Practice Exam #1
1) Mortgage loan fraud is reported at what level?
A. State
B. Federal
C. County
D. City
A. State
B. Federal
C. County
D. City
answer
The correct answer is B. Mortgage Fraud is reported to the FBI and to HUD.
2) Title V of the Housing and Economic Recovery Act (HERA) of 2008 is best known as:
A. The SAFE Act
B. RESPA
C. TILA
D. CRA
A. The SAFE Act
B. RESPA
C. TILA
D. CRA
answer
The correct answer is A. The complete name of which is the Secure and Fair Enforcement for Mortgage Licensing Act of 2008.
3) The Nationwide Mortgage Licensing System & Registry (NMLS) was begun by which of the following organizations:
A. CSBS
B. HUD
C. AARMR
D. Both "A" and "C"
A. CSBS
B. HUD
C. AARMR
D. Both "A" and "C"
answer
The correct answer is D. Yes, the Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AARMR) started the NMLS in 2004.
4) The NMLS online system was built and is maintained by which of the following organizations:
A. ABA
B. FFIEC
C. FINRA
D. FTC
A. ABA
B. FFIEC
C. FINRA
D. FTC
answer
The correct answer is C. Yes, this is the Financial Industry Regulatory Authority and they operate several similar systems in the securities industry
5) All of the following are SAFE Act objectives except:
A. Provide increased accountability for MLOs
B. Enhance consumer protection
C. Cap interest rates and fees for federally related mortgage loans
D. Facilitate responsible behavior in the subprime mortgage market
A. Provide increased accountability for MLOs
B. Enhance consumer protection
C. Cap interest rates and fees for federally related mortgage loans
D. Facilitate responsible behavior in the subprime mortgage market
ANSWER
The correct answer is C. No caps are put in place by the SAFE Act or any other laws.
6) All of the following are SAFE Act objectives except:
A. Improve the flow of information to and between regulatory agencies
B. Regulate loan transactions involving 1-4 units of residential owner-occupied properties
C. Provide a comprehensive licensing database
D. Facilitate the collection and disbursement of consumer complaints
A. Improve the flow of information to and between regulatory agencies
B. Regulate loan transactions involving 1-4 units of residential owner-occupied properties
C. Provide a comprehensive licensing database
D. Facilitate the collection and disbursement of consumer complaints
ANSWER
The correct answer is B. The SAFE Act never mentions 1 - 4 units of residential owner-occupied properties. It does mention any residential mortgage loan that is primarily for personal, family, or household use.
7) Which of the following agencies reviewed and approved the model state law written by CSBS and AARMR:
A. HUD
B. USDA
C. Dept of Veterans Affairs
D. OTS
A. HUD
B. USDA
C. Dept of Veterans Affairs
D. OTS
ANSWER
The correct answer is A. Yes, the Department of Housing and Urban Development reviewed the legislation for definitions, education and testing requirements, financial responsibility and criminal background standards for MLOs and found it met the minimum requirements for the SAFE Act.
8) According to the SAFE Act, a mortgage loan originator must have the MLO designation to perform all of the following duties except:
A. Take a residential mortgage loan application
B. Perform work related to extensions of credit for timeshare plans
C. Negotiate terms of a residential mortgage loan
D. Advise a consumer on rates, fees, and other costs
A. Take a residential mortgage loan application
B. Perform work related to extensions of credit for timeshare plans
C. Negotiate terms of a residential mortgage loan
D. Advise a consumer on rates, fees, and other costs
ANSWER
The correct answer is B. An individual would not need the MLO designation to perform work related to extensions of credit for timeshare plans.
9) All of the following MLOs are required to be state-licensed except:
A. An MLO working under the authority of the Bureau of Real Estate
B. An MLO working as a Consumer Finance Lender (CFL)
C. An MLO working for a federally insured depository institution
D. An MLO working as a mortgage banker through the DBO
A. An MLO working under the authority of the Bureau of Real Estate
B. An MLO working as a Consumer Finance Lender (CFL)
C. An MLO working for a federally insured depository institution
D. An MLO working as a mortgage banker through the DBO
ANSWER
The correct answer is C. This would include banks, credit unions and subsidiaries owned and controlled by a depository institution and regulated by a federal banking agency.
10) According to the SAFE Act, which of the following do not need to have a unique identifier number to work as an MLO:
A. An employee of an insured depository institution
B. An MLO working under the authority of the DRE
C. An MLO working under the authority of the DBO
D. None of the above
A. An employee of an insured depository institution
B. An MLO working under the authority of the DRE
C. An MLO working under the authority of the DBO
D. None of the above
ANSWER
The correct answer is D. All MLO's need a unique identifyer number. The employee of an insured depository institution, however, is registered with the NMLS, not licensed.
11) Which of the following best defines appraisal:
A. Same as price
B. An estimate of value
C. Same as cost
D. An estimate of market value
A. Same as price
B. An estimate of value
C. Same as cost
D. An estimate of market value
ANSWER
The correct answer is D. There is nothing wrong with "B" as an answer, but in the context of residential mortgages, "D" is the best answer and will contribute to your point total.
12) According to the SAFE Act, administrative and clerical tasks that do not require an MLO designation include all of the following except:
A. The receipt and collection of information common for the processing or underwriting of a residential mortgage loan
B. Collecting information on behalf of the consumer with regard to a residential mortgage loan
C. The distribution of information common for the processing or underwriting of a residential mortgage loan
D. Communication with a consumer to obtain information necessary for the processing and underwriting of a residential mortgage loan
A. The receipt and collection of information common for the processing or underwriting of a residential mortgage loan
B. Collecting information on behalf of the consumer with regard to a residential mortgage loan
C. The distribution of information common for the processing or underwriting of a residential mortgage loan
D. Communication with a consumer to obtain information necessary for the processing and underwriting of a residential mortgage loan
ANSWER
The correct answer is B. The correct answer involves obtaining information for the consumer from various industry sources. This is part of MLO activities and requires an MLO designation. The other answer choices involve receiving, collecting, distributing, and communicating with the consumer to obtain information from the consumer for the purpose of putting together the loan application package. This is clerical in nature.
13) Federal Banking Agencies include all of the following except:
A. Comptroller of the Currency
B. Director of the Office of Thrift Supervision
C. Department of Housing and Urban Development
D. Federal Deposit Insurance Corporation
A. Comptroller of the Currency
B. Director of the Office of Thrift Supervision
C. Department of Housing and Urban Development
D. Federal Deposit Insurance Corporation
ANSWER
The correct answer is C. Other Federal Banking Agencies include the Board of Governors of the Federal Reserve system and the National Credit Union Administration. The Department of Housing and Urban Development (HUD) is not a federal banking agency.
14) Which of the following parties in the residential mortgage industry would not have to have the MLO designation to perform their duties legally:
A. A loan processor performing clerical duties under the direction of a state licensed MLO.
B. A contract processor serving more than one MLO.
C. A mortgage loan originator working for Wells Fargo Bank.
D. A mortgage loan originator working for a credit union
A. A loan processor performing clerical duties under the direction of a state licensed MLO.
B. A contract processor serving more than one MLO.
C. A mortgage loan originator working for Wells Fargo Bank.
D. A mortgage loan originator working for a credit union
answer
The correct answer is A. This kind of processor, working for a single company and generally paid with a W-2 form, is doing clerical and support work and does not have to have an MLO designation.
15) According to the SAFE Act, which of the following is the best definition of a non-traditional mortgage product:
A. An adjustable rate mortgage
B. A mortgage with a term of less than 30 years
C. An open-end mortgage
D. Any mortgage other than 30-year fixed
A. An adjustable rate mortgage
B. A mortgage with a term of less than 30 years
C. An open-end mortgage
D. Any mortgage other than 30-year fixed
answer
The correct answer is D. This is a statement of fact according to the SAFE Act.
16) According to the SAFE Act, which of the following would not have to hold an MLO designation to operate legally:
A. A loan originator who does not have to be licensed
B. A real estate broker performing brokerage activity
C. A contract mortgage processor
D. A person who takes a loan application and negotiates terms on a residential loan
A. A loan originator who does not have to be licensed
B. A real estate broker performing brokerage activity
C. A contract mortgage processor
D. A person who takes a loan application and negotiates terms on a residential loan
answer
The correct answer is B. A broker performing Real Estate Brokerage activity does not have to have an MLO designation.
17) A registered MLO is an individual who works under the authority of any of the following except:
A. A mortgage brokerage company under the authority of the DRE
B. A depository institution
C. An institution regulated by the Farm Credit Administration
D. A subsidiary of a depository institution regulated by a Federal banking agency
A. A mortgage brokerage company under the authority of the DRE
B. A depository institution
C. An institution regulated by the Farm Credit Administration
D. A subsidiary of a depository institution regulated by a Federal banking agency
answer
The correct answer is A. MLOs operating under the authority of the DRE must be licensed.
18) The SAFE Act refers to a residential mortgage loan as any loan primarily for the following purpose except:
A. Personal use
B. Family use
C. 1-4 owner-occupied use
D. Household use
A. Personal use
B. Family use
C. 1-4 owner-occupied use
D. Household use
answer
The correct answer is C. The SAFE Act does not mention owner occupied properties. The SAFE Act defers to TILA, Sec 103 (v), which defines a dwelling as a residential structure or mobile home which contains one-to-four family housing units, or individual units of condominiums or cooperatives.
19) Which of the following statements is most true regarding a state’s use of the unique identifier number:
A. Regarded as equally reliable is the individual’s social security number, and the states may use these in lieu of the unique identifier number
B. The social security number is the preferred identifying number and the states are encouraged to use it
C. States must use the unique identifier number in lieu of social security numbers to the greatest extent possible
D. States may use either the social security number or the unique identifier number as assigned by NMLS, whichever in the states’ estimation best accomplishes the purpose of the SAFE Act
A. Regarded as equally reliable is the individual’s social security number, and the states may use these in lieu of the unique identifier number
B. The social security number is the preferred identifying number and the states are encouraged to use it
C. States must use the unique identifier number in lieu of social security numbers to the greatest extent possible
D. States may use either the social security number or the unique identifier number as assigned by NMLS, whichever in the states’ estimation best accomplishes the purpose of the SAFE Act
answer
The correct answer is C. This is the mandate of the SAFE Act.
20) What one word best expresses the purpose for having a unique identifier number?
A. Liability
B. Accountability
C. Responsibility
D. Compatibility
A. Liability
B. Accountability
C. Responsibility
D. Compatibility
answer
The correct answer is B. Yes, the purpose of the unique identifier number is to hold MLOs accountable for the work they do.
21) Which of the following would prevent an individual from being granted an MLO designation:
A. Felony assault conviction eight years ago
B. Felony conviction for money laundering 15 years ago
C. Loss of broker’s license with right to restricted salesperson’s license
D. A pardoned felony conviction for fraud
A. Felony assault conviction eight years ago
B. Felony conviction for money laundering 15 years ago
C. Loss of broker’s license with right to restricted salesperson’s license
D. A pardoned felony conviction for fraud
answer
The correct answer is B. Of this list, only "B" would positively prevent an individual from receiving the MLO designation.
22) According to the SAFE Act, all of the following demonstrate a lack of financial responsibility on the part of an MLO candidate except:
A. Outstanding government liens and filings
B. Foreclosures within the past three years
C. Current outstanding judgments
D. The candidate has participated in a short sale as a principal within the past three years
A. Outstanding government liens and filings
B. Foreclosures within the past three years
C. Current outstanding judgments
D. The candidate has participated in a short sale as a principal within the past three years
answer
The correct answer is D. Short Sales are more a function of the economy, than an individual's personal behavior and are not mentioned in the SAFE Act.
23) Pre-licensing education requirements for MLO candidates are best expressed as which of the following:
A. Eight hours every year
B. Twenty hours to include Federal topics only
C. Twenty hours to include Federal and State-specific topics
D. Eight hours of revolving Federal and State-specific topics
A. Eight hours every year
B. Twenty hours to include Federal topics only
C. Twenty hours to include Federal and State-specific topics
D. Eight hours of revolving Federal and State-specific topics
answer
The correct answer is C. The 20-Hour course is a one-time requirement prior to licensing and will include both Federal and State specific topics.
24) Which of the following topics comprise 25% of the MLO exam?
A. Federal mortgage-related laws
B. General mortgage knowledge
C. Mortgage loan origination activities
D. Ethics
A. Federal mortgage-related laws
B. General mortgage knowledge
C. Mortgage loan origination activities
D. Ethics
answer
The correct answer is C. This is a statement of fact.
25) Which of the following topics comprise 16% of the MLO exam?
A. Federal mortgage-related laws
B. General mortgage knowledge
C. Mortgage loan origination activities
D. Ethics
A. Federal mortgage-related laws
B. General mortgage knowledge
C. Mortgage loan origination activities
D. Ethics
answer
The correct answer is D. This is a statement of fact.
