Mortgage Loan Originator Trivia 5 — Questions and Answers
Question 1: What act established the Nationwide Multistate Licensing System (NMLS) and required state-licensed MLOs to meet minimum education and testing standards?
- Dodd-Frank Act
- Community Reinvestment Act
- SAFE Mortgage Licensing Act (Correct answer)
- Gramm-Leach-Bliley Act
Correct answer: SAFE Mortgage Licensing Act
The SAFE (Secure and Fair Enforcement for Mortgage Licensing) Act of 2008 created the NMLS and set federal minimum standards for MLO licensing.
Question 2: What is the maximum loan-to-value (LTV) ratio allowed for a cash-out refinance on a primary residence under standard conventional guidelines?
- 70%
- 75%
- 80% (Correct answer)
- 95%
Correct answer: 80%
Standard conventional guidelines generally cap cash-out refinance LTV at 80% for primary residences to manage default risk.
Question 3: What is the name of the process by which a lender reviews a completed loan file to determine if it meets all approval criteria?
- Processing
- Origination
- Underwriting (Correct answer)
- Servicing
Correct answer: Underwriting
Underwriting is the evaluation process where the lender assesses the borrower's creditworthiness and the property's value to make a final loan decision.
Question 4: Which of the following is NOT a valid trigger term under Regulation Z that requires full APR disclosure in an advertisement?
- Monthly payment amount
- Down payment amount
- Annual Percentage Rate (Correct answer)
- Number of payments
Correct answer: Annual Percentage Rate
APR itself is not a trigger term; it is what must be disclosed when a trigger term (like monthly payment, down payment, or number of payments) appears in an ad.
Question 5: What is a 'teaser rate' in the context of adjustable-rate mortgages?
- The final interest rate after all adjustments
- An initially low introductory rate designed to attract borrowers (Correct answer)
- The rate charged after a borrower misses a payment
- The index rate used to calculate future adjustments
Correct answer: An initially low introductory rate designed to attract borrowers
A teaser rate is an artificially low initial interest rate on an ARM, designed to attract borrowers, which resets higher after the introductory period ends.
Question 6: What does the term 'assumable mortgage' mean?
- A mortgage that automatically converts to a fixed rate
- A loan where a new buyer takes over the seller's existing mortgage terms (Correct answer)
- A mortgage with no income verification requirement
- A loan guaranteed by the borrower's employer
Correct answer: A loan where a new buyer takes over the seller's existing mortgage terms
An assumable mortgage allows a qualified buyer to take over the seller's existing loan balance, interest rate, and repayment terms.
Question 7: What is the primary function of the secondary mortgage market?
- To set interest rates for new mortgage originations
- To provide insurance for high-risk loans
- To buy mortgages from lenders, freeing capital for new loans (Correct answer)
- To regulate MLO licensing and education requirements
Correct answer: To buy mortgages from lenders, freeing capital for new loans
The secondary mortgage market (primarily Fannie Mae, Freddie Mac, and Ginnie Mae) purchases loans from originators, providing liquidity so lenders can make new loans.
Mortgage Loan Originator Trivia 5
What act established the Nationwide Multistate Licensing System (NMLS) and required state-licensed MLOs to meet minimum education and testing standards?