasury Bill Index, the 11th District Cost of Funds Indexes (COFI) or
the London Interbank Offered Rate (LIBOR)

The other number, which lenders must disclose to borrowers in lending agreements, is the margin.
The margin is a fixed number that is not subject to change during the term of a loan.
Balloon

A balloon mortgage is a mortgage which requires the borrower to make one large payment at the end
of the loan term

The risk of the balloon payment may be minimized by the existence of an option for converting the
loan to a fixed-rate loan at its maturity date. This is referred to as a conditional refinance provision.
Other

Second Mortgages: A second mortgage – also known as a junior mortgage or subordinate lien – is a
lien that ranks in priority below the first mortgage

Home Equity Loan: The loan is closed-end, meaning that the borrower receives a lump sum and
does not continue to make withdrawals

Home Equity Line of Credit (HELOC): HELOCs are considered open-ended credit – similar to
credit cards – and as a borrower pays off the principal, they can continue to make withdrawals

Piggyback Loans: An 80-10-10 loan is an example of this type of transaction. In an 80-10-10
transaction, the borrower obtains a first mortgage at 80% LTV and a simultaneous second mortgage
at 10% LTV. The remaining amount is a 10% down payment or 10% equity in the property.

Construction Loans: A construction loan is an interim loan used to pay for the construction of
buildings or homes.

Reverse Mortgages: Reverse mortgages are popular products for older homeowners who have
equity in their homes and little or no income. Borrowers are not required to repay the loan as long as
they continue to live in the home. A HECM is a type of reverse mortgage regulated and insured by
FHA.

Interest-Only Loans: Typically used by individuals who wished to keep monthly payments low by
only paying the interest due on the loan or in order to qualify for a larger loan amount

No Ratio Loan: Ratio of housing debt-to-income and ratio of total debt-to-income are not
considered

No Income, No Assets (NINA): No income or assets information provided by the borrower, nor
verified by the lender

Stated Income, Stated Assets (SISA): Borrower provides income and assets information. However,
no documentation is provided and the lender performs no verification of the information.

No Doc: The only documentation used is the credit report and appraisal.
General Mortgage Knowledge: At-A-Glance
4
Terms Used in the Operation of the Mortgage Market
Loan terms

Amortization

Finance charge

Negative Amortization

PFC

Closing Costs

POC

Debt-to-Income Ratio

Prepayment Penalty

Discount Point

Sales Contract

Earnest Money

Seller Carry-Back

Equity

Service Release Premiums

Escrow Account

Servicer

Fees

Yield Spread Premiums
Disclosure terms

Adverse Action

HUD-1

Affiliated Business Arrangement

HUD-1A

APR

Par Rate

Finance Charge

Note Rate

GFE
Financial terms

Deed

Points

Deed of Trust

Promissory Note

Mortgage

Fully Indexed Rate

Note

Index

Foreclosure

Securitization

Interest
General terms

Conforming Loan

Refinance

Conventional Loan

Revolving Debt

PITI

Subordinate Lien

Purchase Money

Subprime

Mortgage

Table Funding

Qualifying Ratios

Underwriting

Reconveyance
General Mortgage Knowledge: At-A-Glance
5
M
Module
e 3: Morrtgage Loan Origina
O
ation Ac
ctivitiess
A
At-A-Gla
ance
Applicatio
A
on Inform
mation and Require
ements
A
Applicatio
n Accurac
cy and Req
quired Info
ormation
Form 1003, the
F
t Uniform
m Residentiall Loan Appliication, is the standard appplication thhat applicantts
e copy
c
complete
whhen applying
g for a mortggage. Fanniee Mae created the form and
a posts a downloadabl
d
o the Internnet. Form 65
on
5 is a similarr form createed by Freddie Mac.
The purpose of the application intervview with the potential borrower
T
b
is to
t capture infformation too
c
complete
thee loan application. This may
m take plaace in a face--to-face meeeting, over thhe phone or even
e
o
over
the interrnet.

Section I,
I Mortgagee and Termss of Loan: Allows
A
borroowers to choose the type of loan for which
w
they are applying
a

Section II,
I Property
y Informatioon and Purp
pose of Loan
n: Used to designate
d
infformation cooncerning
the propeerty address and how thee loan proceeeds will be used
u

Section III,
I Borrow
wer Informattion: Asks for
f the appliccant’s personnal information

Section IV,
I Employment Inform
mation: Useed for the appplicant’s currrent and/or two-year
employm
ment history

Section V,
V Monthly Income and
d Combined
d Housing Expense
E
Infformation: Covers
C
the
informatiion required
d to calculatee an applicannt’s front andd back debt-tto-income raatios

Section VI,
V Assets and
a Liabilitiies: Addressses the appliccant’s assetss and liabilitiies

Section VII,
V Details of Transacction: Is for specific
s
infoormation aboout the propoosed transacttion.
The transsaction inforrmation sectiion is used too estimate how
h much money the borrrower will need
n
in
order to get
g the loan to closing.

Section IX,
I Acknow
wledgment and
a Agreem
ment: Allowss applicants to
t affirm thaat they underrstand
the purpoose of the loaan applicatioon and that it is a bindingg agreementt

Section X,
X Informattion for Govvernment Reporting
R
Pu
urposes: Reequests inform
mation regarrding
race, sex and nationaal origin for government
g
statistics. Innformation cannot
c
be ussed to discrim
minate
t applicantt’s discretionn whether thhey completee this sectionn. If the
against thhe borrower and it is at the
applicantt decides nott to furnish this
t informattion, it will be
b up to the loan
l
originattor to make an
“educated guess” con
ncerning the demographic informatioon to report to the goverrnment.
V
Verification
n and Doc
cumentatio
on
After compleeting a loan application, an applicantt must proviide documenntation to suppport the infformation
A
d
disclosed
in the
t applicatiion. These documents innclude:

Requestss for Verificaation of Empployment

Requestss of Verificattion of Depoosit

Special Consideratio
C
ns for Appliicants with Commission
C
Income or Self-Employ
S
yment

Commisssion Income
M
Mortgage
Loan Origination Ac
ctivities: At-A-Glance
1

Income of Self-Employed Applicants
Suitability of Products and Programs
“Loan suitability” is a term that refers to the diligent matching of loan programs with the current
financial circumstances of each customer. Under the new Regulation Z provisions for Section 32
(“high-cost”) and “higher-cost” mortgages, loan originators must:

Complete analysis of repayment ability, including taxes and insurance

Verify income and employment using reasonably reliable evidence such as IRS W-2 forms, tax
returns, and payroll receipts
Disclosures
As a consumer protection measure, the timing and accuracy of disclosures is an important component of
loan origination. Disclosures:

Inform the Consumer about the Costs of a Loan
o GFE (within three days of application)
o HUD-1 (at closing or one day prior)
o Initial (within 45 days of closing) and Annual Escrow Statements
o Affiliated Business Arrangement Disclosure (at time of referral)
o TIL Disclosure Statement (within three days of application)

Advise Consumers of Risky Lending Terms Agreements
o Balloon Payment Notice (three days prior to closing for Sec 32 loans)
o Notice that Completion of Loan Application and Receipt of Disclosure Does Not Obligate
Borrower to Complete Transaction (three days prior to closing for Sec 32 loans)

Alert Consumers of Their Rights
o Notice of Right to Receive Appraisal Report (within 30 days after application)
o Notice Regarding Monitoring Programs (when obtaining demographic information)
o Notice of Right to Rescind (at closing)
o Notice of Right to Cancel PMI (at closing)
o Notice of Right to Receive Credit Score and to Dispute Its Accuracy (during loan
transaction)
o Notice of Right to Financial Privacy and Right to Opt-out of the Sharing of Personal
Information (at time customer relationship is established)

Alert Consumers about the Status of a Loan Application
o Notice of Action Taken (within 30 days after application)
o Notice of Adverse Action (within 30 days after application)
o Notice of Incomplete Application (within 30 days after application)

Advise About Loan Servicing
Mortgage Loan Origination Activities: At-A-Glance
2
o Mortgage Servicing Disclosure Statement (within three days of application)
o Servicing Transfer Statement (15 days prior to transfer)
Accuracy

TILA requires re-disclosure of the APR if it varies by more than one-eighth of 1% prior to closing

If the potential borrower switches loan programs new disclosures must be provided
Qualification: Processing and Underwriting
Borrower Analysis – Assets and Liabilities
The Uniform Residential Loan Application includes a table for the itemization of assets and liabilities.
Acceptable Assets Include:
 Cash reserves
 Gifts
 Stocks and bonds
 IRA/401 K
 Accounts receivable



Other real estate owned
Cash surrender value of life insurance
policies
Value of automobiles
Liabilities Include:
 Notes payable to banks
 Notes payable to others
 Accounts with an outstanding balance
 Unpaid income tax and interest
 Alimony/child support
 Previous bankruptcies
Income
Borrower income is an important consideration for almost all loan types Examples of income
documentation include:

Standard income documentation for salaried and hourly individuals typically includes paystubs for
the most recent 30-day period and W-2s for the most recent two-year period. Income documentation
for all borrowers includes verification of employment.

Individuals with special income, such as real estate investors, may not be permitted to use all of their
income for qualification. For instance, a person who has rental income from an investment property
is only permitted to use 75% of the rental income as qualifying income.

The IRS form 4506-T is used to obtain a transcript of tax returns. IRS form 8821 is used to authorize
the release of other tax information.
Hourly: To compute the income of an hourly worker, you need to know the base hourly rate of pay, the
number of hours worked in a typical week, the number of overtime hours received on average, and the
number of weeks worked each year.
Bi-weekly Salary: To compute a bi-weekly salary, all you need to know is the applicant’s salary and
how the applicant’s vacation time is treated
Mortgage Loan Origination Activities: At-A-Glance
3
Annual Salaries: An applicant’s income will occasionally be reported as an annual salary. This is
common for educators and business executives.
Self-employed and Commissioned: Income is usually averaged over a two-year period
Child Support and Alimony: May be used if it is court ordered and if the applicant can show a stable
history of receiving the payments.
Credit Report

Credit Scoring was designed by Fair Isaac (i.e. FICO Score) and is developed through a statistically
validated system designed to evaluate any available information about an individual’s loan payment
history

The credit report will provide the following:
o
o
o
o
o
Applicant information
Content summary of the report
Credit scores
All known public records
Filed collections actions data
o Derogatory trade lines
information
o Credit inquiries
o Fraud verification alert
information

In general, account information, including late payments and other adverse information reported by
creditors, is kept on a credit report for no longer than seven years

To make a credit inquiry, a loan originator must have a “permissible purpose” identified under
FCRA

A loan offer begins with an accurate assessment of the applicant’s credit capability and capacity. The
originator must provide accurate information to the prospective borrower that is substantiated by the
credit report, the prospective borrower’s capacity (income and assets), and underwriting guidelines.

Some standard underwriting red flags, as well as red flags established by the FTC, include:
o Recently opened accounts
o Recent payoff of a large number of accounts
o Misspellings and errors
o Large numbers of recent credit inquiries
o Uncharacteristic use of credit or sudden increase in use of credit
o A credit history that doesn’t match the consumer’s age

Not all lenders report to all three of the CRAs so there may be omissions in an applicant’s credit
history at one or more of the credit bureaus

Nontraditional credit includes payments such as rent and utilities
Mortgage Loan Origination Activities: At-A-Glance
4
Qualifying Ratios
Front End Ratio, also known as the Housing Ratio, is a calculation that allows lenders to compare the
monthly housing expense that a loan applicant will assume with a new mortgage to his/her income:

Fannie Mae/Freddie Mac: 28%

FHA: 31%

VA: Doesn’t use front end ratio
Back End Ratio, also known as the Total Debt Ratio, compares the total monthly obligations to gross
monthly income.

Fannie Mae/Freddie Mac: 36%

FHA: 43%

VA: 41%
Loan-to-Value Ratio (LTV) is calculated by dividing the amount of the mortgage by the appraised
value or the purchase price of the home, whichever is less.
Combined Loan-to-Value Ratio (CLTV) is a ratio which lenders use when an applicant requests a
second mortgage. Lenders calculate the CLTV by combining the cost of all mortgages on a home and
comparing the combined cost to the value of the home securing the loans.
High Loan-to-Value Ratio (HLTV) is calculated when the borrower secures a second mortgage (i.e. a
home equity line) to consolidate consumer debt, and the combined amount of the first and second
mortgages exceeds the value of the home used to secure the loans.
Appraisals

In addition to evaluating a loan applicant, it is necessary to evaluate the property used to secure a
loan

Lenders rely on appraisals to ensure that the value of the property is adequate to serve as security, or
collateral, for the loan

A licensed appraiser must prepare the appraisal

The Uniform Residential Appraisal Report (URAR), or 1004, is the most common and
comprehensive appraisal form
Sales Comparison Approach

An analysis of recent sales that are the most comparable to the subject property. Appraiser must
analyze a minimum of three comparable sales that were settled or closed within the last 12 months.

Each comparable must be analyzed for differences and similarities between it and the property being
appraised and appraiser must make appropriate adjustments for location, terms, and conditions of the
sale, date of sale, and physical characteristics

Net adjustments should not exceed 15% of the sales price of the comparable

Gross adjustments should not exceed 25% of the sales price of the comparable
Mortgage Loan Origination Activities: At-A-Glance
5
Cost Approach

Assumes a potential purchaser would consider building a substitute residence that has the same
utility and use as the subject property being appraised

Appraiser arrives at the indicated value of the property by estimating the reproduction cost of
improvements, subtracting the amount of depreciation by all causes, and adding the estimated value
of the site as if it were vacant
Income Approach

Normally not applicable to single-family properties

If a single family home is being utilized as an investment property, the appraiser must prepare a
single-family comparable rental schedule in addition to the appropriate appraisal report
Title Report

Real property is comprised of land and anything that is affixed to the land

Personal property is anything that is transitory and can be moved

Liens are monetary claims that may provide the creditor with the right to foreclosure

Liens can come in the form of voluntary liens or involuntary liens

Lien priority is the chronological order in which liens are filed against a property

In title theory states, mortgages are executed and the borrower gives legal title to the lender while
retaining equitable title

