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Question 1Federal Mortgage-Related Laws and Regulations

A mortgage broker agrees to pay a real estate agent $500 each time the agent refers a homebuyer who closes a loan through the broker. How should this arrangement be treated under RESPA?

  1. It is a prohibited referral fee under RESPA Section 8. Correct answer.
  2. It is permitted if the fee is disclosed on the Loan Estimate.
  3. It is prohibited only when the borrower pays the fee indirectly.
  4. It is permitted because the agent holds a real estate license.

Explanation

RESPA Section 8 prohibits giving or accepting anything of value in exchange for referrals of business incident to a federally related mortgage loan. Disclosure does not cure a referral fee, and the licensing status of the parties is irrelevant. Payment is permissible only for bona fide services actually performed, at fair market value.

Question 2Federal Mortgage-Related Laws and Regulations

Which transaction gives the borrower a three-business-day right of rescission under TILA?

  1. A business-purpose loan secured by the borrower's primary residence
  2. A mortgage secured by a two-unit investment property the borrower rents out
  3. A refinance of an existing mortgage on the borrower's primary residence Correct answer.
  4. A purchase-money mortgage used to buy the borrower's primary residence

Explanation

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

Question 3Federal Mortgage-Related Laws and Regulations

Under Regulation B, within how many days after receiving a completed mortgage application must a creditor notify the applicant of adverse action?

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

Explanation

Regulation B requires a creditor to provide notice of adverse action within 30 days after receiving a completed application. The notice must identify the action taken and, when applicable, provide the specific reasons or disclose the applicant's right to request them.

Question 4Federal Mortgage-Related Laws and Regulations

Under the TILA-RESPA Integrated Disclosure rules, when must the creditor deliver or place in the mail the Loan Estimate?

  1. Within three business days of application and seven business days before consummation Correct answer.
  2. Within three business days after consummation, together with the final Closing Disclosure
  3. At least ten business days before the borrower signs the initial application
  4. Only at consummation, at the same time the borrower receives the Closing Disclosure

Explanation

The Loan Estimate must be delivered or mailed no later than three business days after the creditor receives the application and at least seven business days before consummation. The Closing Disclosure must then be received by the borrower at least three business days before consummation.

Question 5Federal Mortgage-Related Laws and Regulations

A first-lien closed-end loan has an APR that exceeds the average prime offer rate by 1.8 percentage points. Under the General Qualified Mortgage definition, how is the loan classified?

  1. It is a higher-priced mortgage loan but automatically loses QM status.
  2. It is a safe-harbor qualified mortgage.
  3. It is a rebuttable-presumption qualified mortgage. Correct answer.
  4. It is not a qualified mortgage because it exceeds the 1.5 percentage point threshold.

Explanation

For a first-lien General QM, an APR exceeding APOR by 1.5 percentage points or more but not more than 2.25 percentage points creates a rebuttable presumption of compliance with the ability-to-repay rule. A safe harbor applies only at or below the 1.5 percentage point spread, and QM status is lost above 2.25.

Question 6Federal Mortgage-Related Laws and Regulations

Under Regulation C, which lender must report closed-end mortgage loan data?

  1. Any lender that receives at least one mortgage application at any time during the calendar year
  2. A lender originating at least 25 closed-end loans in each of the two prior years Correct answer.
  3. Only a lender with more than $1 billion in total assets
  4. Only a lender that is a depository institution

Explanation

Regulation C requires reporting by financial institutions that meet the closed-end loan volume threshold of at least 25 originated closed-end mortgage loans in each of the two preceding calendar years, among other criteria. Open-end lines of credit have a separate volume threshold. Asset size alone and depository status alone do not determine coverage.

Question 7Federal Mortgage-Related Laws and Regulations

A lender makes a loan secured by a building located in a special flood hazard area in a participating community. What is the minimum flood insurance requirement under the Flood Disaster Protection Act?

  1. No coverage is required if the borrower waives flood insurance in writing
  2. Coverage equal to the lesser of the outstanding loan balance or the NFIP maximum Correct answer.
  3. Coverage equal to the loan amount plus 20 percent
  4. Coverage equal to the full appraised value of the building as shown in the appraisal

Explanation

The mandatory purchase requirement calls for flood insurance in an amount at least equal to the lesser of the outstanding principal balance of the loan or the maximum limit of coverage available under the National Flood Insurance Program for the property type. A borrower cannot waive the requirement.

Question 8Federal Mortgage-Related Laws and Regulations

Under the SAFE Act, which continuing education requirement applies annually to a state-licensed mortgage loan originator?

  1. No continuing education is required after the initial license is issued
  2. 12 hours of continuing education, all of it focused on federal law
  3. 8 hours, including 3 in federal law, 2 in ethics, and 2 in non-traditional Correct answer.
  4. 8 hours of continuing education, including at least 1 hour devoted to ethics and fraud

Explanation

The SAFE Act requires 8 hours of annual continuing education for licensed mortgage loan originators, including at least 3 hours of federal law and regulations, 2 hours of ethics, and 2 hours of non-traditional mortgage lending. The remaining hour covers other required instruction.

Question 9Federal Mortgage-Related Laws and Regulations

A mortgage loan originator is paid by the borrower through discount points and also receives a commission from the lender on the same transaction. Under the Loan Originator Compensation rule, what is the result?

  1. It is permitted if the lender reduces the borrower-paid points by the amount of the lender commission.
  2. It is prohibited because the originator cannot be paid by both the borrower and the lender. Correct answer.
  3. It is prohibited only if the loan is a higher-priced mortgage loan covered by the rule.
  4. It is permitted if both payments are disclosed on the Loan Estimate and Closing Disclosure.

Explanation

The Loan Originator Compensation rule prohibits a loan originator from receiving compensation from both the consumer and the creditor in the same transaction. It also bars compensation based on loan terms or conditions. Disclosure does not cure dual compensation.

Question 10Federal Mortgage-Related Laws and Regulations

For a residential mortgage loan with private mortgage insurance, when must the servicer automatically terminate the PMI under the Homeowners Protection Act, assuming the borrower is current?

  1. When the principal balance reaches 78 percent of original value on the original amortization schedule Correct answer.
  2. Only after the borrower submits a written cancellation request and the servicer approves it
  3. When the principal balance reaches 80 percent of the home's original value, on request
  4. When the principal balance reaches 75 percent of the original appraised value

Explanation

The Homeowners Protection Act requires automatic termination of PMI when the principal balance reaches 78 percent of the original value, based on the original amortization schedule, if the borrower is current. Borrower-requested cancellation may occur at 80 percent under certain conditions, but it is not automatic.

Question 11Federal Mortgage-Related Laws and Regulations

A servicer maintains an escrow account for a borrower's first-lien mortgage. Under Regulation X, what is the maximum cushion the servicer may retain in the escrow account?

  1. One-fourth of the total annual escrow disbursements
  2. One-twelfth of the total annual escrow disbursements
  3. One-third of the total annual escrow disbursements
  4. One-sixth of the total annual escrow disbursements Correct answer.

Explanation

Regulation X permits a servicer to maintain an escrow cushion no greater than one-sixth of the estimated total annual escrow disbursements. This cushion covers timing differences between disbursements and monthly deposits. A larger cushion would exceed the RESPA limit unless a specific exemption applies.

Question 12Federal Mortgage-Related Laws and Regulations

Under the federal Fair Housing Act, which of the following is a protected class in residential mortgage lending?

  1. Source of income
  2. Familial status Correct answer.
  3. Credit score
  4. Occupation

Explanation

The Fair Housing Act prohibits discrimination based on race, color, religion, sex, national origin, familial status, and disability. Familial status covers households with children under 18, pregnant persons, and those securing custody. Source of income, credit score, and occupation are not federal FHA protected classes.

Question 13Federal Mortgage-Related Laws and Regulations

Under the SAFE Act, what is the minimum number of hours of pre-licensing education required for a state-licensed mortgage loan originator?

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

Explanation

The SAFE Act requires at least 20 hours of pre-licensing education for state-licensed mortgage loan originators. The curriculum must include federal law, ethics, and lending standards, among other topics. Eight hours is the annual continuing education requirement, not the pre-licensing minimum.

