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MBA CMB practice questions

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Question 1Residential Mortgage Banking (Residential CMB)

A borrower's loan is classified as a qualified mortgage under the general (non-safe-harbor) definition. Which feature is permitted for such a loan?

  1. Debt-to-income ratio above 43 percent when the loan is eligible for sale to the GSEs Correct answer.
  2. A prepayment penalty lasting the full loan term
  3. Negative amortization with a cap on the unpaid balance
  4. Interest-only payments for the first five years

Explanation

The general QM category relies on pricing thresholds and does not impose a hard 43 percent DTI ceiling, so a loan with higher DTI can still qualify if it meets the price-based criteria and is eligible for GSE purchase. Negative amortization, interest-only features, and balloon structures are excluded from QM status, and prepayment penalties are tightly restricted rather than allowed for the entire term.

Question 2Residential Mortgage Banking (Residential CMB)

Under the Ability-to-Repay rule, which underwriting standard must a creditor verify for a covered residential mortgage?

  1. The borrower's projected home appreciation rate
  2. The borrower's reasonable ability to repay based on verified income, assets, and debts Correct answer.
  3. The lender's internal profit margin on the loan
  4. The appraiser's licensing renewal date

Explanation

ATR requires creditors to make a reasonable, good-faith determination that the consumer can repay the loan using verified and documented information about income, assets, employment, and simultaneous obligations. Projected appreciation, lender profitability, and appraiser administrative details are not part of the repayment capacity analysis.

Question 3Residential Mortgage Banking (Residential CMB)

A loan originator is compensated by the borrower through points and also receives a payment from the lender based on the loan's interest rate. What does Regulation Z generally require for this arrangement?

  1. The originator may not receive compensation that varies with the transaction's terms when also paid by the consumer Correct answer.
  2. The originator may receive both only if the borrower signs a dual-compensation waiver
  3. The originator may keep both payments if disclosed on the Loan Estimate
  4. The originator must rebate the lender payment to the borrower at closing

Explanation

Regulation Z prohibits loan originator compensation that is based on the transaction's terms or conditions when the consumer pays the originator directly. Dual compensation from both consumer and lender in connection with the same transaction is restricted, and a waiver does not cure the underlying prohibition.

Question 4Residential Mortgage Banking (Residential CMB)

Which document must a mortgage servicer provide to a borrower no later than three business days after receiving a complete loss mitigation application?

  1. A revised Closing Disclosure
  2. A Notice of Intent to Foreclose
  3. An acknowledgment notice stating whether the application is complete and listing available options Correct answer.
  4. A HUD-1 settlement statement

Explanation

Under Regulation X, a servicer must send an acknowledgment within three business days of receiving a complete loss mitigation application, confirming completeness and describing the loss mitigation options available. Foreclosure notices, settlement statements, and closing disclosures serve different purposes and are not triggered by this rule.

Question 5Residential Mortgage Banking (Residential CMB)

A servicer receives a qualified written request from a borrower disputing account activity. Within what timeframe must the servicer acknowledge receipt?

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

Explanation

RESPA requires a servicer to acknowledge a qualified written request within five business days of receipt. The substantive response and any corrections are due within thirty business days, with a possible fifteen-day extension if the servicer notifies the borrower.

Question 6Residential Mortgage Banking (Residential CMB)

Which practice is prohibited under the Fair Housing Act when a lender markets mortgage products?

  1. Using geographic targeting that excludes minority neighborhoods from lending outreach Correct answer.
  2. Requiring documented income verification for all applicants
  3. Advertising fixed-rate and adjustable-rate products separately
  4. Providing marketing materials in multiple languages

Explanation

The Fair Housing Act prohibits discriminatory practices including redlining, where lenders avoid or limit marketing and lending in minority neighborhoods. Multilingual materials, uniform income verification, and separate product advertising are lawful and in fact may support fair lending compliance.

Question 7Residential Mortgage Banking (Residential CMB)

A borrower with a conventional loan wants to cancel private mortgage insurance. Which condition generally must be satisfied for borrower-requested cancellation?

  1. The loan must have reached its scheduled midpoint of the amortization period
  2. The property must have been sold and repurchased
  3. The borrower must refinance into an FHA loan
  4. The borrower must have made payments on time and the loan balance must have reached 80 percent of the original value Correct answer.

Explanation

The Homeowners Protection Act allows borrower-requested PMI cancellation when the loan reaches 80 percent of the original property value based on the amortization schedule, provided the borrower has a good payment history and satisfies other servicer requirements. Automatic termination occurs at 78 percent, and the midpoint rule applies only to certain loans.

Question 8Residential Mortgage Banking (Residential CMB)

Which factor most directly determines whether a loan is classified as a higher-priced mortgage loan under Regulation Z?

  1. The annual percentage rate exceeding the average prime offer rate by a specified threshold Correct answer.
  2. The loan's amortization term exceeding thirty years
  3. The presence of a co-borrower
  4. The borrower's credit score band

Explanation

A higher-priced mortgage loan is defined by comparing the loan's APR to the average prime offer rate; exceeding the applicable spread threshold triggers HPML status and its associated protections. Credit score, term length beyond thirty years, and co-borrower presence are not the defining triggers.

Question 9Residential Mortgage Banking (Residential CMB)

An appraiser values a home under a lender's panel arrangement. Which requirement applies to appraisals for higher-risk mortgage loans under the appraisal rule?

  1. The borrower may waive all appraisal rights in writing
  2. The appraisal must be delivered only after closing
  3. The appraiser must be an employee of the lender
  4. The borrower must receive a free copy of the appraisal at least three days before closing Correct answer.

Explanation

For higher-risk mortgage loans, creditors must provide the borrower with a copy of the appraisal at least three days before closing. Appraisers must be independent rather than lender employees, and borrowers cannot waive the disclosure entitlement.

Question 10Residential Mortgage Banking (Residential CMB)

A lender is preparing a Loan Estimate for a borrower. Which charge is subject to a zero-percent tolerance?

  1. The title insurance premium selected by the borrower
  2. The credit report fee paid to a third party Correct answer.
  3. Recording fees charged by the county
  4. The lender's origination fee

Explanation

Charges paid to third parties for services the creditor requires but the borrower cannot shop for, such as credit report fees, carry zero tolerance and cannot increase at closing. Origination fees generally carry ten-percent tolerance, while borrower-selected title services and government recording fees fall into different tolerance categories.

Question 11Residential Mortgage Banking (Residential CMB)

Which statement best describes the purpose of the Home Mortgage Disclosure Act?

  1. It sets maximum interest rates for residential mortgages
  2. It requires lenders to report loan data so regulators and the public can identify discriminatory or unmet credit needs Correct answer.
  3. It guarantees mortgage insurance for low-income borrowers
  4. It establishes foreclosure timelines for servicers

Explanation

HMDA requires covered financial institutions to collect and report data on mortgage applications and originations, supporting fair lending enforcement and community credit needs analysis. It does not set rates, provide insurance, or govern foreclosure procedures.

Question 12Residential Mortgage Banking (Residential CMB)

A servicer is evaluating a borrower for a loan modification. Under the CFPB servicing rules, when may the servicer proceed with foreclosure while a complete loss mitigation application is pending?

  1. Whenever the servicer determines the property value has declined
  2. Immediately after the application is received
  3. After the borrower has been evaluated and has exhausted the loss mitigation process, subject to applicable waiting periods Correct answer.
  4. Only after the borrower has missed three payments

Explanation

A servicer generally may not initiate or continue foreclosure while a complete loss mitigation application is pending; it must complete its evaluation and observe required waiting periods before proceeding. The borrower's payment status or property value alone does not authorize dual tracking.

Question 13Residential Mortgage Banking (Residential CMB)

A borrower's escrow account holds funds for property taxes and hazard insurance. Which rule governs the maximum cushion a servicer may require?

  1. The servicer may require up to one-sixth of the estimated annual disbursements as a cushion Correct answer.
  2. The servicer may set any cushion the investor requires
  3. The servicer may require a cushion equal to one full year of disbursements
  4. The servicer may not maintain any cushion

Explanation

Regulation X limits the escrow cushion to no more than one-sixth of the total estimated annual payments for taxes and insurance. Larger cushions or investor-driven cushions beyond that limit are not permitted, and a zero cushion is allowed but not mandated.

Question 14Residential Mortgage Banking (Residential CMB)

Which borrower characteristic is a prohibited basis under the Equal Credit Opportunity Act?

  1. The borrower's loan-to-value ratio
  2. The borrower's receipt of public assistance income Correct answer.
  3. The borrower's length of residence
  4. The borrower's employment history

Explanation

ECOA prohibits discrimination on several bases, including receipt of income from public assistance programs. Employment history, residence tenure, and loan-to-value are underwriting factors rather than protected characteristics.

Question 15Residential Mortgage Banking (Residential CMB)

A loan originator quotes a rate lock to a borrower. Which statement about rate lock disclosures is accurate under Regulation Z?

  1. Rate locks are prohibited for adjustable-rate mortgages
  2. The rate lock period must equal the loan's full term
  3. The creditor must disclose whether the rate is locked and, if so, the period and any fee Correct answer.
  4. A rate lock must be disclosed only if the lock period exceeds sixty days

Explanation

Regulation Z requires disclosure of whether the interest rate is locked and, when it is, the duration of the lock period and any fee charged. There is no sixty-day threshold, no prohibition on locking adjustable-rate loans, and no requirement that the lock match the loan term.

Question 16Residential Mortgage Banking (Residential CMB)

A mortgage broker receives a yield spread premium from the lender. Under current rules, how must this payment be treated?

  1. It may be paid freely because it comes from the lender rather than the borrower
  2. It may be paid to the broker only if it is not based on the transaction's terms and is disclosed appropriately Correct answer.
  3. It must be paid directly to the borrower at closing
  4. It is prohibited in all circumstances

Explanation

Lender-paid compensation to a broker is permitted only when it is not based on the transaction's terms and is properly disclosed. Payments that vary with the interest rate or other terms create a prohibited incentive structure, but compensation from the lender is not banned outright.

Question 17Residential Mortgage Banking (Residential CMB)

Which document is used to disclose the final terms of a mortgage transaction to a borrower before consummation?

  1. The promissory note
  2. The Loan Estimate
  3. The deed of trust
  4. The Closing Disclosure Correct answer.

Explanation

The Closing Disclosure presents the final loan terms and closing costs and must be delivered at least three business days before consummation. The Loan Estimate is an early estimate, while the note and deed of trust are legal instruments rather than disclosures.

Question 18Residential Mortgage Banking (Residential CMB)

A borrower applies for an adjustable-rate mortgage and wants to know how payments could change. Which disclosure element is required?

  1. A statement that payments will never increase
  2. An example showing how the payment could change based on the maximum interest rate Correct answer.
  3. A disclosure of the lender's profit margin only
  4. A guarantee that the index will remain fixed

Explanation

ARM disclosures must include an example of how the periodic payment could change if the interest rate reaches its maximum, helping the borrower understand payment shock risk. Promises of no increase or a fixed index are inconsistent with adjustable-rate products.

Question 19Residential Mortgage Banking (Residential CMB)

Which action by a servicer would violate the Fair Debt Collection Practices Act when collecting a delinquent mortgage?

  1. Providing a payoff statement upon request
  2. Sending a written notice of the delinquency
  3. Contacting the borrower's employer about the debt after being told to stop Correct answer.
  4. Calling the borrower during reasonable hours

Explanation

The FDCPA restricts third-party communications, and contacting an employer after the borrower has instructed the servicer to cease such contact can violate the statute. Reasonable-hour calls, written delinquency notices, and payoff statements are lawful servicing activities.

Question 20Residential Mortgage Banking (Residential CMB)

A lender is determining whether a loan is a high-cost mortgage under HOEPA. Which trigger is used?

