I85PREP
⌘ K
NJ MLO study materials
NJ MLO study resources

NJ MLO practice questions

One question at a time. Build your NJ MLO understanding.

First 50 of 199 questions. Each one lists the choices, the correct answer, and an explanation. The checker at the top of this page saves progress in this browser when it is available.

Continue in the practice tool above to load more questions, 50 at a time.

Question 1Federal Mortgage-Related Laws

Under Section 8 of the Real Estate Settlement Procedures Act, which activity is prohibited?

  1. Delivering the Closing Disclosure three business days before consummation
  2. Giving a borrower a price reduction for paying settlement costs in cash
  3. Giving or accepting a fee for referring settlement service business Correct answer.
  4. Itemizing the loan origination charge on the Loan Estimate

Explanation

RESPA Section 8 bars giving or receiving anything of value in exchange for the referral of settlement service business connected to a federally related mortgage loan. It also bars unearned fee splits and fee-splitting with parties who did not perform services. The prohibition targets referral payments, not disclosed origination charges or required disclosure timing.

Question 2Federal Mortgage-Related Laws

When a consumer has a right of rescission on a refinance of a principal dwelling, how long does the consumer generally have to cancel the transaction?

  1. Until midnight of the day the loan funds
  2. Until midnight of the third business day after consummation or delivery of all required disclosures, whichever is later Correct answer.
  3. Until 30 days after the first payment is due
  4. Until midnight of the seventh business day after the application is received

Explanation

TILA gives the consumer three business days to rescind a covered refinance or home equity transaction, and the clock does not start until the consumer has received all material disclosures and notice of the right to rescind. If those disclosures are late, the rescission period can be extended. Rescission applies to certain refinances and home equity loans, not to a purchase-money loan.

Question 3Federal Mortgage-Related Laws

Under the Equal Credit Opportunity Act and Regulation B, a creditor generally must notify an applicant of adverse action within how many days after receiving a completed application?

  1. 10 days
  2. 15 days
  3. 30 days Correct answer.
  4. 60 days

Explanation

Regulation B requires a creditor to give notice of adverse action within 30 days after receiving a completed application for credit. When a counteroffer is made, the applicant has 90 days to accept or the creditor must send an adverse action notice. The notice must state the reasons for the action or disclose the right to request them.

Question 4Federal Mortgage-Related Laws

What is the primary purpose of the Home Mortgage Disclosure Act?

  1. To require lenders to establish escrow accounts for taxes and insurance
  2. To set maximum interest rates that lenders may charge on mortgage loans
  3. To establish licensing standards for mortgage loan originators
  4. To require certain lenders to report mortgage application and lending data Correct answer.

Explanation

HMDA requires covered depository and non-depository lenders to collect, report, and publicly disclose data about mortgage applications and originations. The data are used to identify possible discriminatory lending patterns and to support fair lending enforcement. HMDA does not set rates, mandate escrows, or license originators.

Question 5Federal Mortgage-Related Laws

Under the SAFE Act, an individual who takes residential mortgage loan applications must:

  1. Hold an active real estate broker license in the state where the property is located
  2. Post a surety bond equal to the largest loan the originator expects to originate
  3. Be licensed by the state and listed in the Nationwide Multistate Licensing System and Registry Correct answer.
  4. Pass a new licensing examination every calendar year

Explanation

The SAFE Act requires mortgage loan originators to be licensed or registered through the Nationwide Multistate Licensing System and Registry, meeting pre-licensing education, testing, and criminal background standards. State regulators administer the system, and annual requirements include continuing education rather than a new exam. Registration alone may apply to certain bank employees, but the NMLS listing requirement is universal.

Question 6Federal Mortgage-Related Laws

The federal Fair Housing Act prohibits discrimination in the sale, rental, and financing of dwellings based on which set of characteristics?

