Practice Exam #5
1) When provisions of TILA refer to a creditor extending credit to a consumer, what does that mean?
A. People, not a company.
B. Businesses, if not more than a sole proprietorship.
C. Sole proprietorships and partnerships.
D. Corporations that were formed by consumers.
A. People, not a company.
B. Businesses, if not more than a sole proprietorship.
C. Sole proprietorships and partnerships.
D. Corporations that were formed by consumers.
answer
The correct answer is A. This is the interpretation of consumer.
2) Under TILA, the definition of credit includes all of the following, except:
A. For personal, household, or family purposes.
B. For any amount less than $1 million dollars.
C. For other than business or commercial purposes.
D. Not for agricultural purposes.
A. For personal, household, or family purposes.
B. For any amount less than $1 million dollars.
C. For other than business or commercial purposes.
D. Not for agricultural purposes.
answer
The correct answer is B. The definition of credit applies to all real estate loans made to consumers, regardless of the amount.
3) Business and commercial use under TILA would include all of the following, except:
A. Owner-occupied single family residence.
B. Non-owner occupied single family residence.
C. Tenant-occupied fourplex.
D. When credit is extended to purchase or rehabilitate a non-owner occupied house.
A. Owner-occupied single family residence.
B. Non-owner occupied single family residence.
C. Tenant-occupied fourplex.
D. When credit is extended to purchase or rehabilitate a non-owner occupied house.
answer
The correct answer is A. TILA does not apply to business and commercial use, but would apply to the owner-occupied single family residence.
4) Under TILA, what is the test that separates owner-occupancy from a business or commercial loan?
A. If the owner will occupy the house for more than three (3) business days.
B. If the owner will occupy the house for 51% of the year.
C. If the owner will occupy the house for more than 14 days.
D. If the owner will occupy the house for a minimum of a year.
A. If the owner will occupy the house for more than three (3) business days.
B. If the owner will occupy the house for 51% of the year.
C. If the owner will occupy the house for more than 14 days.
D. If the owner will occupy the house for a minimum of a year.
answer
The correct answer is C. This makes the house an owner-occupied property, and exemptions from TILA regulations are not applicable.
5) The credit under TILA must be offered under which of the following circumstances:
A. Subject to a prepayment penalty.
B. Subject to a finance charge.
C. Payable by written agreement in more than four (4) installments.
D. B & C.
A. Subject to a prepayment penalty.
B. Subject to a finance charge.
C. Payable by written agreement in more than four (4) installments.
D. B & C.
ANSWER
The correct answer is D.
6) Under TILA, the standard way to inform consumers of the true cost of borrowing money is by disclosing which of the following:
A. TIP.
B. The nominal rate.
C. APR.
D. Finance charge.
A. TIP.
B. The nominal rate.
C. APR.
D. Finance charge.
ANSWER
The correct answer is C. The formula for Annual Percentage Rate includes the nominal rate, the points, costs, and fees of getting the financing. It is the all-inclusive cost of the loan over the life of the loan and as all lenders follow the formula, it allows consumers to compare apples and apples.
7) An intended purpose of TILA is which of the following:
A. Promote the informed use of consumer credit.
B. Assure meaningful disclosure of credit terms to allow consumers to compare more readily the various options available and avoid the uninformed use of credit.
C. To give consumers 100% assurance that they are doing the right thing.
D. A & B.
A. Promote the informed use of consumer credit.
B. Assure meaningful disclosure of credit terms to allow consumers to compare more readily the various options available and avoid the uninformed use of credit.
C. To give consumers 100% assurance that they are doing the right thing.
D. A & B.
ANSWER
The correct answer is D. C is not realistic, but A and B fulfill the intended purpose of TILA, so that consumers are making informed decisions.
8) TILA does which of the following:
A. Sets limits on interest rates.
B. Sets limits on certain finance charges.
C. Regulates the disclosure of interest rates and finance charges.
D. Establishes a three (3) business day right of rescission on all purchase money loans.
A. Sets limits on interest rates.
B. Sets limits on certain finance charges.
C. Regulates the disclosure of interest rates and finance charges.
D. Establishes a three (3) business day right of rescission on all purchase money loans.
ANSWER
The correct answer is C. The three (3) day right of rescission is for refinancing your home.
9) Under TILA, when creditors offer credit but before the transaction is consummated, which of the following is true:
A. Disclosures must be made clearly and conspicuously.
B. Disclosures must be made in writing.
C. Disclosures must be made in a form the consumer can keep and read prior to the loan closing.
D. All of the following.
A. Disclosures must be made clearly and conspicuously.
B. Disclosures must be made in writing.
C. Disclosures must be made in a form the consumer can keep and read prior to the loan closing.
D. All of the following.
ANSWER
The correct answer is D.
10) Under TILA, how long must the loan broker (MLO) keep evidence of compliance with disclosure requirements?
A. Six months.
B. One year.
C. Two years.
D. Five years.
A. Six months.
B. One year.
C. Two years.
D. Five years.
ANSWER
The correct answer is C. This is a statement of fact.
11) All of the following would be loan disclosures required only in specific circumstances, except:
A. Charm Booklet.
B. Notice of Right to Rescind.
C. Mortgage Servicing Disclosure Statement.
D. Balloon Disclosure.
A. Charm Booklet.
B. Notice of Right to Rescind.
C. Mortgage Servicing Disclosure Statement.
D. Balloon Disclosure.
ANSWER
The correct answer is C. Yes, the Mortgage Servicing Disclosure Statement is a standard form issued within three (3) business days of receiving the loan application.
12) In addition to interest rates, APR, and other costs, which of the following are types of information the Loan Estimate would also include:
A. Name and contact information of lender.
B. Subject property address.
C. Payment summary table indicating initial interest rate and corresponding monthly payments.
D. All of the above.
A. Name and contact information of lender.
B. Subject property address.
C. Payment summary table indicating initial interest rate and corresponding monthly payments.
D. All of the above.
ANSWER
The correct answer is D. These and many other relevant facts are contained on the Loan Estimate, including late payment and prepayment provisions, as well as the number, amount, and timing of payments scheduled to repay the obligation.
13) According to TILA, for ARMs, the payment summary table must include all of the following, except:
A. The maximum interest rate possible in the first five years of the loan.
B. The maximum payment possible in the first five years of the loan.
C. The minimum and easiest the payment can be in the first five years of the loan.
D. The worst case example showing the maximum payment and rate over the life of the loan.
A. The maximum interest rate possible in the first five years of the loan.
B. The maximum payment possible in the first five years of the loan.
C. The minimum and easiest the payment can be in the first five years of the loan.
D. The worst case example showing the maximum payment and rate over the life of the loan.
ANSWER
The correct answer is C. This information would not prepare the borrower for the challenge they may face.
14) All of the following are true about the disclosure of the APR according to TILA, except:
A. The MLO must disclose the APR on a business website.
B. The MLO must disclose the APR in print advertising.
C. The MLO does not have to disclose the APR when receiving a phone call just checking for an interest rate quote.
D. The MLO must disclose the APR for an ARM loan.
A. The MLO must disclose the APR on a business website.
B. The MLO must disclose the APR in print advertising.
C. The MLO does not have to disclose the APR when receiving a phone call just checking for an interest rate quote.
D. The MLO must disclose the APR for an ARM loan.
answer
The correct answer is C. Yes, the MLO must disclose the APR even on an Adjustable Rate Mortgage.
15) How must the MLO disclose the APR when different interest rates apply during the term of the loan?
A. The MLO must average the APRs that may apply.
B. There is still only one APR.
C. The MLO must disclose the APR that will apply during a specific time during the term of the loan.
D. The MLO will be unable to disclose an APR in this situation.
A. The MLO must average the APRs that may apply.
B. There is still only one APR.
C. The MLO must disclose the APR that will apply during a specific time during the term of the loan.
D. The MLO will be unable to disclose an APR in this situation.
answer
The correct answer is B. There is a formula that will allow the MLO to devise one APR, even for an ARM.
16) All of the following are true about finance charges in a loan transaction, except:
A. It is expressed as the cost of consumer credit as a dollar amount.
B. It is expressed as the cost of consumer credit as a rate.
C. It is as a condition of the extension of credit.
D. It is a charge paid directly or indirectly by the consumer.
A. It is expressed as the cost of consumer credit as a dollar amount.
B. It is expressed as the cost of consumer credit as a rate.
C. It is as a condition of the extension of credit.
D. It is a charge paid directly or indirectly by the consumer.
answer
The correct answer is B. A finance charge is expressed as a dollar amount, not a rate.
