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1. When referring to insurance, all of the following are included in the PITI except:

A Credit life insurance on the secondary wage earner
B Mortgage insurance premium
C Hazard insurance
D Flood insurance

Explanation:

PITI includes principal, interest, taxes, and insurance related to the property, such as mortgage insurance, hazard insurance, and flood insurance if required. It does not include credit life insurance.

2. What would the interest rate increase to in year two through a 1/1 ARM under the following conditions? CAPs are 2/6, starting interest rate = 4.5%, margin = 2.5%, initial LIBOR = 2%, year 2 LIBOR = 4.25%?

A 0.0675
B Not enough information to conclude
C 0.065
D 0.07

Explanation:

The initial interest rate of 4.5% would increase based on the new LIBOR rate of 4.25% plus a margin of 2.5%, totaling 6.75%. However, with a CAP of 2%, the maximum increase allowed is to 6.5%.

3. What is the best way to describe an appraisal?

A It represents the highest and best price a buyer should pay
B It is an independent, objective opinion of market value of the subject property at the time of the appraisal
C It represents the minimum value in which a lender would fund a loan
D It is a scientifically-determined and universally-accepted resale value for sellers

Explanation:

An appraisal is an independent, objective opinion of the market value of a property at the time of the appraisal. This aligns with the correct answer provided, emphasizing the role of appraisers in providing an unbiased estimate of a property's value.

4. All of the following may be a reason why a lender may call a reverse mortgage due and payable except:

A The homeowner declares bankruptcy
B The borrower dies
C The loan balance increases
D An act of fraud or misrepresentation

Explanation:

The correct answer is 'The loan balance increases' because a reverse mortgage is designed to increase in balance over time as interest accumulates and is added to the principal amount.

5. Lisa Loan officer has not maintained a state loan originator license for over five years. However, during the last three years of that five-year period, she was employed as a registered loan originator with the Big Bucks Bank. Is Lisa required to retake the licensing test when she decides to apply for a new state license?

A No, once passed, an applicant does not have to take the test again
B Yes, she must retake the test because she had not maintained a license for over five years
C Yes, test results are only valid in the year that they are taken
D No, her time as a registered loan originator is not counted as part of the time her license has not been maintained

Explanation:

Lisa would not be required to retake the licensing test in this case. Here’s why: SAFE Act Testing Rules The SAFE Mortgage Licensing Act requires state-licensed mortgage loan originators to pass the national test component. Once passed, the test result is valid indefinitely; however, if an MLO lets their license lapse, the question is whether they need to retest to regain a license. Five-Year Rule If an individual has not held a state license or been registered as a loan originator for five or more consecutive years, then the test must be retaken. However, time spent as a federally registered loan originator (e.g., working at a depository institution like Big Bucks Bank) does count toward this five-year lookback. Lisa’s Case She hasn’t had a state license for 5+ years. But for 3 of those 5 years, she was federally registered with Big Bucks Bank. Because registration counts, she does not have a full five-year gap. ✅ Conclusion: Lisa’s SAFE test remains valid, and she is not required to retake it when applying for a new state license.

6. An appraiser is valuing a single-family home located in a suburban neighborhood. The home was recently renovated and has several comparable properties in the area that have sold within the last six months. The appraiser determines that the best method for estimating the home’s value is by adjusting recent sales of similar nearby homes.

A Cost Approach
B Income Approach
C Market Extraction Approach
D Sales Comparison Approach

Explanation:

The Sales Comparison Approach (also called the market data approach) is the most common method for valuing single-family homes. It involves analyzing recent sales of comparable properties and making adjustments based on differences in features, location, or condition.

7. In the practice of warehouse lending, what is used to protect the lender against fraudulent activity?

A Documentation of repayment ability
B Line of credit
C Buyback provisions
D Rigorous income analysis

Explanation:

Buyback provisions are used by warehouse lenders to protect against fraud by requiring the originating lender to buy back loans if fraud or errors are discovered.

8. Couple has qualified for a $245,600 loan. They are told that the broker fee will cost two points. What is the dollar amount of the broker fee?

A $49,120.00
B $491.20
C $4,912.00
D $2,456.00

Explanation:

A broker fee of two points represents 2% of the loan amount. 2% of $245,600 is $4,912.

9. For the fully indexed interest rate to equal the margin, the index would have to be:

A The margin
B The index
C Zero
D Negative

Explanation:

For the fully indexed interest rate to equal the margin, the index value would need to be zero, as the fully indexed rate is calculated as the sum of the index and the margin.

10. The interest rate on an adjustable-rate mortgage may increase up to the limit of its:

A Caps or ceilings
B 5% per year or the cost of funds index, whichever is less
C Index
D Upward range

Explanation:

The interest rate on an adjustable-rate mortgage is limited by caps or ceilings, which are predetermined limits on how much the interest rate can increase during adjustment periods.

11. All of the following are facts about flood insurance except:

A Floods can occur throughout United States and are the number one natural hazard
B Standard homeowner’s insurance covers loss from floods
C Flood insurance rates are fixed by the National Flood Insurance Program
D Properties in a flood zone beginning with the letters A, V, or VE must carry flood insurance

Explanation:

Standard homeowner's insurance does not cover loss from floods; only specific flood insurance does. This makes the statement incorrect compared to the other facts provided.

12. All of the following are responsibilities of the closing agent except:

A Verify that all parties have copies of forms and disclosures required for settlement
B Verify identity and notarize documents
C Explain the risks and benefits of the ARM product in which the client is closing
D Coordinate the closing process

Explanation:

The closing agent's responsibilities include verifying identities and coordinating the closing process, but explaining the risks and benefits of specific loan products is beyond their role.

13. Each of the following statements is true about verifying borrower income except:

A A commission-based earner is one who relies on 1099 income for at least 25% of his or her total income
B A minimum of two years history of employment earnings is generally required
C Key determinants for qualifying a particular income source consider whether the income can be documented and is it stable and recurring
D Part time, over time, and bonus income are too uncertain to be considered

Explanation:

Part-time, overtime, and bonus income can indeed be considered in income verification if they are consistent and documented, contrary to what is stated in answer choice 3, making it the exception.

14. All of the following are true about force-placed or lender-placed insurance except:

A The homeowner may be charged significantly when this happens
B A home owner may be just as well off because the lender has more purchasing clout and passes these savings onto the borrower
C This action can result in insufficient coverage for the homeowner
D If a hazard insurance policy is cancelled, not renewed, or verification of coverage is not received, the lender will use this method to ensure compliance with the mortgage contract

Explanation:

Force-placed insurance is generally more expensive and offers less coverage than homeowner-chosen policies, contradicting the idea that lenders pass on savings to borrowers.

15. If a loan originator has not renewed his or her license by December 31st, he or she may:

A Continue to honor existing contracts and be compensated only for those loans already in the pipeline
B Continue to conduct business as normal as long as a renewal application is submitted prior to the “late renewal” deadline
C Only see through completion of those loans originated prior to license expiration
D Not continue to conduct any loan originator activities until the license has been renewed

Explanation:

If a loan originator has not renewed their license by December 31st, they are not permitted to conduct any loan originator activities until the license has been renewed.

16. A title search typically involves each of the following except:

A Ensures that all building codes are being followed
B Makes all parties aware of encumbrances such as deed restrictions
C Ensures that the seller has the right to sell the property
D Determines if all liens for which the current seller is obligated will be paid off by closing

Explanation:

A title search does not ensure that all building codes are being followed. It primarily checks for legal ownership, liens, and encumbrances on the property.

17. “Insured” is to FHA as “ _____ ” is to VA.

A Protected
B Guaranteed
C Surety
D Indemnified

Explanation:

FHA loans are insured, and VA loans are guaranteed, which is a parallel relationship correctly reflected in answer choice 3.

18. Borrower is paying 5.875% on her 7/1 ARM that is about to adjust at the conclusion of the loan’s seventh year. Her margin was initially 2.25%, her loan’s CAP structure was 2/2/5, and, the applicable index on the date that her servicer is determining her new interest rate is 5.875%. Rounded to the nearest 1/8th of 1%, what will this borrower’s new rate become?

A 8.25%
B 7.875%
C 5.875%
D 8.125%

Explanation:

For the 7/1 ARM described, the initial adjustment cap is 2%, limiting the increase to a maximum of 7.875% despite the sum of the index and margin being higher.

19. The state in which a loan originator works requires a mortgage loan originator be covered by a surety bond. The bond must be maintained in an amount that reflects:

A The number of loans the originator’s employer originates annually
B The number of loans originated by the originator annually
C The originator’s experience as a loan originator
D The dollar value of loans the originator originates annually

Explanation:

The amount of a surety bond must reflect the dollar value of loans originated by the loan originator, ensuring that the bond amount is adequate to cover potential liabilities.

20. The 1998 Homeowner’s Protection Act (HPA) requires all of the following except:

A Lenders must notify the borrower of his/her rights at closing to terminate the PMI premium and provide an amortization schedule whenever possible
B Automatic termination of the PMI premium when the LTV drops to 78% or less
C Refund of all prior three years premiums if the lender fails to automatically terminate the PMI premium when the LTV reaches 78% or less
D Voluntary termination of the PMI premium when the LTV drops to 80% or less

Explanation:

The 1998 Homeowner's Protection Act does not require a refund of all prior three years' premiums if PMI is not terminated when the LTV reaches 78%; it mandates automatic termination under these conditions.

21. For FHA loans, MIP is required:

A To be paid as an upfront fee or a monthly fee
B To be paid for a minimum of eleven years and, in some cases, for the life of the loan
C To be paid only 15-year loans regardless of LTV
D To be paid until the LTV reaches 80% or less

Explanation:

For FHA loans, MIP is required for a minimum of eleven years or for the life of the loan, depending on the initial LTV, and includes both upfront and annual payments.

22. Intentionally pursuing predatory lending practices in specific geographic areas is the unscrupulous practice of:

A Churning
B Redlining
C Reverse redlining
D Bait and switch

Explanation:

Reverse redlining is the practice of targeting specific geographic areas for predatory lending practices, which is the scenario described in the question.

23. A loan originator license is valid for year(s).

A Two
B One
C Five
D Three

Explanation:

A loan originator license is valid for one year and must be renewed annually.

24. Each of the following are features of FHA loans regarding gifts and seller contributions except:

A Properly documented gifts made before closing is considered part of borrower’s ownfunds
B Seller contributions may be used for the borrower’s down payment
C Seller contributions may be used for closing costs
D Seller contributions up to 6% are allowed

Explanation:

Seller contributions (financing concessions) of up to 6% of the lesser of the sales price or appraised value may be applied to closing costs, prepaids, and discount points, but FHA prohibits using seller contributions toward the borrower's required minimum down payment. Therefore, choice D is the exception (the feature that is NOT permitted), while A, B, and C are all true.

25. An ARM’s margin is determined by:

A The broker and it is the amount of profit split between the broker and lender
B The lender and it represents the amount of commission paid to the broker
C The lender and it represents the lender’s and investor’s operating expenses and profit margin
D The underwriter and it represents the percentage of error allowable for debt- to-income ratio

Explanation:

The ARM's margin is set by the lender and represents the lender's and investor's operating expenses and profit margin, which is a fixed component of the interest rate calculation.

26. Polly Pennyscraper can only scrape together 3.5% for her FHA loan’s down payment. When will her loan’s MIP be removed?

A Never
B After 11 years
C Once her equity reduces to 78%
D After five years

Explanation:

For FHA loans with a down payment of less than 10%, the mortgage insurance premium (MIP) is required for the life of the loan, unless the borrower refinances to a different product.

27. The three tools used by the Fed to reduce the supply of money are:

A Increase enforcement of Regulation Z, raise the reserve requirement, buy securities in the open market
B Increase the reserve requirement, lower the 10-Year Treasury bond rate, raise the discount rate
C Increase the reserve requirement, raise the discount rate, sell securities in the open market
D Sell securities in the open market, raise lending standards, raise the reserve requirement

Explanation:

The Federal Reserve uses three primary tools to reduce the money supply: increasing the reserve requirement, raising the discount rate, and selling securities in the open market.

28. Overtime income may be considered for an hourly employee:

A If it has been earned consistently for at least two years and is likely to continue
B Only if it is being paid in the same paycheck
C If it has been earned consistently for less than two years and is likely to continue
D If the employee’s earnings have been reported as wages

Explanation:

Overtime income can be considered if it has been consistently earned for at least two years and is likely to continue, ensuring financial stability and reliability.

29. A property is valued at $295,000. There is a first and second mortgage with a 77% CLTV. The second mortgage has a 10% LTV. What is the amount of the first mortgage?

A $256,650
B $197,650
C $204,435
D $227,150

Explanation:

With a CLTV of 77% on a property valued at $295,000, and the second mortgage accounting for 10% LTV, the first mortgage would be 67% of the property value, which calculates to $197,650.

30. The term table-funding refers to:

A When a loan without a rescission period closes and funds the same day
B A loan in which funds are returned to the lender because of a borrower refusing to sign at the closing table
C The funding of pools of loans that creates securitization
D A type of wholesale lending arrangement where brokers are permitted to originate, close, and fund a loan using a warehouse line of credit

Explanation:

Table-funding is a process where a mortgage broker originates, closes, and funds a loan in their own name using a warehouse line of credit, immediately selling it post-closing.

31. Don is refinancing his home in order to save money. If the loan goes through, his payment will drop from $2,000 per month (PITI), to $1,500 per month (PITI) Don’s gross income each month is $6,800, but he has a $300 car payment, a $150 credit card payment, and monthly alimony payments of $1,300. What is Don’s housing ratio on the proposed loan?

A 29%
B 47%
C 22%
D 31%

Explanation:

Don's housing ratio on the proposed loan is calculated by dividing the new PITI payment of $1,500 by his gross monthly income of $6,800, resulting in approximately 22%.

32. What agency ensures that the GSEs are using sound financial practices and have adequate capital to operate in the mortgage business?

A The Department of Housing and Urban Development
B The Federal Housing Finance Agency
C The CFPB
D The Office of the Comptroller of the Treasury

Explanation:

The Federal Housing Finance Agency (FHFA) oversees the GSEs, ensuring they use sound financial practices and maintain adequate capital for their operations.

33. When you divide PITI by the amount of a borrower’s monthly gross income, you are calculating the:

A Net tangible benefit
B Total debt ratio
C Housing expense ratio
D Loan suitability

Explanation:

Dividing PITI by a borrower's monthly gross income calculates the housing expense ratio, which assesses the affordability of the housing based on the borrower's income.

34. Float agreement allows:

A The borrower to guarantee the points he or she will pay, but allows the rate to float
B An applicant to lock a loan at a later time when rates and/or points may be more attractive
C The lender to delay a loan closing until terms are advantageous
D A lender to lock into the points that will be paid, but not the rate

Explanation:

A float agreement allows a borrower to lock in a loan rate at a later time, potentially benefiting from more favorable rates or points.

35. If a borrower’s gross annual income is $52,000.00, what is the maximum PITI allowed to qualify for an FHA loan?

A 1434.33
B 1343.33
C 1863.33
D 3225.81

Explanation:

For an FHA loan, the maximum PITI allowed is calculated as 31% of the gross monthly income, which for an annual income of $52,000 (or monthly $4,333.33) is $1,343.33.

36. The Appraiser Independence Requirements (AIR) states that lenders must:

A Use a third-party management company to ensure separation of the appraisal function from the lender’s loan production activities
B Allow the borrower an option to obtain their own second appraisal if the property value is in dispute
C Use only independent, non-employee appraisers
D Report appraiser misconduct to the appropriate state certifying agency

Explanation:

The correct answer is 'Report appraiser misconduct to the appropriate state certifying agency' because AIR requires lenders to report any suspected misconduct by appraisers to maintain the integrity and independence of the appraisal process.

37. Sue Johnson is a receptionist for a construction company. She receives bi- weekly pay in the amount of $1,153.85. What is her monthly qualifying income?

A $2,307.70
B $2,500.00
C $532.55
D $1,153.85

Explanation:

Sue Johnson's bi-weekly pay is multiplied by 26 to get her annual income, which is then divided by 12 to find her monthly income. This calculation results in $2,500 per month.

38. The Smiths are buying a house for $200,000. After their 10% down payment, they’ve decided also to pay two discount points. What is the dollar amount of the discount points?

A $3,600
B $3,800
C $2,000
D $4,000

Explanation:

The dollar amount of two discount points on a loan amount of $180,000 (after a 10% down payment on a $200,000 house) is $3,600, calculated as 2% of $180,000.

39. VA-approved appraisers produce an appraisal report known as:

A Inspection and Value Report
B Best Estimate of Value (BEV)
C A Certificate of Reasonable Value (CRV)
D Appraisal Form 1004

Explanation:

VA-approved appraisers produce a Certificate of Reasonable Value (CRV), which is the official appraisal report for properties financed with VA loans.

40. Which document actually contains the borrower’s promise to repay the loan?

A The Deed
B The CD
C The Mortgage
D The Note

Explanation:

The Note is the document that contains the borrower's promise to repay the loan, detailing the terms and conditions of the loan agreement.

41. Property is valued at $342,000. There is a first and second mortgage with an 85% CLTV. The second mortgage has an 8% LTV. What is the approximate amount of the first mortgage?

A $266,750
B $259,920
C $263,340
D $273,680

Explanation:

The first mortgage amount is calculated by subtracting the percentage of the second mortgage from the CLTV and then applying the remaining percentage to the property value.

42. All of the following are true of FHA fixed-rate loans except:

A They require upfront MIP on all loans
B The borrower is only required to carry MIP until the loan’s LTV reaches 78%
C They’re available in 15- and 30-year terms
D Borrower must make at least a 3.5% investment

Explanation:

For FHA loans, Mortgage Insurance Premium (MIP) is required for a minimum of 11 years or the life of the loan depending on the loan's original LTV, not just until the LTV reaches 78%.

43. Automated underwriting systems offer the following benefits except:

A Reduced closing costs to the borrower
B Objectivity free of discrimination
C Immediate feedback for correcting deficiencies
D Speed and low operating cost

Explanation:

Automated underwriting systems do not inherently reduce closing costs to the borrower; they primarily provide speed and objectivity in loan processing.

44. The basic definition of a loan modification is:

A A permanent change in the terms of a loan (either term, interest rate or both) in response to a borrower’s long-term inability to make payments
B Transferring the property to a new owner who takes over the outstanding debt
C A temporary reduction or suspension of loan payments for an agreed upon period of time
D A simplified refinance procedure that allows a borrower to modify the terms of an existing loan to take advantage of market rates without having to pay required fees

Explanation:

A loan modification involves a permanent change in the terms of a loan in response to a borrower's long-term inability to make payments, which is an alternative to foreclosure.

45. Of the following fees, which is not zero-tolerance?

A Third-party fees when the lender required the use of a particular service provider
B Lender fees
C Real estate transfer taxes
D Recording fees

Explanation:

Recording fees are not zero-tolerance under TRID rules. Zero-tolerance fees include those paid to the creditor, mortgage broker, or their affiliates, fees for services where the lender required a specific provider, and real estate transfer taxes.

46. A borrower receives a Loan Estimate (LE) and expresses intent to proceed two days later. The MLO realizes the title fees were incorrect and wants to issue a revised LE. Can the MLO revise the LE?

A Yes, within 10 business days of application
B No, the LE cannot be revised once issued
C Yes, as long as the borrower hasn't locked the rate
D Only if a valid change of circumstance has occurred

Explanation:

A revised LE can only be issued if there is a valid change of circumstance, such as inaccurate information provided by the borrower, a change in property value, or unexpected third-party charges.