  1. Race, color, religion, sex, national origin, familial status, and age
  2. Race, color, religion, sex, marital status, and source of income
  3. Race, color, religion, sex, national origin, familial status, and disability Correct answer.
  4. Race, color, religion, sex, national origin, and occupation

Explanation

The Fair Housing Act's federally protected classes are race, color, religion, sex, national origin, familial status, and disability. Marital status and source of income are protected under many state and local laws but are not federal Fair Housing Act classes. Age is protected in credit transactions under ECOA, not under the Fair Housing Act.

Question 7Federal Mortgage-Related Laws

A lender makes a loan secured by a building located in a special flood hazard area of a participating community. What is the lender's minimum obligation under the federal flood statutes?

  1. Collect the first year's premium from the seller at closing
  2. Keep the loan in portfolio until the borrower obtains flood insurance
  3. Require flood insurance in an amount at least equal to the lesser of the loan balance or the NFIP maximum Correct answer.
  4. Verify only that the community participates in the National Flood Insurance Program

Explanation

The Flood Disaster Protection Act requires regulated lenders to require flood insurance for improved property in a special flood hazard area when the loan is made, increased, extended, or renewed. Coverage must be at least the lesser of the outstanding principal balance, the maximum limit available under the NFIP for the property type, or the insurable value. The lender must also escrow flood insurance premiums for most residential loans.

Question 8Federal Mortgage-Related Laws

Under the Homeowners Protection Act, a borrower may request cancellation of private mortgage insurance once the loan balance reaches what percentage of the property's original value?

  1. 78 percent
  2. 75 percent
  3. 90 percent
  4. 80 percent Correct answer.

Explanation

The Homeowners Protection Act lets a borrower request PMI cancellation when the principal balance is scheduled to reach 80 percent of the original value, provided the loan is current and other conditions are met. Automatic termination occurs at 78 percent of original value. Final termination is required at the midpoint of the amortization schedule.

Question 9Federal Mortgage-Related Laws

Under the TRID rules, a creditor must deliver or place in the mail the Loan Estimate no later than:

  1. Three business days after receiving the consumer's application Correct answer.
  2. Five business days after receiving the consumer's application
  3. Seven business days after receiving the application
  4. Three business days before consummation

Explanation

Regulation Z requires the creditor to provide the Loan Estimate within three business days of receiving the application, and no later than seven business days before consummation. The application is considered received when the creditor has the six pieces of information defined in the rule. The Closing Disclosure timing is a separate three-business-day requirement.

Question 10Federal Mortgage-Related Laws

For a mortgage loan subject to the TRID rules, the consumer must receive the Closing Disclosure no later than:

  1. One business day before consummation
  2. Three business days before consummation Correct answer.
  3. At the closing table on the day of consummation
  4. Five business days before consummation

Explanation

The creditor must ensure the consumer receives the Closing Disclosure at least three business days before consummation so the consumer can review the final terms. Receipt generally means delivery or placement in the mail, with a presumption of receipt after three business days if mailed. Certain changes after delivery, such as an increase in the APR beyond tolerance, require a revised disclosure and a new waiting period.

Question 11Federal Mortgage-Related Laws

Under the original General Qualified Mortgage rule, a covered transaction generally qualified as a QM only if the consumer's debt-to-income ratio did not exceed:

  1. 41 percent
  2. 50 percent
  3. 43 percent Correct answer.
  4. 36 percent

Explanation

The 2014 General QM standard used a 43 percent total debt-to-income limit, along with restrictions on certain loan features, and gave the loan a rebuttable presumption of compliance with the ability-to-repay rule. The 2021 General QM rule replaced the DTI limit with a price-based threshold. The 43 percent figure is a DTI limit, not an interest rate cap.

Question 12Federal Mortgage-Related Laws

Under HOEPA, a loan becomes a high-cost mortgage when total points and fees exceed:

  1. 5 percent of the total loan amount, but only when the loan exceeds $50,000
  2. 4 percent of the total loan amount, regardless of the size of the loan
  3. 3 percent of the total loan amount, regardless of the size of the loan
  4. The applicable threshold of 5 percent for loans of $20,000 or more Correct answer.

Explanation

HOEPA's points-and-fees trigger is 5 percent of the total loan amount for loans of $20,000 or more, with the dollar figure adjusted annually, and 8 percent for smaller loans. A loan also becomes high-cost if its APR exceeds the average prime offer rate by more than the statutory margin or if it contains certain prepayment penalties or balloon features. High-cost mortgages carry extra disclosure, escrow, and restriction requirements.

Question 13Federal Mortgage-Related Laws

Under RESPA's escrow accounting rules, a servicer may require an escrow cushion of no more than:

  1. One-half of the estimated total annual escrow payments
  2. One-sixth of the estimated total annual escrow payments Correct answer.
  3. One-fourth of the estimated total annual escrow payments
  4. One-twelfth of the estimated total annual escrow payments

Explanation

Regulation X limits the escrow cushion to no more than one-sixth of the estimated total annual disbursements from the escrow account. This permits collecting roughly two months of reserves without violating the limitation. The servicer must perform an escrow account analysis at least annually and refund any surplus above the permitted amount.

Question 14Federal Mortgage-Related Laws

Under Regulation X, a servicer that receives a notice of error from a borrower must acknowledge receipt within:

  1. Five business days Correct answer.
  2. Three business days
  3. Ten business days
  4. Thirty business days

Explanation

Regulation X requires the servicer to send a written acknowledgment within five business days of receiving a notice of error and to make a substantive response within 30 business days. The response period can be extended by 15 business days in certain circumstances if the servicer notifies the borrower. These servicing procedures apply to federally related mortgage loans.

Question 15Federal Mortgage-Related Laws

Under the Gramm-Leach-Bliley Act, a mortgage lender is required to:

  1. Report every borrower's payment history to the national credit bureaus
  2. Disclose the annual percentage rate in every advertisement
  3. Obtain a borrower's written consent before obtaining any credit report
  4. Give customers a privacy notice and safeguard their nonpublic personal information Correct answer.

Explanation

Title V of the Gramm-Leach-Bliley Act requires financial institutions to provide privacy notices describing how they share nonpublic personal information, to give customers a chance to opt out of certain sharing with nonaffiliates, and to maintain safeguards for that information. The Safeguards Rule and Privacy Rule under Regulation P implement these duties. The Act does not govern credit reporting or advertising disclosures.

Question 16Federal Mortgage-Related Laws

A lender denies a loan application based in part on information in a consumer report. Under the Fair Credit Reporting Act, the lender must:

  1. Notify the consumer of the denial and identify the consumer reporting agency used Correct answer.
  2. Send the consumer a free copy of the full credit report it used
  3. Wait 30 days after the decision before notifying the consumer
  4. Withhold the reason for the denial to protect the credit reporting agency

Explanation

FCRA requires a user of consumer reports to give an adverse action notice that includes the name, address, and telephone number of the consumer reporting agency that furnished the report. The notice must also state that the consumer has the right to obtain a free copy of the report and to dispute its accuracy. The lender is not required to send the report itself.

Question 17Federal Mortgage-Related Laws

Which lender practice violates federal appraisal independence standards?

  1. Providing the appraiser with a copy of the purchase agreement
  2. Asking the appraiser to correct a factual error in the completed report
  3. Requiring the appraiser to hold a current state certification or license
  4. Conditioning loan approval on the appraiser hitting a target value Correct answer.

Explanation

Dodd-Frank amendments to TILA prohibit coercion, bribery, or intimidation intended to cause an appraiser to misstate a property's value, including tying approval to a desired value. Requesting correction of factual errors, verifying credentials, and providing the purchase contract are permitted practices. The rule protects the appraiser's independent judgment from pressure by the lender or loan originator.

