CMB - Certified Mortgage Banker Residential Loan Origination Questions and Answers — Questions and Answers
Question 1: A loan originator is structuring a compensation plan. According to Regulation Z, which of the following methods is permissible?
- A commission that is a fixed percentage of the loan amount for all transactions. (Correct answer)
- A higher commission percentage for loans with a higher interest rate.
- A bonus for each loan that includes a prepayment penalty.
- Compensation tied to the profitability of the mortgage-related business, paid quarterly as a cash bonus.
Correct answer: A commission that is a fixed percentage of the loan amount for all transactions.
Regulation Z (the Truth in Lending Act) prohibits loan originator compensation from being based on the terms of a loan, such as interest rate or inclusion of a prepayment penalty. Compensation may, however, be based on the amount of credit extended (the loan amount), as long as it's a fixed percentage. While contributions to certain tax-advantaged retirement plans can be made from a mortgage-related profit pool, direct cash bonuses tied to profitability are generally not allowed.
Question 2: Under the TILA-RESPA Integrated Disclosure (TRID) rule, when must a lender provide the Closing Disclosure (CD) to the borrower?
- At least 3 business days before loan consummation. (Correct answer)
- Within 3 business days of receiving the loan application.
- No later than 7 business days before the scheduled closing date.
- Simultaneously with the delivery of the Loan Estimate.
Correct answer: At least 3 business days before loan consummation.
The TRID rule mandates that the creditor must ensure the consumer receives the Closing Disclosure at least three business days prior to consummation of the loan. The Loan Estimate, not the Closing Disclosure, must be provided within three business days of the application.
Question 3: A borrower applies for a mortgage on Monday, January 4th. Assuming no federal holidays, what is the latest date the lender can provide the Loan Estimate (LE) to comply with TRID timing requirements?
- Thursday, January 7th (Correct answer)
- Tuesday, January 5th
- Wednesday, January 6th
- Friday, January 8th
Correct answer: Thursday, January 7th
The TILA-RESPA Integrated Disclosure (TRID) rule requires lenders to deliver or place the Loan Estimate in the mail no later than the third business day after receiving the consumer's completed loan application. Counting from the application on Monday (Day 0), the third business day would be Thursday.
Question 4: Which of the following is a key requirement of the Ability-to-Repay (ATR) rule?
- Lenders must make a reasonable, good-faith determination that a consumer has the ability to repay the loan. (Correct answer)
- The borrower's total debt-to-income ratio cannot exceed 36% under any circumstances.
- The loan must be a 30-year fixed-rate mortgage.
- Lenders are prohibited from originating loans with points and fees.
Correct answer: Lenders must make a reasonable, good-faith determination that a consumer has the ability to repay the loan.
The core principle of the ATR rule is that a creditor must make a reasonable and good-faith determination, based on verified and documented information, that the consumer will have a reasonable ability to repay the loan according to its terms. While debt-to-income ratios are a factor, there is no absolute 36% cap for all loans, and the rule does not restrict loans to only 30-year fixed-rate products or completely prohibit points and fees.
Question 5: A loan officer receives a bonus for each loan originated that is subsequently sold on the secondary market with a service-released premium above a certain threshold. This compensation practice is likely a violation of which regulation?
- Regulation Z's Loan Originator Compensation Rule (Correct answer)
- The Real Estate Settlement Procedures Act (RESPA)
- The Fair Housing Act
- The Home Mortgage Disclosure Act (HMDA)
Correct answer: Regulation Z's Loan Originator Compensation Rule
Regulation Z prohibits loan originator compensation from being based on a 'proxy' for a term of a transaction. The profitability on a secondary market sale, such as the service-released premium, is considered a proxy for the loan's terms (e.g., interest rate) and is therefore not a permissible basis for compensation.
Question 6: Under the definition of a Qualified Mortgage (QM), which of the following loan features is generally prohibited?
- A loan term longer than 30 years. (Correct answer)
- A fixed interest rate for the life of the loan.
- Points and fees that are 2% of the loan amount.
- A first lien position.
Correct answer: A loan term longer than 30 years.
To meet the definition of a Qualified Mortgage (QM), a loan must not have certain risky features. One of these prohibited features is a loan term that exceeds 30 years. Other prohibited features include negative amortization and interest-only payments.
CMB - Certified Mortgage Banker Residential Loan Origination Questions and Answers
A loan originator is structuring a compensation plan.
According to Regulation Z, which of the following methods is permissible?