Missed Questions NMLS Exam

Which of the following would not be considered a settlement service as defined by RESPA?

- Real estate brokerage services

- Title insurance services

- Appraisal services

- Loan modification services

Loan Modification Services

Settlement service fees are charges incurred in the mortgage loan origination process. They include real estate brokerage services, title fees, appraisal costs, credit report fees, and costs related to the settlement, or closing, of the loan.

Which of the following circumstances is least likely to lead to a determination that two entities are operating a sham affiliated business arrangement under RESPA?

- The same person owns both entities

- One entity shares office space with the other entity

- One entity's business comes exclusively from referrals from another entity

- Both entities share the same employees

The same person owns both entities.

An affiliated business arrangement is an arrangement in which a person or his or her associate is in a position to refer real estate settlement service business for a federally-related mortgage loan and has either an affiliate relationship with, or ownership interest of more than 1% in, a provider of settlement services and refers business to or influences the selection of that provider. As ownership in an affiliated business is part of the definition of an affiliated business relationship, such ownership does not necessarily point to a sham operation.

A lender may not charge for the preparation of any documents required in a federally-regulated mortgage loan transaction, based on provisions of the:

- Truth-in-Lending Act

- Home Ownership and Equity Protection Act

- Real Estate Settlement Procedures Act

- Fair Lending Act

Real Estate Settlement Procedures Act

The Real Estate Settlement Procedures Act provides that no fee can be charged by a lender for the preparation and distribution of documents required in connection with the making of a federally-related mortgage loan. These documents include, but are not limited to, the Closing Disclosure, escrow account statements, or statements required by the Truth-in-Lending Act.

Which of the following is not considered one of the six essential pieces of information constituting an application under RESPA?

- Borrower Social Security Number

- Loan program

- Borrower monthly income

- Loan amount

Loan Program

The six essential pieces of a loan application are:

the borrower's name, Social Security Number and income, the address of the property which will act as collateral for the loan, the estimated value of the property, and the amount of the loan sought.

Which of the following best describes a lender's obligation under the Equal Credit Opportunity Act?

- The lender must deny the loan after 90 days if it has not been approved

- The lender must notify the borrower within three days of declining a loan application

- The lender must notify the borrower within 60 days of receipt of an application on the status of the file

- The lender must take some form of action within 30 days of receipt of a completed application

The lender must take some form of action within 30 days of receipt of a completed application.

Pursuant to Regulation B, a creditor must, within 30 days after receipt of a completed application, advise the loan applicant of action taken, whether it is a decision to grant credit or the denial of the application.

An application is considered received when it includes the consumer's name and Social Security Number, income, the address of the property serving as collateral for the loan, an estimate of the value of the subject property, and the amount of the mortgage loan sought.

A lender is prohibited from asking about income received from alimony by:

- The GLB Act

- Privacy laws

- ECOA

- Regulation Z

ECOA

A loan originator is precluded from making certain inquiries, in order to prevent discrimination against a loan applicant based on his or her age or marital status.

Asking whether an applicant receives alimony or child support if such payments are not necessary to qualify the applicant for the loan is prohibited. However, if such payments are to be included in the applicant's qualifying income, he or she may be asked to provide proof of its regular receipt.

According to ECOA, discrimination based upon age is:

- Allowed if the borrower does not have legal capacity

- Allowed only if disclosed to the borrower

- Never allowed

- Allowed if the individual is the co-borrower rather than the borrower

Never allowed

Under the Equal Credit Opportunity Act, discrimination based on a loan applicant's age is never permitted. Refusing to engage in a transaction with a consumer because he or she does not have legal capacity to engage in a contract (i.e., he or she is a minor) is not discrimination.

Regulation C requires lenders to:

- Report the race of its borrowers to HUD

- Provide free credit reports to declined borrowers and advise credit counseling

- If the borrower declines to self-report, indicate the borrower's race based on visual observation

- Disclose the APR to the borrower three days after application

If the borrower declines to self-report, indicate the borrower's race based on visual observation

Regulation C (HMDA) has the purpose of identifying discrimination by requiring originators to request the race, ethnicity and sex of each applicant.

If a loan applicant does not disclose his or her personal information with regards to ethnicity, race, or sex, HMDA requires a loan originator to note that information in the application based on visual observation or surname.

The stated purpose of the Truth-in-Lending Act is to:

- Protect consumers from unethical mortgage lenders by requiring use of the Good Faith Estimate for all mortgage loans

- Assist consumers in comparing credit to avoid the uninformed use of credit

- Restrict the interest rates charged by lenders

- Prevent discrimination based on protected class distinctions

Assist consumers in comparing credit to avoid the uninformed use of credit.

The Truth-in-Lending Act promotes the informed use of credit and protects borrowers from unethical lenders by requiring the clear and conspicuous disclosure of the terms and conditions of consumer loans offered.

Which of the following is NOT required to be disclosed in an advertisement which contains a trigger term as set forth in the Truth-in-Lending Act?

- The number of payments for the loan

- The amount of principal covered in each payment

- The annual percentage rate

- The amount or percentage of down payment

The amount of principal covered in each payment.

If an advertisement contains a trigger term, the following additional disclosures must be made:

The amount or percentage of the down payment, the payment schedule, including the number, timing, and amount of the payments (principal and interest), and the annual percentage rate.

Which of the following is true if a borrower effectively rescinds on a refinance transaction on their primary residence?

- Borrowers can only rescind on investment properties and second homes

- The borrower is entitled to damages from the lender

- The borrower must reimburse the lender for third-party fees spent

- The borrower is entitled to a refund of their prepaid appraisal fee

The borrower is entitled to a refund of their prepaid appraisal fee.

Within 20 days after a borrower properly rescinds a credit transaction, the creditor must return any money or property received by any person in connection with the transaction and take appropriate steps to show that the mortgage or trust deed is voided and the consumer has no responsibility for the loan or any finance charges associated with it.

A first lien higher-priced mortgage loan (HPML) is defined as a loan with an annual percentage rate which exceeds the average prime offer rate by:

- 1%

- 1.5%

- 8%

- 0.13%

1.5%

A higher-priced mortgage loan is a consumer credit transaction that has an annual percentage rate that exceeds the average prime offer rate for a comparable transaction by 1.5% for a first lien loan or 3.5% for a subordinate lien loan.

A lender mails the Loan Estimate on Monday. Assuming no holidays and the lender is open on Saturdays, what is the earliest day on which the transaction may be consummated?

- Tuesday of the following week

- The following Monday

- Wednesday of the following week

- The following Thursday

Tuesday of the following week

(No less than Seven business days)

A borrower is refinancing an investment property. The borrower originally purchased the home as a primary residence, but the property is now used as an investment property. The borrower's business partner is also a signer on the loan and a title holder. Who must receive the property rescission notice?

- Tenant only

- Both borrowers

- The tenant and primary borrower

- No rescission notice is required

No rescission notice is required.

The right of rescission only applies to a mortgage loan secured by the borrower's primary residence. Since the right of rescission does not apply to the refinance of an investment property, a rescission notice would not be required.

Based on a valid change in circumstance, a creditor must re-issue a Loan Estimate:

- Immediately upon learning of the change

- Within three business days of learning of the change

- Within one business day of learning of the change

- Within five business days of learning of the change

Within three business days of learning of the change.

A revised Loan Estimate may be provided if changed circumstances cause a settlement charge to increase or, in the case of charges subject to the 10% tolerance rule, cause the total of all such charges to increase by more than the permitted 10%.

In general, a revised Loan Estimate must be delivered or placed in the mail no later than three business days after receiving the information sufficient to allow the issuance of a revised Loan Estimate and no less than four business days before consummation.

Which line of the Loan Estimate would reflect any lender credits?

- Funds for Borrower

- Closing Costs Financed

- Adjustments and Other Credits

- Total Closing Costs

Total Closing Costs.

The Total Closing Costs section totals the Loan Costs and Other Costs tables, plus the amount of any lender credits, on the Loan Estimate.

A borrower submits all six pieces of information to a lender which constitute a loan application. However, the borrower refuses to tell the lender which loan program he prefers. Which of the following is true regarding the lender's obligation to issue a Loan Estimate?

- The lender is not required to issue the Loan Estimate

- The lender is required to issue the Loan Estimate without disclosing a loan program

- The lender is not allowed to issue a Loan Estimate

- The lender is required to issue a Loan Estimate and may guess regarding the loan program

The lender is required to issue a Loan Estimate and may guess regarding the loan program.

Upon receipt of a completed loan application, a lender must, within three business days of receipt, issue a Loan Estimate to the applicant. The Loan Estimate must provide a good faith estimate of the costs of the credit and the terms of the transaction based on the best information available at the time the disclosure is made.

If the Closing Disclosure is mailed, when is it deemed received by the borrower?

- Six business days after mailing

- Seven business days after mailing

- Three business days after mailing

- Only upon actual receipt by the borrower

Three business days after mailing

A Closing Disclosure is deemed received by the loan applicant three business days after it has been placed in the mail or sent for delivery. It may also be completed and delivered electronically if done in compliance with the Electronic Signatures in Global and National Commerce Act (E-Sign Act).

At what point during a transaction may a consumer withdraw their consent to receive disclosures electronically?

- After the initial consent but before actual delivery of the documents

- After the initial consent but before e-signatures are placed on documents

- A consumer may not withdraw consent once it has been given

- Any time during the transaction

Any time during the transaction.

Pursuant to the E-Sign Act, a borrower may withdraw consent to receive documents electronically at any time during the course of the transaction. If a consumer later withdraws consent to electronic delivery, the validity or enforceability of an existing contract made prior to the withdrawal of consent may not be affected.

Including misrepresentations regarding the amount of credit available to a borrower in an advertisement is specifically prohibited by:

- RESPA

- The HMDA Rule

- The MAP Rule

- ECOA

MAP Rule.

Pursuant to the Mortgage Acts and Practices Rule (MAP Rule) and Regulation N, it is prohibited for a licensee to make a misrepresentation in an advertisement with regards to the amount of credit available to a borrower.

Under the Financial Privacy Rule of the Gramm-Leach-Bliley Act, a customer of Big Box Bank is entitled to a privacy notice:

- At the time he or she obtains a financial product from the bank and annually thereafter

- At any time the bank provides non-public personal information to a non-affiliated third party

- Every six months

- Annually

At the time he or she obtains a financial product from the bank​ and annually thereafter.

A consumer is an individual who obtains or has obtained a financial product or service from a financial institution for personal, family, or household reasons.

A consumer who has a continuing relationship with the institution is considered to be a customer; a customer is entitled to a privacy notice at the time a financial product is obtained and automatically every year for as long as the relationship lasts.

The MAP Rule addresses:

- Specific requirements regarding representations made in mortgage advertising

- Specific disclosure requirements for closing costs

- Specific requirements regarding e-signatures

- Specific requirements regarding disclosure of the APR

Specific requirements regarding representations made in mortgage advertising.

The Mortgage Acts and Practices Rule (MAP Rule or Regulation N) sets forth advertising regulations under which it is prohibited for any person to make a material misrepresentation in any commercial communication regarding any term of any mortgage credit product.

Which of the following best describes the Homeowners Protection Act?

- Regulates higher-priced mortgage loans

- Sets forth Section 32 loan rules

- Establishes PMI requirements

- Implements the Home Ownership and Equity Protection Act

Establishes PMI requirements.

The provisions of the Homeowners Protection Act regulate when and how a homeowner may cancel and/or terminate private mortgage insurance.

HMDA can best be described as:

- A reporting law meant to discover discrimination by lenders

- Homeowners Mortgage Delinquency Act

- A section of RESPA which limits the amount of money that can be held in a borrower's escrow account

- A federal statute which states that borrowers have a right to a free copy of their credit report every 12 months

A reporting law meant to discover discrimination by lenders.

The Home Mortgage Disclosure Act (HMDA) was enacted because of credit shortages in certain urban neighborhoods and the failure of certain financial institutions to provide adequate home financing to qualified applicants on reasonable terms.

Its provisions allow for the determination of discriminatory lending patterns and to assist in enforcing fair lending laws.

Which of the following is required to be reported under the BSA?

- Currency transactions exceeding $10,000

- All mortgage loans exceeding $100,000

- All currency transactions

- Currency transactions less than $5,000

Currency transactions exceeding $10,000.

The Bank Secrecy Act requires a financial institution to report to the Financial Crimes Enforcement Network (FinCEN) single or structured currency transactions that exceed $10,000.

Such a report must be made on a Currency Transaction Report and filed within 15 days following the day on which the reportable transaction occurred.

Which of the following would not need to be contained in a privacy notice?

- Categories of information collected

- Categories of affiliates with whom information is shared

- Names of affiliates with whom information is shared

- Categories of information disclosed

Names of affiliates with whom information is shared.

A privacy notice must clearly, conspicuously, and accurately state the company's privacy practices, including what information the company collects and discloses about its consumers and customers, the types of entities with which it shares the information, and how it protects or safeguards the information.

The Disposal Rule, a part of the Fair and Accurate Credit Transactions Act, is intended to prevent:

- Abuse of covered loans

- Predatory use of prepayment penalties

- Abuse of mandatory arbitration clauses

- Acts of fraud such as identity theft

Acts of fraud such as identity theft.

Under the Rule, businesses are required to take reasonable and appropriate measures to dispose of sensitive information derived from consumer reports and records to protect against "unauthorized access to or use of the information."

Which of the following is most likely to issue a rule regarding TILA enforcement?

- State regulator

- CFPB

- HUD

- Congress

CFPB.

The Consumer Financial Protection Bureau, created under the Dodd-Frank Act, is authorized to carry out the enforcement and rulemaking authority of the Truth-in-Lending Act and the Real Estate Settlement Procedures Act.

Which of the following is true regarding a borrower's ability to qualify for FHA financing if their credit score is 560?

- they are not eligible for FHA financing

- they are eligible for FHA financing up to 85% LTV

- they are eligible for FHA financing up to 96.5% LTV

- they are eligible for FHA financing up to 90% LTV

They are eligible for FHA financing up to 90% LTV.

An applicant with a credit score of at least 580 can qualify for the maximum FHA financing - that being a cash investment of 3.5%. An applicant with a credit score between 500 and 579 can qualify for a cash investment of 10%. A person with a score below 500 is not eligible for an FHA-insured loan.

Which of the following contains only terms which apply to VA loans?

- Guarantee fee, veterans, eligibility

- Residual income, funding fee, insuring

- Upfront mortgage insurance premium, 100% financing, base loan amount

- Residual income, guarantee, certificate of reasonable value

Residual income, guarantee, certificate of reasonable value.

One method of qualifying for a VA loan is through the residual income method. Under that method, a determination is made as to whether the veteran has enough income, after paying fixed debts, to cover daily living expenses. In this manner, a veteran borrower can be qualified if the debt-to-income ratio exceeds the general 41% limit.

A VA loan is guaranteed by the Department of Veterans Affairs. A veteran cannot borrow more than the value shown on the VA appraisal, called a Certificate of Reasonable Value (CRV); however, he or she may buy the property for a higher purchase price if he or she pays the difference in cash.

If a borrower's debt-to-income ratio is more than 43%:

- The loan is a subprime loan

- The loan is not eligible for sale on the secondary mortgage market

- The loan may not be considered a qualified mortgage

- Mortgage insurance will be required

The loan may not be considered a qualified mortgage.

A qualified mortgage is a covered transaction that provides for substantially-equal, regular periodic payments that do not provide for negative amortization, allow the borrower to defer repayment of principal, or result in a balloon payment.

The loan may not have a term that exceeds 30 years or provide for points and fees that exceed 3% of the total loan amount. The borrower may not have a monthly debt-to-income ratio that exceeds 43%.

What is the maximum prepayment penalty which may be charged in the first year of the loan if the loan is considered a qualified mortgage?

- Zero

- 2% of the outstanding balance

- 3% of the outstanding balance

- 1% of the outstanding balance

2% of the outstanding balance.

If a qualified mortgage provides for a prepayment penalty, the penalty may not apply after the three-year period following consummation and must not exceed statutory percentages of the amount of the outstanding loan balance prepaid.

If the loan is prepaid in the first two years, the prepayment penalty may not exceed 2% of the amount prepaid.

In order for a loan to be considered a qualified mortgage, which of the following is true?

- The loan may not include a prepayment penalty

- The loan may include a prepayment penalty for up to the first three years

- The loan may include a prepayment penalty for up to the first five years

- The loan may include a prepayment penalty for up to the first four years

The loan may include a prepayment penalty for up to the first three years.

Under the ATR/QM Rule, a qualified mortgage may not include a prepayment penalty unless it is permitted by law, the transaction has an annual percentage rate that may not increase after consummation, it is not a higher-priced mortgage, and the prepayment penalty does not exceed 2% of the outstanding loan balance prepaid if prepaid during the first two years following consummation or 1% of the outstanding loan balance prepaid if prepaid during the third year following consummation.

When would a lender be required to cancel private mortgage insurance?

- Once the borrower has made 24 payments and a new appraisal shows the equity at 80%

- Once the LTV reaches 78%, based on a new appraisal

- After five years

- Once the LTV reaches 78%, based on the lower of the original appraisal or purchase price

Once the LTV reaches 78%, based on the lower of the original appraisal or purchase price.

A lender is required to cancel private mortgage insurance once the borrower pays their mortgage down to 78% of the original value or when the loan reaches the midpoint of its amortization period (e.g., after 180 payments of a 30-year loan).

According to the Interagency Guidance on Nontraditional Mortgage Product Risks, a borrower's repayment ability:

- Should be based on the initial payment terms of the loan

- Should be based on a fully-amortizing repayment schedule

- Is irrelevant if there is sufficient equity

- Is irrelevant if the borrower has sufficient assets

Should be based on a fully-amortizing repayment schedule.

With implementation of the Ability to Repay Rule (ATR), that recommendation is expanded. The Rule states that a creditor must make a good faith determination of the borrower's ability to repay the loan based on an equal periodic payment that fully amortizes the loan over its term and that the payment amount be calculated based on the fully-indexed rate of the loan.

According to the Statement on Subprime Mortgage Lending, which of the following would not be a characteristic of a subprime borrower?

- A foreclosure in the past 24 months

- A credit score of 645

- Bankruptcy within the last three years

- Two 60-day delinquencies in the last year

A credit score of 645.

According to the Statement on Subprime Mortgage Lending, a subprime borrower may have one or more of the following characteristics: a bankruptcy in the last five years, a foreclosure in the last 24 months, or one or more 60-day delinquencies in the last 24 months, among other indicators.

The Interagency Guidance on Nontraditional Mortgage Products applies to:

- Any adjustable-rate mortgage

- Any mortgage with a prepayment penalty

- Any mortgage that requires a determination of ability to repay

- Any mortgage which allows the deferment of principal or interest

Any mortgage which allows the deferment of principal or interest.

Under the Guidance, the term "nontraditional mortgage product" refers to a closed-end residential mortgage loan product that allows a borrower to defer payment of principal and sometimes interest.

Which of the following transactions would carry monthly mortgage insurance?

- VA 100% LTV, 30-year fixed

- Conventional 80% first, 15% second; combined LTV of 95%

- Conventional 30-year fixed, 72% LTV

- FHA 30-year fixed, 20% down

FHA 30-year fixed, 20% down.

For all FHA insured mortgages involving an original principal obligation less than or equal to 90% LTV, regardless of amortization terms, an annual mortgage insurance premium will be assessed until the end of the mortgage term or for the first 11 years of the mortgage term, whichever occurs first.

Which of the following refers to the amount that the government will guarantee to repay a lender of a VA loan in the case of borrower default?

- Guarantee amount

- Entitlement

- Insured amount

- Funding fee limit

Entitlement.

The amount that the government will guarantee to a lender is known as a veteran's entitlement. In general, the government will guarantee to the lender the lesser of 25% of the loan balance or 25% of the Freddie Mac limit.

Loan limits for products like conforming loans and FHA loans vary based on:

- State

- County

- Municipality

- Acreage

County.

Loan products, such as conforming loans, jumbo loans, FHA loans, and some VA loans are based on county loan limits. Low-cost areas and high-cost areas have different limits, and available loan amounts for these programs will vary accordingly.

Which of the following is NOT a required characteristic of a qualified mortgage (QM)?

- Debt-to-income may not exceed 43%

- Qualifying points and fees charged may not exceed 3% of the loan amount

- The borrower must make a down payment

- Loan must be fully amortizing

The borrower must make a down payment.

A qualified mortgage (QM) is a covered transaction that provides for substantially-equal, regular periodic payments that do not result negative amortization or a balloon payment or allow the borrower to defer the repayment and for which the lender determines repayment ability based on statutory guidelines. A QM may not have a term that exceeds 30 years or provide for points and fees that exceed 3% of the total loan amount, and the borrower may not have a monthly debt-to-income ratio that exceeds 43%.

All of the following could be used to correctly describe Fannie Mae, except:

- Government owned

- Government sponsored

- Private sector

- Government regulated

Government owned.

Fannie Mae is a government-sponsored enterprise, regulated by but not owned by the federal government. It engages in secondary mortgage market transactions, purchasing conforming conventional loans, FHA-insured loans, VA-guaranteed loans, and US Department of Agriculture-guaranteed loans.