In lien theory states, the borrower retains both legal and equitable title
Insurance
Private Mortgage Insurance (PMI): Provides some security to the lender in the event of default.
Usually required on loan transactions with LTV higher than 80% (20% equity). Borrowers also qualify
for a loan with a lower down payment when they are willing to pay PMI. Can be discontinued at
borrower’s request at 20% equity position, or automatically at 22% equity position (78% LTV).
Mortgage Insurance Premium (MIP): Is required on all FHA loans and is intended in a similar way as
PMI. Unlike PMI, MIP is required on all loans for five years
Hazard Insurance: Is required to protect the security of the collateral property from damage caused by
fire and other risks. It is also commonly known as homeowner’s insurance.
Flood Insurance: Is used to protect the security of the collateral property, although its use is determined
by the geographic location of the real estate. The appraiser has a responsibility to determine the flood
zone designation for the property’s location.
Mortgage Loan Origination Activities: At-A-Glance
6
Specific Program Guidelines
FHA, VA, USDA
FHA

FHA’s two primary programs are 203B – the fixed rate program – and 251 – the adjustable rate
program

Requires the borrower to invest in the loan transaction by making a 3.5% down payment

Limits loan origination fees to 1% of the loan amount

Requires a seller to be on title for a minimum of 90 days for a loan to qualify for FHA insurance

Requires MIP for the first five years of the loan and some loan transactions also require an upfront
MIP payment. The actual amount is determined by the loan-to-value.
VA

Loans are permitted to contain up to 4% seller concessions

Loans include a funding fee. The fee depends on the type of loan transaction and whether the veteran
has previously used his/her eligibility for a loan. The fee is not charged to disabled veterans and can
be financed into the loan.
USDA

All USDA loans include a 2% funding fee

Loans do not require a down payment. Borrowers are permitted to finance the required funding fee,
allowing financing up to 102%.

Program offers 30-year fixed rate loans only
Fannie Mae, Freddie Mac

The GSEs utilize debt-to-income ratios of 28% for housing and 36% for total debt, although there is
some flexibility for higher ratios depending on additional factors

Conforming loans require private mortgage insurance when the borrower makes a down payment of
less than 20%

Regulatory guidelines for the GSEs establish maximum loan limits annually. For 2009, conforming
loan limits are $417,000 for a single family residence and $625,500 for a single family residence in a
high-cost area.
Closing
Title and Title Insurance

The title to a property is a document that provides evidence of an individual’s ownership of the
property. Information affecting property title must be recorded in public records in order to provide a
clear lineage of the ownership and transfer of a property.

Title insurance is available in two forms: lender’s insurance and owner’s insurance. Lender’s
insurance protects the lender and is generally mandatory for loan approval.
Mortgage Loan Origination Activities: At-A-Glance
7

Owner’s insurance is voluntary on the part of the borrower. It protects the borrower from lawsuits
and other harmful scenarios resulting from title defects. The borrower bears the cost of both lender’s
and owner’s title insurance.
Closing Agent
The closing agent is often employed by the title company. Responsibilities include:

Coordinate the closing process

Verify transaction amounts

Ensure all parties to the transaction (borrower/buyer, seller, etc.) have copies of forms and
disclosures required for settlement

Verify identity and notarize documents

Discuss closing requirements with parties to the transaction; including fees, dates, funding,
rescission, etc.
Explanation of Fees and Documents
Neglecting to explain any of these items to a borrower can place a mortgage professional at risk for
violating disclosure requirements of these federal laws as well as state and federal laws pertaining to
deceptive trade practices.
Funding

The first step in the post closing process is funding. Generally, funding occurs the day of closing
with purchase transactions and refinances involving investment properties

If a refinance transaction involves a principal residence, the loan will fund after the three day
rescission period provided the borrower did not decide to rescind the loan

A wet settlement is when the parties to a loan transaction meet to execute document and afterwards
funds are disbursed.

A dry settlement occurs when the parties meet to execute documents but funds are not disbursed

Table funding is a process that allows a broker to originate and process a loan under their name.
However, at the time of closing the loan is transferred to a lender who provides the funds for
disbursement.
Financial Calculations
Interest Per Diem
Per diem, or daily interest, is calculated by dividing the annual interest rate by the number of days in a
year, then multiplying the result by the outstanding balance of the loan.
Payments
PITI
Amortized mortgage payments can only be calculated using a financial calculator designed to handled
Mortgage Loan Origination Activities: At-A-Glance
8
loan amortization. However, it is generally a very simple process when you have the total loan amount,
interest rate and loan term.
Taxes

Taxes are typically obtained as an annual, semi-annual or monthly amount from the locality where a
property is located.

The annual tax amount is divided by 12 to arrive at a monthly tax payment (semi-annual is divided
by 6), which can be added to a P&I payment or entered along with the other variables into a financial
calculator.
Mortgage Insurance

Mortgage insurance varies based on the borrower’s loan-to-value and the type of loan being
originated. Fixed rate loans will have a different mortgage insurance rate than adjustable rate loans

The monthly PMI is calculated by finding the rate for the specific loan product and multiplying it by
the loan amount to find the annual PMI. The annual premium is divided by 12 to arrive at the
monthly PMI.
Down Payment

Down payment is often a component of determining loan-to-value for the purposes of various loan
programs or for figuring a maximum loan amount

For instance FHA borrowers are required to have a 3.5% investment/down payment in their loan
transaction

Conventional lenders usually require borrowers to pay PMI if they make a down payment of less
than 20%, or otherwise have less than 20% equity in their property
Loan-to-Value

There are two loan-to-value (LTV) calculations. The first describes the relationship between the
first, or primary, mortgage and the property’s value. This is the LTV. The second describes the
relationship between all liens and encumbrances and the property value. This is called the combined
loan-to-value, or CLTV.

LTV is calculated by dividing the loan amount by the property value

CLTV is calculated by adding all lien balances together and dividing the result by the property value
Debt-to-Income Ratios

The front ratio is calculated by adding all housing related monthly expenses and dividing them by
the gross monthly income

The back ratio, or total debt ratio is calculated by adding the payments for all long-term debts and
dividing the result by the gross monthly income
Mortgage Loan Origination Activities: At-A-Glance
9
Buy Downs

Temporary and fixed interest rate buy-downs are handled differently. In a fixed interest rate buydown, the borrower pays fees to permanently reduce the note rate of a loan.

A point is calculated by multiplying the loan amount by .01

A temporary buy-down is created when funds are placed in escrow to offset the monthly payment
required by the terms of the loan. The escrow funds reduce the payment rate for a period of time but
not the note rate.
Closing Costs and Prepaid Items
Determining the amount of money that needs to be brought to closing by the buyer in a purchase
transaction or owner in a refinance transaction is calculated as follows:
{Loan Amount} – {Payoff} – {Financing Costs} – {Government Charges} – {Pre-paid Costs} =
{Cash Needed, or Overage Available as Cash, to Borrower}
ARMs
Determine the maximum interest rate by adding the lifetime rate cap to the start rate. This is the most the
interest rate could ever be:
{Start Rate} + {Lifetime Cap} = {Maximum Rate}
To calculate the rate in a particular year, follow these steps:
{Number of Adjustments} × {Periodic Cap} = {Periodic Adjustment}
{Start Rate} + {Periodic Adjustment} = {New Rate}
Mortgage Loan Origination Activities: At-A-Glance
10
Module 4: Ethics
At-A-Glance
RESPA
Things of Value

Violations of RESPA and Regulation X occur when a referral results in giving or accepting a fee or
any other thing of value

The most certain way to avoid ethical and legal liability for referrals is to offer or receive nothing for
a referral other than a thank you note
Originator Compensation

YSPs are commissions that mortgage brokers earn from lenders for originating a loan with an
interest rate that higher than the par rate

YSPs can benefit borrowers who have no cash to cover the costs of settlement
Truth-in-Lending Act
Sales, Marketing and Advertising

Typical violations of the law include an advertisement’s use of trigger terms, such as “low monthly
payments,” without stating the less advantageous terms of repayment

Another common violation involves the advertisement of mortgage products that are not available

The 2008 revisions to Regulation Z include a list of seven prohibited practices when advertising
closed-end mortgage loans, not only are they illegal, but they are unethical

Seven practices that are prohibited in closed-end mortgage loans and some of the examples that the
Federal Reserve offers, in its Staff Commentary, of prohibited advertisements:
o Misleading advertising of “fixed” rates and payments
o Misleading comparisons in advertisements
o Misrepresentations about government endorsement
o Misleading use of the current lender’s name
o Misleading claims of debt elimination
o Misleading use of the term counselor
o Misleading foreign-language advertisements
Gramm-Leach-Bliley Act
Privacy

The provisions of the GLB Act require financial entities to provide customers with a privacy notice
as well as an opt-out notice. The opt-out notice gives borrowers the ability to limit sharing of their
Ethics: At-A-Glance
1
personal information with parties necessary to complete a specific transaction such as settlement
service providers.

The Safeguards Rule works in conjunction with the Disposal Rule established by the Fair and
Accurate Credit Transactions Act. In order to remain compliant with the provisions of these rules,
mortgage professionals should not be careless with maintenance and disposal of borrower
information.
Equal Credit Opportunity Act
Adverse Action
If the creditor takes adverse action on the application, the notice must provide a statement of the reasons
for the unfavorable decision, and must include a statement that ECOA prohibits discrimination against
credit applicants.
Appraisal
Examples of actions that are considered methods of improperly influencing appraisers:

Communicating to an appraiser that a minimum value for a property is necessary for loan approval

Indicating to an appraiser that current or future use of his/her services depends on returning a
specific property value

Refusing to use an appraiser’s services because he/she has returned property values that do not meet
or exceed an expected threshold

Conditioning appraiser compensation on a specific property value or consummation of a loan

Withholding compensation from an appraiser for not returning a minimum property value
Examples of conduct which is not considered improper appraiser influence:

Requesting that an appraiser consider additional information about a property or comparable
properties

Asking for additional information concerning the basis of the appraiser’s opinion of a property’s
value

Obtaining more than one appraisal for a property, provided that there is a policy of selecting the
most reliable appraisal versus the one which states the highest value

Withholding appraiser compensation based on breach of contract or performance of services that are
substandard
Fraud Detection, Reporting, and Prevention

Mortgage professionals are required to be on the lookout for, and report, anything about a loan
transaction that could jeopardize the lender’s investment or subsequently harm an investor if the loan
is sold on the secondary market

The FBI Mortgage Fraud Warning Notice advises that knowingly providing false or misleading
information in a loan transaction is a federal crime (felony) which can lead to fines of up to
$1,000,000 and/or imprisonment for up to 30 years
Ethics: At-A-Glance
2
Common Fraud Tactics
Inflated Appraisals: Inflated appraisals are a common element of fraudulent lending transactions.
Property Flipping: Property flipping, or dual sales contracts, occurs when a property is bought and
resold within a very short period of time.
Straw Buyers: A straw buyer is an individual who accepts a fee to provide his/her name, social security
number, and other personal information for use on a mortgage application
Straw Sellers: A straw seller is an individual who accepts a fee to falsely claim ownership to a property.
Air Loans: When a fictitious borrower obtains a mortgage loan and “secures” it with fictitious property,
the loan is known as an air loan
Foreclosure Rescue Scams and Equity Theft: Equity theft occurs when an industry professional
forges a deed transfer and obtains a new lien on a property without the homeowner’s knowledge
Identity Theft: Identity theft occurs when a fraudster uses another individual’s name, social security
number, and other personal information to secure credit or make purchases
Falsified Applications: Studies have shown that fraudulent information on the loan application is the
most common type of mortgage fraud involving borrowers. Knowingly accepting an application that
contains fraudulent information puts you, as well as the borrower at risk for serious federal violations
such as bank fraud.
Fraud Detection
Fraud detection requires attention to detail and awareness of common fraudulent activities. Some
methods include:

Verifying identity

Carefully reviewing the mortgage application and supporting documentation
o For instance, income qualification should always be performed using factual data and not
assumptions or estimates

Carefully reviewing the sales contract
o For instance, the purchase price should not be greater than the list price

Carefully reviewing the credit report
Ethical Behavior
There are numerous lending practices that indisputably violate basic notions of what constitutes honest,
fair, and nondiscriminatory lending.
Ethics: At-A-Glance
3
Disclosures
There are a number of appropriate methods for providing disclosures:

Handing disclosures to a loan applicant or borrower at a face-to-face interview is always a fail-safe
method. In this case the consumer can ask questions and you are able to ensure they have received
the information

Because origination is often handled over the phone or internet, the next best method for disclosure
is via the U.S. Mail or a fax number

Email and secure electronic document handling are also becoming common methods of handling
origination documents including disclosures
Consumers
The Federal Trade Commission (FTC) provides oversight and compliance measures for many of the
consumer protection laws which affect non-federally regulated mortgage professionals.
Appraisers
There are a number of requests which you are permitted to make of the appraiser. For instance, it is fine
to ask the appraiser to consider additional comparables, although it is up to his or her discretion to do so.
However, it is considered unethical and unlawful to threaten or pressure an appraiser to promise a
specific property value.
Underwriters

Underwriters act as agents for lenders, ensuring loan applicants meet the requirements established by
lenders and investors for loan programs.

In addition to ensuring potential borrowers meet loan program standards, underwriters are also taxed
with spotting missing or questionable items in order to verify the accuracy of application materials.
Underwriters look for:

Loan application red flags

Credit report red flags

Employment and income red flags

Appraisal red flags
Investors

Investors play a critical role in the strength of the mortgage market

The overall soundness of the mortgage market depends on the interplay of primary lenders with
mortgage insurers and secondary market investors
Warehouse Lenders

In a table-funded loan transaction, a loan goes to closing with the originator listed as the lender
Ethics: At-A-Glance
4

It is important for mortgage professionals who participate in table-funding transactions to understand
their responsibilities to warehouse lenders

Quite often, the fine print in table-funding agreements between originators and lenders includes buyback provisions
Real Estate Licensees

Mortgage professionals often have a close working relationship with real estate professionals

In cases where an individual fills a dual role, it is always a legal requirement to appropriately advise
consumers due to the potential conflict of interest

One primary area of concern with real estate professionals involves referrals and compliance with
RESPA

Privacy is another area of concern when dealing with real estate professionals
Employers
Comprehensive oversight of employees is important since, in many cases, an employer can be held
responsible for the actions of its employees.
Ethics: At-A-Glance
5
Tutoring Session 1: Practice Questions
1. The federal agency responsible of enforcing RESPA and issuing implementing
regulations is:
a. HUD
b. FTC
c. The Federal Reserve
d. OCC
2. RESPA does not apply to:
a. Federally regulated mortgage loans
b. Loans for business, commercial, and agricultural purposes
c. Loans secured by a lien on a principal dwelling
d. Subprime mortgage loans
3. The GFE must include:
a. The actual settlement costs for a loan
b. A description of the settlement process
c. A reasonable estimate of the charges due at closing
d. Disclosure of the borrower’s credit information being used for loan qualification
4. If a settlement service provider refers a loan applicant to an affiliated business for
settlement services, disclosure of the affiliated business arrangement is due:
a. Three business days after completion of the loan application
b. At the time of closing
c. One day prior to settlement
d. At the time of making the referral
5. Under RESPA, a “kickback” or a “referral fee” includes:
a. The splitting of fees between two settlement service providers
b. Markups of fees for settlement services
c. A share in profits resulting from referrals to affiliate settlement service providers
d. A bribe made to an appraiser to return a specific property value
6. Which of the following disclosures can a borrower request a day prior to the time that it
is due?
a. Good Faith Estimate
b. Mortgage Servicing Disclosure Statement
c. HUD-1 Settlement Statement
d. Initial Escrow Statement
1
7. The purpose of a Mortgage Servicing Disclosure Statement includes all of the following
except:
a. Advise the borrower that the servicing rights to his/her mortgage may be sold
during the loan term
b. Advise the borrower that the lender or table-funding mortgage broker does not
service loans and will sell the servicing rights
c. Ensure that borrowers know who has the servicing rights to their loans
d. Advise a borrower that the servicing rights to their loan have been transferred to
another servicer
8. Under RESPA, it is necessary to provide a Mortgage Servicing Disclosure Statement in:
a. Home equity plans
b. Transactions secured by a subordinate lien on the home
c. Transactions secured by a first lien on the home
d. All of the above
9. The federal agency that is responsible for writing the implementing regulations for TILA
is:
a. The Board of Governors for the Federal Reserve
b. The Federal Trade Commission
c. The Federal Deposit Insurance Corporation
d. The Office of the Comptroller of the Currency
10. Congress enacted TILA in order to protect consumers by:
a. Requiring lenders and mortgage brokers to offer consumers the best loan
available
b. Requiring lenders to comply with uniform standards for stating the cost of credit
so that consumers can compare loan products
c. Requiring lenders to advertise the cost of credit
d. Eliminating the discriminatory treatment of credit applicants
11. Lending transactions that are exempt from TILA include all but one of the following:
a. Student loans
b. Credit over $50,000 not secured by real property
c. A home equity line of credit
d. Agricultural credit
12. TILA regulates “creditors.” All of the following are included in the definition of creditor
except:
a. The creditor offers credit to consumers
b. The creditor regularly extends either open- or closed-end credit
c. The creditor makes the credit subject to finance charges
d. The creditor is a business and not a natural person
2
13. Which of the following rules would not be used to determine whether a fee is included in
the calculation of finance charges?
a. The lender requires the use of the third party charging the fee
b. The fee is charged in an open-end transaction but not a closed-end transaction
c. The fee is not paid in a comparable cash transaction
d. The lender retains a portion of the fee charged by a required third party
14. The right to rescind applies to:
a. Purchase money mortgages
b. Certain loans secured by a lien on borrower’s principal dwelling
c. A home equity plan secured by real estate that is not a borrower’s principal
dwelling
d. A refinance on a borrower’s principal dwelling conducted by the same creditor as
the initial loan
15. A borrower has gone to settlement for a cash out refinance with a new lender on Tuesday.
Their rescission period is over at midnight on Friday. When does the loan fund?
a. Tuesday
b. Friday
c. Saturday
d. Monday, the following week
16. An advertisement for a loan with “low monthly payments” is legal under TILA if:
a. Low monthly payments are actually available
b. The other terms of the loan are equally as favorable
c. Low monthly payments are available to the consumers targeted by the
advertisement
d. The low monthly payments are actually available and the advertisement also
mentions the terms of repayment, including any balloon payment
17. All but one of the following is a trigger term, requiring the disclosure of additional
information in advertisements:
a. The annual percentage rate
b. The amount of any finance charge
c. The amount of any payment
d. The period of repayment
18. The federal agency with authority to bring enforcement actions against mortgage brokers
for violations of Regulation Z is:
a. The Federal Deposit Insurance Corporation
b. The Federal Trade Commission
c. The Federal Reserve Board
d. All of the above
3
19. Which of the following unlawful practices historically involved lenders designating
neighborhoods where they would not extend mortgages to homebuyers, leaving the
dream of homeownership unattainable for many qualified minority borrowers?
a. Reverse redlining
b. Churning
c. Redlining
d. Shotgunning
20. The regulations for implementation of ECOA are known as:
a. Regulation Z
b. Regulation B
c. Regulation C
d. Regulation X
21. Prohibited practices under the Equal Credit Opportunity Act include all but one of the
following:
a. Making inquiries regarding a loan applicant’s marital status, sex, child-bearing
intentions, race, national origin, religion, and age
b. Making statements to discourage an individual from completing a loan application
c. Refusal to consider public assistance as income
d. Providing the federal government with monitoring information based on visual
observation of a loan applicant’s race, sex, or country of national origin
22. Lenders must provide loan applicants with a Notice of Incomplete Application within:
a. 30 days
b. Within 10 days of the applicant’s inquiry for information on his/her loan
application
c. Within 30 days of the applicant’s inquiry for information on his/her loan
application
d. 10 days
23. Which of the following has happened when a creditor denies credit or extends credit in an
amount substantially less than those requested by a loan applicant?
a. Corrective action
b. Adverse action
c. Redlining
d. Discouragement
24. When must a loan applicant be advised of the right to receive a copy of the property
appraisal?
a. At the same time as the receipt of an adverse action notice – within 30 days of
application
b. At the same time as RESPA/TILA disclosures – within 3 days of application
c. At closing
d. Only if he/she requests a copy of the appraisal report
4
25. ECOA prohibits discrimination based on which of the following?
a. Immigration status
b. Dealings with foreign countries
c. Prior illegal activities
d. Source of income
5
Tutoring Session 2: Practice Questions
1. According to the Homeowner’s Protection Act, a “good payment history” is defined as:
a. No more than one payment that is 60-days late in the 12 months just prior to PMI
cancellation
b. No more than two payments that are 30-days late in the 12 months just prior to
PMI cancellation
c. No more than one payment that is 30-days late in the 12 months just prior to PMI
cancellation
d. No more than two payments that are 60-days late in the 24 months just prior to
PMI cancellation
2. The Homeowner’s Protection Act requires a written notice stating that PMI payments are
no long required:
a. Within 30 days of cancellation of PMI
b. Within 45 days of cancellation of PMI
c. Within 60 days of cancellation of PMI
d. Within 90 days of cancellation of PMI
3. Penalties for violations of RESPA’s Section 8 prohibition on kickbacks can include:
a. A fine of no more than $1,000 and six months in prison
b. A fine of up to $10,000 and one year in prison
c. A fine of $100,000 and one year in prison
d. A fine of $1,000,000 and one year in prison
4. Rediscloure of the APR is required at closing if:
a. It is more than one percent greater than it was at the time of its initial disclosure
b. It is more than 1/8 of one percent greater than it was at the time of its initial
disclosure
c. It is more than 1/2 of one percent greater than it was at the time of its initial
disclosure
d. Thirty days have elapsed since the time of the initial disclosure
5. The three-day rescission period for mortgage loans does not include:
a. Business days
b. Weekends
c. Sundays
d. Saturdays
6. “The Big Three” refers to what, with regard to the Fair Credit Reporting Act?
a. The three obligations imposed on mortgage professionals when using consumer
reports
b. The major pieces of data necessary to pull a credit report – name, SSN and DOB
c. The three areas of consideration for consumer loans – credit, capacity and
collateral
d. The three largest consumer reporting agencies
1
7. The Fair Credit Reporting Act prohibits the use of ___________ for any reason other
than a permissible purpose.
a. Information provided on a loan application
b. Information derived from a credit report
c. A borrower’s personal financial information
d. Personal characteristics such as race and gender
8. FACTA creates all but which of the following obligations of mortgage professionals?
a. Provide loan applicants with information about their credit score which was used
to evaluate their creditworthiness
b. Provide loan applicants with a copy of their credit report if their loan application
is denied
c. Provide consumers with information if their credit data is used in a fraudulent
transaction
d. Comply with the FTC Disposal Rule
9. The Homeowner’s Protection Act requires automatic discontinuation of PMI at what
equity position?
a. 80%
b. 78%
c. 20%
d. 22%
10. The Homeowner’s Protection Act does not apply to which of the following?
a. FHA loan transaction
b. Adjustable rate mortgage
c. Fixed rate mortgage
d. Loan transaction with a balloon feature
11. The Telemarketing Sales Rule requires telemarketers and sellers to update their call lists
by cross referencing the Do-Not Call Registry:
a. Every 30 days
b. Every 31 days
c. Every 60 days
d. Annually
12. A mortgage professional violates the provisions of the Federal Trade Commission Act by
making sales calls to consumers who are listed on the Do-Not-Call list. Which of the
following penalties does this mortgage professional face?
a. License suspension
b. Prison term of up to one year
c. Fines of $11,000 per violation
d. Fraud conviction
2
13. What kind of loan transaction requires disclosure of the Settlement Cost Booklet?
a. A new home purchase
b. A reverse mortgage origination
c. Refinance transaction
d. Subordinate financing
14. According to federal fair lending laws which of the following cannot be considered when
qualifying an applicant for a loan?
a. A female applicant is 4 months pregnant and might not continue working once her
baby is born
b. A female applicant’s credit report and application show gaps of several months
between jobs over the past 2 years
c. A disabled applicant’s credit report shows several instances of 60- and 90-day late
credit card payments
d. A minority applicant does not have sufficient funds for down payment
15. If a loan applicant does not disclose his or her race on a loan applicant what should a
mortgage professional do?
a. Note that the applicant has declined to answer and select a race based on visual
observation
b. Ask the applicant to complete the demographics section
c. Inform the applicant that the lender will reject their loan application since it is
incomplete
d. Provide the applicant with an adverse action notice
16. Jack Smith has been turned down for a loan. He would like to receive a copy of his
appraisal. When must the lender receive his request for the appraisal?
a. Within 30 days after Jack has received a notice of the right to receive the
appraisal
b. Within 90 days of application
c. Within 30 days of the appraisal
d. Within 90 days after Jack has received the notice of adverse action
17. The Red Flag Rules require creditors to do which of the following?
a. Create and implement an identity theft policy
b. Create and implement a privacy policy
c. Create and implement a policy regarding consumer protection disclosures
d. Create and implement policies addressing mortgage fraud
18. If a mortgage professional commits an act of fraud against a federally chartered bank,
what is the statute of limitations for federal prosecution?
a. Two years
b. Five years
c. Seven years
d. Ten years
3
19. A potential borrower has contacted you with the intent of obtaining a loan to buy a new
home. Until he identifies a property he wishes to purchase, you are not required to:
a. Conduct a loan application interview
b. Pre-qualify him
c. Provide a Good Faith Estimate
d. Allow him to provide personal information
20. Sally Simpson added her new phone number to the Do-Not-Call Registry. When must she
renew the entry?
a. Within 5 years
b. Within 3 years
c. Within 2 years
d. Never
21. If a mortgage broker decides to use telemarketing to establish leads for loan origination,
which of the following should occur:
a. The broker should invest in a state of the art predictive dialer
b. The broker should establish policies and procedures to ensure compliance with
the Do-Not-Call provisions of the Telemarketing Sales Act
c. The broker should only call former and current customers to ask for referrals
d. The broker should register with the FTC and FCC according to the regulations of
the Telemarketing Sales Act
22. Under the Fair Credit Reporting Act, which of the following entities has the burden of
protecting a consumer’s privacy when his/her credit information is being reported?
a. Mortgage broker
b. Credit reporting agency
c. HUD
d. The consumer
23. You have taken a loan application from a customer with an excellent credit score. When
should you advise him about the status of his application?
a. Within one week
b. Within three days
c. Within 30 days
d. Within 90 days
24. The Gramm-Leach-Bliley Act specifies that a consumer must be given _________ to opt
out before personal financial information is disclosed to a third party.
a. Seven business days
b. 30 days
c. A reasonable opportunity
d. 90 days
4
25. The Red Flag Rules require creditors to do which of the following?
a. Create and implement an identity theft policy
b. Create and implement a privacy policy
c. Create and implement a policy regarding consumer protection disclosures
d. Create and implement policies addressing mortgage fraud
5
Tutoring Session 3: Practice Questions
1. A markup is:
a. An increase in the cost of settlement services to account for inflation
b. A unilateral increase by a settlement service provider of a charge for a service that
was completed by another provider
c. An illegal increase in the charge for a settlement service so that the two settlement
service providers can split the fee and enjoy higher profits from the transaction
d. A legal increase in the charge for a settlement service by one service provider of
the services performed by another that is made pursuant to an affiliated business
arrangement
2. A yield spread premium is most accurately defined as:
a. The legal markup of the costs of a mortgage broker’s services
b. The illegal markup of the costs of a mortgage broker’s services
c. Fees that mortgage brokers can legally earn from lenders by originating a loan
with an interest rate that is higher than the par rate
d. Illegal fees that mortgage brokers can earn from lenders by originating a loan with
an interest rate that is higher than the rate for which the loan applicant qualifies
3. The “finance charge” is:
a. The cost of credit expressed as a percentage
b. The credit extended for the borrower’s use
c. The cost of credit expressed as a dollar amount
d. The fee imposed by a mortgage broker for originating the loan
4. A 3/1 ARM with a start rate of 5.25% is tied to the 12-month LIBOR. It is about to make
its’ initial adjustment. The initial cap, periodic cap, and lifetime cap are, 1%, 1%, and
5%, respectively. The margin is 3.00% and the current Index is 3.95%. What will the
new rate be for this ARM?
a. 6.95%
b. 5.00%
c. 6.25%
d. 8.95%
5. A borrower has been approved for a loan with a 95% loan-to-value. What is the
maximum seller financing available to this borrower based on conforming lender
guidelines?
a. 3%
b. 6%
c. 5%
d. 1%
1
6. What is Fannie Mae’s purpose in the secondary market?
a. To approve loans
b. To fund loans
c. To provide insurance for loans
