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NMLS S.A.F.E. EXAM 2
EXAM QUESTIONS WITH DETAILED VERIFIED ANSWERS
"It is unethical and illegal to use yield spread premiums for any reason other than: A. To earn an additional commission on a loan origination B. To enable a creditor to earn more on a mortgage transaction C. To enable a loan originator to meet a monthly sales quota
D. To help a borrower pay for settlement costs - CORRECT ANSWER D. To help a borrower pay
for settlement costs" "Which of the following best describes the available options for an individual who is applying for a loan originator license but does not pass the required written test? A. The applicant may take the test up to two additional times, with at least 30 days between each attempt B. The applicant may try to pass the test a second time, but must wait at least six months C. The applicant may attempt to pass the test again up to three times within a five-year period before needing to retake the pre-licensing course D. The applicant may be issued a provisional license for a period of six months, but must maintain
a surety bond of twice the normal amount - CORRECT ANSWER A. The applicant may take the
test up to two additional times, with at least 30 days between each attempt" "Which of the following terms applies to a VA mortgage? A. Certificate of eligibility B. Mortgage insurance certificate C. UFMIP
D. Insuring fee - CORRECT ANSWER A. Certificate of eligibility"
"Assume that the Loan Estimate is mailed on Tuesday. The office is open six days a week and closed on Sundays. What is the earliest day on which the transaction could close? A. Wednesday of the following week B. Friday of the following week C. Monday of the following week
D. Tuesday of the following week - CORRECT ANSWER A. Wednesday of the following week"
"If a borrower waives the right to receive a copy of an appraisal: A. They must receive a copy within 30 days of closing B. The lender is never required to give the borrower a copy of the appraisal C. They must receive a copy seven days before closing
D. They must receive a copy at or before consummation - CORRECT ANSWER D. They must
receive a copy at or before consummation" "Which of the following is not true concerning ECOA? A. It requires lenders to notify loan applicants of their application status within 30 days B. Its provisions are implemented by Regulation B C. It requires lenders to give borrowers a copy of their appraisal and a notice stating they are entitled to a copy of the appraisal
D. It requires the disclosure of the APR on all advertisements which contain an interest rate -
CORRECT ANSWER D. It requires the disclosure of the APR on all advertisements which
contain an interest rate" "A homeowner with an FHA loan would like to sell his home and allow the buyer to assume the existing mortgage. However, he is concerned about violating a due-on-sale clause. Is a due-on- sale clause allowed under the terms of the loan? A. No, because the loan is assumable B. Yes, because the loan is assumable C. Yes, because the loan is an FHA loan
D. No, because seller financing is illegal - CORRECT ANSWER A. No, because the loan is
assumable A due-on-sale (alienation) clause allows the lender to declare the entire balance of the loan due when the property is sold or transferred. This means that the loan may NOT be assumed. Since FHA and VA loans are generally assumable, a due-on-sale clause would not be included in the security instrument." "Mortgage insurance insures against losses incurred as a result of: A. A borrower's late payment B. Fire C. Foreclosure
A.Housing and Economic Recovery Act B. Mortgage Professionalism and Accountability Act C. Mortgage Disclosure Improvement Act
D. Secure and Fair Enforcement for Mortgage Licensing Act - CORRECT ANSWER D. Secure and
Fair Enforcement for Mortgage Licensing Act" "In the appraisal process, it is unethical and unlawful to: A. Request an appraiser to consider additional information on the subject property or comparables B. Threaten or pressure an appraiser to promise a specific value C. Forward information to an appraiser about recent sales in the area
D. Refuse payment of an appraiser due to breach of contract - CORRECT ANSWER B. Threaten
or pressure an appraiser to promise a specific value" "For which of the following reasons may a state deny an application for licensure? A. The applicant had an insurance license in another state that wasn't renewed two years prior to application B. The applicant has current outstanding judgments as a result of medical expenses C. The applicant was convicted of vandalism eight years prior to application
D. The applicant had a property foreclosed two years prior to application - CORRECT ANSWER
D. The applicant had a property foreclosed two years prior to application" "A scenario in which a person forces the sale of a home at a much lower value than its true worth, then resells the home at its true value, is known as: A. Property flipping B. A short sale C. An air loan
D. Property flopping - CORRECT ANSWER D. Property flopping
Property flopping is associated with short sales, and it typically occurs when a short sale is approved based on a misrepresentation of the value of the property. The fraud is usually perpetrated by the buyer purchasing the property from the short sale seller. In some cases, the seller's real estate agent is the buyer. The buyer presents a low offer to purchase the property to the lender along with an artificially low valuation of the property, in order to convince the lender that the property is worth less than it really is."