  1. The borrower's debt-to-income ratio exceeding 50 percent
  2. The property being a second home
  3. Points and fees exceeding the applicable percentage of the loan amount Correct answer.
  4. The loan amount exceeding the conforming loan limit

Explanation

HOEPA identifies high-cost mortgages using tests including points and fees exceeding a percentage threshold of the loan amount, along with APR and prepayment penalty triggers. Loan size relative to conforming limits, DTI, and occupancy type are not HOEPA triggers.

Question 21Residential Mortgage Banking (Residential CMB)

A first-time homebuyer wants to use gift funds for the down payment on a conventional loan. What is generally required?

  1. The gift funds must be held in escrow for six months
  2. The gift must be repaid within one year
  3. The donor must be a licensed mortgage originator
  4. A gift letter documenting the donor relationship and the funds' source, with transfer documentation Correct answer.

Explanation

Gift funds are generally acceptable when supported by a signed gift letter confirming the donor relationship and that repayment is not required, along with documentation showing the transfer of funds. Repayment obligations, donor licensing, and escrow holding periods are not standard requirements.

Question 22Residential Mortgage Banking (Residential CMB)

Which statement accurately describes the role of the appraisal in the mortgage underwriting process?

  1. It provides an independent opinion of the property's market value to support the lending decision Correct answer.
  2. It determines the interest rate the borrower will pay
  3. It replaces the title search
  4. It establishes the borrower's creditworthiness

Explanation

An appraisal gives an independent, supported opinion of market value that helps the lender assess collateral adequacy and set the loan amount relative to value. Creditworthiness, pricing, and title verification are handled through other underwriting and closing steps.

Question 23Residential Mortgage Banking (Residential CMB)

A servicer offers a short sale as a loss mitigation option. Which statement best describes a short sale?

  1. The borrower refinances into a smaller loan
  2. The property is transferred to the lender through deed in lieu
  3. The lender accepts proceeds less than the outstanding balance to avoid foreclosure Correct answer.
  4. The loan is modified with a reduced interest rate

Explanation

In a short sale, the servicer agrees to release the lien and accept sale proceeds that are less than the total debt, typically to avoid a costlier foreclosure. Refinancing, deed in lieu, and modification are distinct loss mitigation tools.

Question 24Residential Mortgage Banking (Residential CMB)

A creditor is evaluating whether a loan meets the general qualified mortgage price-based threshold. Which comparison is relevant?

  1. The loan's APR compared to the average prime offer rate for a comparable transaction Correct answer.
  2. The property's appraised value compared to the purchase price
  3. The borrower's credit score compared to a national average
  4. The servicer's cost of funds compared to the Federal funds rate

Explanation

The general QM definition uses a price-based test comparing the loan's APR to the average prime offer rate for a comparable transaction, with a spread limit that varies by loan size. Credit score averages, appraisal comparisons, and servicer funding costs are not part of this test.

Question 25Residential Mortgage Banking (Residential CMB)

Which borrower right is protected by the Real Estate Settlement Procedures Act during the servicing of a federally related mortgage loan?

  1. The right to demand removal of negative credit reporting without dispute
  2. The right to cancel the loan at any time without penalty
  3. The right to receive a response to a qualified written request about account errors Correct answer.
  4. The right to a fixed interest rate for the life of the loan

Explanation

RESPA gives borrowers the right to submit a qualified written request to dispute account errors and to receive a timely acknowledgment and substantive response. It does not guarantee fixed rates, allow unlimited cancellation, or permit removal of accurate credit information.

Question 26Residential Mortgage Banking (Residential CMB)

Under the Ability-to-Repay rule, which underwriting standard must a creditor generally consider when deciding whether to extend a residential mortgage?

  1. The borrower's current residual income after accounting for recurring debts and obligations Correct answer.
  2. The property's projected appreciation over the next thirty-six months
  3. The lender's secondary market pricing for comparable loans
  4. The loan originator's prior year production volume

Explanation

Regulation Z's Ability-to-Repay rule requires creditors to make a reasonable, good-faith determination of a consumer's ability to repay based on verified income, debts, assets, and residual income after obligations. Property appreciation, originator production, and secondary market pricing are not borrower repayment factors.

Question 27Residential Mortgage Banking (Residential CMB)

A loan officer is completing an application taken by telephone for a refinance. Under Regulation Z's loan originator rules, which identifier must be provided to the consumer?

  1. The Social Security number of the individual originator
  2. The name and Nationwide Mortgage Licensing System and Registry unique identifier of the individual originator Correct answer.
  3. The personal email address of the individual originator
  4. The home address of the individual originator

Explanation

Regulation Z requires that the loan originator organization and individual originator provide their names and NMLSR unique identifiers on the Loan Estimate, Closing Disclosure, and related disclosures. Personal identifiers such as Social Security numbers, home addresses, and private email are not required and would raise privacy concerns.

Question 28Residential Mortgage Banking (Residential CMB)

A borrower's flood zone determination shows the home is in a Special Flood Hazard Area, and the lender requires flood insurance. Which statement about the escrow of flood insurance premiums is accurate for a higher-priced mortgage loan?

  1. Flood insurance escrow is prohibited when the loan is sold to a government-sponsored enterprise
  2. Flood insurance escrow is required only if the borrower requests it
  3. Flood insurance may never be escrowed
  4. Escrow must be established for flood insurance unless an exemption applies Correct answer.

Explanation

For higher-priced mortgage loans, Regulation Z generally requires escrow accounts for property taxes and premiums for hazard and flood insurance, subject to limited exemptions. The requirement is not borrower-optional and is not prohibited on loans sold to the enterprises.

Question 29Residential Mortgage Banking (Residential CMB)

A mortgage lender is preparing its annual fair lending monitoring. Which law requires collection and reporting of data on the race, ethnicity, sex, and age of applicants for covered mortgage loans?

  1. The Servicemembers Civil Relief Act
  2. The Gramm-Leach-Bliley Act
  3. The Home Mortgage Disclosure Act Correct answer.
  4. The Fair Credit Reporting Act

Explanation

HMDA, implemented by Regulation C, requires covered financial institutions to collect, record, and report applicant demographic data and loan-level information. The other statutes govern consumer report accuracy, privacy of financial information, and protections for servicemembers.

Question 30Residential Mortgage Banking (Residential CMB)

A servicer receives a qualified written request from a borrower disputing the servicing of a federally related mortgage loan. Under RESPA, within how many business days must the servicer provide a substantive written response?

  1. 5 business days with no extension available
  2. 10 business days only if the borrower pays a fee
  3. 30 business days, subject to a permissible extension of 15 business days Correct answer.
  4. 60 business days with no extension available

Explanation

RESPA requires a servicer to acknowledge a qualified written request within five business days and to provide a substantive response within 30 business days, with a possible 15-business-day extension if corrections cannot be completed in time. The other timeframes do not match the regulation.

Question 31Residential Mortgage Banking (Residential CMB)

A borrower is comparing loan offers and wants to understand the annual percentage rate on the Loan Estimate. What does the APR represent?

  1. The note rate alone, excluding all fees
  2. The lender's internal cost of funds for the loan
  3. The monthly principal and interest payment divided by the loan amount
  4. The cost of credit expressed as a yearly rate, incorporating specified finance charges Correct answer.

Explanation

The APR reflects the cost of credit as a yearly rate and incorporates the interest rate plus certain finance charges such as specified closing costs. It is broader than the note rate and is not a payment calculation or the lender's funding cost.

Question 32Residential Mortgage Banking (Residential CMB)

A lender is evaluating whether a loan is a qualified mortgage using the general definition. Which product feature would cause the loan to fail the general QM product-feature requirements?

  1. A loan with no negative amortization and no interest-only period
  2. A fully amortizing loan with a 20-year term
  3. A loan with points and fees below the applicable limit
  4. A loan term of 40 years Correct answer.

Explanation

The general qualified mortgage definition limits loan terms to 30 years and prohibits negative amortization, interest-only periods, and balloon payments, while capping points and fees. A 40-year term exceeds the maximum term and disqualifies the loan.

Question 33Residential Mortgage Banking (Residential CMB)

A borrower asks how the lender will verify employment and income during underwriting. Which source is typically used to confirm employment and income for a salaried borrower?

  1. The borrower's stated income without documentation
  2. A credit report score alone
  3. The appraised value of the subject property
  4. Written or verbal verification of employment plus pay stubs and W-2 forms Correct answer.

Explanation

Underwriters verify salaried income using documentation such as pay stubs and W-2s and confirm employment through a verification of employment. A credit score, undocumented stated income, or property value does not establish income or employment.

Question 34Residential Mortgage Banking (Residential CMB)

A borrower is purchasing a home with a conventional loan and has a down payment of 10 percent. Which statement about private mortgage insurance is generally accurate?

  1. PMI replaces the need for hazard insurance
  2. PMI is typically required because the loan-to-value ratio exceeds 80 percent Correct answer.
  3. PMI is never required on conventional loans
  4. PMI is required only on FHA-insured loans

Explanation

Conventional lenders generally require private mortgage insurance when the loan-to-value ratio exceeds 80 percent, which a 10 percent down payment produces. PMI is distinct from FHA mortgage insurance premium and does not substitute for hazard insurance.

Question 35Residential Mortgage Banking (Residential CMB)

A borrower with a fixed-rate mortgage asks what happens to the principal and interest payment over the life of the loan. Which statement is accurate?

  1. The principal and interest payment increases each year with inflation
  2. The principal and interest payment remains constant, while the portion applied to interest declines over time Correct answer.
  3. The principal and interest payment decreases each year as the balance falls
  4. The principal and interest payment changes whenever the index changes

Explanation

On a fixed-rate, fully amortizing mortgage, the total principal and interest payment stays level, but the interest portion shrinks as the balance declines and the principal portion grows. Payment changes tied to an index describe adjustable-rate loans.

Question 36Residential Mortgage Banking (Residential CMB)

A borrower is refinancing and the lender will pay off the existing first mortgage. Which document itemizes the payoff amount and the distribution of loan proceeds at closing?

  1. The Loan Estimate
  2. The appraisal report
  3. The promissory note
  4. The Closing Disclosure Correct answer.

Explanation

The Closing Disclosure itemizes final loan terms, closing costs, and the disbursement of proceeds, including payoff of existing liens. The Loan Estimate is an early estimate, the note sets repayment terms, and the appraisal establishes value.

Question 37Residential Mortgage Banking (Residential CMB)

A servicer is evaluating a borrower for loss mitigation under the CFPB servicing rules. The borrower submitted a complete application 30 days before a scheduled foreclosure sale. Which statement is accurate?

  1. The servicer may proceed only if the borrower waives all rights in writing
  2. The servicer may proceed with the sale without reviewing the application
  3. The servicer generally must not conduct the foreclosure sale until it evaluates the application and provides a response Correct answer.
  4. The servicer must cancel the foreclosure permanently

Explanation

The servicing rules impose a foreclosure referral and sale restriction when a complete loss mitigation application is received more than 37 days before a foreclosure sale, requiring evaluation and a response before the sale proceeds. The servicer need not cancel the foreclosure permanently, and a waiver is not the operative rule.

Question 38Residential Mortgage Banking (Residential CMB)

A lender is advertising a mortgage product and wants to include a trigger term such as a specific rate. Which requirement applies under Regulation Z?

  1. The advertisement must include the loan originator's Social Security number
  2. The advertisement must disclose additional required information, such as APR and repayment terms, in a clear and conspicuous manner Correct answer.
  3. The advertisement may omit the APR if the rate is fixed
  4. The advertisement may state the rate without any additional disclosures

Explanation

When a mortgage advertisement contains a triggering term, Regulation Z requires clear and conspicuous disclosure of additional information such as the APR, repayment terms, and applicable conditions. The other options either omit required disclosures or include improper personal data.

