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Question 1Federal Mortgage-Related Laws

Under the Real Estate Settlement Procedures Act, when must a lender provide the Loan Estimate to a mortgage applicant?

  1. Only after the property appraisal has been completed
  2. No later than three business days after receiving the application Correct answer.
  3. Within thirty calendar days of the loan closing
  4. At the closing table, together with the Closing Disclosure

Explanation

RESPA, as implemented by Regulation Z, requires the creditor to deliver or place in the mail the Loan Estimate no later than the third business day after receipt of the application. The disclosure must be provided before the consumer pays fees other than a permissible credit report charge. Delivery at closing or after appraisal would defeat the purpose of informed shopping.

Question 2Federal Mortgage-Related Laws

A borrower's escrow account is short by $600. Under RESPA escrow accounting rules, which statement best describes how the servicer may recover the shortage?

  1. Apply it immediately to principal without notice to the borrower
  2. Repay it over at least twelve months, or longer if the account is in a repayment plan Correct answer.
  3. Recover it only at payoff because shortages cannot be collected
  4. Demand a single lump-sum payment within ten days or declare default

Explanation

When an escrow shortage exists, the servicer must allow the borrower to repay it in substantially equal monthly payments over a period of at least twelve months. The servicer may spread repayment over a longer period if the account is subject to a repayment plan. Immediate lump-sum demands or silent reapplication of funds are not permitted.

Question 3Federal Mortgage-Related Laws

Which statute is the primary federal law prohibiting discrimination in residential mortgage lending on the basis of race, color, religion, sex, handicap, familial status, or national origin?

  1. Real Estate Settlement Procedures Act
  2. Home Mortgage Disclosure Act
  3. Fair Housing Act Correct answer.
  4. Fair Credit Reporting Act

Explanation

The Fair Housing Act, Title VIII of the Civil Rights Act of 1968, prohibits discrimination in the sale, rental, and financing of dwellings based on the protected classes listed. It reaches mortgage lending as a housing-related transaction. The other statutes address credit reporting, data disclosure, and settlement costs rather than fair lending prohibitions.

Question 4Federal Mortgage-Related Laws

A loan originator tells a borrower that applicants of a particular national origin usually need a co-signer. This statement is best characterized as which fair lending violation?

  1. Steering based on loan product compensation
  2. Disparate impact pricing
  3. Overt discriminatory discouragement Correct answer.
  4. Redlining of a geographic area

Explanation

Telling applicants from a protected class that they will face extra hurdles is discouragement, an overt form of discrimination under the Fair Housing Act and Equal Credit Opportunity Act. It differs from neutral policies with disparate impact and from geographic redlining. Discouraging applicants based on national origin is expressly prohibited.

Question 5Federal Mortgage-Related Laws

Under the Equal Credit Opportunity Act, which characteristic is a prohibited basis for credit decisions?

  1. Receipt of public assistance income Correct answer.
  2. Recent bankruptcy discharge
  3. Credit score below the lender's threshold
  4. Employment in a probationary period

Explanation

ECOA prohibits discrimination because an applicant receives income from a public assistance program. Creditors must evaluate that income the same way they evaluate other income. Credit score, bankruptcy history, and probationary employment are lawful underwriting factors when applied consistently.

Question 6Federal Mortgage-Related Laws

A creditor denies a mortgage application. Under ECOA and Regulation B, what must the creditor provide to the applicant?

  1. An automatic six-month rate lock on a future application
  2. A verbal denial only, if the applicant calls the branch
  3. A notice of action taken within thirty days of receiving a complete application Correct answer.
  4. A copy of the appraiser's license and the underwriter's worksheet

Explanation

Regulation B requires a creditor to notify the applicant of action taken within thirty days after receiving a completed application. The notice must be in writing and, for denials, include the specific reasons or a disclosure of the right to request them. Verbal notice alone or disclosure of internal underwriting materials does not satisfy the rule.

Question 7Federal Mortgage-Related Laws

An applicant requests the specific reasons for a credit denial within sixty days of receiving the adverse action notice. How must the creditor respond?

  1. Provide the reasons only if the applicant pays a records fee
  2. Refuse because reasons were already disclosed in general terms
  3. Provide the reasons within thirty days of receiving the request Correct answer.
  4. Refer the applicant to the credit reporting agency for all reasons

Explanation

When a creditor uses the alternative disclosure method, the applicant may request the specific reasons within sixty days. The creditor must then provide those reasons within thirty days of receiving the request. The obligation is not excused by general disclosures, fees, or referral to a credit bureau.

Question 8Federal Mortgage-Related Laws

Which law requires most mortgage lenders to report application, origination, and purchase data by census tract and prohibits redlining?

  1. Fair Credit Billing Act
  2. Community Reinvestment Act
  3. Servicemembers Civil Relief Act
  4. Home Mortgage Disclosure Act Correct answer.

Explanation

The Home Mortgage Disclosure Act requires covered financial institutions to collect and report mortgage lending data, including census tract information, which regulators and the public use to identify potential redlining. The Community Reinvestment Act imposes a separate affirmative obligation on depository institutions. The other laws address billing errors and military servicemember protections.

Question 9Federal Mortgage-Related Laws

Under HMDA, which loan characteristic must a covered institution report for a originated mortgage?

  1. The borrower's credit score and full credit report
  2. The title insurer's premium schedule
  3. The census tract of the property and the loan's interest rate Correct answer.
  4. The appraiser's name and license number

Explanation

HMDA requires reporting of property location by census tract along with pricing information such as the interest rate for covered loans. This data allows analysis of lending patterns and pricing disparities. Credit reports, appraiser identities, and title premium schedules are not HMDA data fields.

Question 10Federal Mortgage-Related Laws

A servicer receives a qualified written request from a borrower disputing an escrow charge. Under RESPA, by when must the servicer acknowledge receipt?

  1. Within sixty business days of receipt
  2. Within five business days of receipt Correct answer.
  3. Within twenty business days of receipt
  4. Within thirty calendar days of receipt

Explanation

RESPA requires a servicer to acknowledge a qualified written request within five business days of receipt. The servicer must then provide a substantive response within thirty business days, subject to a permissible extension. Acknowledgment timing is separate from the substantive response deadline.

Question 11Federal Mortgage-Related Laws

A borrower submits a complete loss mitigation application more than 37 days before a foreclosure sale. What must the servicer do before conducting a foreclosure sale?

  1. Transfer the loan to another servicer for evaluation
  2. Evaluate the borrower for all available options and observe the dual-tracking restrictions Correct answer.
  3. Proceed with the sale because the application was late
  4. Require the borrower to waive all loss mitigation rights in writing

Explanation

Under Regulation X, a complete application received more than 37 days before a foreclosure sale triggers a duty to evaluate the borrower for all available loss mitigation options. The servicer must also honor dual-tracking limits, generally barring a sale until the evaluation is complete and any appeal period expires. A late or incomplete application follows different rules.

Question 12Federal Mortgage-Related Laws

Which federal law limits the amount a borrower must pay to a loan originator and requires a good-faith estimate of that compensation?

  1. Fair Debt Collection Practices Act
  2. Bank Secrecy Act
  3. Truth in Lending Act, as amended by the Dodd-Frank Act Correct answer.
  4. Electronic Signatures in Global and National Commerce Act

Explanation

The Truth in Lending Act, as amended by Dodd-Frank, restricts loan originator compensation and prohibits payments that vary with the loan's terms other than the amount of credit. It also requires disclosure of estimated originator compensation and related financing terms. The other statutes concern debt collection, anti-money laundering, and electronic signatures.

Question 13Federal Mortgage-Related Laws

A loan originator's compensation is set at 1.5 percent of the loan amount, and the creditor also pays the originator a bonus that increases when the interest rate is higher. Which statement is correct under TILA rules?

  1. The bonus violates the ban on compensation based on loan terms Correct answer.
  2. The arrangement is permissible only if the bonus is paid at closing
  3. The arrangement is permissible if the borrower consents in writing
  4. The bonus is permissible because it is disclosed on the Loan Estimate

Explanation

TILA prohibits loan originator compensation that varies with the loan's terms or conditions, such as a higher interest rate. A bonus that increases with the rate is a term-based payment and is prohibited regardless of disclosure or borrower consent. Consent and timing of payment do not cure the violation.

Question 14Federal Mortgage-Related Laws

Which disclosure must a creditor provide at least three business days before consummation of a closed-end residential mortgage?

  1. Adverse action notice
  2. Closing Disclosure Correct answer.
  3. Homeownership counseling certificate
  4. Loan Estimate

Explanation

The Closing Disclosure must be provided so the consumer receives it at least three business days before consummation. This waiting period gives the borrower time to review final terms and costs. The Loan Estimate comes earlier at application, while adverse action and counseling notices serve different purposes.

Question 15Federal Mortgage-Related Laws

A borrower's Closing Disclosure differs materially from the Loan Estimate, and the creditor must provide a revised Closing Disclosure. How does this affect the three-business-day waiting period?

  1. The waiting period restarts from delivery of the revised disclosure Correct answer.
  2. The original waiting period continues without interruption
  3. The waiting period is reduced to one business day
  4. The waiting period is waived if the borrower signs at closing

Explanation

When a revised Closing Disclosure is required because of a changed circumstance affecting the consumer's terms, the three-business-day review period generally restarts upon delivery or mailing. The borrower must receive the revised disclosure and a new waiting period before consummation. The period is not waived by signing or shortened.

Question 16Federal Mortgage-Related Laws

Which loans are generally covered by the Home Ownership and Equity Protection Act's high-cost mortgage rules?

  1. Closed-end loans secured by a dwelling with points and fees or APR above statutory thresholds Correct answer.
  2. Reverse mortgages and open-end home equity lines of credit
  3. Federally guaranteed loans made by non-profit lenders
  4. All purchase-money first liens regardless of points and fees

Explanation

HOEPA coverage turns on statutory triggers, primarily the loan's points and fees as a percentage of the amount financed or its APR exceeding a benchmark. Covered loans are closed-end and secured by a dwelling. Certain loan types, including reverse mortgages and open-end credit, are excluded from HOEPA coverage.

Question 17Federal Mortgage-Related Laws

A high-cost mortgage under HOEPA includes a prepayment penalty. What restriction applies?

  1. Prepayment penalties are allowed only if the borrower initials the note
  2. Prepayment penalties are permitted only on adjustable-rate loans
  3. Prepayment penalties are permitted without limit if disclosed
  4. Prepayment penalties are prohibited after the third year and limited in amount Correct answer.

Explanation

HOEPA restricts prepayment penalties on high-cost mortgages, generally barring them after the third year and capping the amount during the permitted period. The rules also limit when a penalty may be charged in connection with a refinancing. Initialing the note or loan type does not override these limits.

Question 18Federal Mortgage-Related Laws

Which federal statute requires lenders to obtain and verify a borrower's Social Security number and check names against government terrorist lists?

  1. USA PATRIOT Act Correct answer.
  2. Gramm-Leach-Bliley Act
  3. Homeowners Protection Act
  4. Fair and Accurate Credit Transactions Act

Explanation

The USA PATRIOT Act requires financial institutions, including mortgage lenders, to maintain anti-money-laundering programs, verify customer identity, and screen against government lists. The Gramm-Leach-Bliley Act governs privacy of financial information, while FACTA addresses identity theft and credit reporting and the Homeowners Protection Act governs mortgage insurance cancellation.

Question 19Federal Mortgage-Related Laws

Under the Gramm-Leach-Bliley Act, when must a mortgage lender provide its privacy notice to a customer?

  1. Only when the customer applies for a new loan product
  2. Once every five years regardless of relationship status
  3. Only if the customer requests a copy in writing
  4. At the time the customer relationship is established and annually thereafter Correct answer.

Explanation

The Gramm-Leach-Bliley Act requires a financial institution to provide an initial privacy notice at the establishment of the customer relationship and an annual notice thereafter while the relationship continues. The duty is not limited to new applications, requests, or a five-year cycle.

Question 20Federal Mortgage-Related Laws

A servicer of a federally related mortgage loan receives a borrower's request to cancel private mortgage insurance based on the original value of the property. Under the Homeowners Protection Act, when may cancellation occur?

  1. Only when the loan is refinanced or paid off
  2. At any time the borrower requests, regardless of loan-to-value ratio
  3. Only after the loan reaches 78 percent of original value by scheduled amortization
  4. At the borrower's request when the loan reaches 80 percent of original value, with good payment history Correct answer.

Explanation

The Homeowners Protection Act allows a borrower to request cancellation when the mortgage balance reaches 80 percent of the original property value, provided the borrower has a good payment history and meets other conditions. Automatic termination occurs at 78 percent based on scheduled payments. Cancellation is not available on demand at any ratio.

Question 21Federal Mortgage-Related Laws

Which law requires servicers to provide borrowers with an annual escrow account statement?

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

Explanation

RESPA requires servicers to provide an annual escrow account statement summarizing escrow activity, including payments and disbursements. The statement must be delivered within a specified period after the escrow computation year ends. TILA, FCRA, and ECOA do not impose this annual escrow statement duty.

Question 22Federal Mortgage-Related Laws

A servicer fails to timely respond to a borrower's qualified written request. Which consequence may apply under RESPA?

  1. Automatic rescission of the mortgage loan
  2. Criminal prosecution of the loan originator
  3. Mandatory forgiveness of the remaining principal balance
  4. Actual damages, additional damages up to a statutory cap for a pattern of noncompliance, and costs Correct answer.

Explanation

RESPA provides a private right of action for actual damages caused by a servicer's failure to comply, plus additional damages up to a statutory cap for a pattern or practice of noncompliance, along with costs and attorney's fees. RESPA does not authorize rescission, criminal charges, or principal forgiveness as remedies for this violation.

Question 23Federal Mortgage-Related Laws

Under the Fair Credit Reporting Act, a mortgage lender that takes adverse action based on a consumer report must provide which information?

  1. A guarantee to reconsider in twelve months
  2. A copy of the entire credit file obtained from the bureau
  3. The name of the individual who reviewed the report
  4. Notice of adverse action with the credit reporting agency's contact information and the right to dispute Correct answer.

Explanation

FCRA requires an adverse action notice that identifies the credit reporting agency used, states that the agency did not make the decision, and informs the consumer of the right to obtain a free report and dispute inaccuracies. The lender need not furnish the entire file or identify internal reviewers.

Question 24Federal Mortgage-Related Laws

A mortgage broker steers a borrower into a higher-cost loan that pays the broker a larger yield spread premium, even though the borrower qualified for a lower-cost product. Which legal concern is most directly implicated?

  1. Violation of the Homeowners Protection Act's cancellation rules
  2. Breach of the Bank Secrecy Act's reporting thresholds
  3. Potential steering prohibited under TILA loan originator compensation rules Correct answer.
  4. Violation of the Fair Housing Act's advertising rules

Explanation

TILA and Regulation Z prohibit loan originators from steering consumers to transactions that are not in their interest to increase compensation. A broker placing a qualified borrower in a costlier loan for higher compensation fits that prohibition. Advertising rules, mortgage insurance cancellation, and currency reporting thresholds address different issues.

Question 25Federal Mortgage-Related Laws

Which federal law gives borrowers the right to receive a copy of the appraisal used in connection with a mortgage application?

  1. Servicemembers Civil Relief Act
  2. Equal Credit Opportunity Act, as implemented by Regulation B Correct answer.
  3. Home Mortgage Disclosure Act
  4. Real Estate Settlement Procedures Act, as implemented by Regulation X

Explanation

Regulation B, implementing ECOA, requires a creditor to provide a copy of any appraisal or written valuation promptly upon completion, or to notify the applicant of the right to receive it. The rule applies to applications for credit secured by a dwelling. RESPA, HMDA, and the SCRA do not establish this appraisal copy right.

Question 26Federal Mortgage-Related Laws

Under the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act), what minimum licensing standard applies to a state-licensed mortgage loan originator?