Question 18Federal Mortgage-Related Laws

For a higher-priced mortgage loan, an escrow account for taxes and insurance is generally required unless:

  1. The home will be used as a second residence
  2. The borrower waives escrow in writing at closing
  3. The loan-to-value ratio is 80 percent or less
  4. The loan is made by a small creditor that meets the escrow exemption criteria Correct answer.

Explanation

Regulation Z requires escrows for higher-priced mortgage loans, but a small-creditor exemption applies to creditors with total assets below the statutory threshold that also meet the origination-volume and rural-or-underserved lending conditions. The other exceptions are limited, such as certain condominium or insurance-related situations. A simple borrower waiver or a low loan-to-value ratio does not remove the requirement.

Question 19Federal Mortgage-Related Laws

Under the Regulation Z loan originator compensation rule, which basis for paying a mortgage loan originator is permitted?

  1. Paying more for a purchase transaction than a refinance
  2. Paying more when the borrower has a lower credit score
  3. Paying a fixed amount per loan or a percentage of the loan amount Correct answer.
  4. Paying more when the loan includes a prepayment penalty

Explanation

Loan originator compensation may be based on the loan amount or a fixed dollar amount per transaction, but it may not vary with the loan's terms or conditions such as the interest rate, APR, credit score, or prepayment penalty. The rule also bars an originator from being compensated by both the consumer and another party on the same transaction. The purpose is to remove incentives to steer consumers into higher-cost loans.

Question 20Federal Mortgage-Related Laws

The anti-steering provisions of Regulation Z prohibit a loan originator from:

  1. Presenting the consumer with loans from at least three different creditors
  2. Steering a consumer to a loan that is not in the consumer's interest Correct answer.
  3. Recommending the loan product with the lowest total cost to the consumer
  4. Being paid a percentage of the loan amount rather than a flat fee

Explanation

Regulation Z bars a loan originator from directing a consumer to a transaction that benefits the originator at the consumer's expense, unless the consumer is presented with a range of loan options and selects one. There is a safe harbor when the consumer is offered at least three loan options from different creditors and chooses among them. The rule targets conflicts of interest, not every recommendation.

Question 21Federal Mortgage-Related Laws

The Community Reinvestment Act requires federally insured depository institutions to:

  1. Meet the credit needs of their entire community, including low- and moderate-income areas Correct answer.
  2. Make a fixed percentage of loans to borrowers at or below the poverty line each year
  3. Report all mortgage applications to a federal agency each year
  4. Provide free checking accounts to every resident of the counties they serve

Explanation

The Community Reinvestment Act affirmatively requires banks and thrifts to help meet the credit needs of the communities in which they are chartered, including low- and moderate-income neighborhoods, consistent with safe and sound operations. Regulators examine institutions for CRA performance. There is no fixed lending quota or mandated product offering.

Question 22Federal Mortgage-Related Laws

The Military Lending Act caps the Military Annual Percentage Rate on covered loans to covered borrowers at:

  1. 18 percent
  2. 36 percent Correct answer.
  3. 43 percent
  4. 41 percent

Explanation

The Military Lending Act limits the Military Annual Percentage Rate on covered consumer credit to a 36 percent cap that includes certain fees, and the related rules restrict mandatory arbitration and other terms. Covered borrowers include active-duty service members and their dependents. Residential mortgages are generally exempt from the MLA rule's rate cap, but other consumer credit extended to covered borrowers is not.

Question 23Federal Mortgage-Related Laws

Under Regulation Z, a disclosed annual percentage rate on a regular transaction is considered accurate if it is within how much of the actual APR?

  1. One-tenth of one percentage point
  2. One-half of one percentage point
  3. One-eighth of one percentage point Correct answer.
  4. One-quarter of one percentage point

Explanation

Regulation Z's tolerance for a regular transaction is one-eighth of one percentage point; the tolerance is one-quarter of one percentage point for irregular transactions such as those with multiple advances. Violations outside the tolerance can trigger reimbursement and disclosure remedies. Different tolerances apply to the finance charge under the TRID rules.

Question 24Federal Mortgage-Related Laws

When the servicing of a mortgage loan is transferred, the transferor servicer must generally notify the borrower at least:

  1. Seven days before the transfer
  2. Fifteen days before the transfer Correct answer.
  3. Ten days before the transfer
  4. Three business days before the transfer

Explanation

Under RESPA and Regulation X, the transferor servicer must provide the borrower with a notice of transfer not less than 15 days before the effective date, and the transferee servicer must send a similar notice not more than 15 days after the transfer. The notices must identify the effective date and the new servicer's contact information and address for payments. During a 60-day transition period, a timely payment sent to the old servicer may not be treated as late.

Question 25Federal Mortgage-Related Laws

Under Regulation B, a creditor may require a spouse's signature on a loan when:

  1. The applicant's spouse has a limited credit history
  2. The loan is secured only by the applicant's primary residence
  3. The applicant is unmarried and lives with a partner
  4. The applicant is relying on the spouse's income to qualify Correct answer.

Explanation

Regulation B permits a creditor to require a spousal signature only in limited circumstances, such as when the spouse has an ownership interest in the property, when the applicant is relying on the spouse's income or on alimony or child support, or when state law requires it to perfect a security interest. The applicant must be able to qualify on his or her own merits in the absence of those circumstances. Requiring a signature for other reasons can constitute unlawful discrimination based on marital status.

Question 26Federal Mortgage-Related Laws

A creditor receives a completed mortgage loan application on March 1 and decides to deny it. Under Regulation B, the creditor must notify the applicant of the adverse action no later than:

  1. 60 days after receiving the completed application
  2. 30 days after receiving the completed application Correct answer.
  3. 90 days after receiving the completed application
  4. 45 days after receiving the completed application

Explanation

Regulation B requires a creditor to notify an applicant of adverse action within 30 days after receiving a completed application. The notice must be in writing when a consumer requests it in writing within that period. A counteroffer made within the 30 days may be treated as the notification if the applicant does not accept it.

Question 27Federal Mortgage-Related Laws

A borrower refinances her principal residence with a new first lien and receives all required TILA disclosures at closing. Her right to rescind the transaction expires at:

  1. Midnight of the third calendar day following consummation
  2. Midnight of the third business day following consummation Correct answer.
  3. Midnight of the seventh business day following consummation
  4. Midnight of the tenth business day following consummation

Explanation

For a rescindable transaction, the consumer's right to rescind expires at midnight of the third business day after the last of three events: consummation, delivery of the material disclosures, or delivery of the rescission notice. If the disclosures or notice are delayed, the rescission period can extend up to three years.

Question 28Federal Mortgage-Related Laws

A title agency agrees to pay a real estate brokerage $250 for each mortgage settlement the brokerage refers to it. Under RESPA, this arrangement is:

  1. Prohibited, because it is an unearned referral fee Correct answer.
  2. Prohibited, only if the fee exceeds the services' reasonable value
  3. Permissible, if the fee is disclosed on the Closing Disclosure
  4. Permissible, because title services are not settlement services

Explanation

Section 8 of RESPA bars giving or accepting anything of value in exchange for the referral of settlement service business involving a federally related mortgage loan. The prohibition applies regardless of whether the payment is disclosed to the borrower. Fees must be for goods, facilities, or services actually furnished and reasonably related in value to what was provided.

Question 29Federal Mortgage-Related Laws

Under the federal SAFE Act, an individual applying for a state mortgage loan originator license must first complete pre-licensing education of at least:

  1. 8 hours
  2. 40 hours
  3. 12 hours
  4. 20 hours Correct answer.

Explanation

The SAFE Act requires at least 20 hours of pre-licensing education, including specified hours in federal law, ethics, nontraditional mortgage products, and fair lending. After licensing, MLOs must complete at least 8 hours of continuing education each year.

Question 30Federal Mortgage-Related Laws

Which federal law requires most mortgage lenders to collect and report data about applicants' ethnicity, race, sex, and the loan's purpose, amount, and pricing?

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

Explanation

HMDA, implemented through Regulation C, requires covered lenders to compile and report loan-level data, including applicant characteristics and pricing information. The data is used to identify whether institutions are serving the housing needs of their communities and to detect possible discriminatory lending patterns.

Question 31Federal Mortgage-Related Laws

A creditor obtains an appraisal in connection with a mortgage application. Under Regulation B, the creditor must:

  1. Promptly provide a copy to the applicant, whether or not the loan is approved Correct answer.
  2. Provide a copy only after the loan is approved and closed
  3. Provide a copy only if the appraisal supports the requested loan amount
  4. Provide a copy only if the applicant submits a written request for it

Explanation

Regulation B requires a creditor to give the applicant a free copy of each appraisal and other written valuation promptly upon completion, or no later than three business days before consummation, whichever is earlier. The duty applies whether the application is approved or denied.

Question 32Federal Mortgage-Related Laws

For a higher-priced mortgage loan, Regulation Z requires the creditor to provide the consumer a free copy of each written appraisal:

  1. Within 30 days after consummation
  2. Only upon the consumer's written request
  3. No later than the date of consummation
  4. Three business days before consummation Correct answer.

Explanation

Section 129H of TILA and Regulation Z require creditors on higher-priced mortgage loans to provide a free copy of each written appraisal at least three business days before consummation. The same rule prohibits the creditor from charging the consumer for the copy.

Question 33Federal Mortgage-Related Laws

A servicer completes an escrow account analysis and finds a $75 surplus. Under Regulation X, the servicer must:

  1. Apply the entire surplus to the borrower's principal balance
  2. Retain the surplus as an additional escrow cushion
  3. Refund the surplus to the borrower within 30 days Correct answer.
  4. Refund the surplus only when the loan is paid off

Explanation

If an escrow analysis shows a surplus of $50 or more, the servicer must refund the surplus to the borrower within 30 days of the analysis. Surpluses under $50 may be credited to the next escrow account computation year instead of refunded.

Question 34Federal Mortgage-Related Laws

A borrower submits a complete loss mitigation application 40 days before a scheduled foreclosure sale, and the servicer has never before reviewed a complete application from this borrower. Under Regulation X, the servicer:

  1. May proceed with the sale because the application came too late
  2. May proceed with the sale but must review the application afterward
  3. Must permanently cancel the foreclosure and reinstate the loan
  4. Must hold off on the sale until it evaluates the complete application Correct answer.

Explanation

When a complete loss mitigation application is received more than 37 days before a foreclosure sale, the servicer may not conduct the sale unless it has properly evaluated the borrower and one of the permitted conditions is met, such as denial with appeal rights exhausted, rejection of all offers, or failure to perform under an agreement. The servicer must also take reasonable steps to avoid dual tracking.

Question 35Federal Mortgage-Related Laws

Before a servicer may charge a borrower for force-placed insurance, the first reminder notice must be sent to the borrower:

  1. At least 90 days before the charge is assessed
  2. At least 10 days before the charge is assessed
  3. At least 30 days before the charge is assessed
  4. At least 45 days before the charge is assessed Correct answer.

Explanation

Regulation X requires a servicer to send the first reminder notice at least 45 days before charging the borrower for force-placed insurance. A second reminder notice is required at least 30 days after the first if the borrower has not provided evidence of hazard insurance coverage.

Question 36Federal Mortgage-Related Laws

Under the Red Flags Rule issued under the Fair Credit Reporting Act, a mortgage lender that maintains covered accounts must:

  1. Report every consumer account to the credit bureaus each month
  2. Obtain a new credit report for each borrower every year
  3. Maintain a written identity theft prevention program that detects red flags Correct answer.
  4. Give each borrower a copy of its red flag procedures at application

Explanation

The Red Flags Rule requires financial institutions and creditors with covered accounts to adopt a written identity theft prevention program. The program must include policies to identify relevant red flags, detect them, respond appropriately, and keep the program updated.

