Mortgage Loan Originator Mortgage Loan Originator 5 — Questions and Answers
Question 1: A borrower wants to take cash out of their primary residence. The home is valued at $400,000 and has a current mortgage balance of $200,000. If the lender's maximum cash-out LTV is 80%, how much cash can the borrower receive?
- $80,000
- $100,000
- $120,000 (Correct answer)
- $160,000
Correct answer: $120,000
80% of $400,000 = $320,000 max loan; $320,000 - $200,000 existing balance = $120,000 maximum cash out.
Question 2: Which term describes the illegal practice of an MLO steering a borrower toward a higher-cost loan for which they qualify for better terms, in order to earn greater compensation?
- Redlining
- Churning
- Steering (Correct answer)
- Blockbusting
Correct answer: Steering
Steering occurs when an MLO directs a borrower to a loan product that is not in their best interest primarily to increase the originator's compensation.
Question 3: The FHA requires a minimum down payment of 3.5% for borrowers with a credit score of at least:
- 580 (Correct answer)
- 620
- 640
- 660
Correct answer: 580
FHA allows a 3.5% minimum down payment for borrowers with credit scores of 580 or higher; scores between 500-579 require 10% down.
Question 4: An MLO's compensation is set at 1% of the loan amount by the lender. The MLO cannot legally receive additional compensation from which source?
- The state licensing board
- The borrower (Correct answer)
- An affiliated title company owned by the MLO's employer
- A mortgage insurance company
Correct answer: The borrower
Under Regulation Z's loan originator compensation rules, an MLO cannot receive compensation from both the lender and the borrower on the same transaction.
Question 5: A loan with a balloon payment requires the remaining principal balance to be paid in full at a set date. Under the Qualified Mortgage (QM) rule, balloon payment loans are generally:
- Permitted for all loan types with no restrictions
- Only permitted for small creditors in rural or underserved areas meeting specific criteria (Correct answer)
- Prohibited entirely for all lenders
- Required for jumbo loans above conforming loan limits
Correct answer: Only permitted for small creditors in rural or underserved areas meeting specific criteria
Under the QM rule, balloon payment mortgages can qualify as QMs only for small creditors operating in rural or underserved areas that meet specific CFPB criteria.
Question 6: Which document serves as the borrower's promise to repay the mortgage loan and outlines the loan's interest rate, payment schedule, and consequences of default?
- Deed of trust
- Promissory note (Correct answer)
- Mortgage deed
- Closing Disclosure
Correct answer: Promissory note
The promissory note is the borrower's legal promise to repay the debt and contains the loan terms, interest rate, payment schedule, and default provisions.
Question 7: A lender denies credit to an applicant based on the average income level or racial composition of the neighborhood where the property is located. This discriminatory practice is known as:
- Blockbusting
- Redlining (Correct answer)
- Steering
- Predatory lending
Correct answer: Redlining
Redlining is the illegal practice of denying credit or offering inferior terms based on the racial or ethnic composition of a neighborhood.
Mortgage Loan Originator Mortgage Loan Originator 5
A borrower wants to take cash out of their primary residence.
The home is valued at $400,000 and has a current mortgage balance of $200,000.
If the lender's maximum cash-out LTV is 80%, how much cash can the borrower receive?