  1. Registration with the NMLS, completion of pre-licensing education, passage of a written test, and a criminal background check Correct answer.
  2. Registration with the NMLS only, with no education or testing requirement
  3. A state-issued real estate broker license, which automatically authorizes mortgage origination
  4. Posting a surety bond equal to one percent of annual origination volume in lieu of testing

Explanation

The SAFE Act requires state-licensed MLOs to register in the NMLS, complete at least 20 hours of pre-licensing education, pass a qualified written test, submit fingerprints for an FBI criminal background check, and meet character and fitness standards. Federal registration for bank employees substitutes registration and annual training for state licensing.

Question 27Federal Mortgage-Related Laws

A mortgage loan originator employed by an insured depository institution is registered under the SAFE Act rather than state-licensed. Which requirement applies specifically to this registered originator?

  1. Passing the state licensing written test each renewal cycle
  2. Maintaining a state MLO license in every state where the borrower resides
  3. Annual completion of continuing education and the institution's training on lending standards Correct answer.
  4. Completing 20 hours of pre-licensing education before registration

Explanation

Registered loan originators at depository institutions follow the federal registration track, which requires annual registration renewal and annual training rather than state pre-licensing education and testing. State-licensed MLOs, by contrast, must complete pre-licensing education and pass the test.

Question 28Federal Mortgage-Related Laws

A mortgage lender's employee takes a residential mortgage application, offers loan terms, and negotiates the rate with the consumer. Under the SAFE Act, how is this employee classified?

  1. A mortgage loan originator who must be registered or licensed Correct answer.
  2. An underwriter whose duties fall outside origination activity
  3. A third-party service provider outside the SAFE Act
  4. A clerical processor exempt from registration

Explanation

The SAFE Act defines a mortgage loan originator as an individual who takes a residential mortgage loan application and offers or negotiates terms of the loan for compensation. Clerical and administrative staff who do not offer or negotiate terms are not MLOs.

Question 29Federal Mortgage-Related Laws

Which federal law requires mortgage lenders to provide a borrower with an accurate disclosure of the total cost of credit, including the finance charge and annual percentage rate, before the borrower becomes obligated?

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

Explanation

The Truth in Lending Act, implemented by Regulation Z, requires creditors to disclose the finance charge, annual percentage rate, amount financed, and total of payments before consummation. RESPA governs settlement costs and servicing; the Fair Housing Act prohibits discrimination; the Homeowners Protection Act governs private mortgage insurance cancellation.

Question 30Federal Mortgage-Related Laws

A creditor extends a closed-end mortgage secured by the consumer's principal dwelling. Under Regulation Z, when must the creditor deliver the initial Loan Estimate?

  1. Only after the borrower signs the promissory note at closing
  2. No later than three business days after receiving the application and no later than seven business days before consummation Correct answer.
  3. Within thirty days after the creditor's credit decision
  4. At least ten business days before consummation, delivered with the Closing Disclosure

Explanation

Regulation Z requires the Loan Estimate within three business days of application and no later than seven business days before consummation. The Closing Disclosure must be received at least three business days before consummation.

Question 31Federal Mortgage-Related Laws

A creditor changes a fee on the Loan Estimate in a way that exceeds the permitted tolerance, and a revised Loan Estimate is issued. Which circumstance permits the creditor to use a valid revised Loan Estimate to reset tolerances?

  1. The creditor discovers a competitor offers a lower rate
  2. The loan officer decides to add a processing fee at underwriting
  3. The borrower provides a revised purchase contract that changes the settlement date Correct answer.
  4. The borrower requests a lower interest rate after locking

Explanation

Regulation Z lists specific changed circumstances that permit resetting tolerances, including a revised purchase and sale contract changing the settlement date, a new construction property not previously identified, and certain borrower-requested changes. A revised contract with a new closing date is a recognized changed circumstance.

Question 32Federal Mortgage-Related Laws

A mortgage lender is subject to the Home Mortgage Disclosure Act. Which loan-level data point must the lender report for an originated covered loan?

  1. The borrower's credit score and the name of the loan originator Correct answer.
  2. The borrower's employment history for the past ten years
  3. The age of the borrower and the property's assessed value
  4. The lender's internal risk rating for the loan

Explanation

HMDA requires reporting of numerous loan-level fields, including credit score, the unique identifier of the loan originator, rate spread, and loan term. Borrower age and internal risk ratings are not HMDA data fields.

Question 33Federal Mortgage-Related Laws

A mortgage lender is subject to HMDA. Which institutional threshold generally determines whether the lender is a covered institution?

  1. Selling loans to Fannie Mae at least once in the preceding year
  2. Originating at least 100 loans in the preceding calendar year only
  3. Holding a state banking charter in any state
  4. Originating at least 25 closed-end mortgage loans in each of the two preceding calendar years Correct answer.

Explanation

HMDA coverage for closed-end loans generally turns on originating at least 25 closed-end mortgage loans in each of the two preceding calendar years, along with meeting other criteria such as a physical office in a metropolitan statistical area. The threshold is measured across two years.

Question 34Federal Mortgage-Related Laws

A mortgage lender's loan officer comments to a colleague that applications from a particular neighborhood should be scrutinized more heavily because of the area's demographic makeup. Which federal law most directly prohibits this practice?

  1. Secure and Fair Enforcement for Mortgage Licensing Act
  2. Home Mortgage Disclosure Act
  3. Fair Housing Act Correct answer.
  4. Real Estate Settlement Procedures Act

Explanation

The Fair Housing Act prohibits discrimination in residential real estate-related transactions, including mortgage lending, on the basis of race, color, religion, sex, disability, familial status, and national origin. Steering or heightened scrutiny based on neighborhood demographics implicates this prohibition.

Question 35Federal Mortgage-Related Laws

A borrower applies for a mortgage and the lender obtains a consumer report. Under the Fair Credit Reporting Act, what must the lender do if it takes adverse action based in whole or in part on the report?

  1. Provide the borrower with a copy of the full consumer report without redaction
  2. Report the adverse action to the nationwide consumer reporting agencies within five days
  3. Provide a notice of adverse action that identifies the consumer reporting agency and states that the consumer may obtain a free copy and dispute the report Correct answer.
  4. Delay the adverse action notice until the borrower requests it in writing

Explanation

FCRA requires an adverse action notice that identifies the consumer reporting agency, states that the agency did not make the decision, and informs the consumer of the right to obtain a free copy of the report and to dispute its accuracy. The lender need not furnish the report itself.

Question 36Federal Mortgage-Related Laws

A mortgage servicer receives a borrower's qualified written request disputing the account. Under RESPA, the servicer must acknowledge receipt within five business days. Within what period must the servicer make the requested corrections and provide a written response?

  1. Ten calendar days from receipt with no extension available
  2. Ninety business days from receipt regardless of when the borrower submitted the request
  3. Thirty business days from receipt, extendable by fifteen business days if the servicer notifies the borrower before the period ends Correct answer.
  4. Sixty calendar days from receipt with no extension available

Explanation

RESPA requires the servicer to respond substantively to a qualified written request within 30 business days, with a possible 15-business-day extension if the servicer provides notice before the original period expires. The acknowledgment must be sent within five business days.

Question 37Federal Mortgage-Related Laws

A lender's servicing transfer occurs, and the borrower's payment is sent to the former servicer during the 60-day period after the transfer. What does RESPA provide regarding late fees in this situation?

  1. The new servicer may assess a late fee because the payment was not received by the due date
  2. The former servicer must forward the payment and charge a transfer fee to the borrower
  3. The borrower is charged a late fee by both servicers
  4. The borrower may not be charged a late fee if the payment was timely sent to the former servicer during the 60-day transition period Correct answer.

Explanation

RESPA gives borrowers a 60-day grace period after a servicing transfer during which a payment timely sent to the former servicer may not be treated as late. This protects borrowers during the transition when notices may not yet have reached them.

Question 38Federal Mortgage-Related Laws

A servicer maintains an escrow account for a borrower's mortgage. Under RESPA, what must the servicer provide to the borrower at least once a year?

  1. A revised promissory note reflecting the escrow balance
  2. An annual escrow account statement showing the account activity, the balance, and any surplus, shortage, or deficiency Correct answer.
  3. A new good-faith estimate of settlement costs
  4. A copy of the servicer's annual financial statement

Explanation

RESPA requires servicers to provide an annual escrow account statement summarizing account activity, the projected balance, and any surplus, shortage, or deficiency. This statement must be provided within 30 days of the end of the computation year.

