Mortgage Loan Originator Prep 2 — Questions and Answers
Question 1: Under RESPA, which fee is the lender required to provide on the Loan Estimate?
- Appraisal fee estimated by the lender (Correct answer)
- Exact title insurance premium set by the state
- Transfer taxes calculated by the county
- Homeowner's association dues set by the HOA
Correct answer: Appraisal fee estimated by the lender
RESPA requires lenders to provide a good-faith estimate of the appraisal fee on the Loan Estimate, while some fees like transfer taxes are set by third parties.
Question 2: What is the primary purpose of the Ability-to-Repay (ATR) rule under Dodd-Frank?
- Ensure borrowers can reasonably repay the loan before it is made (Correct answer)
- Limit loan amounts to a percentage of the property value
- Require a minimum down payment of 20% for all loans
- Mandate escrow accounts for all conventional loans
Correct answer: Ensure borrowers can reasonably repay the loan before it is made
The ATR rule requires lenders to make a reasonable, good-faith determination that borrowers have the ability to repay the loan before originating it.
Question 3: A borrower's gross monthly income is $6,000. Their proposed housing payment is $1,500 and total monthly debts are $600. What is their total DTI ratio?
- 35% (Correct answer)
- 25%
- 40%
- 30%
Correct answer: 35%
Total DTI = (housing payment + all debts) / gross income = ($1,500 + $600) / $6,000 = 35%.
Question 4: Which federal law requires lenders to give borrowers a three-business-day right of rescission on refinances of primary residences?
- Truth in Lending Act (TILA) (Correct answer)
- Real Estate Settlement Procedures Act (RESPA)
- Equal Credit Opportunity Act (ECOA)
- Home Mortgage Disclosure Act (HMDA)
Correct answer: Truth in Lending Act (TILA)
TILA grants borrowers a three-business-day right to rescind a refinance transaction on their primary residence.
Question 5: What does LTV stand for, and how is it calculated?
- Loan-to-Value; loan amount divided by appraised value (Correct answer)
- Lender-to-Verify; total assets divided by loan amount
- Loan-to-Verify; income divided by loan amount
- Leverage-to-Value; purchase price divided by down payment
Correct answer: Loan-to-Value; loan amount divided by appraised value
LTV (Loan-to-Value) is calculated by dividing the loan amount by the lesser of the appraised value or purchase price.
Question 6: Under HMDA, which data point must an MLO collect if the applicant voluntarily provides it?
- Ethnicity and race of the applicant (Correct answer)
- Applicant's net worth
- Number of dependents in the household
- Applicant's employment industry
Correct answer: Ethnicity and race of the applicant
HMDA requires lenders to collect and report government monitoring information including ethnicity, race, and sex if voluntarily provided by the applicant.
Question 7: Which of the following is an example of redlining?
- Refusing to lend in certain neighborhoods based on racial composition (Correct answer)
- Charging higher rates to borrowers with lower credit scores
- Requiring larger down payments for investment properties
- Denying a loan because the property appraises below the purchase price
Correct answer: Refusing to lend in certain neighborhoods based on racial composition
Redlining is the illegal practice of refusing to lend or provide services in specific geographic areas based on the racial or ethnic composition of those areas.
Mortgage Loan Originator Prep 2
Under RESPA, which fee is the lender required to provide on the Loan Estimate?