47. Each of the following statements are true about a deed except:

A The deed is a legal document and must use a legal description to identify the property
B Grantor must sign the deed
C The deed does not need to be in writing
D The deed is recorded into public record

Explanation:

A deed must be in writing to be legally enforceable, making the statement that it does not need to be in writing false.

48. An interest-only loan is a loan product sometimes used by borrowers who do not have a sufficient understanding of the product to truly use it appropriately. Which of the following terms is often used to describe the process an originator should use to determine if their borrower’s circumstances are appropriate for an interest- only product?

A Qualification ratio
B Tangible net benefit
C Loan suitability test
D Stringent repayment analysis

Explanation:

The 'loan suitability test' is a process used by originators to ensure that a loan product, such as an interest-only loan, is appropriate for a borrower's financial situation and understanding.

49. What is the borrower’s total PITI if they borrow $250,000 at 6% interest on a 30- year fixed rate loan (the monthly payment factor is $600 for every $100,000 borrowed), their property taxes are $900 per quarter, their hazard insurance is $2,000 every six months and their mortgage insurance premium is $125 per month?

A 2258.33
B 3070
C 1753.33
D 2330

Explanation:

The correct answer is '2258.33' because the total PITI is calculated by adding the monthly principal and interest, property taxes, hazard insurance, and mortgage insurance premium, which totals $2,258.33.

50. All of the following are true about how payment history is measured except:

A An account in good standing will generally prevent a consumer’s credit profile from being adversely affected by a severely late payment
B The more severe and frequent the late payments, the more a score is lowered
C The more recent the poor payment behavior, the more the score is lowered
D Whether the customer makes the minimum payment or pays the balance in full

Explanation:

Even if an account is generally in good standing, a severely late payment will still negatively impact a consumer's credit profile, contrary to what the answer choice suggests.

51. All of the following are destinations for a funded loan’s ownership except

A Portfolio
B Fannie Mae
C Private investor
D Sallie Mae

Explanation:

Sallie Mae deals with student loans and is not a destination for mortgage loan ownership, making answer 4 correct.

52. In what scenario would a sales comparison approach to appraising be appropriate?

A A commercial office building in an area zoned commercially
B A complex of office condos in a business park near a residential neighborhood
C A condo complex for people ages 55 and over
D Appraising a bio-dome built in the middle of a residential neighborhood

Explanation:

The sales comparison approach is most suitable for residential properties like a condo complex for people ages 55 and over, where comparable sales data is available.

53. A homeowner whose primary residence is worth less than the debt securing it applies for a loan to purchase a second home. Once the purchase transaction is complete, the borrower stops paying the mortgage on the first home allowing it to go through foreclosure. The process just described is referred to as:

A Churning
B Buy and bail
C Property switching
D Equity stripping

Explanation:

The process described is known as 'buy and bail,' where a homeowner purchases a second home and then allows the first home to go into foreclosure.

54. Nontraditional lending includes any loan product other than a(n):

A Mortgage that does not qualify as a loan under the Home Ownership and Equity Protection Act
B 30-year fixed-rate mortgage
C Fixed-rate mortgage regardless of the term
D Adjustable mortgage that is not a subprime loan

Explanation:

Nontraditional lending typically refers to any mortgage product that is not a 30-year fixed-rate mortgage, which is considered the standard or traditional mortgage product.

55. Why is a lender so concerned about the borrower maintaining proper hazard insurance on their own home?

A If the insurance premium is not paid, the lender loses a potential revenue source
B Incidents of arson increase sharply when the insurance coverage lapses
C If the property value is lost or diminished through a casualty loss, the lender’s collateral for the loan must be restored through insurance proceeds
D A borrower who does not care about the safety of their asset might not care about their credit rating as well

Explanation:

Lenders require borrowers to maintain hazard insurance to ensure that their collateral, the property, is protected against loss or damage. This is crucial for the lender as it ensures that the loan value is secured, aligning with the correct answer provided.

56. A seller providing all or part of the financing for the purchaser in order to finance a purchase transaction is known as:

A Seller self-adjusted
B For sale by owner (FSBO)
C Seller carry-back
D Seller concessions

Explanation:

Seller carry-back refers to a situation where the seller provides financing for the buyer, effectively acting as the lender.

57. Which of the following statements is false about conventional loans?

A Lenders may not establish their own underwriting standards
B The GSEs dominate this market category
C A non-conforming loan can be sold in the secondary market
D The FHFA establishes the loan limits each year for 1-to-4-family structures

Explanation:

Lenders may establish their own underwriting standards for conventional loans, making the statement that they may not do so false.

58. A homeowner owns their home but pays ground rent for the right to use the land on which the home is situated. This is known as a:

A Tenancy in common
B Fee simple estate
C Land estate
D Leasehold estate

Explanation:

A leasehold estate is the correct term for a situation where a homeowner owns their home but pays ground rent for the use of the land. This type of estate involves leasing the land while owning the building or home on it.

59. All of the following may raise credit scores except:

A A dozen open and active retail credit accounts with maxed out credit limits
B No inquiries on the account in the past year
C Accounts opened many years ago
D Accounts in good standing and paid as agreed

Explanation:

Having a dozen maxed out retail credit accounts would likely lower a credit score, not raise it, making answer 2 correct.

60. Bi-weekly mortgage payment plan:

A Can be used to qualify for a larger loan size
B Helps accelerate payment of a mortgage by collecting payments on principal first
C Can be used as a prepayment strategy to eliminate the need for PMI
D Splits a fully amortized monthly payment in half and applies a payment every two weeks

Explanation:

A bi-weekly mortgage payment plan involves making half of a monthly payment every two weeks, resulting in one extra full payment each year, which can reduce the loan term and interest paid over the life of the loan.

61. All of the following are examples of “Low Doc” or “No Doc” loans, except:

A SISA
B SIVA
C NINA
D NADA

Explanation:

NADA is not a recognized term for a 'Low Doc' or 'No Doc' loan. NINA, SISA, and SIVA are all types of documentation reduction loans used in specific borrower situations.

62. If a borrower earns $1,500.00 per week, what is the maximum PITI he can afford under the standard conventional loan and FHA loan ratios parameters?

A $1,820.00 conventional and $2,015.00 FHA
B $1,800.00 conventional and $1,960.00 FHA
C $2,340.00 conventional and $2,795.00 FHA
D $1,860.00 conventional and $1,860.00 FHA

Explanation:

Based on the borrower's weekly income, the monthly income is calculated and then applied to conventional and FHA loan ratios to determine the maximum affordable PITI.

63. After viewing a house that they were interested in buying, the Millers stopped by Bobby Macko’s mortgage business to explore lending options. After discussing several products, the Millers asked about the cost of credit. Even though this is an oral question, Bobby must disclose information about each discussed product’s:

A Terms of repayment
B Finance charge
C Annual percentage rate
D Estimated escrow required

Explanation:

When asked orally about the cost of credit, a mortgage professional must disclose the annual percentage rate (APR), which provides a comprehensive measure of the cost of borrowing.

64. A borrower applies for a loan and the credit report contains addresses in three different states. The MLO notices that the applicant hesitates when asked about prior residences. What should the MLO do next under the Red Flags Rule?

A Investigate further and follow company’s identity theft procedures
B Alert the appraiser
C Deny the application for fraud
D Proceed as normal if documentation is in order

Explanation:

The Red Flags Rule (under the FACT Act) requires financial institutions and creditors to have procedures in place to detect and respond to signs of identity theft. Multiple addresses and hesitation are potential red flags.

65. The main strategy used by credit repair companies is:

A To file identity theft claims to temporarily remove negative information
B To advise clients to close accounts, pay bills on time, and pay down balances at or above credit limits
C To dispute all late payments or derogatory entries, hoping for a late or non-response
D To create a new identity for the client to wipe the slate clean

Explanation:

Credit repair companies primarily dispute negative entries on credit reports, hoping that the creditor fails to respond in time, which would legally require the credit bureau to remove the entry.

66. What is the key difference between a lien theory state and a title theory state?

A In a lien theory state, the property owner holds title but in a title theory state the lender or trustee holds title
B In a title theory state, the property owner always holds title
C Only a lien theory state uses legal documents to convey property rights
D A title theory state will collect more transfer taxes because of the extra steps

Explanation:

In a lien theory state, the borrower holds the title to the property and the lender has a lien against it. In a title theory state, the lender holds the title until the loan is paid off.

67. A licensee may attempt a qualified written exam three consecutive times, each occurring at least days after the preceding test.

A 120 days
B 60 days
C 30 days
D 180 days

Explanation:

According to NMLS guidelines, a licensee must wait 30 days between attempts after failing the qualified written exam up to three times.

68. Which of the following is the most likely reason an underwriter would order a second appraisal on a subject property?

A The initial appraisal was conducted by a trainee without a certified appraiser’s supervision.
B The buyer is putting down more than 20% and waiving mortgage insurance.
C The borrower disagrees with the original appraised value.
D The property is located in a rural area with limited sales data.

Explanation:

An underwriter might order a second appraisal when there is a question about the validity or credibility of the first appraisal. If the original appraisal was conducted by a trainee without proper oversight from a certified appraiser, it could raise concerns about the reliability of the report. While rural properties (choice B) may present challenges, limited sales data alone does not automatically justify a second appraisal. Borrower disagreement (choice A) is not typically sufficient to warrant a second appraisal, and high down payments (choice D) reduce lender risk and would be unlikely to trigger additional valuation scrutiny.

69. PMI:

A May cover a lender’s loss if the borrower cannot afford the monthly tax and mortgage insurance escrow
B Is only useful for borrowers who have at least 20% cash down
C Is administered by a federal agency
D May cover a lender’s loss from default for no more than 80% of the loan value

Explanation:

PMI covers a portion of the lender's potential losses in case of borrower default, specifically up to 80% of the loan value. This insurance is crucial for lenders as it mitigates the risk associated with lower down payments.

70. Property flipping is legitimate when:

A A property’s value is falsely represented by a fraudulent appraisal and then sold shortly thereafter at a higher price
B A property is legitimately acquired but sold shortly thereafter for its true value
C Any home is sold less than twelve months after acquiring it
D A property is secured for less than its true value and sold shortly thereafter for its true value

Explanation:

Property flipping is legitimate when a property is acquired and sold shortly thereafter for its true market value, without any deceptive practices such as fraudulent appraisals.

71. A property is valued at $495,000. There is a first and second mortgage with a 90% CLTV. The first mortgage has a 78% LTV. What is the approximate amount of the second mortgage?

A 59400
B 445500
C 54900
D $49,500

Explanation:

The second mortgage amount is found by subtracting the first mortgage's LTV from the CLTV and applying the difference to the property value.

72. If a borrower has a representative credit score of 543 and wants to purchase a home using an FHA loan, he or she must make a down payment of at least

A 10%
B 3.5%
C 5%
D 0%

Explanation:

For FHA loans, if a borrower's credit score is below 580, the minimum down payment required is 10%. Since the borrower's score is 543, a 10% down payment is necessary.

73. Some states utilize the Mortgage as the security instrument while others utilize:

A The Power of Attorney
B The Title Binder Schedule A
C The Deed-of-Trust
D The Deed

Explanation:

In some states, the Deed-of-Trust is used as the security instrument instead of the Mortgage, depending on whether the state follows lien-theory or title-theory.

74. The most common area through which borrowers attempt to commit fraud for housing surrounds:

A Falsifying assets
B Falsifying income
C Falsely declaring their intent to occupy the property being financed
D Providing false tax returns

Explanation:

The correct answer is 'Falsely declaring their intent to occupy the property being financed' because borrowers often misrepresent their intentions to avoid higher costs and stricter criteria associated with non-owner-occupied properties.

75. All of the following types of income may be “grossed-up” by 25% except:

A Public assistance
B Social security
C Alimony
D Disability

Explanation:

Alimony is not typically grossed-up because it is considered taxable income. Social security, disability, and public assistance can be grossed-up as they are often not taxed.

76. The initial Loan Estimate (LE) must be issued within _____ business days of receiving a loan application and the non-interest-related fees appearing on it must be good for a minimum of _____ business days from the date it was presented or mailed to the borrower.

A Five // five
B Three // ten
C Three // three
D One // three

Explanation:

The correct answer is that the initial Loan Estimate must be issued within three business days of receiving a loan application, and the non-interest-related fees must be good for a minimum of ten business days from the date it was presented or mailed to the borrower.

77. Piggyback loan is most often used:

A In order to avoid paying PMI
B As a bridge from one property to the next
C In the event that a borrower is “upside down” on his or her loan
D In order to avoid paying MIP

Explanation:

A piggyback loan is often used to avoid paying private mortgage insurance (PMI) by taking out a second mortgage simultaneously with the first, keeping the first mortgage's loan-to-value ratio below 80%.

78. The ideal housing expense for FHA financing is:

A 31%
B 28%
C 41%
D 43%

Explanation:

For FHA loans, the ideal housing expense ratio is 31% of the borrower's income. This is part of the FHA's debt-to-income guidelines.