Question 37Federal Mortgage-Related Laws

Which transaction gives the consumer a right of rescission under TILA?

  1. A loan secured by a vacation home the consumer does not occupy
  2. A refinance of an existing mortgage on the consumer's principal dwelling Correct answer.
  3. A business-purpose loan secured by the consumer's principal dwelling
  4. A purchase-money mortgage used to acquire the consumer's principal dwelling

Explanation

Rescission applies to consumer credit transactions secured by the consumer's principal dwelling that are not residential mortgage transactions. A refinance of an existing lien on the principal dwelling is the classic rescindable transaction.

Question 38Federal Mortgage-Related Laws

A mortgage broker refers a loan to a title agency that shares common ownership with the broker. Under RESPA, the broker must:

  1. Credit the borrower for any fee the affiliate charges
  2. Disclose the affiliation in writing and estimate the charges Correct answer.
  3. Do nothing, because affiliated arrangements are exempt from Section 8
  4. Obtain the borrower's written consent before making the referral

Explanation

An affiliated business arrangement is exempt from Section 8 only if the provider discloses the affiliation, gives a written estimate of the charges, and informs the borrower that use of the affiliate is not required. The borrower must not be required to use the affiliate as a condition of the loan.

Question 39Federal Mortgage-Related Laws

A borrower is called to active military duty. Under the Servicemembers Civil Relief Act, the borrower may request that interest on a mortgage obligation incurred before active duty be reduced to:

  1. Four percent per year, with no forgiveness of the excess
  2. The contract rate reduced by two percentage points
  3. Six percent per year, with any excess interest forgiven Correct answer.
  4. Eight percent per year, with any excess interest deferred

Explanation

The SCRA caps the interest rate on pre-service obligations at 6 percent per year while the servicemember is on active duty. Interest above 6 percent, including certain fees, must be forgiven rather than deferred or collected later.

Question 40Federal Mortgage-Related Laws

Which statement in a closed-end mortgage advertisement is a triggering term under Regulation Z?

  1. A statement that the loan requires 60 monthly payments of $1,050 Correct answer.
  2. A statement that the lender is an equal housing lender
  3. A statement that the lender has served the community for 25 years
  4. A statement that loan approvals are usually fast

Explanation

Stating the amount or number of payments, a down payment amount or percentage, a finance charge, or the period of repayment triggers additional required disclosures. Once triggered, the advertisement must disclose the APR, the terms of repayment, and the down payment requirement, as applicable.

Question 41General Mortgage Knowledge

A mortgage that meets the eligibility standards and loan limits of Fannie Mae and Freddie Mac is best described as which type of loan?

  1. A non-conforming loan
  2. A portfolio loan
  3. A conforming loan Correct answer.
  4. A subprime loan

Explanation

Conforming loans meet the underwriting guidelines and maximum loan limits set by Fannie Mae and Freddie Mac, which allows them to be sold on the secondary market. Loans that exceed those limits or fall outside the guidelines are non-conforming. A portfolio loan is one a lender keeps in its own portfolio rather than selling.

Question 42General Mortgage Knowledge

For most FHA-insured purchase loans made to borrowers with credit scores of 580 or higher, the minimum required down payment is which amount?

  1. 10 percent
  2. 3.5 percent Correct answer.
  3. 20 percent
  4. 5 percent

Explanation

FHA allows a minimum down payment of 3.5 percent of the purchase price for borrowers whose credit scores meet the program threshold. Borrowers with lower scores are subject to a larger down payment requirement. The FHA down payment can come from an acceptable gift or grant source.

Question 43General Mortgage Knowledge

A veteran with full VA entitlement purchasing a home that appraises at or above the sales price generally faces which down payment requirement?