d. To provide a source of funds for lenders
7. Your client is attempting to determine whether to refinance their ARM or keep it for
another year. They are making a decision strictly based on the lower rate. Their current
rate is 5.50%. The fixed rate product available to them is a 30-year loan at 5.95%. Their
ARM has adjusted twice before, from a start rate of 4.25%. The margin for the ARM is
2.75% with an initial cap, periodic cap, and lifetime cap of 2%, 2%, and 6%,
respectively. The index is currently 4.25%. Your client is considering sticking with the
ARM, but wants to know what the worst-case scenario is on their ARM.
a. 11.95%
b. 7.50%
c. 6.25%
d. 10.25%
8. Which of the following most accurately describes the qualification process for a stated
income, stated assets loans?
a. The applicant discloses assets but income is verified
b. The applicant discloses income but assets are verified
c. The applicant discloses both income and assets but neither are verified
d. Neither income nor assets are disclosed nor verified
9. A borrower obtains a 2/1 buy down on a 30 year fixed rate FHA loan. The note rate is
7.00%. What interest rate will they pay the first year?
a. 5.00%
b. 6.00%
c. 7.00%
d. 8.00%
10. A loan adjustment based on LIBOR is affected by the:
a. Lifetime Insured Broker’s Origination Rate
b. Lender’s Index of Broker Originations
c. Loan Index Banking Offer Rate
d. London Interbank Offered Rate
11. Which of the following loan notations indicates a loan has a balloon feature but no
conditional refinance provision?
a. 5/30
b. 5/25
c. 7/23
d. 80/10/10
2
12. Which of the following is best defined as 1% of the loan amount?
a. YSP
b. APR
c. Point
d. Pre-paid finance charge
13. Which of the following is used as a uniform settlement statement where there is no
seller?
a. HUD-1
b. HUD-1A
c. GFE
d. AfBA
14. Which of the following best describes a scenario where a lender would reduce or suspend
loan payments for a period of time?
a. Forbearance
b. Reverse mortgage
c. Assumption
d. Negative amortization
15. A borrower obtains a 2/1 buy down on a 30 year fixed rate FHA loan. The note rate is
7.00%. What interest rate will they pay the first year?
a. 5.00%
b. 6.00%
c. 7.00%
d. 8.00%
16. A borrower obtains an FHA loan. What entity insures this loan?
a. Federal Housing Administration
b. Fair Housing Authority
c. Federal Homeowner’s Agency
d. First-time Homeowner’s Act
17. Why are FHA loans beneficial to lenders?
a. They are only made to low income borrowers
b. They are insured by the federal government
c. They do not require down payment
d. They don’t require escrows or other complicated accounting
18. The funding fee on a VA loan:
a. Is refundable if the loan is paid off within three years
b. If not refundable if there is a loan balance after five years
c. Is refundable if the loan is paid off within ten years
d. Is refundable only if the veteran was overcharged
3
19. The Cost of Funds Index is traditionally used to determine interest rates on what type of
loans?
a. Home equity lines of credit
b. Reverse mortgages
c. 15- and 30-year fixed rate programs
d. Rate adjustments on adjustable rate programs
20. A(n) __________ is a loan with an interest rate that can adjust monthly and that offers a
borrower a number of payment choices such as: 30 year fixed P&I/Interest-Only/1% of
the loan resulting in negative amortization.
a. Adjustable rate mortgage
b. 80-10-10
c. Option ARM
d. Reverse mortgage
21. A borrower is obtaining a 30 year fixed rate FHA loan for $300,000. What is the most the
origination fee can be?
a. $1,500
b. $2,250
c. $3,000
d. $5,000
22. A number of factors are considered when calculating the funding fee for a veteran
obtaining a VA loan. Which of the following has no bearing on the calculation?
a. Whether the veteran has used his/her entitlement in the past
b. The veteran’s marital status
c. Whether the veteran has a service related disability
d. The amount of the loan the veteran has applied for
23. The Guidance on Nontraditional Mortgage Product Risks defines nontraditional
mortgages as which of the following?
a. Loans which are based on a borrower’s equity in their home and not credit or
income analysis
b. Loans products which have a higher than normal chance of resulting in
foreclosure
c. Loans other than conforming and government loans
d. Loan products which allow borrowers to exchange lower initial loan payments for
higher payments once the loan has amortized
24. Which of the following would address the principal and interest payments due on a loan?
a. The amortization schedule
b. The index
c. The margin
d. Life of the loan caps
4
25. Which of the following documents would state the index used to determine rate
adjustments for an ARM?
a. The promissory note
b. The Early ARM Disclosure Statement
c. The promissory note and the Early ARM Disclosure
d. The TIL Disclosure Statement and the Early ARM Disclosure
5
Tutoring Session 4: Practice Questions
(Part 1)
1. The concept of loan suitability refers to:
a. Matching potential loan programs with the current financial circumstances of a
borrower
b. Analyzing a borrower’s future income potential to provide the greatest loan
amount available
c. Matching a loan program with a property type
d. Ensuring a borrower is able to provide the necessary income and assets
information to meet loan program guidelines
2. Sue Johnson is a receptionist for a construction company. She receives bi-weekly pay in
the amount of $1,153.85. What is her monthly qualifying income?
a. $532.55
b. $1,153.85
c. $2,307.70
d. $2,500.00
3. A property is valued at $295,000. There is a first and second mortgage with a 77%
CLTV. The second mortgage has a 10% LTV. What is the approximate amount of the
first mortgage?
a. $256,650
b. $227,150
c. $204,435
d. $197,650
4. Which of the following individuals typically determines a loan approval based on lender
guidelines?
a. Processor
b. Underwriter
c. Loan originator
d. Closer
5. What document would an underwriter rely on for detailed information concerning the
collateral for a mortgage loan?
a. The borrower’s asset statements
b. The URLA
c. The borrower’s employment documentation
d. The property appraisal
6. The Uniform Residential Appraisal Report is commonly known as the _____.
a. 1003
b. 1004
c. 1040
d. 4506
7. Comparable properties used in the market approach to appraisal should be located within
_____ of the subject property.
a. One mile
b. Five miles
c. The same zip code
d. The same county, city or township
8. Sam Sampson is buying a new house and plans to use the proceeds from the sale of his
old home for down payment on the new property. What type of documentation might the
underwriter require to substantiate these assets?
a. Appraisal for the old home
b. HUD-1 Settlement Statement from sale of the old home
c. A photocopy of the check disbursed by the lender for the new owner of Sam’s
former home
d. An affidavit from Sam’s real estate agent
9. In the underwriting process, the presence of derogatory information on a borrower’s
credit report may require _________ in order for the loan to be approved.
a. A co-borrower
b. Private mortgage insurance
c. Strong compensating factors
d. Adequate income to pay off the obligations related to the derogatory information
10. An agreement a borrower makes with a lender allowing their interest rate to rise or fall
with the market is called:
a. A lock-in agreement
b. A variable rate disclosure
c. An adjustable rate contract
d. A float agreement
11. Mr. Bob Brown earns $12.00 per hour and works 38 hours each week for his job at a
retail store. His wife Matilda is paid $680 bi-weekly as a medical technician. What is
their combined monthly qualifying income?
a. $3,553.33
b. $3,449.33
c. $3,336.00
d. $3,940.00
12. Mr. Cyril Cagney is paid $1,800 semi-monthly. What is his monthly qualifying income?
a. $3,900
b. $3,800
c. $3,700
d. $3,600
13. James Smith has worked for Perfect Transmission Installers for eight years. His annual
base salary is $52,000. For overtime hours, which he has averaged as six hours per week,
he receives double pay based on his per hour wage of $25. James takes four weeks paid
vacation per year. What is his monthly qualifying income?
a. $5,533.33
b. $5,650.00
c. $5,353.33
d. $5,300.00
14. A property is valued at $295,000. There is a first and second mortgage with a 77%
CLTV. The second mortgage has a 10% LTV. What is the approximate amount of the
first mortgage?
a. $256,650
b. $227,150
c. $204,435
d. $197,650
15. Which of the following are the two types of title insurance?
a. Lender’s and investor’s
b. Lender’s and owner’s
c. Title and lien
d. Fee simple and leasehold