79. Tom and Cindy Lewis are buying a house with a $300,000 sales price and their LTV will be 80%. They paid $3,600 in discount points. How many total points did they pay?

A 2.5
B 2
C . 4
D 1.5

Explanation:

Tom and Cindy Lewis paid $3,600 in discount points on a $240,000 loan amount, which equates to 1.5 points, as each point costs $2,400.

80. The VA loan program offers a partial guarantee in the event of default. If a veteran use $50,000 of her entitlement, what is her minimum loan amount?

A 50000
B 200000
C $100,000 without a credit score greater than 640
D The same as the conventional/conforming loan limit

Explanation:

The VA guarantees a loan amount at least four times the entitlement used. Therefore, using $50,000 of entitlement would result in a minimum loan amount of $200,000.

81. The survey helps establish all but which of the following:

A Property condition
B Easements in relation to all permanent structures
C True property lines
D Placement of structures, consistent with setback requirements and other restrictions

Explanation:

A survey does not establish the condition of the property; it focuses on boundaries, easements, and placement of structures in relation to property lines.

82. All but which of the following constitute a valid change of circumstance?

A The borrower decided to switch loan products halfway through the transaction
B The title company being used ceases operations
C An Act of God
D The settlement company erroneously quotes a recording fee that is 5% less than the actual recording fee

Explanation:

An erroneous quote on a recording fee does not constitute a valid change of circumstance. Valid changes typically involve uncontrollable events or significant inaccuracies in initially relied upon information.

83. Non-judicial foreclosure is the process through which a lender takes ownership of a property after default in:

A When the loan’s security instrument is a Deed-of-Trust
B A lien-theory state
C Arizona
D Instances where the borrower defaults on a reverse mortgage

Explanation:

Non-judicial foreclosure typically occurs in title theory states where the security instrument is a Deed-of-Trust. This allows the lender to foreclose without court proceedings.

84. Which of the following is true regarding the funding of a refinance on an investment property?

A Only the borrower may rescind
B Disbursements and payoffs must be sent to creditors by the borrower
C The loan will fund immediately
D The loan will fund 5-10 business days after settlement

Explanation:

For refinances on investment properties, there is no rescission period, allowing the loan to fund immediately after settlement.

85. All of the following statements are true about the Cost Approach to valuation except:

A The land is valued separately from the structure and site improvements
B The final result when adding the total cost to replace the subject property (land + improvements) minus the approximate depreciation is a fair estimate of market value for the subject property
C Depreciation is calculated for the buildings and land to reflect the three different types of depreciation (loss in value) to the subject property
D The cost to rebuild or replace the structure and other land improvements is calculated using today’s construction costs

Explanation:

In the Cost Approach to valuation, depreciation is calculated only for the buildings and improvements, not for the land, as land does not depreciate.

86. For a fixed rate closed-end loan, a new cost disclosure must be provided:

A At least three days prior to closing whether there has been a change in annual percentage rate or not
B Within seven business days of discovering the annual percentage rate changed by more than 1/4%
C Within three business days of discovering the annual percentage rate changed by more than 1/4%
D Within three business days of discovering the annual percentage rate changed by more than 1/8%

Explanation:

A new cost disclosure must be provided within three business days if the annual percentage rate (APR) changes by more than 1/8%, ensuring borrowers are informed of significant changes in loan terms. Note that for an IRREGULAR closed-end transaction (one involving multiple advances, irregular payment periods, or irregular payment amounts, such as a construction loan), the APR is considered accurate within the larger tolerance of 1/4 of 1 percentage point.

87. A borrower applies for a 30-year fixed mortgage. The originator qualifies the borrower based on teaser interest-only payments for the first five years and does not verify income. Which regulation has likely been violated?

A Fair Housing Act
B Equal Credit Opportunity Act (ECOA)
C Truth in Lending Act (TILA)
D Real Estate Settlement Procedures Act (RESPA)

Explanation:

Regulation Z under TILA requires lenders to make a reasonable and good faith determination of a borrower’s ability to repay the loan, considering full amortizing payments and verified income.

88. All aspects of a mortgage transaction being falsified to entice a lender to fund a loan is an example of creating a/an:

A Air loan
B Chunking
C Double sale
D Property flip

Explanation:

An 'air loan' involves falsifying all aspects of a mortgage transaction to entice a lender to fund a non-existent property. This makes answer 1 correct.

89. Which of the following would be considered grounds for license denial?

A Payment of licensing fees
B Conviction of a felony within the seven years immediately preceding application
C Providing records of previous loan files
D Compliance with the pre-licensing education requirements

Explanation:

A felony conviction within the seven years immediately preceding an application is a common ground for denying a mortgage license, aligning with industry regulations and standards.

90. All of the following homeowner obligations would be found in a mortgage contract except:

A Owner must maintain a reliable source of income
B Owner must maintain the property in good condition
C Owner must maintain hazard insurance on the property
D Owner must pay all government taxes and obligations on time

Explanation:

Mortgage contracts typically require the homeowner to maintain the property and pay taxes and insurance but do not require maintaining a reliable source of income as part of the contract.

91. All but which of the following are included in the list of six items of which once a mortgage loan originator has knowledge, constitutes a live mortgage application?

A Estimated property value
B Monthly income
C Occupancy intention
D Property address

Explanation:

Occupancy intention is not one of the six items that constitute a live mortgage application, making answer choice 2 correct as it is not included in the list.

92. Nontraditional credit includes all of the following except:

A Car loans
B Telephone bills
C Payments to a landlord
D Electric bills

Explanation:

Car loans are considered traditional credit as they are typically reported to credit bureaus. Nontraditional credit includes payments like rent and utilities that are not usually reported.

93. Buyer pays $200,000 for a home and gets a fixed-rate loan from his lender at 5.75%. He puts $40,000 down. What is the LTV on this loan and does the buyer have to pay PMI?

A 80% and yes
B 80% and no
C 90% and no
D 90% and yes

Explanation:

With a $40,000 down payment on a $200,000 home, the LTV is 80%, and therefore, PMI is not required.

94. The term encumbrance means:

A Acquiring private property for public use
B The right to use another person’s property
C A claim against real property which may affect the ability to transfer ownership
D When the lender can demand immediate repayment of the balance of a loan

Explanation:

An encumbrance refers to any claim against real property that may affect the ability to transfer ownership, such as liens or mortgages.

95. An ARM has a 6% start rate and is locked for three years. Its adjustment caps are set at 2/1/5. Assuming worst-case scenario, in what year would this loan reach its rate ceiling?

A 6th year
B 11th year
C 7th year
D 4th year

Explanation:

With a 6% start rate and adjustment caps of 2/1/5, the ARM would reach its rate ceiling of 11% in the 7th year, following incremental increases each year within the cap limits.

96. Joe Smith was convicted of felony assault eight years ago. Buddy Grant was convicted of fraud 17 years ago. Both have made application to their state to be licensed as mortgage loan originators. What effect will their past records have on their license applications?

A Both Joe and Buddy will be denied a license because of their felony convictions
B Joe may be granted a license. Buddy will not
C Both Joe and Buddy may be granted a license
D Buddy may be granted a license. Joe will not

Explanation:

Even though Buddy’s conviction was 17 years ago (well past the normal 7-year look-back for non-fraud felonies), fraud is in the special category that permanently disqualifies an individual from obtaining a mortgage loan-originator license in every state. Although Joe was convicted of felony assault, his felony conviction was past the 7-year look back period.

97. Determining that an individual licensee has not shown financial responsibility includes all but which of the following?

A A pattern of seriously delinquent accounts in the past three years
B Currently-outstanding tax liens
C Foreclosures within the past three years
D Judgments as a result of medical expenses

Explanation:

Judgments related to medical expenses are not considered when assessing an individual's financial responsibility in the context of licensing.

98. An ARM loan has a 4% start rate and it is time for the first adjustment to be made. It has a periodic cap of 1% and a lifetime cap of 5%. Assuming worst-case scenario, what would the new rate be after the first move?

A 7%
B Impossible to calculate without knowing the index and the margin
C 5%
D 9%

Explanation:

In the worst-case scenario for an ARM loan with a 4% start rate and a 1% periodic cap, the new rate after the first adjustment would be 5%.

99. A borrower has applied for a refinance on her property valued at $235,000 . She currently has a HELOC with a $47,000 limit and currently owes $25,850. The borrower has applied for a first mortgage of $164,500. Which of the following LTV, CLTV and TLTV is accurate based on this information?

A 70% / 81% / 90%
B 70% / 83% / 100%
C 75% / 80% / 90%
D 70% / 80% / 95%

Explanation:

The LTV is calculated by dividing the first mortgage by the property value. CLTV includes the current HELOC balance, and TLTV includes the full HELOC limit. Given: Property value: $235,000 HELOC limit: $47,000 HELOC balance: $25,850 New first mortgage: $164,500 Step-by-step: LTV = First mortgage / Property value LTV = 164,500 / 235,000 = 0.70 or 70% CLTV = (First mortgage + HELOC balance) / Property value CLTV = (164,500 + 25,850) / 235,000 = 190,350 / 235,000 ≈ 0.81 or 81% TLTV = (First mortgage + HELOC limit) / Property value TLTV = (164,500 + 47,000) / 235,000 = 211,500 / 235,000 ≈ 0.90 or 90% Final Answer: LTV = 70% CLTV = 81% TLTV = 90% Explanation: LTV only looks at the new first mortgage compared to the home’s value. CLTV considers the first mortgage plus the amount already borrowed on the HELOC. TLTV assumes the borrower could borrow the full HELOC limit, so it includes the entire limit as potential debt.

100. Under the Gramm Leach Bliley Act, a _____ is an individual who utilizes a financial institution’s products and services and a _____ is an individual with whom a financial institution has an established relationship.

A Consumer // customer
B Customer // consumer
C Customer // User
D User // customer

Explanation:

Under the Gramm Leach Bliley Act, a 'consumer' uses financial products and services, while a 'customer' has an established relationship with the financial institution. This makes answer 1 correct.

101. All three credit scores are rarely identical because:

A Each credit reporting agency may have different data and a variation on the FICO scoring engine
B Credit reporting agencies do not share any data with one another
C No one agency can keep all the data correct all the time
D Some credit agencies update quarterly while others re-run their scoring engines weekly

Explanation:

Credit scores can differ among the three major credit reporting agencies because each may have different data and use variations of the FICO scoring engine.

102. TRID applies to all of the following except:

A Lenders only originating mortgages with ten-year terms
B VA mortgage loans
C Open-ended ARMS
D Closed-ended ARMS

Explanation:

TRID applies to various types of loans but not to open-ended ARMs, making answer 4 correct.

103. If 1.75 lender origination points are quoted on a $237,000 loan, what is the cost of those origination points to the borrower?

A 4147.5
B 4000
C 2073.75
D 2370

Explanation:

The cost of 1.75 lender origination points on a $237,000 loan is calculated as 1.75% of 237,000, which equals $4,147.50.

104. All but which of the following must be completed prior to engaging in the business of a loan originator?

A Payment of licensing fees
B Completing pre-licensing education
C Obtaining a unique identifier
D A letter of recommendation from a former employer

Explanation:

A letter of recommendation from a former employer is not a prerequisite for engaging in the business of a loan originator.

105. What does a title commitment do?

A Clears the title company to record the deed in the public records
B States the final documentation and conditions the borrower must meet in order to close the loan
C Is a legal promise to issue title insurance under the stated terms and conditions
D Is not issued until two to three weeks after the closing

Explanation:

A title commitment is indeed a legal promise to issue title insurance under specified terms and conditions, which aligns with answer choice 4. This document outlines the conditions under which the title insurance will be provided.

106. Which of the following loan programs is not offered by the VA?

A 15-year fixed rate loan for investment property
B Interest Rate Reduction Refinancing Loan (IRRRL)
C 30-year fixed rate mortgage
D 30-year adjustable-rate mortgage

Explanation:

VA loans are not available for investment properties. They are intended for personal use by veterans, such as for a primary residence.

107. Fannie Mae’s AUS is referred to as _____ while Freddie Mac’s is _____.

A Fannie Automation // Platform Underwriter
B Desktop Underwriter // Loan Prospector
C Platform Underwriter // Desktop Underwriter
D Loan Prospector // Platform Underwriter

Explanation:

Fannie Mae's Automated Underwriting System (AUS) is known as Desktop Underwriter (DU), and Freddie Mac's AUS is called Loan Prospector (LP).

108. When a credit report shows only a balance on a revolving debt, rather than a payment, an originator should:

A Eliminate the debt if it is below $300
B Only use 50% of the debt against the DTI
C Identify what the true payment is or will be to include in the applicant’s debt- to-income ratios
D Divide the total debt by 12 to get monthly payments

Explanation:

The correct approach when a credit report shows only a balance on a revolving debt is to identify the true payment amount. This ensures accurate calculation of the applicant's debt-to-income ratios.

109. A lien on real property, documented by a signed mortgage contract, gives the lender the right to:

A Collect a particular interest rate on the loan
B Sell the servicing rights to the loan to another investor
C Go to court and/or sell the property if the owner defaults on any of the provisions of the mortgage
D Collect monthly payments for insurance and taxes and place them in an escrow account

Explanation:

The correct answer is 'Go to court and/or sell the property if the owner defaults on any of the provisions of the mortgage' because a mortgage lien provides the lender the right to foreclose on the property if the borrower defaults, ensuring the lender can recover the loan amount.

110. The credit scoring engine weighs credit utilization fairly highly, which means:

A The more accounts with sizable balances, the better the score
B Applicants who run up balances close to their credit limit and pay them down at least once per year will score well
C The higher the utilization, the better the score
D Applicants whose account balances are a small proportion of their credit limit will increase their scores

Explanation:

Credit scoring models weigh credit utilization, which is the ratio of current revolving debt to the total available credit limit. Lower utilization rates positively impact credit scores.

111. The regulation that aids examiners in evaluating lending practices in the communities the lenders serve by making certain lending practices public record is

A FHA.
B HMDA.
C ECOA.
D FCRA.

Explanation:

The Home Mortgage Disclosure Act (HMDA) requires lenders to disclose data about their lending practices in the communities they serve, which helps examiners evaluate these practices.

112. About 35% of the credit score consists of:

A The applicant’s mix of open trade accounts
B The applicant’s most recent 6 months of payment behavior
C How promptly and consistently the applicant pays his or her obligations
D The applicant’s attitude toward taking on new debt

Explanation:

The correct answer is 'How promptly and consistently the applicant pays his or her obligations' because this reflects payment history, which is a major component (35%) of a credit score. The other options do not directly relate to the 35% component specified in the question.

113. The gross monthly income calculation is critical for all debt-to-income ratio calculations. What is this borrower’s gross monthly income if she earns $45 per hour for 36 hours per week on average?

A 1620
B 7020
C 7200
D 6480

Explanation:

The borrower's gross monthly income is calculated by multiplying her hourly wage by the number of hours worked per week and then adjusting for the number of weeks in a year divided by 12 months, resulting in $7,020.

114. What is another way to describe the deductible?

A It is the amount the property owner will pay out of pocket in the event of a loss claim
B It is the amount paid each month for insurance and is tax deductible
C The higher the deductible, the higher the cost of insurance
D It is of no concern to the lender because it affects what the borrower will pay

Explanation:

The correct answer is 'It is the amount the property owner will pay out of pocket in the event of a loss claim' because the deductible is the amount paid by the property owner before insurance coverage applies to a claim.

115. “Mattress money” refers to:

A Money acquired through selling mattresses
B Cash on hand
C Assets remaining after the loan’s consummation
D Illegally-obtained money

Explanation:

"Mattress money" refers to cash on hand, often hidden in or under a mattress, and is not allowed in mortgage transactions due to sourcing issues. This makes answer 3 correct.

116. What essential element of a deed can be stated in terms known as valuable or good?

A Witnesses and a notary
B Consideration
C The granting clause
D Habendum

Explanation:

In a deed, the consideration is the value exchanged between parties, which can be expressed as either valuable or good. This makes answer 2 correct.

117. An immediate family member is considered any of the following except:

A Adoptive children
B Blood relatives
C Grandparents
D Cousins

Explanation:

Cousins are not typically considered immediate family members in the context of most legal and regulatory frameworks.

118. Two types of loans used to finance the construction of a property are:

A Construction-to-permanent and construction
B Pre-construction and construction
C Fully amortized and interest-only
D Interim and permanent construction

Explanation:

Construction-to-permanent and construction loans are specifically designed for financing the construction of a property, making them the correct types of loans for this purpose.

119. What does the term “title” refer to in real estate?

A A legal concept that signifies ownership of real property
B A valuable piece of paper that can be bought and sold
C Any publicly recorded document that signifies one or more of the four property rights
D A contract that gives a lender the right to foreclose if all the obligations are not met

Explanation:

The term 'title' in real estate refers to the legal concept that signifies ownership of real property, not a physical document.

120. A loan originator may be compensated based on all but which of the following?

A The loan originator’s overall dollar volume of loans originated
B A higher commission for all loans sold that contain a pre-payment penalty
C A commission calculated as a percentage of the loan amount originated
D A flat fee per loan

Explanation:

Compensating a loan originator based on loans that contain a pre-payment penalty is prohibited under the Loan Originator Compensation Rule of 2013, as it could incentivize disadvantageous loan terms for consumers.

121. Caps on ARMs:

A Limit whether a loan is eligible for prepayment
B Prevent a lender from calling a loan due if there is delinquency
C Are mandatory for any lender offering ARM products
D Limit the amount the interest rate or payment may change

Explanation:

Caps on ARMs limit the amount the interest rate or payment can change, protecting the borrower from extreme fluctuations in payment amounts.

122. A conditional right to modify might be a feature of what type of loan?

A Balloon
B Interest-only ARM
C 15-year fixed-rate loan
D Option ARM

Explanation:

A balloon loan may feature a conditional right to modify, allowing borrowers to request a modification under certain conditions, thus avoiding the need to refinance or make a balloon payment at the end of the loan term.

123. All of the following are true about residential appraisals except:

A A lender will generally limit the loan to a maximum percentage of the appraised value of the property
B Since a borrower’s available cash for closing is generally limited and the lending guidelines are rigid, the mortgage loan originator should carefully review the appraisal for any errors
C A successful closing can be highly dependent on the appraiser’s opinion of value
D The appraiser’s final estimated market value readily allows for an increase in settlement costs up to 10% before the closing

Explanation:

The correct answer is 'The appraiser's final estimated market value readily allows for an increase in settlement costs up to 10% before the closing' because this statement is false. Appraisals do not typically allow for arbitrary increases in settlement costs; they strictly represent the property's market value to guide lending decisions.

124. The sales comparison approach to property valuation:

A Is based on the concept that a buyer is willing to pay only as much money as he/she would have to pay for another similar property
B Has nothing to do with the buyer or seller; the appraiser statistically determines it
C Is based on how much more a buyer would pay to upgrade from his/her present home
D Is viewed to be the least accurate because it is based on buyer/seller emotion

Explanation:

The sales comparison approach is based on the principle of substitution, which posits that a buyer will not pay more for a property than they would for a similar, readily available alternative property.

125. A borrower’s total monthly housing expense is often referred to as PITI and includes all of the following except:

A Principle
B Insurance
C Utilities
D Interest

Explanation:

The correct answer is Utilities because PITI includes principal, interest, taxes, and insurance, but does not include utilities, which are typically paid separately by the homeowner.

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