Question 39Residential Mortgage Banking (Residential CMB)

A borrower is applying for a home equity line of credit secured by a dwelling. Which disclosure must the creditor provide at application under Regulation Z?

  1. The annual escrow statement
  2. The Closing Disclosure only
  3. The Loan Estimate only
  4. The Home Equity Line of Credit brochure and an application disclosure Correct answer.

Explanation

For open-end credit secured by a dwelling, Regulation Z requires delivery of the HELOC brochure and an application disclosure at the time of application. The Closing Disclosure and Loan Estimate apply to closed-end mortgage transactions, and an escrow statement is a servicing document.

Question 40Residential Mortgage Banking (Residential CMB)

A borrower's credit report shows a collection account that the borrower says was paid. Which action is appropriate under the Fair Credit Reporting Act?

  1. The borrower must accept the report as accurate
  2. The loan originator must delete the item from the report
  3. The borrower may dispute the item with the consumer reporting agency, which must investigate Correct answer.
  4. The borrower must wait seven years before disputing

Explanation

The FCRA gives consumers the right to dispute inaccurate information with the consumer reporting agency, which must conduct a reasonable investigation. A loan originator cannot alter the report, and there is no waiting period to dispute.

Question 41Residential Mortgage Banking (Residential CMB)

A borrower is a member of the National Guard activated for active duty and has a mortgage incurred before activation. Which protection is available under the Servicemembers Civil Relief Act?

  1. An exemption from the obligation to pay property taxes
  2. A cap on the interest rate at 6 percent for the period of military service, subject to the statutory conditions Correct answer.
  3. Automatic forgiveness of the mortgage balance
  4. A prohibition on all foreclosure activity regardless of circumstances

Explanation

The SCRA limits the interest rate on pre-service obligations to 6 percent during military service, with excess interest forgiven, when the servicemember provides notice and the obligation meets the statute's conditions. The SCRA does not forgive principal, bar all foreclosures, or exempt property taxes.

Question 42Residential Mortgage Banking (Residential CMB)

A lender is evaluating a borrower whose income comes from self-employment. Which documentation approach best supports the Ability-to-Repay determination?

  1. Use the appraised value of the home as a proxy for income
  2. Average the borrower's credit limits as monthly income
  3. Analyze tax returns, profit and loss statements, and business records to establish stable qualifying income Correct answer.
  4. Rely on the borrower's oral estimate of annual earnings

Explanation

Self-employed income must be documented and analyzed using tax returns and business records to determine a stable qualifying amount. Oral estimates, property value, and credit limits do not establish verified income.

Question 43Residential Mortgage Banking (Residential CMB)

A borrower is comparing an adjustable-rate mortgage with a 5/1 structure. Which statement best describes how the rate behaves?

  1. The rate is fixed for the entire 30-year term
  2. The rate adjusts every month for the first five years
  3. The rate adjusts annually for five years and then becomes fixed
  4. The initial rate is fixed for five years, after which it adjusts annually based on an index and margin Correct answer.

Explanation

In a 5/1 ARM, the initial rate is fixed for five years, then adjusts once each year based on the index plus margin, subject to caps. The other descriptions misstate the structure of the initial period and adjustment frequency.

Question 44Residential Mortgage Banking (Residential CMB)

A lender is reviewing a loan file before closing and finds that the appraised value is below the purchase price. What is the appropriate underwriting response?

  1. Reduce the interest rate to offset the difference
  2. Evaluate the loan-to-value ratio using the lower appraised value and determine whether the loan still meets program requirements Correct answer.
  3. Ignore the appraisal because the borrower agreed to the price
  4. Use the purchase price as the value and proceed without adjustment

Explanation

When the appraised value is below the purchase price, underwriting uses the lower of the two for loan-to-value purposes, which may require additional down payment or disqualify the loan. Using the purchase price, ignoring the appraisal, or adjusting the rate does not resolve the collateral shortfall.

Question 45Residential Mortgage Banking (Residential CMB)

A creditor is evaluating whether a loan is a high-cost mortgage under HOEPA. Which set of triggers is used?

