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Question 1Federal Mortgage-Related Laws and Regulations

Under the Real Estate Settlement Procedures Act (RESPA), which document must a mortgage lender provide to a borrower to itemize anticipated settlement charges?

  1. The promissory note
  2. The appraisal report
  3. The Loan Estimate Correct answer.
  4. The title commitment

Explanation

RESPA requires lenders to give borrowers a standardized disclosure of estimated settlement costs. The Loan Estimate combines the old Good Faith Estimate and initial Truth in Lending disclosures into one form. It must generally be delivered within three business days of receiving an application.

Question 2Federal Mortgage-Related Laws and Regulations

The Truth in Lending Act's right of rescission generally applies to which type of transaction?

  1. A mortgage on a non-owner-occupied investment property
  2. A purchase-money mortgage on a primary residence
  3. A business-purpose loan secured by real estate
  4. A refinance of a primary residence with a new lender Correct answer.

Explanation

TILA rescission applies to consumer credit transactions secured by the borrower's principal dwelling, such as refinances and home equity loans. It does not apply to purchase-money loans or to business-purpose and investment-property loans. The right generally gives the borrower three business days to cancel.

Question 3Federal Mortgage-Related Laws and Regulations

Which federal law requires lenders to make a good-faith determination of a borrower's ability to repay a residential mortgage loan?

  1. The Home Mortgage Disclosure Act
  2. The Dodd-Frank Act ability-to-repay provisions Correct answer.
  3. The Fair Credit Reporting Act
  4. The Real Estate Settlement Procedures Act

Explanation

The Dodd-Frank Wall Street Reform and Consumer Protection Act added ability-to-repay requirements to TILA. Lenders must consider and document factors such as income, assets, employment, and debt-to-income ratio. Certain loans, like qualified mortgages, receive presumptions of compliance.

Question 4Federal Mortgage-Related Laws and Regulations

A loan originator is accused of steering a borrower into a higher-cost loan than the borrower qualified for in order to increase compensation. Which law most directly prohibits this practice?

  1. The Fair Housing Act
  2. The Equal Credit Opportunity Act
  3. The Homeowners Protection Act
  4. The Truth in Lending Act, as amended by Dodd-Frank Correct answer.

Explanation

Dodd-Frank amended TILA to prohibit loan originator compensation that varies based on loan terms and to prohibit steering consumers to loans that are not in their interest. These provisions target compensation-driven steering. The rule is rooted in TILA's loan originator compensation framework.

Question 5Federal Mortgage-Related Laws and Regulations

Under the Home Mortgage Disclosure Act (HMDA), covered lenders are generally required to do which of the following?

  1. Report mortgage application and origination data to regulators Correct answer.
  2. Guarantee a minimum loan term to applicants
  3. Disclose the appraiser's license number to the borrower
  4. Provide each applicant a copy of their credit score

Explanation

HMDA requires covered financial institutions to collect, record, and report data about mortgage applications and originations. The data supports fair lending enforcement and public analysis of lending patterns. It does not create obligations to provide credit scores or guarantee terms.

Question 6Federal Mortgage-Related Laws and Regulations

Which agency is primarily responsible for enforcing the federal prohibition on unfair, deceptive, or abusive acts or practices in consumer mortgage lending?

  1. The Department of Housing and Urban Development
  2. The Federal Housing Finance Agency
  3. The Securities and Exchange Commission
  4. The Consumer Financial Protection Bureau Correct answer.

Explanation

The Consumer Financial Protection Bureau enforces the prohibition on unfair, deceptive, or abusive acts or practices (UDAAP) for consumer financial products, including mortgages. Dodd-Frank created this authority. Other agencies have related roles but not primary UDAAP enforcement for consumer mortgages.

Question 7Federal Mortgage-Related Laws and Regulations

Under the Equal Credit Opportunity Act (ECOA), which of the following is a prohibited basis for denying credit?

