Mixed Deck — All CMPS Topics Flashcards

A 55-year-old client separates from their employer and wants penalty-free access to their 401(k). Which rule allows this?

Answer: The Rule of 55 for separation from service

The Rule of 55 allows penalty-free 401(k) distributions if the employee separates from service in or after the year they turn 55.

The Homeownership and Equity Protection Act (HOEPA) applies to high-cost mortgages. Which of the following is a HOEPA trigger for a first-lien loan?

Answer: APR exceeds APOR by more than 6.5 percentage points

For first-lien mortgages, HOEPA is triggered when the APR exceeds the Average Prime Offer Rate (APOR) by more than 6.5 percentage points.

A homeowner wants to renovate their kitchen for $40,000. They are comparing a personal loan at 11% vs. a HELOC at 7%. Over 5 years, approximately how much does the HELOC save in interest?

Answer: About $4,800

A 4% rate differential on $40,000 over 5 years saves approximately $4,800 in interest, making the HELOC the superior cash flow choice.

A mortgage planner learns that a client's employer has gone bankrupt after the loan was submitted but before closing. The ethical action is to:

Answer: Immediately disclose the material change to the lender

Material changes in a client's financial situation must be disclosed to the lender before closing, as concealment constitutes mortgage fraud.

When evaluating the financial benefit of paying discount points to lower a mortgage rate, the 'break-even point' is calculated as:

Answer: Total points paid divided by the monthly payment savings

The break-even point equals the upfront cost of points divided by the monthly savings, indicating how many months until the borrower recoups the cost.

Under IRS rules, which scenario qualifies for the 10% early withdrawal penalty exception without needing a 72(t) election?

Answer: Withdrawing IRA funds to pay for a first-time home purchase (up to $10,000 lifetime)

The IRS allows a penalty-free IRA withdrawal of up to $10,000 (lifetime limit) for a first-time home purchase, without a 72(t) election.

Under the Equal Credit Opportunity Act (ECOA), how long must a lender retain records of credit applications?

Answer: 25 months

ECOA/Regulation B requires creditors to retain records of credit applications and related actions for 25 months for consumer credit.

A homeowner's net operating income from a rental property decreases by $400/month due to a vacancy. How does this affect their mortgage planning cash flow analysis?

Answer: It reduces qualifying rental income used in DTI calculations

Reduced rental income lowers the qualifying income used by lenders in DTI calculations, potentially limiting refinance or new loan eligibility.

What is the role of the Dodd-Frank Act in lending regulation?

Answer: It created the Consumer Financial Protection Bureau (CFPB)

The Dodd-Frank Act played a significant role in lending regulation by creating the Consumer Financial Protection Bureau (CFPB). This agency was established to protect consumers in the financial marketplace by enforcing federal consumer financial laws and ensuring fair, transparent, and competitive practices. Dodd-Frank aimed to prevent a recurrence of the 2008 financial crisis through comprehensive reforms.

A homeowner has $50,000 in home equity and is considering a HELOC at 7.5% vs. paying off a credit card at 22%. From a cash flow perspective, which action maximizes benefit?

Answer: Pay off the credit card using the HELOC

Using a 7.5% HELOC to eliminate 22% credit card debt produces a 14.5% net interest rate reduction, directly improving cash flow.

When mortgage rates decline, what typically happens to existing fixed-rate mortgage borrowers and MBS investors respectively?

Answer: Borrowers benefit; investors face prepayment risk as refinancing accelerates

Falling rates create a refinancing opportunity for borrowers, which is a benefit to them but a risk for MBS investors who lose their higher-yield income stream.

Which term describes the additional yield an investor requires above the risk-free rate to compensate for real estate investment risk?

Answer: Risk premium

A risk premium is the excess return demanded by investors for taking on the additional uncertainty of real estate versus risk-free Treasuries.

A homeowner in the 22% federal tax bracket pays $18,000 in mortgage interest annually. Assuming they itemize, what is the after-tax cost of that interest?

Answer: $14,040

$18,000 × (1 - 0.22) = $14,040 after-tax cost of mortgage interest when itemizing deductions.

Under the Fair Housing Act, which of the following is NOT a protected class at the federal level?

Answer: Sexual orientation

Sexual orientation is not a protected class under the federal Fair Housing Act, though many states and localities have added it through their own laws.

Under what circumstance may a lender legally freeze or reduce a HELOC credit line?

Answer: The property's value declines significantly, reducing the available equity cushion

Lenders are permitted to suspend or reduce a HELOC when the property's value drops to a level where the credit line is no longer adequately secured by sufficient equity.

An investor's equity grows from $80,000 to $112,000 over three years. What is the approximate annualized return on equity?

Answer: 11.9%

Annualized return = (112,000/80,000)^(1/3) - 1 = 1.40^0.333 - 1 ≈ 11.87%, approximately 11.9%.

A client is considering a rate-and-term refinance on their existing mortgage. They currently have a $400,000 balance on a 30-year fixed loan at a 6.5% interest rate. The proposed refinance is a new 30-year fixed loan at 5.5% with total closing costs of $7,000. Approximately how much will their monthly principal and interest (P&I) payment decrease, and what is the breakeven point in months?

Answer: The P&I will decrease by approximately $251/month; the breakeven is 28 months.

First, calculate the current P&I: $400,000 at 6.5% for 30 years is $2,528. Then, calculate the new P&I: $400,000 at 5.5% for 30 years is $2,271. The monthly savings is $2,528 - $2,271 = $257. To find the breakeven point, divide the closing costs by the monthly savings: $7,000 / $257 ≈ 27.2 months. The closest answer is a decrease of ~$251/month and a 28-month breakeven.

A CMPS advisor suspects that a real estate agent is inflating property appraisals to make deals work. What is the advisor's ethical obligation?

Answer: Report the suspicion to the lender's compliance team and potentially to regulators

Appraisal fraud is a federal crime and advisors have an ethical and legal duty to report suspected fraud to their compliance team or appropriate authorities.

What is the primary reason mortgage lenders sell loans on the secondary market shortly after origination?

Answer: To replenish capital so they can originate additional loans

Selling loans to secondary market investors returns capital to the lender, enabling them to fund new mortgage originations without being constrained by their balance sheet.

A borrower has a DTI ratio of 48% and is applying for a conventional loan. What is the most appropriate next step for the mortgage planner?

Answer: Explore debt payoff scenarios or alternative loan programs that allow higher DTI

A planner should explore solutions such as paying down debt, increasing income documentation, or using programs with higher DTI thresholds before concluding the client cannot qualify.