Mortgage Loan Originator Prep 5 — Questions and Answers
Question 1: What type of fraud involves a borrower overstating their income on a mortgage application?
- Fraud for housing (Correct answer)
- Predatory lending
- Appraisal fraud
- Equity stripping
Correct answer: Fraud for housing
Fraud for housing occurs when a borrower misrepresents information such as income or employment to obtain a mortgage they might not otherwise qualify for.
Question 2: A borrower wants to remove PMI from their conventional loan. Under the Homeowners Protection Act, when can they request cancellation?
- When LTV reaches 80% based on original value and payment schedule (Correct answer)
- After making 12 consecutive on-time payments
- When the property appreciates by 25% from purchase price
- After 5 years regardless of LTV ratio
Correct answer: When LTV reaches 80% based on original value and payment schedule
The Homeowners Protection Act allows borrowers to request PMI cancellation when the principal balance reaches 80% of the original value based on scheduled payments.
Question 3: Which loan program is backed by the federal government and targets rural and suburban homebuyers with low-to-moderate incomes?
- USDA Rural Development loan (Correct answer)
- FHA loan
- VA loan
- HomeReady loan
Correct answer: USDA Rural Development loan
USDA loans are guaranteed by the U.S. Department of Agriculture and offer 100% financing to eligible borrowers in designated rural and suburban areas.
Question 4: What is the 'net tangible benefit' test used for in mortgage lending?
- To determine if a refinance genuinely benefits the borrower (Correct answer)
- To calculate the lender's profit on a transaction
- To assess the property's value relative to the loan amount
- To verify the borrower's income is sufficient to repay the loan
Correct answer: To determine if a refinance genuinely benefits the borrower
The net tangible benefit test ensures that a refinance transaction provides a genuine financial benefit to the borrower, such as a lower rate, shorter term, or reduced payment.
Question 5: An MLO's NMLS license requires how many hours of continuing education annually?
- 8 hours (Correct answer)
- 4 hours
- 20 hours
- 16 hours
Correct answer: 8 hours
State-licensed MLOs must complete 8 hours of NMLS-approved continuing education annually, including specific required topics.
Question 6: What is the APR designed to represent to help consumers compare loan offers?
- The true cost of credit expressed as a yearly rate, including fees and charges (Correct answer)
- The interest rate charged on the outstanding loan balance each month
- The total amount of interest paid over the life of the loan
- The lender's profit margin after accounting for its cost of funds
Correct answer: The true cost of credit expressed as a yearly rate, including fees and charges
APR (Annual Percentage Rate) expresses the total cost of credit as a yearly rate, incorporating the interest rate plus certain fees and charges, allowing for easier comparison shopping.
Question 7: Under the Fair Housing Act, which of the following is a protected class?
- Familial status (Correct answer)
- Employment status
- Credit score range
- Debt-to-income ratio
Correct answer: Familial status
Familial status (having children under 18 or being pregnant) is one of seven protected classes under the Fair Housing Act.
Mortgage Loan Originator Prep 5
What type of fraud involves a borrower overstating their income on a mortgage application?