Question 14Federal Mortgage-Related Laws and Regulations

A creditor takes an application for a first-lien mortgage secured by a dwelling. Under Regulation B, when must the creditor provide the applicant with a copy of the appraisal?

  1. Only after the applicant submits a written request for a copy
  2. At the time the borrower submits the mortgage application
  3. Three business days before consummation Correct answer.
  4. Within 30 calendar days after the loan closing date

Explanation

Regulation B requires a creditor to provide a copy of the appraisal promptly upon completion and, for a first-lien loan secured by a dwelling, no later than three business days before consummation. The copy must be provided even if the loan is not consummated. A borrower request is not a precondition.

Question 15Federal Mortgage-Related Laws and Regulations

A borrower validly rescinds a covered closed-end refinance transaction under TILA. Within what period must the creditor return the borrower's money or property?

  1. Within 60 calendar days after receiving the rescission notice
  2. Within 3 business days after receiving the rescission notice
  3. Within 30 business days after receiving the rescission notice
  4. Within 20 calendar days after receiving the rescission notice Correct answer.

Explanation

Under TILA, when a borrower rescinds, the creditor must return all money and property paid by the borrower within 20 calendar days after receiving the rescission notice. The borrower's obligation is also voided. The 20-day period is measured in calendar days, not business days.

Question 16Federal Mortgage-Related Laws and Regulations

A creditor originates a first-lien higher-priced mortgage loan. Under Regulation Z, which circumstance permits the creditor to avoid establishing an escrow account?

  1. The borrower has a credit score above 700 at the time of application
  2. The loan has a loan-to-value ratio below 80 percent at origination
  3. The borrower signs a waiver at closing that states the escrow requirement is waived
  4. The creditor meets the small creditor rural-or-underserved exemption Correct answer.

Explanation

Regulation Z generally requires escrow for first-lien higher-priced mortgage loans, but exempts certain transactions, including loans by creditors that qualify for the small creditor exemption and are secured by dwellings in rural or underserved areas. High credit scores, low LTV, and a closing waiver do not create an exemption. The rural-or-underserved exemption must be documented.

Question 17Federal Mortgage-Related Laws and Regulations

Under Regulation Z, which method of compensating a mortgage loan originator is permissible?

  1. A rebate based on the loan's points and fees
  2. A bonus tied to the loan's annual percentage rate
  3. A fixed hourly wage Correct answer.
  4. A commission that increases when the interest rate rises

Explanation

Loan originator compensation may not be based on the terms or conditions of the transaction, such as the interest rate, APR, or points and fees. A fixed hourly wage does not vary with transaction terms and is permissible. Compensation tied to rates or fees creates a prohibited incentive.

Question 18Federal Mortgage-Related Laws and Regulations

A creditor uses an empirically derived credit scoring system. Under Regulation B, when may the creditor consider an applicant's age in the credit decision?

  1. Only when the applicant is at least 62 years old
  2. Never, because Regulation B treats age as a prohibited basis in every credit decision
  3. Only when the applicant signs a written consent form
  4. Only when the system is statistically sound and treats the elderly no less favorably Correct answer.

Explanation

Regulation B permits age to be used in an empirically derived, demonstrably and statistically sound credit system. If the applicant is elderly, the creditor may not use age to assign a negative factor or value. Written consent and a minimum age of 62 are not the governing conditions.

Question 19Federal Mortgage-Related Laws and Regulations

Which feature is prohibited in a high-cost mortgage under the Homeowners Equity Protection Act and Regulation Z?

  1. A fixed interest rate for the full loan term
  2. A monthly payment that covers principal and interest
  3. An escrow account for taxes and insurance
  4. Negative amortization Correct answer.

Explanation

HOEPA and Regulation Z prohibit high-cost mortgages from including negative amortization, where the principal balance can increase because payments do not cover interest. Balloon payments and certain prepayment penalties are also restricted. Escrows, fixed rates, and fully amortizing payments are not prohibited.

Question 20Federal Mortgage-Related Laws and Regulations

A creditor is making a higher-priced mortgage loan secured by a dwelling. Under Regulation Z, when is a second appraisal required?

  1. When the loan amount exceeds the applicable conforming loan limit for the county where the dwelling is located
  2. When the borrower's middle credit score is below 620 at the time of application
  3. When the seller acquired the dwelling within 180 days and resold it at a price more than 10 percent higher Correct answer.
  4. When the transaction is a refinance of an existing mortgage rather than a purchase-money loan

Explanation

Regulation Z's appraisal rule for higher-priced mortgage loans requires a second appraisal for certain flipped properties. The trigger is that the seller acquired the property within 180 days before the borrower's application and the resale price exceeds the seller's acquisition price by more than 10 percent. The rule is designed to address inflated resale values.

Question 21Federal Mortgage-Related Laws and Regulations

Under the TILA-RESPA Integrated Disclosure rules, a creditor must ensure the consumer receives the Closing Disclosure no later than how many business days before consummation of a closed-end residential mortgage loan?

  1. Ten calendar days before consummation
  2. Seven business days before consummation
  3. Three business days before consummation Correct answer.
  4. At the consummation table

Explanation

Regulation Z requires the creditor to deliver or place in the mail the Closing Disclosure so the consumer receives it no later than three business days before consummation. The period is measured from the consumer's receipt, not from mailing. If the disclosure is delivered in person, receipt must still occur at least three business days before closing.

Question 22Federal Mortgage-Related Laws and Regulations

A title agency is owned 60% by a real estate brokerage and 40% by a mortgage lender, and it refers settlement business to the lender. Under RESPA, what must the parties provide to the consumer in connection with that affiliated referral?

  1. An Affiliated Business Arrangement Disclosure statement Correct answer.
  2. A Loan Estimate listing the affiliated provider as a settlement service option
  3. A servicing transfer notice naming the affiliate as subservicer
  4. A Closing Disclosure identifying the affiliate as the settlement agent

Explanation

RESPA permits an affiliated business arrangement only if the affiliate relationship is disclosed to the consumer on a written Affiliated Business Arrangement Disclosure. The disclosure must describe the relationship, the settlement service, and the fact that the consumer is not required to use the affiliate. It also must include an estimate of the affiliate's charges.

Question 23Federal Mortgage-Related Laws and Regulations

Under the SAFE Act, which activity requires an individual to be licensed or registered as a mortgage loan originator?

  1. Processing loan files without communicating with the borrower
  2. Taking a residential mortgage loan application and offering or negotiating loan terms for compensation Correct answer.
  3. Performing clerical data-entry tasks for the underwriting department
  4. Appraising the dwelling that will secure the mortgage loan

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 a residential mortgage loan for compensation or gain. Processing, clerical support, and appraisal work are not MLO activities when performed without taking applications or negotiating terms. Licensing or registration depends on the individual's role and the applicable state or federal regime.

Question 24Federal Mortgage-Related Laws and Regulations

A creditor denies a consumer's mortgage application and retains the application, credit information, and adverse action records. Under Regulation B, how long must the creditor retain these records?

  1. 25 months Correct answer.
  2. 18 months
  3. 12 months
  4. 24 months

Explanation

Regulation B requires creditors to retain application, credit, and adverse action records for consumer credit transactions for 25 months after notifying the applicant of the action taken. The 12-month period generally applies to business credit, not to this consumer mortgage application. Proper retention supports ECOA examination and fair lending review.

Question 25Federal Mortgage-Related Laws and Regulations

For a residential mortgage loan with private mortgage insurance, a borrower may request cancellation of PMI by writing to the servicer when the principal balance is scheduled to reach what percentage of the original value, provided the loan is current and other conditions are met?

  1. 78 percent of the original value
  2. 80 percent of the original value Correct answer.
  3. 90 percent of the original value
  4. 75 percent of the original value

Explanation

Under the Homeowners Protection Act, a borrower may request PMI cancellation when the principal balance reaches 80% of the original value based on actual payments, if the loan is current and other conditions are satisfied. Automatic termination generally occurs at 78% of original value based on the amortization schedule. The 80% borrower-requested threshold is distinct from automatic termination.

Question 26Federal Mortgage-Related Laws and Regulations

A servicer intends to charge a borrower for force-placed hazard insurance. Under Regulation X, when must the servicer send the first written notice to the borrower?