16. Who is responsible for conducting a title search?
a. Abstractor
b. Loan originator
c. Title agent
d. Appraiser
17. A couple has qualified for a $245,600 loan. They are told that the broker fee will cost two
points. What is the dollar amount of the broker fee?
a. $491.20
b. $4,912
c. $49,120
d. $49.12
18. A property is valued at $342,000. There is a first and second mortgage with an 85%
CLTV. The second mortgage has an 8% LTV. What is the approximate amount of the
first mortgage?
a. $263,340
b. $273,680
c. $266,750
d. $259,920
19. The purchase price for a property is $92,000. The buyer is putting 5% down and paying
two discount points to buy down the interest rate. What amount will the buyer be charged
for the discount points?
a. $174.80
b. $184.00
c. $1,748.00
d. $1,840.00
20. Calculate the per diem interest for the following loan components, assuming a 365 day
year. Loan Amount - $150,000; Interest Rate – 7 1/8 %
a. $28.29
b. $29.28
c. $29.51
d. $29.92
21. A borrower is closing a 40-year 7/1 ARM loan of $495,000 with rate caps of 1 and 5. The
start rate is 6 3/8 %. What is the most that the interest rate could be in the fourth year of
the loan?
a. 6.375 %
b. 6.125 %
c. 10.375 %
d. 10.125 %
22. Which of the following could be used in lieu of bank statements for documentation?
a. VOR
b. VOE
c. VOA
d. VOD
23. Which of the following must always be provided within three days of submission of a
loan application?
a. ARM disclosure and CHARM booklet
b. GFE and TIL disclosure
c. HUD-1 and initial escrow statement
d. GFE and HUD-1
24. Who sets the debt to income and loan to value ratios for non-conforming loans?
a. FHA
b. Fannie/Freddie
c. Investors
d. Federal Reserve
25. An applicant is paid a weekly salary of $400. What is their monthly qualifying income?
a. $1,600
b. $1,733
c. $800
d. $1,666
Tutoring Session 4: Practice Questions
(Part 2)
1. For a fee, a real estate agent offers a loan originator the names and telephone numbers of
all the people who attended an open house. Which of the following statements is correct?
a. Only the real estate licensee is in violation of RESPA
b. Only the loan originator is in violation of RESPA
c. Both the loan originator and the real estate licensee are in violation of RESPA
d. Neither the loan originator nor the real estate licensee is in violation of RESPA
2. A real estate broker has 50% ownership of a mortgage broker. The real estate broker
refers business to the mortgage broker who provides written disclosures to the borrower
of the business relationship. The written disclosure also makes it clear that the borrower
is not required to use the services of the mortgage broker. Which of the following
statements is correct?
a. Only the real estate broker is in violation of RESPA
b. Only the mortgage broker is in violation of RESPA
c. Both the real estate broker and the licensee are in violation of RESPA
d. Neither the real estate broker nor the mortgage broker is in violation of RESPA
3. A real estate company has a great deal with a printing company for discounted marketing
and promotional materials. A mortgage broker accepts complimentary note pads from the
real estate company with the broker’s name printed them – the real estate company keeps
a supply to provide potential clients. Who is in violation of RESPA?
a. The mortgage broker
b. The real estate company only
c. Both companies are in violation
d. Neither company is in violation
4. An attorney and a loan originator enter into an agreement in which the attorney’s car loan
payments are paid by the loan originator in return for the names of potential loan
applicants. Which of the following statements about this agreement is correct?
a. Only the attorney is in violation of RESPA
b. Only the loan originator is in violation of RESPA
c. Both are in violation of RESPA
d. Neither is in violation of RESPA
1
5. A mortgage broker shares advertisement space with a title company. The broker pays for
the total advertisement space to offset a referral from the title company. Who is in
violation of RESPA?
a. The mortgage broker
b. The title company
c. Both are in violation
d. Neither is in violation
6. Which of the following constitutes a “thing of value” that would violate RESPA?
a. A loan originator pays a title company for title search service
b. A mortgage broker pays an insurance company for mortgage insurance
c. A mortgage broker gives a paid vacation to all its employees as a holiday bonus
d. A loan originator gives an airline travel voucher to an attorney for introducing a
customer
7. A couple has contacted you about applying for a loan. The husband makes $32,000/yr
and has excellent credit. The wife informs you that she makes $47,000 but just declared
bankruptcy. What info should you use to qualify them for a loan?
a. The husband’s credit and the wife’s income
b. Credit and income from both spouses
c. The husband’s information only
d. The wife’s information only
8. Mike Maxwell is a small business owner who is applying for a refinance on his home.
During the loan application interview, he asks “How much income do I need to show in
order to qualify for this type of loan?” What is the most ethical response?
a. As much as possible – what do you claim on your tax returns?
b. You shouldn’t show less than $4,500 a month.
c. Let’s review your tax returns and bank statements to determine your income.
d. Let me ask the underwriter for a minimum amount.
9. Which of the following would be considered a violation of fair lending laws?
a. A real estate professional informs buyers they would not be comfortable in a
particular neighborhood due to their familial status
b. A lender refuses to approve a loan due to poor employment history
c. A real estate professional informs buyers about negative features of a house
d. A lender refuses to approve a loan because the applicant’s debt-to-income ratios
are too high
2
10. Which of the following statements would be permissible when communicating with an
appraiser?
a. “Your appraisals have been coming in lower than expected lately. We’re going to
start using another appraiser.”
b. “Your last appraisal didn’t meet the minimum value we expected. We’ve going to
have to wait on paying your invoice until we obtain a second opinion.”
c. “Can you explain why this property is valued so low, compared to the current
market?”
d. “I need this property to value at a minimum of $200,000”
11. Which of the following is not an acceptable method of providing federally mandated
consumer protection disclosures?
a. Posting the disclosure in a prominent and public location in the office
b. Sending the disclosure to the last known mailing address of the consumer
c. Faxing the disclosure to the consumer’s fax number
d. Sending the disclosure to the email address provided by the consumer
12. If the purchase price on a sales contact is greater than the list price, which of the
following might be the case?
a. The seller is providing concessions
b. The appraiser made a mistake
c. The transaction might be fraudulent
d. The neighborhood is experiencing an increase in property values
13. According to fair lending laws, age may be considered a factor in denying a loan
application if:
a. The applicant is too young or too old to understand the terms of a contract
b. The applicant is too old to survive the term of the loan
c. The applicant is too young to enter into a contract
d. The applicant is too young to have accumulated savings and requires a gift from
his/her parents in order to make a down payment
14. Loan originator Sue Smith takes an application from her sister. Sue’s employer requires
originators to ensure a $2,500 profit on every loan origination. The loan amount is for
$300,000. Sue charges her sister a $450 origination fee and obtains an interest rate that
allows a 0.825% YSP. Which of the following statements is most correct?
a. The transaction was illegal because brokering loans to a family member is
unethical
b. The transaction was unethical because Sue’s sister received preferential treatment
c. The transaction was ethical because Sue’s sister was shown no favoritism
d. The transaction was illegal because originating for a family member is a conflict
of interest
3
15. Which of the following mortgage broker policies would violate fair lending laws?
a. Originating loans only for customers who live within 100 miles of the broker’s
location
b. Refusing to originate loans in an earthquake zone
c. Doing business only with customers who are seeking loans for single family
residential properties
d. Refusing to originate loans in zip codes known to be economically depressed
4