Mortgage Loan Originator Mortgage Loan Originator MCQ 5 — Questions and Answers
Question 1: A 'yield spread premium' (YSP) historically referred to:
- A bonus paid by the government for below-market rate loans
- Compensation paid by a lender to a broker for delivering a loan at an above-par interest rate (Correct answer)
- A fee the borrower pays for locking a rate
- A penalty for early loan prepayment
Correct answer: Compensation paid by a lender to a broker for delivering a loan at an above-par interest rate
A yield spread premium was compensation a lender paid to a mortgage broker when the broker originated a loan at an interest rate higher than the par rate.
Question 2: Which of the following is NOT one of the three C's of credit underwriting?
- Capacity
- Collateral
- Credit
- Convenience (Correct answer)
Correct answer: Convenience
The three C's of mortgage underwriting are Capacity (ability to repay), Credit (credit history), and Collateral (property value)—Convenience is not one of them.
Question 3: A 'no-cost' mortgage loan typically means:
- The borrower pays no money at closing under any circumstances
- Closing costs are rolled into the loan balance or covered by a higher interest rate (Correct answer)
- The government subsidizes all origination fees
- No points or interest are charged for the life of the loan
Correct answer: Closing costs are rolled into the loan balance or covered by a higher interest rate
In a no-cost mortgage, closing costs are either financed into the loan amount or offset by a higher interest rate that generates lender credits.
Question 4: Under the SAFE Act, an individual who takes a residential mortgage loan application and offers or negotiates terms is considered a:
- Real estate agent
- Mortgage loan originator (Correct answer)
- Loan processor
- Underwriter
Correct answer: Mortgage loan originator
The SAFE Act defines a mortgage loan originator as any individual who takes a residential mortgage loan application or offers or negotiates terms of such a loan.
Question 5: Which type of income is typically considered the most stable and easiest to verify for mortgage qualification purposes?
- Self-employment income
- Commission-based income
- W-2 salaried income (Correct answer)
- Rental income
Correct answer: W-2 salaried income
W-2 salaried income is considered the most stable and straightforward to document, as it is consistent and verifiable through pay stubs and tax returns.
Question 6: A 'teaser rate' on an adjustable-rate mortgage refers to:
- A penalty rate charged after the first missed payment
- An artificially low initial interest rate that adjusts upward after a set period (Correct answer)
- A fixed rate that never changes over the life of the loan
- A rate offered exclusively to first-time homebuyers
Correct answer: An artificially low initial interest rate that adjusts upward after a set period
A teaser rate is a below-market introductory interest rate on an ARM that resets to a higher rate after the initial fixed period ends.
Question 7: When a mortgage loan is 'sold on the secondary market,' it means the lender has:
- Foreclosed on the property and resold it
- Transferred the loan to another investor such as Fannie Mae or Freddie Mac (Correct answer)
- Reduced the interest rate for the borrower
- Converted the loan from adjustable to fixed rate
Correct answer: Transferred the loan to another investor such as Fannie Mae or Freddie Mac
Selling a loan on the secondary market means the originating lender transfers ownership of the loan to investors like Fannie Mae, Freddie Mac, or private investors.
Mortgage Loan Originator Mortgage Loan Originator MCQ 5
A 'yield spread premium' (YSP) historically referred to: