SAFE General Mortgage Knowledge 2

Question 1

Which type of mortgage index is directly tied to U.S. Treasury securities?

Accepted Answer

Constant Maturity Treasury (CMT)

Answer

The Constant Maturity Treasury (CMT) index is based on the yield of U.S. Treasury securities and is commonly used to set ARM rates.

Question 2

A borrower has a 5/1 ARM. What does the '1' represent?

Accepted Answer

The rate can adjust every 1 year after the initial period

Answer

In a 5/1 ARM, the '5' is the initial fixed-rate period in years and the '1' means the rate adjusts every one year thereafter.

Question 3

What is the primary purpose of an escrow account in a mortgage?

Accepted Answer

To collect monthly funds for taxes and insurance

Answer

An escrow account collects portions of monthly payments to cover property taxes and homeowner's insurance when they come due.

Question 4

Under RESPA, which of the following is considered a 'controlled business arrangement'?

Accepted Answer

A referral between affiliated companies where compensation is paid

Answer

A controlled business arrangement (AfBA) occurs when a settlement service provider refers consumers to an affiliated company and receives compensation for that referral.

Question 5

What does 'loan-to-value ratio' (LTV) measure?

Accepted Answer

Loan amount divided by the appraised property value

Answer

LTV is calculated by dividing the loan amount by the appraised value (or purchase price, whichever is lower), expressed as a percentage.

(SAFE) Certified Secure and Fair Enforcement Mortgage Loan Originator Practice Test

(SAFE) Certified Secure and Fair Enforcement Mortgage Loan Originator Practice Test

SAFE General Mortgage Knowledge 2