  1. The APR exceeds the average prime offer rate by a specified margin, points and fees exceed a threshold, or the loan includes a prepayment penalty exceeding limits Correct answer.
  2. Only the property is located in a low-income census tract
  3. Only the borrower's credit score falls below a threshold
  4. Only the loan-to-value ratio exceeds 90 percent

Explanation

HOEPA coverage is determined by three independent triggers: an APR above the average prime offer rate by a set margin, points and fees above a threshold, or certain prepayment penalties. Credit score, loan-to-value, and census tract location are not HOEPA triggers.

Question 46Residential Mortgage Banking (Residential CMB)

A servicer is handling a borrower who has filed for bankruptcy. Which statement about the servicer's communications is accurate?

  1. The servicer may ignore the bankruptcy filing if the loan is current
  2. The servicer must immediately foreclose to protect its interest
  3. The servicer must comply with the automatic stay and bankruptcy court procedures when communicating about the debt Correct answer.
  4. The servicer may contact the borrower directly at any time without restriction

Explanation

The automatic stay bars collection activity, including certain communications and foreclosure actions, outside the bankruptcy process. Servicers must follow bankruptcy court procedures and cannot simply ignore the filing or accelerate foreclosure.

Question 47Residential Mortgage Banking (Residential CMB)

A lender is evaluating a borrower whose only verified income is a fixed monthly pension. Which factor is most important in determining whether that income can be used for repayment?

  1. Whether the borrower has a credit card with a high limit
  2. Whether the pension is documented as stable and continuing for at least three years Correct answer.
  3. Whether the borrower has previously refinanced
  4. Whether the property has a swimming pool

Explanation

Income used for repayment must be verified as stable and continuing, generally for at least three years, which applies to pension income. Credit limits, property amenities, and prior refinancing do not determine the acceptability of pension income.

Question 48Residential Mortgage Banking (Residential CMB)

A lender is designing a marketing campaign for mortgage products and wants to avoid fair lending risk. Which practice is most consistent with fair lending requirements?

  1. Directing different products or terms to neighborhoods based on racial composition
  2. Using identical credit standards and marketing reach across all neighborhoods in the service area Correct answer.
  3. Steering applicants to higher-cost products based on national origin
  4. Requiring additional documentation only from applicants in certain ZIP codes

Explanation

Fair lending requires consistent credit standards and marketing that does not exclude or target neighborhoods based on protected characteristics. Varying terms, documentation, or product steering by race, national origin, or neighborhood composition creates discriminatory risk.

Question 49Residential Mortgage Banking (Residential CMB)

A servicer is evaluating a borrower for a loan modification and must follow the CFPB servicing rules on loss mitigation. Which sequence best reflects the required process?

  1. Require the borrower to waive all servicing rights before evaluation
  2. Acknowledge the application, evaluate it, and provide a written notice of the determination with appeal rights where applicable Correct answer.
  3. Offer a modification only after the foreclosure sale
  4. Deny the application without review and proceed to foreclosure

Explanation

The servicing rules require acknowledgment of a complete loss mitigation application, evaluation under applicable criteria, and a written notice of the determination that includes appeal rights when required. Denial without review, post-sale offers, and coerced waivers do not satisfy these procedures.

Question 50Residential Mortgage Banking (Residential CMB)

A lender is determining whether a loan is subject to the higher-priced mortgage loan appraisal requirements. Which condition would make the loan subject to those requirements?

  1. The loan is a bridge loan with a term of 12 months or less
  2. The loan is a higher-priced mortgage loan and is not otherwise exempt, such as a qualified mortgage Correct answer.
  3. The loan is a reverse mortgage
  4. The loan is a qualified mortgage with a safe harbor designation

Explanation

The appraisal requirements for higher-priced mortgage loans apply to covered HPMLs, but qualified mortgages and certain other loan types such as reverse mortgages and short-term bridge loans are exempt. The safe harbor QM designation removes the loan from the HPML appraisal rules.