  1. Within 30 days after the policy is purchased
  2. At least 10 days before charging the borrower
  3. Only after the borrower fails to obtain insurance for 90 days
  4. At least 45 days before charging the borrower Correct answer.

Explanation

Regulation X requires a servicer to send the first force-placed insurance notice at least 45 days before charging the borrower for the insurance. The notice must explain the lack of hazard coverage, the servicer's authority to force-place coverage, and the borrower's right to provide proof of existing coverage. A second reminder notice is required before the charge if the borrower does not respond.

Question 27Federal Mortgage-Related Laws and Regulations

Under Regulation C, which closed-end mortgage loan is excluded from HMDA reporting?

  1. A closed-end mortgage loan made primarily for business purposes Correct answer.
  2. A home purchase loan secured by a first lien
  3. A closed-end loan secured by a dwelling that is consumer purpose
  4. A refinancing of a dwelling-secured consumer loan

Explanation

Regulation C implements HMDA and requires reporting of covered closed-end mortgage loans secured by a dwelling unless an exemption applies. Loans made primarily for business, commercial, or agricultural purposes are excluded from the definition of a covered loan. Consumer-purpose dwelling-secured loans generally remain reportable if no other exemption applies.

Question 28Federal Mortgage-Related Laws and Regulations

Under Regulation Z's ability-to-repay rule, which factor must a creditor consider for a closed-end consumer credit transaction secured by a dwelling?

  1. The appraised value of the dwelling alone
  2. The applicant's length of employment with the current employer
  3. The applicant's credit score alone
  4. Current or reasonably expected income or assets Correct answer.

Explanation

Regulation Z requires creditors to consider eight underwriting factors when making an ability-to-repay determination, including current or reasonably expected income or assets, employment status, monthly payment, simultaneous loans, taxes and insurance, debts and debt-to-income ratio, credit history, and residual income. A credit score alone or collateral value alone does not satisfy the rule. Employment status is relevant, but length of employment with one employer is not the required factor.

Question 29Federal Mortgage-Related Laws and Regulations

A borrower sends a qualified written request to a mortgage servicer concerning the servicing of a federally related mortgage loan. Under Regulation X, within what period must the servicer provide a written response, not counting any permissible extension?

  1. 15 business days
  2. 60 business days
  3. 30 business days Correct answer.
  4. 5 business days

Explanation

Regulation X requires a servicer to provide a written response to a qualified written request within 30 business days after receipt, excluding any permissible extension. The servicer may extend the response period by 15 business days if it notifies the borrower before the original period ends. The separate 5-business-day requirement is for acknowledging receipt of the request, not for the complete response.

Question 30Federal Mortgage-Related Laws and Regulations

A mortgage lender denies an application based in part on a consumer report. Under the Fair Credit Reporting Act, which item must the adverse action notice include?

  1. A statement that the creditor will reconsider the application in 60 days
  2. The applicant's credit score and the average prime offer rate
  3. A copy of the appraisal, credit score, and the loan officer's NMLS unique identifier
  4. The reporting agency's name, address, and telephone number Correct answer.

Explanation

FCRA adverse action notices must identify the consumer reporting agency that furnished the report, including its name, address, and telephone number if reasonably available. The notice must also state that the agency did not make the credit decision and inform the applicant of the right to obtain a free copy of the report and to dispute its accuracy. If a credit score was used, additional score disclosures may be required, but they do not replace the agency contact information.

Question 31Federal Mortgage-Related Laws and Regulations

A creditor receives a completed application for a first-lien mortgage secured by a dwelling and later obtains an appraisal. Under Regulation B, what must the creditor do with the appraisal report?

  1. Provide a copy at consummation only after the applicant pays the appraisal fee.
  2. Provide a copy only if the applicant submits a written request after closing and pays a fee for reproducing it.
  3. Provide a copy promptly upon completion and no later than three business days before consummation. Correct answer.
  4. Provide a copy only when the application is denied.

Explanation

Regulation B requires a creditor to provide a free copy of the appraisal or other written valuation promptly upon completion, and no later than three business days before consummation for a first-lien loan secured by a dwelling. A post-closing request is not the trigger.