  1. A 20 percent down payment
  2. A 3.5 percent down payment
  3. No down payment Correct answer.
  4. A 5 percent down payment

Explanation

VA-guaranteed purchase loans allow eligible veterans with full entitlement to finance 100 percent of the sales price when the property appraises at or above that price. The VA guaranty replaces the down payment requirement found in many other programs. The veteran still pays closing costs and any applicable funding fee.

Question 44General Mortgage Knowledge

An escrow, or impound, account established in connection with a mortgage loan is used to do which of the following?

  1. Collect and pay taxes and insurance premiums Correct answer.
  2. Pay the loan originator's sales compensation
  3. Hold the buyer's good-faith earnest money deposit
  4. Fund the seller's negotiated closing concessions

Explanation

An escrow account holds a portion of the borrower's monthly payment so the servicer can pay property taxes and hazard insurance when they come due. RESPA limits the cushion a servicer may hold in that account. Earnest money and seller concessions are handled at closing, not through the escrow account.

Question 45General Mortgage Knowledge

Which statement best describes how a preapproval differs from a prequalification?

  1. Prequalification requires a completed appraisal of the property
  2. Preapproval is an informal estimate based on stated information
  3. Prequalification guarantees a specific locked interest rate
  4. Preapproval involves verified underwriting review Correct answer.

Explanation

A preapproval is issued after the lender reviews documentation such as income, assets, and credit, and it carries more weight with sellers. A prequalification is generally a quick, unverified estimate of borrowing capacity. Neither document guarantees a rate or final approval.

Question 46General Mortgage Knowledge

On a conventional loan, private mortgage insurance is typically required when the borrower's down payment falls below which level?

  1. 5 percent
  2. 10 percent
  3. 25 percent
  4. 20 percent Correct answer.

Explanation

Conventional lenders generally require private mortgage insurance when the loan-to-value ratio exceeds 80 percent, meaning the down payment is under 20 percent. The insurance protects the lender, not the borrower, against default loss. FHA loans use a different mortgage insurance structure.

Question 47General Mortgage Knowledge

The three-business-day right of rescission under the Truth in Lending Act applies to which transaction?

  1. A business-purpose loan secured by rental property
  2. A purchase-money mortgage on a new home
  3. A home equity line on a second home
  4. A refinance of a primary residence Correct answer.

Explanation

The rescission right covers refinances and closed-end home equity loans secured by the consumer's principal dwelling. Purchase-money mortgages and business-purpose loans are excluded. Vacation and second homes are also outside the rescission rule.

Question 48General Mortgage Knowledge

The annual percentage rate disclosed on a mortgage loan estimate represents which of the following?

  1. The simple interest rate printed on the promissory note
  2. The cost of credit expressed as a yearly rate Correct answer.
  3. The note rate before scheduled rate adjustments
  4. The lender's internal warehouse cost-of-funds index

Explanation

The APR expresses the total cost of credit on a yearly basis and incorporates certain finance charges such as points and mortgage insurance premiums in addition to the interest rate. It allows borrowers to compare the true cost of different loan offers. The note rate alone does not reflect those added costs.

Question 49General Mortgage Knowledge

Under the TILA-RESPA integrated disclosure rules, the borrower must receive the Closing Disclosure no later than which point?

  1. At least seven business days before consummation
  2. Three business days before consummation Correct answer.
  3. On the day of consummation
  4. One business day before consummation

Explanation

The creditor must ensure the consumer receives the Closing Disclosure at least three business days before loan consummation. The rule gives the borrower time to review final loan terms and costs. If certain terms change, a revised disclosure and a new waiting period may be required.

Question 50General Mortgage Knowledge

A creditor must deliver or place in the mail the Loan Estimate within what time frame after receiving a consumer's mortgage application?

  1. Within seven business days of application
  2. Within ten business days of application
  3. Within 24 hours of application
  4. Within three business days of application Correct answer.

Explanation

The Loan Estimate must be delivered or mailed no later than the third business day after the creditor receives the application. The disclosure summarizes the estimated loan terms, projected payments, and closing costs. A revised Loan Estimate is permitted only in defined changed-circumstance situations.