Question 39Federal Mortgage-Related Laws

A borrower's mortgage is secured by a first lien on a single-family principal residence and the loan was originated after July 29, 1999. Under the Homeowners Protection Act, when may the borrower request cancellation of private mortgage insurance based on the original value of the property?

  1. At any time, with no loan-to-value threshold
  2. When the principal balance reaches 80 percent of the original value, if the borrower is current and satisfies other conditions Correct answer.
  3. Only after the loan reaches its scheduled termination date
  4. When the principal balance reaches 90 percent of the original value

Explanation

The Homeowners Protection Act permits a borrower to request PMI cancellation when the loan balance reaches 80 percent of the original value of the property, provided the borrower is current and meets other servicer conditions. Automatic termination generally occurs at 78 percent based on the amortization schedule.

Question 40Federal Mortgage-Related Laws

A lender is subject to the Gramm-Leach-Bliley Act. Which practice complies with the Safeguards Rule regarding customer information?

  1. Disclosing customer Social Security numbers to any requesting caller
  2. Sharing customer account numbers with unaffiliated marketers without consent
  3. Maintaining a written information security program with risk assessments and designated employee oversight Correct answer.
  4. Leaving loan files in unlocked cabinets accessible to all staff

Explanation

The GLBA Safeguards Rule requires covered financial institutions to develop, implement, and maintain a written information security program with risk assessments, access controls, and oversight. Sharing or exposing nonpublic personal information without safeguards violates the rule.

Question 41Federal Mortgage-Related Laws

A mortgage lender must comply with the Bank Secrecy Act. Which obligation applies to the lender's anti-money laundering program?

  1. Verifying borrower identity only for loans above the conforming loan limit
  2. Filing a suspicious activity report only when the amount exceeds one million dollars
  3. Reporting every mortgage application to FinCEN within 24 hours
  4. Establishing a written AML program with a designated compliance officer, training, and independent testing Correct answer.

Explanation

BSA/AML rules require covered financial institutions to maintain a written anti-money laundering program with a designated compliance officer, ongoing training, and independent testing, along with customer identification procedures. Suspicious activity reporting does not depend on a one-million-dollar threshold.

Question 42Federal Mortgage-Related Laws

A mortgage lender receives a request from a consumer to freeze their credit file. Under the Fair Credit Reporting Act as amended, what must the lender do when it receives a direct dispute from the consumer about information it furnished?

  1. Conduct a reasonable investigation and report the results to the consumer within the statutory period Correct answer.
  2. Delete all information in the consumer's file without investigation
  3. Ignore the dispute unless it is submitted through a credit bureau
  4. Refer the dispute to the Consumer Financial Protection Bureau for resolution

Explanation

FCRA requires furnishers to investigate direct disputes about the accuracy of furnished information, review all relevant information provided, and report the results to the consumer within the statutory timeframe. The obligation applies whether the dispute comes directly or through a consumer reporting agency.

Question 43Federal Mortgage-Related Laws

A creditor offers a closed-end mortgage with a prepayment penalty. Under the Truth in Lending Act, which statement describes a permitted prepayment penalty for a qualified mortgage?

  1. A prepayment penalty may be charged for the entire life of any qualified mortgage
  2. A prepayment penalty is permitted only if the loan is a qualified mortgage that is not a higher-priced mortgage loan, and the penalty is limited in amount and duration Correct answer.
  3. A prepayment penalty is permitted on all loans regardless of the APR
  4. A prepayment penalty may be charged on any high-cost mortgage

Explanation

For qualified mortgages that are not higher-priced mortgage loans, TILA permits a prepayment penalty only within the first three years, capped at three percent of the outstanding balance in year one, two percent in year two, and one percent in year three. High-cost mortgages under HOEPA may not include prepayment penalties.

Question 44Federal Mortgage-Related Laws

A creditor is determining whether a loan is a high-cost mortgage under HOEPA. Which point-and-fee threshold triggers HOEPA coverage for a first-lien loan in 2024?