26) Which of the following statements is most accurate regarding MLO Continuing Education requirements:
A. The MLO may avoid taking the CE courses by paying an additional fee
B. At least eight hours of CE must be taken each year
C. At least eight hours of CE must be taken every two years
D. At least eight hours of CE must be taken each year, but the MLO can complete eight hours in December, and then complete the same courses again the next January
A. The MLO may avoid taking the CE courses by paying an additional fee
B. At least eight hours of CE must be taken each year
C. At least eight hours of CE must be taken every two years
D. At least eight hours of CE must be taken each year, but the MLO can complete eight hours in December, and then complete the same courses again the next January
answer
The correct answer is B. The MLO must complete eight hours of Continuing education each year. Also, the MLO cannot receive credit for completing the same courses twice in two consecutive years.
27) The Real Estate Settlement Procedures Act (RESPA) is also known as Regulation:
A. B
B. X
C. Y
D. C
A. B
B. X
C. Y
D. C
answer
The correct answer is B. That's why it's referred to as REXPA in class.
28) RESPA addresses which of the following:
A. Creditors must disclose consumer credit costs in a uniform manner
B. Helps consumers shop for settlement services
C. Regulates all-cash land sales
D. Offers guidelines for residential rental property transactions
A. Creditors must disclose consumer credit costs in a uniform manner
B. Helps consumers shop for settlement services
C. Regulates all-cash land sales
D. Offers guidelines for residential rental property transactions
answer
The correct answer is B. Much of RESPA deals with making certain that closing costs are for the services they say they are and not padded with unearned referral fees.
29) Covered loans under RESPA include all of the following except:
A. Loans placed on one-to-four-family residential property
B. Most purchase-money loans, assumptions, and refinances
C. Seller financing on one-to-four-family residential property
D. Property improvement loans and equity lines of credit
A. Loans placed on one-to-four-family residential property
B. Most purchase-money loans, assumptions, and refinances
C. Seller financing on one-to-four-family residential property
D. Property improvement loans and equity lines of credit
answer
The correct answer is C. RESPA does not cover transactions where the seller takes back the mortgage.
30) RESPA, Section 8, deals primarily with which of the following:
A. Title insurance
B. Fee-splitting and kickbacks
C. Impound accounts
D. Vacant
A. Title insurance
B. Fee-splitting and kickbacks
C. Impound accounts
D. Vacant
answer
The correct answer is B. An MLO cannot pay or receive an unearned fee or kickback for a referral. Cooperative brokerage and referral arrangements and agreements between Real Estate Agents and Brokers are not made illegal by this law.
31) Things of value prohibited by Section 8 of RESPA include all of the following except:
A. Hats
B. Money
C. Services at special rates
D. Opportunities
A. Hats
B. Money
C. Services at special rates
D. Opportunities
answer
The correct answer is A. Hats are one item named in a list of things of a minimal value used for promotional purposes.
32) The “fee-splitting” forbidden in Section 8 of RESPA refers to which of the following:
A. Brokers splitting fees
B. Brokers and associate licensees splitting fees pursuant to an employment agreement
C. Receiving a percentage of any charge for services not actually performed
D. Payment of bona-fide compensation to a party for goods actually furnished or services actually performed
A. Brokers splitting fees
B. Brokers and associate licensees splitting fees pursuant to an employment agreement
C. Receiving a percentage of any charge for services not actually performed
D. Payment of bona-fide compensation to a party for goods actually furnished or services actually performed
answer
The correct answer is C. The key is that services were not actually performed, the referring party is not entitled to any part of the fee. Authorities believe that if such a fee-splitting were allowed, fees would be padded and this would ultimately harm the consumer.
33) Violators of RESPA face which of the following consequences:
A. Civil penalties
B. Criminal penalties
C. Discipline on license
D. All of the above
A. Civil penalties
B. Criminal penalties
C. Discipline on license
D. All of the above
answer
The correct answer is D. Yes, any of these are possibilities; with fines up to $10,000, imprisonment up to one-year, and civil penalties up to three times the amount of a charge paid for a required service. In addition, discipline could involve restriction or suspension of the Real Estate License, and/or revocation of the Real Estate License and/or MLO designation.