  1. The applicant's debt-to-income ratio
  2. The applicant's length of employment
  3. The applicant's receipt of public assistance income Correct answer.
  4. The applicant's credit history

Explanation

ECOA prohibits discrimination on specified bases, including receipt of income from public assistance programs. Lenders may consider legitimate creditworthiness factors but cannot discount protected income sources. Debt-to-income, employment history, and credit history are permissible underwriting factors.

Question 8Federal Mortgage-Related Laws and Regulations

A lender must provide a borrower with a notice of the right to receive a copy of the appraisal. Under which law does this requirement primarily arise?

  1. The Equal Credit Opportunity Act Correct answer.
  2. The Fair Credit Reporting Act
  3. The Fair Housing Act
  4. The Homeowners Protection Act

Explanation

ECOA, through Regulation B, requires creditors to notify applicants of the right to receive a copy of appraisals and other written valuations used in connection with a mortgage application. The notice must generally be provided promptly. It supports transparency in property valuation.

Question 9Federal Mortgage-Related Laws and Regulations

Which law requires that a lender provide a borrower with a disclosure of the total costs of credit, including the annual percentage rate, before consummation?

  1. The Fair Debt Collection Practices Act
  2. The Home Mortgage Disclosure Act
  3. The Real Estate Settlement Procedures Act
  4. The Truth in Lending Act Correct answer.

Explanation

TILA requires disclosure of credit terms, including the annual percentage rate and finance charge, so consumers can compare credit costs. For mortgages, the Closing Disclosure reflects these TILA disclosures. RESPA and HMDA serve different disclosure and reporting purposes.

Question 10Federal Mortgage-Related Laws and Regulations

Under the Fair Housing Act, which of the following practices in mortgage lending is prohibited?

  1. Charging different fees based on credit risk
  2. Refusing to lend in a neighborhood because of its racial composition Correct answer.
  3. Declining a loan for insufficient collateral
  4. Requiring documentation of income for all applicants

Explanation

The Fair Housing Act prohibits discrimination in housing-related transactions, including mortgage lending, on the basis of race, color, religion, sex, disability, familial status, or national origin. Redlining neighborhoods by racial composition is a classic prohibited practice. Uniform documentation and risk-based pricing are permissible.

Question 11Federal Mortgage-Related Laws and Regulations

The Homeowners Protection Act primarily addresses which borrower concern?

  1. Disclosure of adjustable rate changes
  2. Reporting of loan data to regulators
  3. Cancellation and termination of private mortgage insurance Correct answer.
  4. Collection of delinquent mortgage payments

Explanation

The Homeowners Protection Act establishes rules for canceling and terminating private mortgage insurance on residential mortgages. It gives borrowers rights to request cancellation when certain conditions are met. It also requires related disclosures.

Question 12Federal Mortgage-Related Laws and Regulations

Under the Fair Credit Reporting Act, a mortgage lender that takes adverse action based in whole or in part on a consumer report must generally do which of the following?

  1. Notify the consumer of the adverse action and the credit reporting agency used Correct answer.
  2. Obtain written consent from the consumer before denying the loan
  3. Report the denial to HMDA within 24 hours
  4. Provide the consumer with a free copy of the appraisal

Explanation

FCRA requires adverse action notices when credit decisions are based on consumer reports. The notice must inform the consumer of the action and identify the reporting agency, among other information. This lets consumers review and dispute report accuracy.

Question 13Federal Mortgage-Related Laws and Regulations

Which of the following best describes a qualified mortgage under the ability-to-repay rule?

  1. Any loan with a fixed interest rate
  2. A loan insured by the Federal Housing Administration
  3. A loan that meets specified product-feature and underwriting standards and receives a compliance presumption Correct answer.
  4. A loan sold to a government-sponsored enterprise

Explanation

A qualified mortgage satisfies defined criteria, such as limits on risky features and points and fees, and receives a legal presumption of ability-to-repay compliance. There are several categories of qualified mortgages. Being fixed-rate, FHA-insured, or sold to an enterprise does not by itself make a loan a qualified mortgage.

Question 14Federal Mortgage-Related Laws and Regulations

A mortgage servicer receives a qualified written request from a borrower disputing account errors. Under RESPA, the servicer must generally do which of the following?

  1. Charge the borrower a fee for the investigation
  2. Foreclose within 30 days
  3. Refer the matter to the credit reporting agencies
  4. Acknowledge receipt and investigate the dispute within set timeframes Correct answer.

Explanation

RESPA requires servicers to acknowledge and respond to qualified written requests within specified timeframes and to investigate asserted errors. The borrower may not be charged a fee for the investigation. Certain collection and foreclosure activities are restricted during the response period.

Question 15Federal Mortgage-Related Laws and Regulations

Which regulation implements the Equal Credit Opportunity Act?

  1. Regulation B Correct answer.
  2. Regulation Z
  3. Regulation C
  4. Regulation X

Explanation

Regulation B is the implementing regulation for ECOA and addresses discrimination, notices, and recordkeeping. Regulation Z implements TILA, Regulation X implements RESPA, and Regulation C implements HMDA. Knowing these mappings is essential for compliance work.

Question 16Federal Mortgage-Related Laws and Regulations

A lender uses an automated underwriting system that produces disparate impact on a protected group without a business justification. This practice may violate which legal theory?

  1. Preemption under federal banking law
  2. Rescission under TILA
  3. Safe harbor under the qualified mortgage rule
  4. Disparate impact discrimination under fair lending laws Correct answer.

Explanation

Fair lending laws, including ECOA and the Fair Housing Act, prohibit practices with an unjustified disparate impact on protected groups, even if neutral on their face. A statistically discriminatory effect without a legitimate business necessity can create liability. Rescission, preemption, and safe harbors are unrelated doctrines.

Question 17Federal Mortgage-Related Laws and Regulations

Under TILA, the finance charge on a mortgage loan generally includes which of the following?

  1. The principal amount borrowed
  2. The property tax escrow deposit
  3. The interest paid over the life of the loan Correct answer.
  4. The homeowner's insurance premium

Explanation

The finance charge represents the cost of credit and includes interest and certain other charges imposed as a condition of credit. Principal is not a finance charge. Escrow items such as property taxes and insurance are generally excluded when properly disclosed.

Question 18Federal Mortgage-Related Laws and Regulations

Which federal statute requires lenders to collect and report data about the race, ethnicity, and sex of mortgage applicants?

  1. The Equal Credit Opportunity Act
  2. The Home Mortgage Disclosure Act Correct answer.
  3. The Fair Credit Reporting Act
  4. The Truth in Lending Act

Explanation

HMDA requires covered lenders to collect and report applicant demographic data, including race, ethnicity, and sex. The data supports fair lending monitoring. ECOA requires collection of some monitoring information but HMDA is the reporting statute.

Question 19Federal Mortgage-Related Laws and Regulations

A servicer must provide an annual escrow account statement to a borrower. This requirement arises primarily under which law?

  1. The Fair Housing Act
  2. The Real Estate Settlement Procedures Act Correct answer.
  3. The Homeowners Protection Act
  4. The Truth in Lending Act

Explanation

RESPA and Regulation X govern escrow account administration, including annual escrow statements and limits on escrow cushions. The statement shows activity and any surplus or shortage. TILA addresses credit cost disclosures instead.

Question 20Federal Mortgage-Related Laws and Regulations

Under the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act), mortgage loan originators are generally required to do which of the following?

  1. Register or obtain a state license and meet national testing and education requirements Correct answer.
  2. Complete annual continuing education in property appraisal
  3. Post a surety bond equal to the loan amount
  4. Obtain a real estate broker license in every state

Explanation

The SAFE Act requires mortgage loan originators to be registered or licensed, pass a national test, complete pre-licensing education, and meet continuing education requirements. The Nationwide Multistate Licensing System supports this. Real estate broker licensing, loan-amount bonds, and appraisal education are not SAFE Act requirements.