Question 32Federal Mortgage-Related Laws and Regulations

A mortgage broker and a real estate agent agree that the agent will receive a payment each time the broker closes a loan referred by the agent. The payment is not for goods or services actually performed. Under RESPA, the arrangement is:

  1. Prohibited only if the loan amount exceeds the conforming loan limit.
  2. Permissible if the payment is disclosed on the settlement statement and the borrower consents in writing.
  3. Prohibited as an unlawful referral fee or kickback. Correct answer.
  4. Permissible if the payment is below the market rate for referrals.

Explanation

RESPA Section 8 prohibits giving or receiving a thing of value under an agreement to refer settlement service business connected with a federally related mortgage loan. Disclosure does not cure an unlawful kickback.

Question 33Federal Mortgage-Related Laws and Regulations

A consumer refinances a principal dwelling with a closed-end mortgage loan subject to TILA's right of rescission. When does the consumer's three-business-day rescission period begin?

  1. On the date the creditor mails the adverse action notice to the consumer.
  2. After the first monthly payment is due and the borrower has made it.
  3. After consummation and after the consumer receives all material disclosures and the rescission notice. Correct answer.
  4. On the date the creditor receives the completed application and issues a written commitment to lend.

Explanation

For a covered closed-end refinance, the three-business-day rescission period starts after consummation and after the consumer receives the material disclosures and the notice of the right to rescind. If those are delivered later, the period starts later.

Question 34Federal Mortgage-Related Laws and Regulations

A closed-end consumer credit transaction secured by a principal dwelling has a total loan amount of $100,000. Under Regulation Z, the loan is a high-cost mortgage if total points and fees exceed:

  1. 3 percent of the total loan amount.
  2. 5 percent of the total loan amount. Correct answer.
  3. 10 percent of the total loan amount.
  4. 8 percent of the total loan amount.

Explanation

Under Regulation Z, a loan of $20,000 or more is a high-cost mortgage when total points and fees exceed 5 percent of the total loan amount. For a $100,000 loan, the 5 percent threshold applies; the 8 percent threshold is for smaller loans.

Question 35Federal Mortgage-Related Laws and Regulations

A borrower submits a complete loss mitigation application for a mortgage loan secured by the borrower's principal residence. Under Regulation X, when must the servicer provide a notice acknowledging receipt of the application?

  1. Within thirty days after the servicer receives the application.
  2. Within five days, excluding legal public holidays, Saturdays, and Sundays. Correct answer.
  3. Within three business days after the servicer receives the application and completes its review.
  4. Within ten business days after the servicer receives the application.

Explanation

Regulation X requires the servicer to send an acknowledgment notice within five days after receiving a complete loss mitigation application. The five-day period excludes legal public holidays, Saturdays, and Sundays.

Question 36Federal Mortgage-Related Laws and Regulations

A married applicant applies for individually secured credit and qualifies on their own under the creditor's standards. Under Regulation B, when may the creditor require the applicant's spouse to sign the promissory note?

  1. Only if the spouse has an ownership interest in the collateral.
  2. Whenever the creditor requires a co-signer for all married applicants as a matter of policy.
  3. Only if the applicant does not qualify individually under the creditor's standards. Correct answer.
  4. Whenever the loan is secured by the applicant's principal dwelling and the spouse lives there.

Explanation

Regulation B prohibits requiring a spouse's signature on individually secured credit if the applicant qualifies under the creditor's standards. If the applicant does not qualify, the creditor may require the spouse's signature only to the extent necessary to meet those standards.

Question 37Federal Mortgage-Related Laws and Regulations

After a creditor issues a Loan Estimate, a borrower locks the interest rate, and the creditor must revise the estimate to reflect the locked rate. Under Regulation Z, how long does the creditor generally have after receiving information sufficient to establish the changed circumstance to provide a revised Loan Estimate?

  1. Seven business days.
  2. Three business days. Correct answer.
  3. One business day.
  4. Two business days.

Explanation

When a changed circumstance affects settlement charges, the creditor generally must provide a revised Loan Estimate within three business days after receiving information sufficient to establish the change. A revised estimate also cannot be provided on or after the date the Closing Disclosure is provided.

