Mortgage Loan Originator Trivia 4 — Questions and Answers
Question 1: Which federal agency is primarily responsible for enforcing the SAFE Act's MLO licensing requirements at the federal level?
- Federal Reserve
- FDIC
- Consumer Financial Protection Bureau (CFPB) (Correct answer)
- HUD
Correct answer: Consumer Financial Protection Bureau (CFPB)
The CFPB oversees federal compliance with the SAFE Act and maintains the Nationwide Multistate Licensing System (NMLS) standards.
Question 2: What is a 'jumbo loan' in mortgage lending?
- A loan with a term exceeding 30 years
- A loan that exceeds conforming loan limits set by the FHFA (Correct answer)
- A loan with more than two borrowers
- A loan secured by more than one property
Correct answer: A loan that exceeds conforming loan limits set by the FHFA
A jumbo loan exceeds the conforming loan limits established by the Federal Housing Finance Agency and cannot be purchased by Fannie Mae or Freddie Mac.
Question 3: What is the purpose of Private Mortgage Insurance (PMI) on a conventional loan?
- It protects the borrower from job loss
- It protects the lender if the borrower defaults (Correct answer)
- It covers property damage not included in homeowner's insurance
- It ensures the loan will be refinanced if rates drop
Correct answer: It protects the lender if the borrower defaults
PMI protects the lender against loss if the borrower defaults; it is typically required when the down payment is less than 20%.
Question 4: Under the Truth in Lending Act (TILA), what is the right of rescission?
- The right to lock in an interest rate for 60 days
- The right to cancel a refinance within three business days of closing (Correct answer)
- The right to dispute an appraisal within 30 days
- The right to request a payoff statement within five business days
Correct answer: The right to cancel a refinance within three business days of closing
TILA grants borrowers the right to cancel certain refinance transactions (on primary residences) within three business days of closing without penalty.
Question 5: What is the term for a mortgage loan that is not backed by any government agency and must meet GSE guidelines to be sold on the secondary market?
- Portfolio loan
- Conforming conventional loan (Correct answer)
- Non-QM loan
- Hard money loan
Correct answer: Conforming conventional loan
A conforming conventional loan meets Fannie Mae and Freddie Mac guidelines (including loan limits and underwriting standards) so it can be sold on the secondary market.
Question 6: What does PITI stand for in the context of mortgage payments?
- Principal, Interest, Taxes, Insurance (Correct answer)
- Payment, Income, Term, Interest
- Principal, Index, Term, Insurance
- Property, Interest, Taxes, Investment
Correct answer: Principal, Interest, Taxes, Insurance
PITI represents the four components of a typical monthly mortgage payment: Principal, Interest, Taxes, and Insurance.
Question 7: What is a 'bridge loan' in real estate financing?
- A loan used exclusively for commercial properties
- A short-term loan that bridges the gap between buying a new home and selling an existing one (Correct answer)
- A government program for first-time homebuyers
- A loan that converts from adjustable to fixed rate automatically
Correct answer: A short-term loan that bridges the gap between buying a new home and selling an existing one
A bridge loan provides short-term financing to help a borrower purchase a new home before their existing property has sold.
Mortgage Loan Originator Trivia 4
Which federal agency is primarily responsible for enforcing the SAFE Act's MLO licensing requirements at the federal level?