Arkansas Real Estate License Financing and Settlement Practices 4 — Questions and Answers
Question 1: Which entity sets the conforming loan limits that define whether a loan is conventional or jumbo?
- Federal Reserve
- Federal Housing Finance Agency (FHFA) (Correct answer)
- Consumer Financial Protection Bureau (CFPB)
- Department of Housing and Urban Development (HUD)
Correct answer: Federal Housing Finance Agency (FHFA)
The FHFA sets conforming loan limits annually; loans above this limit are considered jumbo loans and cannot be purchased by Fannie Mae or Freddie Mac.
Question 2: A VA loan in Arkansas requires the veteran to pay:
- A 3.5% down payment
- Private mortgage insurance (PMI)
- A VA funding fee (unless exempt) (Correct answer)
- Both a down payment and PMI
Correct answer: A VA funding fee (unless exempt)
VA loans require no down payment and no PMI, but most borrowers pay a VA funding fee, which can be financed into the loan.
Question 3: Under TRID, how many business days before closing must the Closing Disclosure be received by the borrower?
- 1 business day
- 2 business days
- 3 business days (Correct answer)
- 5 business days
Correct answer: 3 business days
TRID requires the borrower to receive the Closing Disclosure at least 3 business days before consummation of the loan.
Question 4: Which of the following is an example of negative amortization?
- Paying extra principal each month
- Monthly payments that are less than the interest accrued, causing the balance to grow (Correct answer)
- Paying off the loan before the maturity date
- A loan where the rate adjusts annually
Correct answer: Monthly payments that are less than the interest accrued, causing the balance to grow
Negative amortization occurs when minimum payments do not cover all accrued interest, causing the unpaid interest to be added to the principal balance.
Question 5: Which clause in a mortgage gives the lender the right to demand full repayment if the property is sold?
- Prepayment clause
- Defeasance clause
- Due-on-sale (alienation) clause (Correct answer)
- Subordination clause
Correct answer: Due-on-sale (alienation) clause
A due-on-sale or alienation clause requires the full loan balance to be repaid when the property changes ownership.
Question 6: RESPA prohibits kickbacks between settlement service providers. What is the penalty for violations?
- A warning letter from HUD
- Civil fine up to $10,000 and up to 1 year in prison (Correct answer)
- License revocation only
- Fines set by the Arkansas Real Estate Commission
Correct answer: Civil fine up to $10,000 and up to 1 year in prison
RESPA Section 8 violations can result in civil fines up to $10,000 per violation and/or up to 1 year imprisonment.
Question 7: A mortgage loan officer recommends a loan product that is not in the borrower's best interest in order to earn a higher commission. This is an example of:
- Redlining
- Steering
- Predatory lending (Correct answer)
- Blockbusting
Correct answer: Predatory lending
Predatory lending involves recommending unsuitable or harmful loan products to borrowers for the benefit of the lender or loan officer.
Arkansas Real Estate License Financing and Settlement Practices 4
Which entity sets the conforming loan limits that define whether a loan is conventional or jumbo?