"What is the maximum number of hours of continuing education that may be carried over from any given year to the next in order to meet requirements for license renewal? A. Up to four B. Up to eight C. Zero
D. Up to sixteen - CORRECT ANSWER C. Zero"
"Misrepresenting information or intentionally not disclosing material facts necessary for an originator to consider for loan approval is: A. Negligence B. Legal and unethical C. Mortgage fraud
D. Redlining - CORRECT ANSWER C. Mortgage fraud"
"Under the Fair Housing Act: A. Lending decisions cannot be made based on residency status B. Charging different fees based on race is prohibited C. Lenders must provide clear, plain-language disclosures
D. Lenders are required to report demographic information to the federal government -
CORRECT ANSWER B. Charging different fees based on race is prohibited"
"Lucy closes a refinance on Betty's primary residence. However, Lucy forgets to provide Betty with the proper notice of rescission rights. Which of the following is true? A. The transaction is rescindable at any time during the life of the loan B. The transaction is void and should be cancelled C. Betty can rescind for three years from recording
D. Betty cannot rescind for three days following recording - CORRECT ANSWER C. Betty can
rescind for three years from recording" "Under which of the following scenarios could a borrower cancel a transaction after closing has already occurred? A. A borrower closes on a refinance transaction for a primary residence on Monday and changes his mind the following Monday. The week contained no holidays and all disclosures were proper.
D. None of the choices - CORRECT ANSWER D. None of the choices
Under Regulation Z, an ad must disclose a number of additional credit terms if it contains a trigger (or triggering) term, which is any of a number of credit terms specifically cited in an ad. Since in this case the ad does not cite any specific credit terms, no further disclosures are required." "A lender may charge a borrower for an appraisal fee once the borrower has received the Loan Estimate and: A. The Closing Disclosure B. Indicated an intent to proceed with the loan C. Paid a credit report fee
D. Met with a financial counselor - CORRECT ANSWER B. Indicated an intent to proceed with
the loan" "Fiduciary duties include all but which of the following? A. Loyalty B. Good faith C. Creating a zero-cost borrower credit
D. Putting the borrower's interests first - CORRECT ANSWER C. Creating a zero-cost borrower
credit" "In an FHA loan, which of the following is true regarding the upfront mortgage insurance premium (UFMIP)? A. A portion of it may be applied to the UFMIP of another FHA-insured mortgage B. It is refundable C. It is pertinent to only a small minority of FHA loans
D. It takes the place of the annual mortgage insurance premium - CORRECT ANSWER A. A
portion of it may be applied to the UFMIP of another FHA-insured mortgage The FHA funds the insurance from a mortgage insurance premium (MIP) charged to the borrower. Most FHA mortgages require payment of an upfront mortgage insurance premium (UFMIP). The UFMIP is nonrefundable, except to the extent that a portion may be applied to the UFMIP of another FHA-insured mortgage within three years. In addition, most FHA loans require payment of an annual mortgage insurance premium, payable monthly as part of the mortgage payment. This premium is based on the loan program, the loan term, and the LTV."
