Mortgage Loan Originator Mortgage Loan Originator MCQ 4 — Questions and Answers
Question 1: Under Regulation Z (Truth in Lending Act), the Annual Percentage Rate (APR) differs from the interest rate because it includes:
- Only the principal balance
- Certain fees and costs in addition to the interest rate (Correct answer)
- Only the lender's profit margin
- The property tax and insurance
Correct answer: Certain fees and costs in addition to the interest rate
The APR reflects the true cost of borrowing by incorporating the interest rate plus certain fees such as points and origination charges.
Question 2: Which agency maintains the Nationwide Multistate Licensing System & Registry (NMLS)?
- Federal Reserve
- CFPB
- Conference of State Bank Supervisors (CSBS) (Correct answer)
- HUD
Correct answer: Conference of State Bank Supervisors (CSBS)
The NMLS is managed by the Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AARMR).
Question 3: A balloon mortgage typically requires:
- Fully amortizing payments over 30 years
- A large lump-sum payment at the end of a shorter loan term (Correct answer)
- Bi-weekly payments throughout the loan
- Interest-only payments with no principal reduction
Correct answer: A large lump-sum payment at the end of a shorter loan term
A balloon mortgage has smaller monthly payments for a set term, followed by a large 'balloon' payment of the remaining balance at maturity.
Question 4: Under HMDA, which institutions are required to collect and report loan data?
- Only national banks
- Credit unions only
- Covered financial institutions meeting asset and activity thresholds (Correct answer)
- Any business that offers installment loans
Correct answer: Covered financial institutions meeting asset and activity thresholds
HMDA requires covered depository and non-depository financial institutions that meet certain asset size and loan activity thresholds to collect and report mortgage data.
Question 5: What is the minimum down payment required for an FHA-insured loan for borrowers with a credit score of 580 or higher?
- 0%
- 3%
- 3.5% (Correct answer)
- 5%
Correct answer: 3.5%
Borrowers with a credit score of 580 or above are eligible for an FHA loan with a minimum down payment of 3.5%.
Question 6: In mortgage underwriting, what does the term 'compensating factors' refer to?
- Additional fees charged to offset lender risk
- Positive borrower attributes that offset weaknesses in the application (Correct answer)
- Government subsidies that reduce the loan amount
- Penalties for exceeding DTI limits
Correct answer: Positive borrower attributes that offset weaknesses in the application
Compensating factors are strengths in a borrower's application—such as large reserves or a low LTV—that can offset a higher DTI or other weaknesses.
Question 7: The Right of Rescission under the Truth in Lending Act applies to:
- All purchase mortgage transactions
- Refinance transactions involving the borrower's primary residence (Correct answer)
- Second home purchase loans
- Investment property loans
Correct answer: Refinance transactions involving the borrower's primary residence
The right to rescind gives borrowers 3 business days to cancel a refinance transaction secured by their primary residence, but it does not apply to purchase transactions.
Mortgage Loan Originator Mortgage Loan Originator MCQ 4
Under Regulation Z (Truth in Lending Act), the Annual Percentage Rate (APR) differs from the interest rate because it includes: