FiCEP Housing and Mortgage Counseling 4 — Questions and Answers
Question 1: A homeowner has a loan-to-value (LTV) ratio of 85% and wants to cancel PMI. What must the LTV reach before the lender is required by law to automatically cancel PMI?
- 75%
- 78% (Correct answer)
- 80%
- 85%
Correct answer: 78%
Under the Homeowners Protection Act, lenders must automatically cancel PMI when the LTV reaches 78% based on original amortization.
Question 2: During a post-purchase counseling session, a client mentions they received a notice of escrow shortage. What is the most likely cause?
- The client missed a mortgage payment
- Property taxes or homeowners insurance premiums increased (Correct answer)
- The lender applied extra funds to principal
- The client's interest rate was adjusted upward
Correct answer: Property taxes or homeowners insurance premiums increased
Escrow shortages typically occur when property taxes or insurance premiums rise above what was originally estimated and collected.
Question 3: A borrower is comparing a 15-year fixed mortgage and a 30-year fixed mortgage for the same loan amount. Which statement is most accurate?
- The 15-year loan will have a lower monthly payment
- The 30-year loan will result in less total interest paid
- The 15-year loan will have a higher interest rate than the 30-year
- The 15-year loan will result in significantly less total interest paid (Correct answer)
Correct answer: The 15-year loan will result in significantly less total interest paid
A 15-year mortgage accrues interest over half the time, resulting in dramatically lower total interest cost despite a higher monthly payment.
Question 4: What is the purpose of the HUD-approved housing counseling agency requirement for certain FHA borrowers?
- To verify employment history before loan approval
- To ensure borrowers understand loan terms, rights, and responsibilities (Correct answer)
- To appraise the property on behalf of the lender
- To issue the Closing Disclosure document
Correct answer: To ensure borrowers understand loan terms, rights, and responsibilities
HUD-approved counselors educate borrowers about mortgage obligations, homeownership responsibilities, and available assistance programs.
Question 5: A client is delinquent on their mortgage and asks about a forbearance agreement. Which best describes what forbearance provides?
- Permanent reduction of the outstanding principal balance
- A temporary suspension or reduction of mortgage payments (Correct answer)
- Forgiveness of all accrued late fees and penalties
- A fixed repayment schedule replacing the original loan terms
Correct answer: A temporary suspension or reduction of mortgage payments
Forbearance is a temporary agreement allowing the borrower to pause or reduce payments, with the deferred amount typically repaid later.
Question 6: Under RESPA, within how many business days must a lender provide a Loan Estimate after receiving a completed loan application?
- 1 business day
- 3 business days (Correct answer)
- 5 business days
- 7 business days
Correct answer: 3 business days
RESPA requires lenders to deliver the Loan Estimate to applicants within 3 business days of receiving a completed mortgage application.
Question 7: A counselor is helping a client evaluate a reverse mortgage. Which borrower requirement is mandatory for a HECM reverse mortgage?
- The borrower must have no existing liens on the property
- The borrower must be at least 62 years old (Correct answer)
- The property must be a multi-unit investment property
- The borrower must have a minimum credit score of 620
Correct answer: The borrower must be at least 62 years old
HECMs are available only to homeowners aged 62 or older who use the home as their primary residence.
FiCEP Housing and Mortgage Counseling 4
A homeowner has a loan-to-value (LTV) ratio of 85% and wants to cancel PMI.
What must the LTV reach before the lender is required by law to automatically cancel PMI?