17) All of the following are true about finance charges in a loan transaction, except:
A. The finance charge is imposed directly or indirectly by the creditor as a condition of the extension of credit.
B. The finance charge can include fees charged by someone other than the creditor.
C. The finance charge could be a charge payable in a comparable cash transaction.
D. Fees charged by a mortgage broker are finance charges even if the creditor doesn’t retain any portion of the charge.
A. The finance charge is imposed directly or indirectly by the creditor as a condition of the extension of credit.
B. The finance charge can include fees charged by someone other than the creditor.
C. The finance charge could be a charge payable in a comparable cash transaction.
D. Fees charged by a mortgage broker are finance charges even if the creditor doesn’t retain any portion of the charge.
answer
The correct answer is C. This is the one answer that could not be correct.
18) According to TILA, the finance charge includes fees and amounts charged by a third party under which of the following circumstances:
A. If the creditor requires the use of the third party as a condition of the extension of credit.
B. If the creditor retains a portion of the third-party charge.
C. So long as the creditor retains none of the third-party charge.
D. A & B.
A. If the creditor requires the use of the third party as a condition of the extension of credit.
B. If the creditor retains a portion of the third-party charge.
C. So long as the creditor retains none of the third-party charge.
D. A & B.
answer
The correct answer is D.
19) According to TILA, fees charged by a third party that conducts the loan closing (like an escrow, title company, or attorney) are considered finance charges under which of the following circumstances:
A. If the creditor requires the particular services.
B. If the creditor requires the closing agent to impose the charge.
C. If the creditor retains a portion of the third party charge.
D. All of the above.
A. If the creditor requires the particular services.
B. If the creditor requires the closing agent to impose the charge.
C. If the creditor retains a portion of the third party charge.
D. All of the above.
answer
The correct answer is D.
20) According to TILA, fees charged by a mortgage broker are considered finance charges under which of the following circumstances:
A. Even if the creditor does not require the borrower to use a mortgage broker.
B. Even if the creditor does not retain any portion of the charge.
C. Even if they are points paid by the seller.
D. A & B.
A. Even if the creditor does not require the borrower to use a mortgage broker.
B. Even if the creditor does not retain any portion of the charge.
C. Even if they are points paid by the seller.
D. A & B.
answer
The correct answer is D. These are circumstances unique to working with a mortgage broker.
21) According to TILA, all of the following are included as a finance charge, except:
A. Points and loan fees.
B. Insurance against loss or damage to the property.
C. Seller’s points.
D. Premiums for insurance protecting the creditor.
A. Points and loan fees.
B. Insurance against loss or damage to the property.
C. Seller’s points.
D. Premiums for insurance protecting the creditor.
answer
The correct answer is C. Points paid by the seller are not part of a finance charge paid by the borrower.
22) According to TILA, all of the following charges would be excluded from the finance charge, except:
A. Appraisal fee.
B. Fees for inspections for assess the condition of the property.
C. Appraisal review fees.
D. Credit report fees.
A. Appraisal fee.
B. Fees for inspections for assess the condition of the property.
C. Appraisal review fees.
D. Credit report fees.
answer
The correct answer is C. An appraisal review fee is a legitimate finance charge that would be added to the APR.
23) According to the 2009 amendment to TILA, all of the following are true regarding the average prime offer rate, except:
A. An APR is derived from average interest rates, points, and other loan pricing terms currently offered to consumers.
B. They represent mortgage transactions that have low-risk pricing charactertistics.
C. The average prime offer rate for both fixed and adjustable rate loans is published in a table and updated at least weekly.
D. The average prime offer rate includes data used for a construction loan.
A. An APR is derived from average interest rates, points, and other loan pricing terms currently offered to consumers.
B. They represent mortgage transactions that have low-risk pricing charactertistics.
C. The average prime offer rate for both fixed and adjustable rate loans is published in a table and updated at least weekly.
D. The average prime offer rate includes data used for a construction loan.
answer
The correct answer is D. Yes, loans for the initial construction of a dwelling are not included in the average prime offer rate.
24) Average prime offer rate data does not apply to any of the following loans, except:
A. A bridge loan with a term of 12 months or less.
B. A reverse-mortgage.
C. A loan used to purchase a home.
D. A HELOC.
A. A bridge loan with a term of 12 months or less.
B. A reverse-mortgage.
C. A loan used to purchase a home.
D. A HELOC.
answer
The correct answer is C. Yes, average prime offer rate data would apply to a purchase money loan.
25) When a loan falls into the category of a high-priced loan, all of the following are restrictions imposed by the 2009 amendment to TILA, except:
A. Lenders are required to verify the repayment ability of the borrower.
B. The repayment schedule must consolidate at least two periodic payments to be paid in advance.
C. Prepayment penalties are limited to two years.
D. Impound accounts must be established for payment of taxes and insurance.
A. Lenders are required to verify the repayment ability of the borrower.
B. The repayment schedule must consolidate at least two periodic payments to be paid in advance.
C. Prepayment penalties are limited to two years.
D. Impound accounts must be established for payment of taxes and insurance.
answer
The correct answer is B. This is not a restriction imposed by TILA.
26) Under the 2009 amendment to TILA, lenders are prohibited from all of the following practices, except:
A. Failing to compensate the appraiser when he does not reach a stipulated threshold value for the subject property.
B. Making the appraiser’s compensation conditional on loan consummation.
C. Withholding the appraiser’s compensation for substandard performance of services.
D. Asking the appraiser to consider additional factual information about the subject or comparable properties.
A. Failing to compensate the appraiser when he does not reach a stipulated threshold value for the subject property.
B. Making the appraiser’s compensation conditional on loan consummation.
C. Withholding the appraiser’s compensation for substandard performance of services.
D. Asking the appraiser to consider additional factual information about the subject or comparable properties.
answer
The correct answer is D. Nothing is wrong with providing the appraiser with additional factual information and asking him/her to consider it.
27) The Home Ownership and Equity Protection Act (HOEPA) is enforced by which of the following:
A. HUD.
B. CFPB.
C. FRB.
D. FBI.
A. HUD.
B. CFPB.
C. FRB.
D. FBI.
answer
The correct answer is B. HOEPA is now enforced by the Consumer Financial Protection Bureau.
28) HOEPA is also known as which of the following:
A. Regulation X.
B. Regulation C.
C. SB-36.
D. Section 32.
A. Regulation X.
B. Regulation C.
C. SB-36.
D. Section 32.
answer
The correct answer is D. Yes, this law is also known as Section 32 of Regulation Z.
29) If a lender is in violation of HOEPA, what recourse does a consumer have?
A. Sue for recovery for statutory and actual damages.
B. Sue for court costs and attorney fees.
C. Rescind the loan for up to three (3) years.
D. All of the above.
A. Sue for recovery for statutory and actual damages.
B. Sue for court costs and attorney fees.
C. Rescind the loan for up to three (3) years.
D. All of the above.
answer
The correct answer is D. Yes, the consumer can do all of these if the lender violates their rights.
30) High Cost Loan Triggers of HOEPA include which of the following:
A. APR Trigger.
B. Total Finance Charge Trigger.
C. Total of Payments Trigger.
D. Both A & B.
A. APR Trigger.
B. Total Finance Charge Trigger.
C. Total of Payments Trigger.
D. Both A & B.
answer
The correct answer is D. The High Cost Loan is triggered by APR or Total Finance Charge.
31) Which of the following is true regarding the APR Trigger of HOEPA:
A. HOEPA is triggered when the APR exceeds the Average Prime Offer Rate (APOR) by more than 8% on a first lien loan.
B. HOEPA is triggered when the APR exceeds the Average Prime Offer Rate (APOR) by more than 6.5% on first lien loans of $50,000 or higher and more than 8.5% on first lien loans of less than $50,000.
C. HOEPA is triggered when the APR exceeds the Average Prime Offer Rate (APOR) by 10% or more on a second lien loan.
D. HOEPA is triggered when the APR exceeds the Average Prime Offer Rate (APOR) by 8.5% on a first lien loan.
A. HOEPA is triggered when the APR exceeds the Average Prime Offer Rate (APOR) by more than 8% on a first lien loan.
B. HOEPA is triggered when the APR exceeds the Average Prime Offer Rate (APOR) by more than 6.5% on first lien loans of $50,000 or higher and more than 8.5% on first lien loans of less than $50,000.
C. HOEPA is triggered when the APR exceeds the Average Prime Offer Rate (APOR) by 10% or more on a second lien loan.
D. HOEPA is triggered when the APR exceeds the Average Prime Offer Rate (APOR) by 8.5% on a first lien loan.
answer
The correct answer is B. The rates are more stringent since the TRID disclosures went into effect.
32) Which of the following is true regarding the APR Trigger of HOEPA for a second lien loan:
A. HOEPA is triggered when the APR exceeds the APOR by 6.5%.
B. HOEPA is triggered when the APR exceeds the APOR by 7.6%.
C. HOEPA is triggered when the APR exceeds the APOR BY 8.5%.
D. HOEPA is triggered when the APR exceeds the APOR by 10%.
A. HOEPA is triggered when the APR exceeds the APOR by 6.5%.
B. HOEPA is triggered when the APR exceeds the APOR by 7.6%.
C. HOEPA is triggered when the APR exceeds the APOR BY 8.5%.
D. HOEPA is triggered when the APR exceeds the APOR by 10%.
answer
The correct answer is C.
33) Which of the following is the Total Finance Charge Trigger of HOEPA on a loan of $20,000 or more:
A. If the borrower pays total points and fees that exceed 3.5% of the total transaction amount.
B. If the borrower pays total points and fees that exceed 4% of the total transaction amount.
C. If the borrower pays total points and fees that exceed 5% of the total transaction amount.
D. If the borrower pays total points and fees that exceed 6% of the total transaction amount.
A. If the borrower pays total points and fees that exceed 3.5% of the total transaction amount.
B. If the borrower pays total points and fees that exceed 4% of the total transaction amount.
C. If the borrower pays total points and fees that exceed 5% of the total transaction amount.
D. If the borrower pays total points and fees that exceed 6% of the total transaction amount.
answer
The correct answer is C.
34) Which of the following is the Total Finance Charge Trigger of HOEPA on a loan less than $20,000:
A. If the borrower pays at least $1500 in points and fees.
B. If the borrower pays at least $2000 in points and fees.
C. If the borrower pays the lesser of $1000 or 8% of the total transaction in points and fees.
D. If the borrower pays at least 10% in points and fees.
A. If the borrower pays at least $1500 in points and fees.
B. If the borrower pays at least $2000 in points and fees.
C. If the borrower pays the lesser of $1000 or 8% of the total transaction in points and fees.
D. If the borrower pays at least 10% in points and fees.
answer
The correct answer is C.
35) HOEPA covers principal dwellings with the following types of loans, except:
A. Purchase money loans.
B. USDA Section 502 loans.
C. HELOC.
D. Refinances.
A. Purchase money loans.
B. USDA Section 502 loans.
C. HELOC.
D. Refinances.
answer
The correct answer is B. The rest are covered, as well as junior mortgages.
36) HOEPA does not cover any of the following loans, except:
A. Reverse mortgages.
B. Loans on second homes.
C. Home Equity Loans.
D. A new construction loan.
A. Reverse mortgages.
B. Loans on second homes.
C. Home Equity Loans.
D. A new construction loan.
answer
The correct answer is C.
37) Which of the following statements is true regarding balloon payments and the HOEPA loan:
A. Balloon payments are always prohibited with a HOEPA loan.
B. Balloon payments are allowed on HOEPA loans if the term is less than five years.
C. Balloon payments are allowed on HOEPA loans if it involves a bridge loan of less than a year to buy or build a home.
D. Interest-only HOEPA loans are prohibited.
A. Balloon payments are always prohibited with a HOEPA loan.
B. Balloon payments are allowed on HOEPA loans if the term is less than five years.
C. Balloon payments are allowed on HOEPA loans if it involves a bridge loan of less than a year to buy or build a home.
D. Interest-only HOEPA loans are prohibited.
answer
The correct answer is C. So it cannot be said that balloon payments with a HOEPA loan is always prohibited.
38) Which of the following is the best definition of a balloon payment:
A. A final lump sum payment of more than twice the regular payment.
B. A final lump sum payment of $5,000 or more.
C. A final lump sum payment of $10,000 or more.
D. A final lump sum payment of 10 times the smallest payment required during the term of the loan.
A. A final lump sum payment of more than twice the regular payment.
B. A final lump sum payment of $5,000 or more.
C. A final lump sum payment of $10,000 or more.
D. A final lump sum payment of 10 times the smallest payment required during the term of the loan.
answer
The correct answer is A. Many times the balloon payment that is required is much greater than this.
39) All of the following statements are true regarding negative amortization and the HOEPA loan, except:
A. Negative amortization loans are prohibited with HOEPA loans.
B. Negative amortization is permitted to occur with HOEPA loans only if due to interest rate changes or payment schedule caps.
C. Negative amortization loans would cause an increase in the borrower’s total principal debt.
D. Negative amortization loans do not fully pay off the debt by the end of the term.
A. Negative amortization loans are prohibited with HOEPA loans.
B. Negative amortization is permitted to occur with HOEPA loans only if due to interest rate changes or payment schedule caps.
C. Negative amortization loans would cause an increase in the borrower’s total principal debt.
D. Negative amortization loans do not fully pay off the debt by the end of the term.
answer
The correct answer is B. An experienced MLO will try to avoid negative amortization even under these circumstances.
40) Under which of the following circumstances is a prepayment penalty prohibited in a HOEPA loan:
A. Always.
B. If it goes beyond the first three years of the loan.
C. If the consumer’s total monthly debts, including the HOEPA loan, exceed 50% of the consumer’s gross monthly income.
D. If it goes beyond the first 48 months of the loan
A. Always.
B. If it goes beyond the first three years of the loan.
C. If the consumer’s total monthly debts, including the HOEPA loan, exceed 50% of the consumer’s gross monthly income.
D. If it goes beyond the first 48 months of the loan
answer
The correct answer is A. A prepayment penalty is strictly prohibited on a HOEPA loan.
41) Due on demand clauses are restricted with the HOEPA loan. Under which of the following circumstances could the lender call the loan:
A. In case of default.
B. In case of fraud.
C. In case of damage to the collateral property.
D. Any of the above.
A. In case of default.
B. In case of fraud.
C. In case of damage to the collateral property.
D. Any of the above.
answer
The correct answer is D. All of these reasons represent actions taken by the consumer.
42) Additional prohibitions on HOEPA loans include all of the following, except:
A. Lenders may not grant loans based solely on the collateral value of the borrower’s property without regard to the borrower’s ability to repay the loan.
B. Under no circumstances may a lender refinance a HOEPA loan into another HOEPA loan with the first 12 months of origination.
C. Lenders may not disburse proceeds from home improvement loans to anyone other than the borrower, or jointly to the borrower and home improvement contractor, or escrow agent.
D. Under no circumstances may a lender wrongfully document a closed-end, high cost loan as an open-end loan.
A. Lenders may not grant loans based solely on the collateral value of the borrower’s property without regard to the borrower’s ability to repay the loan.
B. Under no circumstances may a lender refinance a HOEPA loan into another HOEPA loan with the first 12 months of origination.
C. Lenders may not disburse proceeds from home improvement loans to anyone other than the borrower, or jointly to the borrower and home improvement contractor, or escrow agent.
D. Under no circumstances may a lender wrongfully document a closed-end, high cost loan as an open-end loan.
answer
The correct answer is B. This can be done only if the loan is in the borrower’s best interest.
43) All of the following are true about the HOEPA notice (Section 32 disclosures), except:
A. The disclosures are intended to protect consumers from pressure tactics that imply the consumer is already locked into the agreement.
B. The disclosures alert the consumer to the fact that they can still cancel and it is their right to do so.
C. The disclosures are intended to protect consumers from pressure tactics that imply that canceling at this point would be prohibitively complex or expensive.
D. The notice must be in a conspicuous font size but may be a summary of the language required by HOEPA.
A. The disclosures are intended to protect consumers from pressure tactics that imply the consumer is already locked into the agreement.
B. The disclosures alert the consumer to the fact that they can still cancel and it is their right to do so.
C. The disclosures are intended to protect consumers from pressure tactics that imply that canceling at this point would be prohibitively complex or expensive.
D. The notice must be in a conspicuous font size but may be a summary of the language required by HOEPA.