Question 21Federal Mortgage-Related Laws and Regulations

A lender denies a mortgage application. Under ECOA and Regulation B, the lender must generally provide which of the following?

  1. A referral to a housing counseling agency
  2. A written statement of the specific reasons for the denial or a notice of the right to request them Correct answer.
  3. A copy of the underwriting guidelines
  4. A refund of the application fee

Explanation

ECOA requires creditors to provide adverse action notices that state the specific reasons for denial or notify the applicant of the right to request them. This promotes transparency and fair lending. Refunding fees or referring to counseling is not the required response.

Question 22Federal Mortgage-Related Laws and Regulations

Which of the following is the primary purpose of the Fair Debt Collection Practices Act as applied to mortgage servicing?

  1. To establish the annual percentage rate disclosure
  2. To set limits on abusive and deceptive debt collection conduct Correct answer.
  3. To govern cancellation of private mortgage insurance
  4. To require reporting of loan data to regulators

Explanation

The FDCPA restricts abusive, deceptive, and unfair debt collection practices by debt collectors. It addresses communications, validation, and harassment. It does not set APR disclosure, HMDA reporting, or mortgage insurance cancellation rules.

Question 23Federal Mortgage-Related Laws and Regulations

A borrower's loan is secured by the borrower's principal dwelling and the borrower refinances with a new lender. When does the TILA right of rescission generally expire?

  1. When the loan is sold to an investor
  2. At midnight of the third business day after consummation or delivery of required disclosures, whichever is later Correct answer.
  3. Thirty days after the first payment
  4. At the end of the same day as consummation

Explanation

For covered refinances, the borrower generally has until midnight of the third business day after consummation or after delivery of all required material disclosures and notice of the right to rescind, whichever is later. If disclosures are not delivered, the right can be extended. Sale of the loan does not end the right.

Question 24Federal Mortgage-Related Laws and Regulations

Under RESPA Section 8, which of the following is prohibited?

  1. Disclosing an affiliated business arrangement to the borrower
  2. Giving or receiving a thing of value for the referral of settlement service business Correct answer.
  3. Charging a reasonable fee for an appraisal
  4. Paying a fee for services actually performed under a written agreement

Explanation

RESPA Section 8 prohibits kickbacks and unearned fees for the referral of settlement service business. Payments must be for actual services rendered and not for referrals. Affiliated business arrangements are permitted if properly disclosed.

Question 25Federal Mortgage-Related Laws and Regulations

A lender's marketing materials advertise a mortgage rate but omit required credit terms. This may violate which law's advertising rules?

  1. The Fair Credit Reporting Act
  2. The Truth in Lending Act Correct answer.
  3. The Homeowners Protection Act
  4. The Home Mortgage Disclosure Act

Explanation

TILA and Regulation Z govern credit advertising, requiring that triggering terms be accompanied by specified disclosures. Omitting required terms can make the advertisement misleading and noncompliant. HMDA, FCRA, and the Homeowners Protection Act do not set credit advertising rules.

Question 26Federal Mortgage-Related Laws and Regulations

Under the Truth in Lending Act (TILA), a mortgage loan subject to Regulation Z requires the creditor to provide which disclosure before consummation?

  1. A HUD-1 Settlement Statement
  2. A Notice of Right to Cancel
  3. A Loan Estimate Correct answer.
  4. A Closing Disclosure

Explanation

TILA and Regulation Z require the creditor to provide a Loan Estimate within three business days of receiving the application and no later than seven business days before consummation. The Closing Disclosure is also required, but it is provided later, at least three business days before consummation. The HUD-1 is no longer used for most closed-end mortgage loans, and the right to cancel applies only to certain refinances and home equity lines.

Question 27Federal Mortgage-Related Laws and Regulations

A mortgage servicer receives a borrower's request for information about the servicing of the loan. Under RESPA and Regulation X, the servicer must generally acknowledge receipt of the request within how many business days?

  1. Five business days Correct answer.
  2. Forty-five business days
  3. Ten business days
  4. Thirty business days

Explanation

Regulation X requires a servicer to acknowledge receipt of a borrower's request for information or notice of error within five business days, unless the servicer provides the requested information or corrects the error within that period. The servicer then has additional time to respond substantively. The other timeframes do not match the acknowledgment requirement.

Question 28Federal Mortgage-Related Laws and Regulations

Under the Home Mortgage Disclosure Act (HMDA), which of the following is a purpose of the required data collection?

  1. To determine a borrower's creditworthiness
  2. To set the interest rate on a mortgage loan
  3. To help identify possible discriminatory lending patterns Correct answer.
  4. To calculate the borrower's debt-to-income ratio

Explanation

HMDA requires lenders to collect and report data about mortgage applications and originations so that regulators and the public can identify possible discriminatory lending patterns and enforce fair lending laws. The data is not used to underwrite individual loans or set pricing. Creditworthiness and debt-to-income are underwriting factors, not purposes of HMDA.

Question 29Federal Mortgage-Related Laws and Regulations

A mortgage loan originator employed by a non-bank lender must comply with the SAFE Act. Which of the following is a core requirement for the originator?

  1. Obtaining a federal banking charter
  2. Registering with the Nationwide Mortgage Licensing System and Registry Correct answer.
  3. Joining a credit union
  4. Maintaining a surety bond for the originator's entire career

Explanation

The SAFE Act requires mortgage loan originators to be registered or licensed through the Nationwide Mortgage Licensing System and Registry (NMLS). This typically involves completing pre-licensing education, passing a test, and submitting fingerprints for a background check. A federal banking charter or credit union membership is not required for an individual originator.

Question 30Federal Mortgage-Related Laws and Regulations

Under the Fair Credit Reporting Act (FCRA), a mortgage lender that uses a consumer report in connection with a credit transaction must provide which notice to the consumer?

  1. A notice that the consumer's credit score will be sold to third parties
  2. A notice that the consumer must waive the right to sue the lender
  3. A notice that the lender will share the report with all affiliated companies
  4. A notice of the right to a free copy of the report and to dispute its accuracy Correct answer.

Explanation

FCRA requires a lender that uses a consumer report for a credit transaction to provide a notice of the consumer's right to obtain a free copy of the report and to dispute inaccurate information. The notice must also include the name and contact information of the reporting agency. The other notices are not required by FCRA in this context.

Question 31Federal Mortgage-Related Laws and Regulations

Which federal law requires mortgage lenders to provide a good faith estimate of closing costs to applicants within three business days of receiving an application?

  1. Fair Housing Act
  2. Equal Credit Opportunity Act
  3. Real Estate Settlement Procedures Act Correct answer.
  4. Truth in Lending Act

Explanation

RESPA, as implemented by Regulation X, requires a lender to provide a good faith estimate of settlement services costs within three business days of receiving a mortgage application. TILA requires the Loan Estimate, which combines RESPA and TILA disclosures. ECOA and the Fair Housing Act address discrimination, not cost estimates.

Question 32Federal Mortgage-Related Laws and Regulations

Under the Fair Housing Act, which of the following is an example of prohibited discrimination in mortgage lending?

  1. Refusing to make a mortgage loan because of the applicant's national origin Correct answer.
  2. Offering different loan products to borrowers with different income levels
  3. Charging higher fees to borrowers with lower credit scores
  4. Requiring a down payment for all mortgage loans

Explanation

The Fair Housing Act prohibits discrimination in residential real estate-related transactions, including mortgage lending, based on race, color, religion, sex, national origin, familial status, or disability. Refusing a loan because of national origin is a direct violation. Credit score and income differences are legitimate underwriting factors, not protected characteristics.

Question 33Federal Mortgage-Related Laws and Regulations

A mortgage lender denies a loan application based on information in a consumer report. Under the Fair Credit Reporting Act, what must the lender provide to the applicant?

  1. A copy of the consumer report and a summary of rights
  2. A new loan application form
  3. A notice of adverse action that includes the name of the consumer reporting agency Correct answer.
  4. An oral explanation of the denial

Explanation

FCRA requires a lender that takes adverse action based on a consumer report to provide a notice of adverse action that includes the name, address, and phone number of the consumer reporting agency and a statement of the consumer's rights. The lender is not required to provide a copy of the report. An oral explanation or a new application form does not satisfy the requirement.

Question 34Federal Mortgage-Related Laws and Regulations

Under the Equal Credit Opportunity Act and Regulation B, a lender must generally retain records related to a mortgage loan application for how long after the lender notifies the applicant of action taken?

  1. Twenty-five months Correct answer.
  2. Twelve months
  3. Five years
  4. Six months

Explanation

Regulation B requires creditors to retain records for mortgage loans for 25 months after the creditor notifies the applicant of action taken. For other types of credit, the retention period is generally 12 months. The 25-month period allows regulators to review compliance with ECOA.

Question 35Federal Mortgage-Related Laws and Regulations

A loan originator pays a fee to a real estate agent for each mortgage referral. Under RESPA Section 8, this arrangement is:

  1. Permitted if the fee is disclosed on the Closing Disclosure
  2. Prohibited because it is a fee for the referral of settlement service business Correct answer.
  3. Prohibited unless the agent is an employee of the lender
  4. Permitted if the fee is nominal

Explanation

RESPA Section 8 prohibits giving or receiving any fee, kickback, or thing of value for the referral of settlement service business involving a federally related mortgage loan. Disclosing the fee does not cure the violation. A nominal fee or an employee relationship does not create an exception for referral fees.

Question 36Federal Mortgage-Related Laws and Regulations

Under the Truth in Lending Act, which of the following loans is subject to the right of rescission?

  1. A refinance of a principal residence with a new lender Correct answer.
  2. A home equity line of credit used to purchase a second home
  3. A purchase-money mortgage for a principal residence
  4. A construction loan for a new home

Explanation

TILA gives borrowers a three-business-day right to rescind certain credit transactions secured by their principal dwelling, such as a refinance with a new lender. Purchase-money mortgages and construction loans are exempt. A loan secured by a second home is not secured by the principal dwelling, so the right does not apply.

Question 37Federal Mortgage-Related Laws and Regulations

A mortgage servicer receives a borrower's qualified written request (QWR) disputing an account error. Under RESPA, the servicer must provide a written response that includes which of the following?

  1. A copy of the borrower's credit report
  2. A statement that the servicer will not investigate the dispute
  3. A statement of the action taken and the reasons for it Correct answer.
  4. A new loan modification application

Explanation

RESPA requires a servicer to respond to a QWR with a written statement of the action taken and the reasons for it, and to provide contact information for further assistance. The servicer must also correct any errors and provide relevant documents. A refusal to investigate or unrelated documents do not satisfy the requirement.

Question 38Federal Mortgage-Related Laws and Regulations

Under the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act), which of the following is a purpose of the required mortgage loan originator licensing and registration system?

  1. To increase the cost of mortgage loans
  2. To enhance consumer protection and reduce fraud Correct answer.
  3. To standardize interest rates across states
  4. To limit competition among lenders

Explanation

The SAFE Act was enacted to enhance consumer protection and reduce fraud by requiring mortgage loan originators to meet minimum licensing and registration standards. It does not aim to increase costs, limit competition, or set interest rates. The focus is on the qualifications and accountability of originators.

Question 39Federal Mortgage-Related Laws and Regulations

A lender's advertisement for a mortgage loan states a low annual percentage rate but does not disclose the loan's terms. Under Regulation Z, this advertisement may be considered:

  1. A permissible advertisement because the rate is accurate
  2. A permissible advertisement if the loan is a fixed-rate product
  3. A misleading advertisement that violates TILA Correct answer.
  4. A permissible advertisement if the lender includes a toll-free number

Explanation

TILA and Regulation Z require advertisements that state a rate or payment to disclose additional terms, such as the annual percentage rate, the amount of the loan, and the repayment terms, to avoid misleading consumers. An advertisement that omits required disclosures is misleading and violates the law. Accuracy of the rate alone or a toll-free number does not cure the omission.

Question 40Federal Mortgage-Related Laws and Regulations

Under the Homeowners Protection Act, a borrower with a mortgage loan secured by a principal residence may request cancellation of private mortgage insurance (PMI) when which condition is met?

  1. The loan-to-value ratio reaches 80% based on the original value, with a good payment history Correct answer.
  2. The borrower refinances with a different lender
  3. The borrower has made 12 consecutive payments
  4. The loan-to-value ratio reaches 90% based on the original value

Explanation

The Homeowners Protection Act allows a borrower to request PMI cancellation when the loan-to-value ratio reaches 80% of the original property value, provided the borrower has a good payment history and meets other conditions. Cancellation at 90% or after 12 payments is not required by the Act. Refinancing does not automatically trigger cancellation under the Act.

Question 41Federal Mortgage-Related Laws and Regulations

A mortgage lender is subject to the Community Reinvestment Act (CRA). Which of the following is a primary purpose of the CRA?

  1. To require lenders to provide free credit reports to applicants
  2. To require lenders to meet the credit needs of the entire community, including low- and moderate-income neighborhoods Correct answer.
  3. To prohibit lenders from using credit scores in underwriting
  4. To set maximum interest rates on mortgage loans

Explanation

The CRA encourages depository institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods, consistent with safe and sound operations. It does not set interest rates, require free credit reports, or prohibit credit scoring. The CRA is evaluated through regulatory examinations.

Question 42Federal Mortgage-Related Laws and Regulations

Under the Flood Disaster Protection Act, a lender making a loan secured by improved real property located in a special flood hazard area must require the borrower to:

  1. Purchase earthquake insurance
  2. Obtain a federal disaster assistance grant
  3. Provide a personal guarantee
  4. Purchase flood insurance in an amount at least equal to the lesser of the outstanding principal balance or the maximum coverage available under the National Flood Insurance Program Correct answer.

Explanation

The Flood Disaster Protection Act requires lenders to ensure that borrowers purchase flood insurance for properties in special flood hazard areas in an amount at least equal to the lesser of the outstanding principal balance of the loan or the maximum coverage available under the National Flood Insurance Program. Earthquake insurance, disaster grants, and personal guarantees are not required by this Act.

Question 43Federal Mortgage-Related Laws and Regulations

A mortgage servicer is subject to the Fair Debt Collection Practices Act (FDCPA) as a debt collector. Which of the following practices is prohibited by the FDCPA?

  1. Sending a written notice of the debt
  2. Calling the borrower before 8 a.m. or after 9 p.m. local time Correct answer.
  3. Contacting the borrower at reasonable times
  4. Offering a repayment plan

Explanation

The FDCPA prohibits debt collectors from contacting consumers at unusual times, specifically before 8 a.m. or after 9 p.m. local time, absent the consumer's consent. Contact at reasonable times, written notices, and repayment offers are generally permissible. The Act aims to eliminate abusive and deceptive collection practices.

Question 44Federal Mortgage-Related Laws and Regulations

Under the Equal Credit Opportunity Act, a lender must provide an applicant with a notice of incompleteness when the application is missing information. If the applicant does not provide the information, the lender must:

  1. Extend the application indefinitely
  2. Deny the application and provide adverse action notice Correct answer.
  3. Transfer the application to another lender
  4. Approve the loan with the available information

Explanation

Regulation B requires a lender to send a notice of incompleteness specifying the information needed. If the applicant fails to provide the information, the lender must take action on the application and provide an adverse action notice. The lender may not simply approve the loan or extend the application indefinitely without action.

Question 45Federal Mortgage-Related Laws and Regulations

A lender's underwriting policy excludes all applicants with incomes below a certain threshold, which disproportionately affects applicants of a particular race. To avoid liability under the Fair Housing Act, the lender must be able to show that the policy is:

  1. Applied uniformly to all applicants
  2. Approved by the lender's board of directors
  3. Disclosed to all applicants
  4. Necessary to achieve a legitimate business objective and there is no less discriminatory alternative Correct answer.

Explanation

Under the Fair Housing Act, a policy that has a disparate impact on a protected class may be unlawful unless the lender can show that the policy is necessary to achieve a legitimate business objective and that no less discriminatory alternative exists. Uniform application or disclosure does not alone justify a discriminatory effect. Board approval does not establish a business necessity.

Question 46Federal Mortgage-Related Laws and Regulations

A mortgage loan originator is employed by a bank that is examined by a federal banking agency. Under the SAFE Act, the originator must:

  1. Pass a state-specific licensing exam for each state
  2. Maintain a surety bond in each state
  3. Obtain a state license in every state where the bank does business
  4. Register with the Nationwide Mortgage Licensing System and Registry as a registered loan originator Correct answer.

Explanation

Under the SAFE Act, employees of depository institutions who originate mortgage loans are registered loan originators and must register with the NMLS. They are not required to obtain state licenses in every state where the bank does business. State licensing exams and surety bonds apply to state-licensed originators, not registered originators.

Question 47Federal Mortgage-Related Laws and Regulations

A servicer receives a borrower's notice of error regarding a mortgage loan. Under Regulation X, which of the following is the servicer required to do?

  1. Conduct a reasonable investigation and respond in writing within the applicable time period Correct answer.
  2. Ignore the notice if the borrower has not provided supporting documents
  3. Refer the matter to the lender's legal department and take no further action
  4. Report the borrower to a credit reporting agency

Explanation

Regulation X requires a servicer to conduct a reasonable investigation of a notice of error and to respond in writing within specified time periods, generally 30 business days (with a possible 15-business-day extension). The servicer must also correct any errors and provide the borrower with the results. Ignoring the notice or referring it without response does not satisfy the rule.

Question 48Federal Mortgage-Related Laws and Regulations

Under TILA, a creditor's failure to provide required disclosures may result in which of the following remedies for the borrower?

  1. Only a refund of the application fee
  2. Actual damages, statutory damages, and attorney's fees Correct answer.
  3. Only a reduction in the interest rate
  4. Only a criminal penalty against the loan originator

Explanation

TILA provides for actual damages, statutory damages, and attorney's fees for certain disclosure violations, as well as enhanced damages for rescission violations. A refund of the application fee alone or an interest rate reduction is not the statutory remedy. Criminal penalties may apply in limited circumstances but are not the borrower's civil remedy.

Question 49General Mortgage Knowledge

Which federal law requires mortgage lenders to disclose the estimated costs of a mortgage loan to the borrower within three business days of receiving an application?

  1. The Home Mortgage Disclosure Act (HMDA)
  2. The Equal Credit Opportunity Act (ECOA)
  3. The Real Estate Settlement Procedures Act (RESPA) Correct answer.
  4. The Fair Credit Reporting Act (FCRA)

Explanation

RESPA requires lenders to provide a Loan Estimate of settlement costs shortly after application. ECOA governs nondiscrimination in credit, FCRA governs consumer credit reporting, and HMDA governs data collection and reporting.

Question 50General Mortgage Knowledge

A borrower's credit report shows a satisfied judgment from four years ago. Under the Fair Credit Reporting Act, how long may a satisfied judgment generally remain on the report?

  1. Seven years from the date of entry Correct answer.
  2. Ten years from the date of entry
  3. Forever, since judgments are exempt
  4. Two years from the date of satisfaction

Explanation

FCRA generally limits reporting of most adverse items, including satisfied judgments, to seven years. Bankruptcies may remain longer, but satisfied judgments fall under the seven-year rule.