"A purpose of the Home Mortgage Disclosure Act (HMDA) is to: A. Identify possible discriminatory lending patterns B. Ensure that prices of homes are fairly quoted C. Help lenders decide on mortgage interest rates
D. Provide borrowers with property listings and their prices - CORRECT ANSWER A. Identify
possible discriminatory lending patterns" "A "straw buyer" is: A. A buyer who is a victim of identity theft B. A buyer who uses another individual's identity in order to obtain a mortgage for which he or she is not eligible C. A buyer who accepts a fee for the use of his or her Social Security Number and other personal information on a mortgage application
D. A buyer who intends to purchase property but does not intend to occupy it - CORRECT
ANSWER C. A buyer who accepts a fee for the use of his or her Social Security Number and other
personal information on a mortgage application" "Your borrower does not wish to complete the demographics questions in the Demographic Information section of the 1003. What should you do? A. Complete the section based on a visual observation of the borrower during a face-to-face application B. Leave the section blank C. Tell the borrower his/her loan cannot be funded until the information is obtained
D. Refuse to take the application - CORRECT ANSWER A. Complete the section based on a
visual observation of the borrower during a face-to-face application" "The requirement that borrowers receive the Consumer Handbook on Adjustable-Rate Mortgages is required under which regulation? A. Regulation X B. Regulation Z C. Regulation C
D. Regulation M - CORRECT ANSWER A. Regulation X"
A. Principal balance reaches 70% of the original purchase price B. Principal balance reaches 85% of original value C. Principal balance reaches 75% of the current appraised value
D. Principal balance reaches 80% of original value - CORRECT ANSWER D. Principal balance
reaches 80% of original value" "Even before the adoption of the Dodd-Frank Act and the Ability to Repay Rule, which of the following federal laws created specific requirements for the verification and documentation of a borrower's repayment ability? A. Home Ownership and Equity Protection Act B. Real Estate Settlement Procedures Act C. Fair and Accurate Credit Transactions Act
D. Equal Credit Opportunity Act - CORRECT ANSWER A. Home Ownership and Equity
Protection Act" "Advertising an attractive interest rate that a mortgage professional is not at liberty to offer is a major ethical offense and a violation of: A. Regulation Z B. The Equal Credit Opportunity Act C. Regulation X
D. The Fair Credit Reporting Act - CORRECT ANSWER A. Regulation Z"
"Which of the following does not control the discount that may be charged on permanent buydowns? A. Financial markets B. Lenders C. Federal Reserve
D. Mortgage companies - CORRECT ANSWER C. Federal Reserve"
"Which of the following issues is not addressed in the standard deed of trust and note for an owner-occupied primary residence? A. Insurance on the property B. How quickly a borrower must occupy the property C. Keeping hazardous substances on the property
D. Actual amounts for taxes and insurance - CORRECT ANSWER D. Actual amounts for taxes
and insurance In the typical real estate sales transaction, the seller gives the buyer a deed at closing and the buyer gives the lender a promissory note and a security instrument (i.e., a mortgage or trust deed) that creates a lien on the property. The promissory note is both a promise to repay the money borrowed with interest and evidence of the debt. It shows the payor and payee, the amount owed, the rate of interest and whether it is fixed or adjustable, the due date(s) for payment, and the terms of the loan. The mortgage or trust deed secures repayment of the note. Its covenants address topics that include occupancy, insurance, and hazardous materials, but it does not typically specify actual amounts for taxes and insurance." "Property flipping occurs when: A. The title to a property is passed to a family member B. Someone accepts a fee to falsely claim ownership of a property C. A property is bought and resold within a very short period of time
D. Someone secures a loan with fictitious property - CORRECT ANSWER C. A property is
bought and resold within a very short period of time" "A deed of trust requires that borrowers obtaining owner-occupied loans occupy the property within how many days? A. 30 days B. 90 days C. 45 days
D. 60 days - CORRECT ANSWER D. 60 days"
"Which of the following would not be considered a settlement service? A. Servicing B. Escrow services C. Origination services
D. Appraisal services - CORRECT ANSWER A. Servicing"
"Which of the following may be a qualified mortgage? A. A 30-year adjustable-rate mortgage loan granted to a borrower with a debt-to-income ratio of 45%
"A hazard insurance company hosts a dinner for the employees of a mortgage broker. The designated broker encourages the employees to send clients to the insurance company. Who has violated RESPA? A. The hazard insurance company B. Both the hazard insurance company and the mortgage broker C. The mortgage broker
D. Neither the hazard insurance company nor the mortgage broker - CORRECT ANSWER B.
Both the hazard insurance company and the mortgage broker Under Section 8 of RESPA, it is illegal to give or accept any fee, kickback, or other thing of value under any agreement or understanding, verbal or otherwise, that business relating to or part of a settlement service involving a federally-related mortgage loan will be referred to any person. Since a free dinner is a thing of value, both the hazard insurance company and the mortgage broker are guilty of violating RESPA and may suffer the legal consequences of this violation." "What is the specific distinction between state-licensed and registered loan originators? A. Unlike state-licensed loan originators, registered loan originators are exempt from licensing requirements B. State-licensed loan originators are only allowed to originate in the states in which they hold a license, while registered loan originators may obtain one license and conduct business anywhere C. Only state-licensed loan originators carry a unique identifier D. Registered loan originators need only ten hours of pre-licensing education, while state-
licensed loan originators need 20 hours - CORRECT ANSWER A. Unlike state-licensed loan
originators, registered loan originators are exempt from licensing requirements" "According to TILA, a variation of up to what amount is permitted for the annual percentage rate in a regular fixed-rate mortgage transaction? A. 0.25% B. 0.5% C. 0.125%
D. 0.75% - CORRECT ANSWER C. 0.125%"
"A lender charges 6% interest on a $200,000, 30-year fixed-rate loan, for a property purchased for $220,000. What is the annual interest on the loan? A. $6, B. $12,
C. $1,
D. $1,200 - CORRECT ANSWER B. $12,000"
"A loan which has an initial fixed-rate period, after which the rate is adjustable for the remainder of the loan term, is called: A. An I-O ARM B. A hybrid ARM C. A subprime loan
D. A conversion loan - CORRECT ANSWER B. A hybrid ARM"
"When must loan applicants receive an adverse action notice if they cannot qualify for a loan? A. Within 15 days of loan application B. Within 60 days of loan application C. Within 30 days of loan application
D. Within 90 days of loan application - CORRECT ANSWER C. Within 30 days of loan
application" "Which of the following is true when a mortgage product contains a balloon payment? A. A loan that has monthly payments that are equal and regular in nature will never have a balloon payment owing at the end of its term B. A high-cost bridge loan may include provision for a balloon payment C. Under the Dodd-Frank Act, balloon payment loans are no longer permitted D. A qualified mortgage may provide for a balloon payment as long as its term is no less than 40
years - CORRECT ANSWER B. A high-cost bridge loan may include provision for a balloon
payment" "Which of the following approaches to appraisal is most commonly used for new construction or for special use properties? A. Market B. Comparable C. Cost
D. Income - CORRECT ANSWER C. Cost"
"The S.A.F.E. Act defines a loan processor as:
"Which of the following would not need to be included in the notice of servicing transfer? A. Toll-free number for the old servicer B. Borrower's payment amount C. Toll-free number for the new servicer
D. Effective date of the transfer - CORRECT ANSWER B. Borrower's payment amount"
"Which of the following best describes the benefit of mortgage insurance to the borrower? A. Reduced hazard insurance premiums B. Lower down payment requirements C. Mortgage insurance only benefits the lender
D. Relaxed underwriting conditions - CORRECT ANSWER B. Lower down payment
requirements" "This term refers to the practice of adjusting certain types of non-taxable income during underwriting. A. Flopping B. Inflating C. Ballparking
D. Grossing up - CORRECT ANSWER D. Grossing up"
"A husband and wife own their home as joint tenants. When the husband dies, what happens to his share in the property? A. Transfers according to the probate code B. Transfers to the husband's heirs C. Transfers to the wife
D. Transfers intestate - CORRECT ANSWER C. Transfers to the wife"
"Finance charges that are withheld from the proceeds of the loan are considered to be: A. P.O.C. charges B. Third-party fees C. Prepaid finance charges
D. Periodic interest charges - CORRECT ANSWER C. Prepaid finance charges"
"Which of the following is not among the initial disclosures that must currently be provided to a mortgage loan applicant? A. Notice of Right to Cancel B. Mortgage Servicing Disclosure C. Loan Estimate
D. Special Information Booklet - CORRECT ANSWER A. Notice of Right to Cancel
While the Loan Estimate, Mortgage Servicing Disclosure, and Special Information Booklet are all among the initial disclosures that must be delivered to a mortgage loan applicant, the Notice of Right to Cancel is provided at closing." "Which of the following is least likely to be a sign of mortgage fraud? A. The applicant appears to be quite young but makes a high salary B. Signatures on documents provided by the applicant do not match one another C. Identification documents provided are blurry, hard to read, and appear to be photocopies or faxed documents
