Mortgage Loan Originator Assessment 5 — Questions and Answers
Question 1: Under the Homeowners Protection Act (HPA), when must a lender automatically cancel PMI on a conventional loan?
- When LTV reaches 80% based on original value
- When LTV reaches 78% based on original amortization schedule (Correct answer)
- When the borrower has made 24 consecutive on-time payments
- When the borrower requests cancellation at 80% LTV
Correct answer: When LTV reaches 78% based on original amortization schedule
The HPA requires automatic PMI cancellation when the loan balance reaches 78% of the original value based on the scheduled amortization, regardless of borrower request.
Question 2: A lender requires a borrower to use a specific title insurance company as a condition of the loan. Under RESPA, this is:
- Permissible if disclosed on the Loan Estimate
- A violation known as a required provider kickback
- Permitted when the lender owns the title company
- Prohibited as an illegal tied arrangement (Correct answer)
Correct answer: Prohibited as an illegal tied arrangement
RESPA Section 9 prohibits sellers and lenders from requiring buyers to use a specific title insurance company as a condition of the sale or loan.
Question 3: What minimum credit score does FHA typically require for a borrower to qualify for the maximum 96.5% LTV (3.5% down payment)?
- 580 (Correct answer)
- 620
- 640
- 560
Correct answer: 580
FHA guidelines allow a 3.5% down payment for borrowers with a minimum credit score of 580; scores between 500-579 require 10% down.
Question 4: A borrower refinances their primary residence. Under the Right of Rescission, how many business days do they have to cancel?
- 1 business day
- 3 business days (Correct answer)
- 5 business days
- 7 business days
Correct answer: 3 business days
Regulation Z grants borrowers a three-business-day right of rescission on refinances of their primary residence with a new lender.
Question 5: Which type of income is generally NOT acceptable for qualifying purposes without a two-year history?
- Base salary income
- Overtime and bonus income (Correct answer)
- Pension income
- Social Security income
Correct answer: Overtime and bonus income
Variable income such as overtime, bonuses, and commissions generally requires a two-year history to be used for qualifying purposes under agency guidelines.
Question 6: A VA loan's funding fee can be financed into the loan. Which borrower group is exempt from paying the VA funding fee?
- First-time homebuyers
- Active-duty service members
- Veterans receiving VA compensation for a service-connected disability (Correct answer)
- Borrowers with a credit score above 720
Correct answer: Veterans receiving VA compensation for a service-connected disability
Veterans who receive VA disability compensation for a service-connected disability are exempt from the VA funding fee.
Question 7: Under HMDA, which of the following financial institutions is generally required to report mortgage data?
- Any lender that makes at least one mortgage loan per year
- Depository institutions meeting asset and loan volume thresholds in metropolitan areas (Correct answer)
- Only federally chartered banks
- Credit unions with more than $1 billion in assets
Correct answer: Depository institutions meeting asset and loan volume thresholds in metropolitan areas
HMDA reporting applies to depository and non-depository institutions that meet specific asset size, loan volume, and geographic (metropolitan area) thresholds.
Mortgage Loan Originator Assessment 5
Under the Homeowners Protection Act (HPA), when must a lender automatically cancel PMI on a conventional loan?