Question 38Federal Mortgage-Related Laws and Regulations

A lender makes a loan secured by an improved dwelling located in a special flood hazard area where flood insurance is available under the National Flood Insurance Program. Under the federal flood insurance statutes, what must the lender generally require before closing?

  1. Flood insurance equal to the full appraised value of the dwelling plus the value of the land.
  2. Flood insurance at least equal to the lesser of the outstanding loan balance or the maximum NFIP coverage available. Correct answer.
  3. Flood insurance only if the borrower's existing homeowners policy excludes water damage and the lender documents the exclusion.
  4. No flood insurance if the lender obtains a signed waiver from the borrower acknowledging the risk.

Explanation

The Flood Disaster Protection Act requires flood insurance for improved property in a special flood hazard area in an amount at least equal to the lesser of the outstanding loan balance or the maximum coverage available under the NFIP. A borrower waiver does not satisfy the requirement.

Question 39Federal Mortgage-Related Laws and Regulations

A servicer completes an escrow account analysis and finds a surplus of $75 in the borrower's escrow account. Under Regulation X, what must the servicer do with the surplus?

  1. Retain it as a cushion if the account is below the maximum cushion.
  2. Refund it to the borrower within 30 days. Correct answer.
  3. Apply it first to any late fees owed by the borrower.
  4. Credit it to the borrower's next 12 monthly payments.

Explanation

Under Regulation X, if an escrow analysis shows a surplus of $50 or more, the servicer must refund the surplus to the borrower within 30 days. A surplus under $50 may instead be credited to the next payment.

Question 40Federal Mortgage-Related Laws and Regulations

A mortgage lender has a neutral policy requiring every applicant to appear in person with a government-issued photo ID. An applicant who uses a wheelchair and cannot travel to the office asks to verify identity through an alternative method. Under the Fair Housing Act, how should the lender respond?

  1. Enforce the policy uniformly because neutral policies that apply to all applicants are immune from fair housing review.
  2. Grant the request automatically without considering the lender's business needs, cost, or whether the accommodation would fundamentally alter the lending program.
  3. Evaluate the request and grant a reasonable accommodation if it is necessary to provide an equal opportunity and does not impose an undue burden. Correct answer.
  4. Deny the request because disability accommodations apply only to rental housing, not mortgage lending.

Explanation

The Fair Housing Act prohibits disability discrimination in mortgage lending and requires lenders to consider reasonable accommodations that are necessary to provide an equal opportunity. A lender may deny a request only if the accommodation imposes an undue burden or fundamentally alters the program.

Question 41General Mortgage Knowledge

A borrower is comparing two 30-year fixed-rate mortgages with the same note rate but different lender fees. Which disclosure metric best allows the borrower to compare the true cost of credit across both offers?

  1. Note rate, because it reflects only the base interest charged on the principal.
  2. Loan-to-value ratio, because it compares the loan amount with the property value.
  3. Monthly escrow payment, because it combines property taxes and insurance.
  4. Annual percentage rate, because it includes the interest rate plus certain finance charges. Correct answer.

Explanation

The annual percentage rate is designed to help borrowers compare the cost of credit by combining the note rate with certain finance charges, such as origination fees and discount points. The note rate alone does not capture those upfront costs, so two loans with identical rates can have different APRs.

Question 42General Mortgage Knowledge

For a conventional mortgage with private mortgage insurance, when may the borrower generally request cancellation of PMI based on the original value of the home?

  1. When the loan-to-value ratio reaches 50%.
  2. When the loan-to-value ratio reaches 80%. Correct answer.
  3. When the loan-to-value ratio reaches 70%.
  4. When the loan-to-value ratio reaches 90%.

Explanation

Under the Homeowners Protection Act, a borrower may generally request PMI cancellation when the loan-to-value ratio reaches 80% of the home's original value, provided payments are current and other conditions are met. Automatic termination generally occurs at 78%.

Question 43General Mortgage Knowledge

What is the primary purpose of a mortgage escrow account?

  1. To pay the real estate agent's commission after settlement.
  2. To collect and disburse funds for property taxes and insurance. Correct answer.
  3. To hold the borrower's earnest money until the closing date.
  4. To guarantee the lender against a borrower default.

Explanation

An escrow account, also called an impound account, collects a portion of property taxes and hazard insurance premiums with each monthly payment and disburses those funds when bills are due. It helps ensure that tax and insurance obligations are paid on time.

Question 44General Mortgage Knowledge

A borrower selects a 5/1 adjustable-rate mortgage with an initial rate of 4.25%, a margin of 2.75%, and a cap structure of 2/2/5. At the first adjustment, the fully indexed rate would be 7.00%. What is the maximum rate the lender may charge at that first adjustment?

  1. 7.25%
  2. 6.75% Correct answer.
  3. 7.00%
  4. 6.25%

Explanation

The first number in a 2/2/5 cap structure limits the initial adjustment to 2 percentage points above the start rate. Adding 2.00% to the initial 4.25% yields a maximum first-adjustment rate of 6.25%, even though the fully indexed rate would be 7.00%.

Question 45General Mortgage Knowledge

A borrower pays two discount points on a $250,000 mortgage loan. What is the dollar amount of the discount points?

  1. $7,500
  2. $2,500
  3. $1,250
  4. $5,000 Correct answer.

Explanation

One discount point equals 1% of the loan amount. Two points on a $250,000 loan equal 2% × $250,000 = $5,000, paid upfront to reduce the interest rate.

Question 46General Mortgage Knowledge

A loan applicant has gross monthly income of $6,000 and total monthly debt obligations of $2,400, including the proposed mortgage payment. What is the applicant's debt-to-income ratio?

  1. 28%
  2. 48%
  3. 40% Correct answer.
  4. 36%

Explanation

Debt-to-income ratio is calculated by dividing total monthly debt obligations by gross monthly income. Here, $2,400 ÷ $6,000 = 0.40, or 40%.

Question 47General Mortgage Knowledge

Under Regulation Z and the TRID rules, within how many business days after receiving a mortgage application must a lender deliver the Loan Estimate to the consumer?

  1. Seven business days
  2. Three business days Correct answer.
  3. Five business days
  4. One business day

Explanation

The Loan Estimate must be delivered or placed in the mail no later than three business days after the lender receives the consumer's application. The disclosure summarizes the loan terms, projected payments, and closing costs.

Question 48General Mortgage Knowledge

A home is sold for $320,000 and appraises for $310,000. The borrower obtains a $279,000 first mortgage. What is the loan-to-value ratio used by the lender?

  1. 87.19%
  2. 93.00%
  3. 96.77%
  4. 90.00% Correct answer.

Explanation

Lenders generally calculate LTV using the lesser of the sales price or the appraised value. Because the appraised value of $310,000 is lower than the $320,000 sales price, divide $279,000 by $310,000, which equals 90.00%.

Question 49General Mortgage Knowledge

A borrower makes the scheduled payment on a fully amortizing fixed-rate mortgage and then sends an additional $100 designated for principal. What is the effect of the additional principal payment?

  1. It reduces the principal balance and the total interest paid over the loan term. Correct answer.
  2. It is held in escrow until the loan matures.
  3. It reduces the interest rate on the loan for the remaining term.
  4. It reduces the next month's required payment by the same amount.

Explanation

An extra principal payment lowers the outstanding balance immediately, so future interest is calculated on a smaller amount and the loan can be repaid sooner. It does not change the note rate or the scheduled monthly payment unless the borrower requests a reamortization.

Question 50General Mortgage Knowledge

A lender receives a completed mortgage application but denies it because of the applicant's credit history. Under the Equal Credit Opportunity Act, what must the lender generally provide to the applicant?

  1. A written notice of adverse action within 30 days after receiving the completed application. Correct answer.
  2. A verbal denial only, with no written notice required.
  3. A copy of the appraisal only if the applicant pays a fee.
  4. A new Loan Estimate within three business days of the denial.

Explanation

ECOA requires creditors to notify applicants of adverse action, generally in writing, within 30 days after receiving a completed application. The notice must include the reasons for the denial or inform the applicant of the right to request them.