D. Information on W-2s does not match the income of the applicant - CORRECT ANSWER A.
The applicant appears to be quite young but makes a high salary" "What is the maximum cushion that servicers can hold in a borrower's reserve account? A. Two months' taxes, one month insurance B. One month taxes, one month insurance C. Two months' taxes, one month insurance
D. Whatever the lender deems as "reasonable under the circumstances" - CORRECT ANSWER
C. Two months' taxes, one month insurance" "A borrower receives $2,500 per month in rental income. How much of the income may be used to qualify the borrower for a loan? A. $2, B. $2, C. $1,
D. $1,875 - CORRECT ANSWER D. $1,875"
"For an FHA loan that requires MIP, the annual mortgage insurance premium (payable monthly as part of the mortgage payment), is based on all of the following, except:
D. One twelfth - CORRECT ANSWER C. One sixth"
"ECOA requires that: A. An incomplete loan application be discarded B. An applicant be informed whether an application was accepted or rejected within 60 days of filing a complete application C. Every applicant be granted some type of loan
D. An applicant be given notification of the status of his/her loan application within 30 days -
CORRECT ANSWER D. An applicant be given notification of the status of his/her loan
application within 30 days" "Which of the following best describes the market approach to appraisal? A. A guarantee of value from the appraiser derived by using comparable sales of like properties B. An estimate of market value derived by comparing the subject property to similar properties which have sold C. A comparison of similar properties within two miles of the subject property
D. An estimate of value using projected cash flow from the subject property - CORRECT
ANSWER B. An estimate of market value derived by comparing the subject property to similar
properties which have sold" "Which of the following is true concerning the refundability of a VA funding fee? A. VA funding fees are refundable if the borrower is overcharged B. VA funding fees are refundable if the borrower is active military C. VA funding fees are never refundable
D. VA funding fees are refundable if the borrower is a wounded veteran - CORRECT ANSWER
A. VA funding fees are refundable if the borrower is overcharged" "Under the S.A.F.E. Act, states and their regulatory agencies have the duty and the authority to enact licensing standards that meet the requirements of the Act, while overall responsibility for interpretation, implementation, and compliance currently lies with: A. The NMLS B. The Federal Reserve C. HUD
D. The CFPB - CORRECT ANSWER D. The CFPB"
"Which of the following specifies current disclosure requirements under the TILA-RESPA (TRID) Rule? A. Regulation Z B. Regulation C C. Regulation O
D. Regulation B - CORRECT ANSWER A. Regulation Z"
"Which of the following loans would not have monthly mortgage insurance at closing? A. All options would have monthly mortgage insurance B. 30-year FHA loan, 60% LTV C. 10-year FHA loan, 85% LTV
D. 20-year FHA loan, 80% LTV - CORRECT ANSWER A. All options would have monthly
mortgage insurance Most FHA mortgages require payment of an upfront mortgage insurance premium (UFMIP). In addition, most FHA loans require payment of an annual mortgage insurance premium, payable monthly as part of the mortgage payment. This premium is based on the loan program, the loan term, and the LTV. For all mortgages involving an original principal obligation (excluding financed UFMIP) less than or equal to 90% LTV, the annual MIP will be assessed until the end of the mortgage term or for the first 11 years of the mortgage term, whichever occurs first. For any mortgage involving an original principal obligation (excluding financed UFMIP) with an LTV greater than 90%, the FHA will assess the annual MIP until the end of the mortgage term or for the first 30 years of the term, whichever occurs first." "Which of the following can usually be added to a self-employed borrower's net income from the borrower's tax returns when calculating the borrower's income? A. Total from IRS 2106 B. Depreciation C. Total from IRS 4506
D. State taxes paid - CORRECT ANSWER B. Depreciation
For a sole proprietorship (a self-employed borrower), the income, expenses, and taxable profits are reported on the Profit or Loss from Business (Schedule C) on the owner's individual tax return (IRS Form 1040). The individual's actual income would be the net income shown on the Schedule C, plus any recurring capital gains or non-cash expenses, such as depletion and depreciation, that was deducted in arriving at the adjusted income, since the borrower did not actually have to spend the amount claimed for non-cash expenses."