  1. Total points and fees exceeding 10 percent of the total loan amount
  2. Any points and fees at all, regardless of amount
  3. Total points and fees exceeding 5 percent of the total loan amount Correct answer.
  4. Total points and fees exceeding 1 percent of the total loan amount

Explanation

HOEPA's points-and-fees trigger for first-lien loans is 5 percent of the total loan amount; for loans under $20,000 the threshold is the lesser of 8 percent or $1,000. The APR trigger and prepayment penalty trigger are separate tests.

Question 45Federal Mortgage-Related Laws

A mortgage lender is evaluating whether a loan is subject to the Ability-to-Repay rule. Which factor is required in the creditor's underwriting analysis?

  1. Verifying the consumer's income, assets, employment, and debts using reasonably reliable third-party records Correct answer.
  2. Considering only the consumer's credit score
  3. Assuming the consumer's income will increase based on projected career growth
  4. Relying solely on the consumer's stated income without documentation

Explanation

The ATR rule requires creditors to consider and verify eight underwriting factors, including income, assets, employment, current debt obligations, and the monthly payment on the loan. Verification must use reasonably reliable third-party records such as tax transcripts and pay stubs.

Question 46Federal Mortgage-Related Laws

A creditor makes a higher-priced mortgage loan secured by the borrower's principal dwelling. Under Regulation Z, what escrow requirement applies?

  1. The creditor must escrow only if the borrower requests it in writing
  2. The creditor may never establish an escrow account for such loans
  3. The creditor must escrow only the insurance premium, not property taxes
  4. The creditor must establish an escrow account for taxes and insurance, with limited exemptions Correct answer.

Explanation

Regulation Z requires creditors to establish escrow accounts for higher-priced mortgage loans secured by a first lien on a principal dwelling, covering property taxes and insurance. Limited exemptions exist for certain small creditors and for condominium or cooperative loans where escrow is not required.

Question 47Federal Mortgage-Related Laws

A mortgage lender sends a borrower a notice under the Fair Debt Collection Practices Act after the loan is in default. Which conduct is prohibited by the FDCPA for a debt collector?

  1. Contacting the borrower during normal business hours
  2. Sending a written validation notice within five days of initial contact
  3. Calling the borrower repeatedly at unusual hours to demand payment Correct answer.
  4. Providing the borrower with the name of the original creditor

Explanation

The FDCPA prohibits debt collectors from engaging in harassing or abusive conduct, including calling at unusual times or repeatedly with intent to annoy. Normal business-hour contact and required validation notices are permitted, and identifying the original creditor is required.

Question 48Federal Mortgage-Related Laws

A servicer receives a borrower's complete loss mitigation application. Which notice must the servicer provide if it offers the borrower a loss mitigation option?

  1. A verbal offer that becomes binding only after foreclosure
  2. A notice that the borrower must waive all RESPA rights
  3. A notice that the offer is void if the borrower sells the property within ten years
  4. A written notice stating the terms of the offer and the borrower's deadline to accept Correct answer.

Explanation

Regulation X requires the servicer to provide a written notice when it offers a loss mitigation option, stating the terms of the offer and the deadline for the borrower to accept. The notice must be provided within the applicable response period after a complete application.

Question 49General Mortgage Knowledge

Under the federal Real Estate Settlement Procedures Act, which document must a mortgage lender provide to a borrower so the borrower can compare settlement charges among competing lenders?

  1. The promissory note
  2. The Loan Estimate Correct answer.
  3. The deed of trust
  4. The appraisal report

Explanation

RESPA and Regulation X require lenders to deliver a standardized Loan Estimate within three business days of receiving an application. Its purpose is to disclose estimated loan terms, projected payments, and closing costs in a uniform format so borrowers can shop and compare offers.

Question 50General Mortgage Knowledge

A borrower is comparing loan programs and wants to know the total annual cost of credit expressed as a percentage, including certain finance charges. Which figure should the loan originator quote?

  1. The loan-to-value ratio
  2. The annual percentage rate (APR) Correct answer.
  3. The private mortgage insurance premium rate
  4. The nominal interest rate

Explanation

The APR, mandated by the Truth in Lending Act and Regulation Z, expresses the cost of credit as a yearly rate and incorporates qualifying finance charges along with the interest rate. It allows borrowers to compare the true cost of competing loan offers on a common basis.