34) Section 9 of RESPA does essentially which of the following:
A. Prohibits discounts on settlement services
B. Prohibits a seller from requiring a buyer to use a particular title insurance company as a condition of the sale
C. Prohibits fee-splitting and receiving unearned fees
D. Prohibits giving or accepting a kickback
A. Prohibits discounts on settlement services
B. Prohibits a seller from requiring a buyer to use a particular title insurance company as a condition of the sale
C. Prohibits fee-splitting and receiving unearned fees
D. Prohibits giving or accepting a kickback
answer
The correct answer is B. Most listing brokers, representing their sellers, will state, "Seller's choice of services," which refers to title insurance and escrow. Technically, however, this cannot be made a condition of the sale.
35) If a seller requires a particular title insurance company in violation of Section 9 of RESPA, what is the buyer’s best remedy?
A. Rescind the contract
B. File a formal complaint with the BRE
C. Sue for damages, up to three times the charges made for title insurance
D. Sue the listing broker for breach of contract
A. Rescind the contract
B. File a formal complaint with the BRE
C. Sue for damages, up to three times the charges made for title insurance
D. Sue the listing broker for breach of contract
answer
The correct answer is C. Yes, to sue for damages, up to three times the charges made for title insurance is the answer according to Section 9 of RESPA.
36) What is the issue of Section 10 of RESPA?
A. Impound accounts
B. Title insurance
C. Kickbacks
D. Fee-splitting and unearned fees
A. Impound accounts
B. Title insurance
C. Kickbacks
D. Fee-splitting and unearned fees
answer
The correct answer is A. Referred to as "escrow account" in the textbook, but as you read it, it's apparent they are talking about an impound account. All information listed is fair game for the tests.
37) RESPA allows a lender to establish an escrow account cushion of which of the following:
A. 1/3
B. 1/6
C. 1/4
D. 1/8
A. 1/3
B. 1/6
C. 1/4
D. 1/8
answer
The correct answer is B. Yes, the allowed cushion is 1/6 of the total disbursements for the year. This usually amounts to two months worth of disbursements.
38) RESPA allows a lender to require what percentage of annual disbursements in the escrow (impound) account for the purpose of paying taxes, insurance, and other charges?
A. 1/4
B. 1/6
C. 1/10
D. 1/12
A. 1/4
B. 1/6
C. 1/10
D. 1/12
answer
The correct answer is D. Yes, 1/12 or one month's worth of disbursements for taxes and insurance are required for the escrow (impound) account.
39) In which of the following situations must a lender provide an impound account for the borrower:
A. For an FHA loan
B. For a mortgage loan that includes PMI
C. For a mortgage loan classified as “higher-priced”
D. Any of the above
A. For an FHA loan
B. For a mortgage loan that includes PMI
C. For a mortgage loan classified as “higher-priced”
D. Any of the above
answer
The correct answer is D. Section 10 of RESPA does not mandate impound accounts, but where they are required as in the answer choices, it sets parameters.The higher-priced loans must have an impound for at least the first 12 months.
40) When a lender performs an analysis of an impound account in accordance with Section 10 of RESPA, an excess of how much money must be returned to the borrower, assuming the borrower is not delinquent?
A. $25 or more
B. $50 or more
C. $100 or more
D. $250 or more
A. $25 or more
B. $50 or more
C. $100 or more
D. $250 or more
answer
The correct answer is B. This is a statement of fact.
41) How does RESPA regard an affiliated business relationship in the transaction of a residential mortgage loan?
A. Affiliated business relationships are illegal within the context of RESPA
B. Affiliated business relationships are discouraged within the context of RESPA
C. Affiliated business relationships are legitimate but must be disclosed
D. If the affiliated business relationship brings profit to the MLO in the transaction, they are forbidden to take advantage of them
A. Affiliated business relationships are illegal within the context of RESPA
B. Affiliated business relationships are discouraged within the context of RESPA
C. Affiliated business relationships are legitimate but must be disclosed
D. If the affiliated business relationship brings profit to the MLO in the transaction, they are forbidden to take advantage of them
answer
The correct answer is C. This is true.
42) According to RESPA, a direct or beneficial ownership interest exists when a person owns at least what percentage in a settlement service provider?
A. 1%
B. 5%
C. 10%
D. 12.5%
A. 1%
B. 5%
C. 10%
D. 12.5%
answer
The correct answer is A. Yes, a 1% beneficial interest in a settlement service provider results in an affiliated business arrangement.
43) Which of the following is the best definition of an appraisal:
A. A written statement of the price of a property
B. An estimate of value
C. A statement of cost
D. An opinion of market value
A. A written statement of the price of a property
B. An estimate of value
C. A statement of cost
D. An opinion of market value