A homeowner has an FHA mortgage that is assumable. The homeowner would like to sell his home and carry the contract - in other words, offer seller financing. The homeowner's current FHA loan would not be paid off. Which of the following is most true?

- The homeowner can legally allow the buyer to assume the existing loan, provided that the buyer is qualified

- The homeowner is violating the assumability clause in their loan and risks having the loan called due and payable

- The homeowner is violating the due-on-sale clause and risks having the loan called due and payable

- Because the loan is FHA-insured and is assumable, the homeowner can offer seller financing without paying off their current loan and without violating the terms of their note and trust deed

The homeowner can legally allow the buyer to assume the existing loan, provided that the buyer is qualified.

FHA loans are assumable, meaning that if a borrower sells the home, the homebuyer could potentially assume - i.e., take over - the existing FHA loan.

Which of the following is true of the repayment of a construction loan?

- Principal is repaid when all the work is completed

- Interest is paid upfront, when the funds are released

- Principal and interest are paid in installments until the work is completed

- Principal is repaid in installments until the work is completed

Principal is repaid when all the work is completed.

Repayment of the principal of a construction loan is required at the time work is concluded. Interest is charged on funds as they are released and repaid in interest-only installments while work is ongoing.

A loan that allows the borrower to receive monthly payments rather than make monthly payments is:

- Most likely fraudulent

- A reverse mortgage

- A payment option ARM

- A hybrid ARM

A Reverse Mortgage.

A home equity conversion mortgage (HECM), or reverse mortgage, is a loan that enables an individual aged 62 or older to convert some of the equity in his or her primary residence to cash. The loan has no specified term, prepayment penalties, or credit or income qualifications, as it requires no repayment until either the property is sold or the owner dies, permanently moves, fails to live in the house for 12 consecutive months, or fails to pay property taxes, maintain hazard and/or flood insurance coverage, or fails to maintain the property (i.e., perform necessary repairs).

Which of the following is NOT a characteristic of a nontraditional mortgage loan product?

- A 30-year fixed rate

- A provision allowing negative amortization

- Use of the LIBOR Index

- Interest-only payments

A 30-year fixed rate.

Pursuant to the S.A.F.E. Act, a nontraditional mortgage loan is any loan transaction that is not a 30-year fixed-rate mortgage loan. Negative amortization, provision for prepayment penalties, and interest-only payments are all examples of nontraditional loan terms.

The lender controls which of the following parameters of an ARM?

- Margin

- Index

- Fully-indexed rate

- Note rate

Margin.

The interest rate for an adjustable-rate mortgage loan is comprised of the lender's margin, which remains the same throughout the term of the loan, and the index. The margin is set and controlled by the lender.

A home equity line of credit is a form of:

- Open-end financing

- Closed-end financing

- Subprime financing

- Conforming

Open-end financing.

A home equity line of credit allows a borrower to borrow over and over, as he or she would using a credit card, while the home equity loan is a one-time loan of a fixed amount.

Which of the following affects the index rate in an adjustable-rate mortgage?

- Market conditions

- Lender's decision

- Borrower's payment history

- Margin

Market conditions.

While the margin remains the same throughout the term of an adjustable-rate mortgage, the index may change. Such changes are based on interest rates and market conditions nationally and internationally.

At the same time that he obtains his first mortgage loan, a homebuyer obtains a second closed-end mortgage loan in order to cover part of his down payment. This second loan is:

- A primary mortgage loan

- A subprime loan

- A simultaneous loan

- A home equity line of credit

A simultaneous loan.

A second loan obtained to cover some or all of a loan applicant's down payment is a simultaneous loan. Under the Ability to Repay Rule, a lender must make a good faith determination that the applicant will be able to repay both the first and second mortgage loans according to their terms.

A loan which requires payments consisting of enough principal and interest to completely pay the loan off at the end of the loan term is a(n):

- Fully-amortizing mortgage

- Balloon mortgage

- HECM

- Negatively-amortizing mortgage

Fully-amortizing mortgage.

A fully-amortizing, or self-liquidating, mortgage provides for periodic payments that repay the loan in its entirety by the end of the mortgage term.

A ten-year adjustable-rate mortgage has rate caps of 3/2/10 with an initial interest rate of 6% (2% margin + 4% index). Which of the following is true?

- The lifetime cap of the loan is 5%

- The interest rate cannot increase by more than 3% in any one adjustment period

- At the first rate adjustment, the interest rate will increase to 7.5%

- Over the term of the loan, the interest rate may not rise higher than 16%

Over the term of the loan, the interest rate may not rise higher than 16%.

The interest rate on a ten-year ARM with rate caps of 3/2/10 and an initial rate of 6% has a lifetime rate cap of 10%, meaning that the highest rate the loan can reach over its term is 16%. In this example, the initial cap is 3%; in other words, the rate may not increase at its first adjustment by more than 3% over the initial 6%. Subsequent to the first adjustment, the rate may not increase by more than 2% in any one adjustment period.

A loan which has a fixed interest rate for seven years, is amortized over 30 years, but becomes due and payable at the end of seven years can best be described as which of the following?

- A hybrid ARM

- A graduated payment mortgage

- A balloon mortgage

- An adjustable-rate mortgage

A balloon mortgage.

A partially-amortized or "balloon" mortgage provides for partial (not total) amortization during the mortgage term. It has payments that are equal and regular in nature. However, the loan term is shorter than the time needed to repay the full loan balance by making those payments, and at the conclusion of the loan term, a balance remains outstanding.

A HECM is repaid:

- Monthly, with interest-only payments

- Monthly, with fully-amortizing payments

- Monthly, with negatively-amortizing payments and a balloon payment

- Upon the borrower's death or sale of the property

Upon the borrower's death or sale of the property.

A home equity conversion mortgage (HECM), or reverse mortgage, is a loan that enables an individual aged 62 or older to convert some of the equity in his or her primary residence to cash. The loan has no specified term, prepayment penalties, or credit or income qualifications, as it requires no repayment until either the property is sold or the owner dies, permanently moves, fails to live in the house for 12 consecutive months, or fails to pay property taxes, maintain hazard and/or flood insurance coverage, or maintain the property (i.e., perform necessary repairs).

A borrower has a fixed-rate mortgage with an escrow account for taxes and insurance. Which of the following could cause a change in the borrower's payment?

- Change in property taxes

- Borrower default

- Late payment by borrower

- Change in prime

Change in property taxes.

With a fixed-rate mortgage loan, a borrower's payment amount remains the same throughout the term of the loan. However, if the property taxes and/or hazard insurance are paid by way of an escrow account into which a portion of the borrower's payment is deposited, and either of those items increases or decreases, the borrower's payment amount will change.

An adjustable-rate mortgage has an initial rate of 5%; the margin is 2.5%. It has a periodic rate cap of 2% and a lifetime cap of 8%. At the first rate adjustment, the index increases to 3.25%. What is the new interest rate at adjustment?

- 7.5%

- 5.75%

- 8.25%

- 7.0%

5.75%

The ARM in the example has an initial rate of 5%. At the first rate adjustment, the index increases to 3.25%. The rate adjustment would be calculated by adding together the current index (3.25%) and margin (2.5%). This new rate is 5.75% (2.5% + 3.25% = 5.75%). The periodic rate cap does not apply, because the increase in the index does not result in the interest rate increasing by more than 2%.

With respect to an adjustable-rate mortgage, which of the following is set by the lender at closing and does not vary throughout the term of the loan?

- Index

- Fully-indexed rate

- Balloon period

- Margin

Margin.

The interest rate on an adjustable-rate mortgage loan is the sum of the index rate and the lender's margin. The margin, expressed as a percentage, is set by the lender and represents its costs and profit. While the index rate may change during the course of the loan, the margin remains the same.

An adjustable-rate mortgage has a one-year introductory rate of 2.5%, after which the rate increases to the nominal rate of 4% (2% margin, 2% index) with annual rate adjustments. The loan provides for a 2.5% periodic interest rate cap. In year three, the index is 5%. What will the interest rate be in year three?

- 7%

- 6.5%

- 4.5%

- 5%

6.5%.

In year two, the rate adjusts from the low introductory 2.5% to 4%. A periodic cap of 2.5% will limit any further rate adjustments. In year three, the fully-indexed rate is calculated by adding together the index and margin (2% + 5% = 7%). However, this exceeds the amount permissible by the cap. Thus, the rate is limited to 6.5%.

Which of the following best describes amortization?

- Paying insufficient principal and interest monthly to pay off the loan at the end of the loan term

- Failing to pay the interest due each month on a loan

- Paying only the interest due on a loan each month

- Paying enough principal and interest monthly to pay off the loan by the end of the loan term

Paying enough principal and interest monthly to pay off the loan by the end of the loan term.

Amortization is the process of paying off a loan, both principal and interest, by gradually reducing the balance through a series of installment payments. A fully-amortizing mortgage provides for periodic payments that repay the loan in its entirety by the end of the mortgage term.

The term "amortize" refers to which of the following?

- How often an interest rate may adjust

- The spreading of principal and interest payments over a certain period of time

- Factoring closing costs into the effective interest rate

- Factoring in a prepayment penalty into the effective interest rate

The spreading of principal and interest payments over a certain period of time.

Amortization is the process of paying off a loan, both principal and interest, by gradually reducing the balance through a series of installment payments. A fully-amortizing mortgage provides for periodic payments that repay the loan in its entirety by the end of the mortgage term.

In a residential mortgage loan transaction, where is any yield spread premium disclosed?

- In the Loan Estimate only

- In both the Loan Estimate and the Closing Disclosure

- In the Closing Disclosure only

- In any promissory note

In both the Loan Estimate and the Closing Disclosure.

Yield spread premiums (YSPs) are points credited for an interest rate above the par rate. No-closing cost loans result from applying the YSP to pay the borrower's closing costs so that they need not be paid up front. Any YSP paid must be disclosed on both the Loan Estimate and the Closing Disclosure as a lender credit. A creditor may also include any excess charge by it as a lender credit.

The acronym COFI can best be described as:

- A popular fixed-rate, low-interest mortgage product

- A popular index used for adjustable-rate mortgages

- A popular margin used for adjustable-rate mortgages

- A popular start rate used for adjustable-rate mortgages

A popular index used for adjustable-rate mortgages.

"COFI" stands for "Cost of Funds Index," a popular index used when setting the interest rate on some adjustable-rate mortgages.

Aggregate escrow analysis can best be described as:

- The statistical method used by the federal government to analyze data received under HMDA to determine whether or not certain lenders are illegally discriminating

- An appraisal method which uses comparable sales from similar properties; differences in the properties are accounted for through separate adjustments, which are then aggregated to determine a value

- An analysis required by the FCRA which requires credit reporting agencies to verify the accuracy of credit scores

- A formula which is used to determine whether or not servicers are holding too much money in a borrower's escrow or reserve accounts

A formula which is used to determine whether or not servicers are holding too much money in a borrower's escrow or reserve accounts.

An aggregate escrow analysis is an accounting method used to compute the adequacy of escrow account funds held by a lender for the payment of mortgage-related expenses on behalf of the borrower.

The term "escrow analysis" refers to:

- The calculation used to determine how much can be held in an escrow account

- The calculation used to determine whether or not a mortgage qualifies as a high-cost loan under section 32

- The process used to reconcile differences in comparables on an appraisal

- The process used to determine whether or not a Loan Estimate is within tolerance levels

The calculation used to determine how much can be held in an escrow account.

An escrow analysis is the accounting method used to determine the adequacy of the funds held in an escrow account. The loan servicer must use an aggregate escrow analysis accounting method in making that determination.

A mortgage lender closes a mortgage in their own name, funding the loan through a warehouse line. The lender does not act as a servicer, but sells the servicing rights along with the mortgage asset. When the lender sells the servicing rights in the secondary market, they receive compensation from the purchasing entity. Which of the following terms best describes this compensation?

- Yield spread premium (YSP)

- Back-end pricing

- Service release premium (SRP)

- Premium pricing

Service release premium (SRP).

If the loan is sold on the secondary market, the purchaser will likely pay a premium (or take a discount) for the spread between the interest rate in the loan and the par interest rate. It is based on the loan size and note interest rate. If a loan closed at 5.5% and the par rate to purchasers was 5.25%, the purchaser may have to pay one point to cover the 0.25% difference in the rates. This premium or discount is not disclosed in the Closing Disclosure and therefore does not affect the borrower, because the sale of the loan in the secondary market occurs after closing. A lender selling the loan and servicing rights may also receive a premium based on the purchaser's value of the opportunity to collect payments, hold escrow, and otherwise realize servicing income. This is called the service release premium.

Service release premiums (SRP) compensate:

- A borrower for obtaining a loan

- A lender for the transfer of servicing rights

- A broker for closing a loan above par

- A title company for issuing title insurance

A lender for the transfer of servicing rights.

The service release premium (SRP) compensates the lender for the transfer of servicing rights to the entity purchasing the loan paper. A lender selling the whole loan and servicing rights may receive an SRP based on the purchaser's value of the opportunity to collect payments, hold escrow ,and otherwise realize servicing income.

Yield spread premiums (YSP) compensate:

- A borrower for obtaining a loan

- A lender for the transfer of servicing rights

- A title company for issuing title insurance

- A borrower for closing a loan above par

A borrower for closing a loan above par.

The yield spread premium compensates a borrower for closing a loan at an interest rate above the par rate. The par rate is the interest rate that would be charged without any yield spread premiums to increase it or discount points to decrease it. Yield spread premiums are now more commonly called "borrower credits."

If a conventional loan goes into default, is foreclosed upon, and causes the lender to lose money, which of the following would possibly reimburse the lender for the loss?

- Mortgage insurance company

- FHA

- Fannie Mae

- Hazard insurance company

Mortgage insurance company.

If a conventional loan goes into default and is foreclosed upon and the loan was covered by mortgage insurance, that insurance would reimburse the lender for some or all of its loss.

Prepaid finance charges are defined as which of the following?

- Closing costs paid by the borrower at closing

- Finance charges that are paid separately before, at the time of consummation, or withheld from the loan proceeds

- Finance charges which are paid to third parties as part of a residential mortgage transaction at the time of closing

- Finance charges which are paid outside of closing and are not included on the settlement statement or in APR calculations

Finance charges that are paid separately before, at the time of consummation, or withheld from the loan proceeds.

A prepaid finance charge is any finance charge paid separately before or at consummation of a transaction or withheld from the proceeds of the loan at any time. They are direct loan charges paid by the borrower and must be included in the calculation of the annual percentage rate.

The term "subordination" refers to:

- The process of releasing a lien

- The process of recording a lien

- The process of one lienholder accepting inferior lien priority in favor of another

- The process of researching a lien

The process of one lienholder accepting inferior lien priority in favor of another.

In general, a second mortgage provides for a subordination clause, specifying that it has lower priority (i.e., is subordinate) than the first lien.

Which of the following lists contains terms which are all included in APR calculations?

- Origination fee, appraisal fee, flood certification fee, and processing fee

- Origination fee, per-diem interest, tax service fee, and discount points

- Buydown fee, credit report fee, UFMIP, and closing fee

- Title insurance fee, processing fee, warehouse fee, and lender courier fee

Origination fee, per-diem interest, tax service fee, and discount points.

Each of the following is included in the calculation of the annual percentage rate: the origination fee, per-diem interest, tax service fee, and discount points. Other items which may be included in the calculation of the APR include mortgage broker fees, credit insurance premiums (in certain cases), and fees charged by a third-party settlement service provider if the lender requires the particular services or keeps a portion of the charge.

Which of the following incorporates closing costs associated with the loan into the interest rate for comparison and disclosure purposes?

- Good Faith Estimate

- Regulation X

- APR

- RESPA

APR

The annual percentage rate (APR) is the relationship of the total finance charge to the total amount financed, stated as a yearly rate. It includes all finance charges, not just interest, and thus is a good measure for the true cost of a specific mortgage loan product.

Which of the following statements most accurately describes Freddie Mac?

- A government agency which was created to facilitate home ownership through the offering of conventional loan programs for middle-income families

- A privately-held corporation with no government affiliation which lends money for conventional mortgages

- A publicly-traded private entity which is government sponsored and was created in order to facilitate home ownership

- A government agency which was created in order to facilitate home ownership, especially for lower-income families, through the offering of FHA and other government programs

A publicly-traded private entity which is government sponsored and was created in order to facilitate home ownership.

Freddie Mac and Fannie Mae are government-sponsored enterprises which engage in business on the secondary mortgage market, buying conforming conventional loans, FHA-insured loans, and VA- and USDA-guaranteed loans. Their purchase of such loans provides income to lenders, reducing the need for lenders to hold substantial funds for mortgage loans.

Finance charges which are paid separately before or at the time of closing are considered to be:

- Prepaid finance charges

- P.O.C. charges

- Third-party fees

- Periodic interest charges

Prepaid finance charges.

A prepaid finance charge is any finance charge paid separately, in cash or by check, before or at consummation of the transaction or withheld from the proceeds of the loan at any time. It is a direct loan charge paid by the borrower and is included in the calculation of the annual percentage rate.

A standard owner's title policy would cover all of the following, except:

- Boundary disputes

- Unfiled mechanic's liens

- Previous owner's mortgage

- Previous owner's judgment lien

Unfiled mechanic's liens.

It would not generally cover unfiled mechanic's liens; this is typically negotiated into the policy or added in an enhanced policy, rather than a standard one

Subordinate financing relates to:

- Seller financing

- Second mortgages

- Financing in the secondary mortgage market

- Subprime loans

Second mortgages.

Subordinate financing relates to the making of a loan that is secondary to one or more other loans on the property.

A mortgage is a second mortgage when it is recorded after another mortgage that is still outstanding on the same property, or it has a subordination clause specifying that it has lower priority or will remain subordinate in the event that the first mortgage is refinanced.

Which of the following transactions would involve monthly mortgage insurance?

- VA 100% mortgage

- Conventional 80/15/5

- Conventional loan with 20% down

- FHA 30-year mortgage with 25% down

FHA 30-year mortgage with 25% down.

All FHA forward mortgages must carry mortgage insurance until the end of the loan's term or for the first 11 years of the loan, whichever occurs first.

If a consumer pays more at consummation than what was disclosed in the Loan Estimate and the amounts exceed the tolerances allowed by law, the creditor must:

- Refund the excess within 60 calendar days of consummation

- Provide an additional disclosure acknowledging this fact

- Waive all application fees

- Refund the excess within five business days of providing the Closing Disclosure

Refund the excess within 60 calendar days of consummation.

For those charges subject to zero tolerance, the full amount in excess of the amount disclosed must be refunded. For charges subject to the 10% tolerance, to the extent the total sum of the charges added together exceeds the sum of all such charges disclosed on the Loan Estimate by more than 10%, the difference must be refunded to the consumer.

Where could a borrower look to determine whether or not their conventional loan, which is not a high-cost loan, contains a prepayment penalty?

- The CHARM Booklet

- The deed of trust

- The assurances of their mortgage loan originator

- The Loan Estimate

The Loan Estimate.

Whether or not a mortgage loan has a prepayment penalty can be found on the Loan Estimate in the Loan Terms section.

Which of the following lists contains a piece of information which will usually not be found on the 1003?

- Mortgage type, borrower's housing expenses, purchase price

- Borrower's name, borrower's Social Security Number, underwriter's name

- Subject property address, PMI, closing costs paid by the seller

- Borrower's income, interest rate, loan term

Borrower's name, borrower's Social Security Number, underwriter's name.

The underwriter's name is not included in the 1003.

In a loan transaction involving a mortgage broker:

- The Loan Estimate must be provided by the lender

- The lender is responsible for ascertaining whether the Loan Estimate has been provided

- The Loan Estimate must be provided by the mortgage broker

- The mortgage broker is responsible for ascertaining whether the Loan Estimate has been provided

The lender is responsible for ascertaining whether the Loan Estimate has been provided.

A loan applicant must be provided with a Loan Estimate no more than three days after submission of an application. If there is a mortgage broker involved in the transaction, the Loan Estimate may be provided by the broker. However, ultimate responsibility for ensuring that the applicant is provided with the required disclosure falls to the lender.

In terms of loan underwriting, which of the following is true concerning self-employment income?

- A self-employed loan applicant must provide proof of having liquid funds to cover at least six months' worth of mortgage payments

- The self-employed applicant must provide proof that he or she has received income sufficient to qualify for the loan on a consistent basis for at least five years

- Self-employment income may be averaged over the two-year period prior to loan application

- While untaxed commission income may be grossed up by 25%, income received as a result of self-employment may not

Self-employment income may be averaged over the two-year period prior to loan application.

Overtime, bonuses, commissions, and other income may be used in qualifying for a mortgage loan if such income is received on a consistent basis and can be verified. Self-employed or commissioned income is averaged over a two-year period.

Income received from self-employment may be verified with the submission of applicable tax returns (e.g., for a sole proprietorship, a profit-and-loss statement attached to the applicant's 1040; for income derived from a partnership, a Partnership Return of Income [IRS form 1065] attached to the applicant's 1040).

The Loan Estimate may be conveyed to a consumer:

- By telephone

- By text message

- In any of these forms

- By mail

By mail.

The Loan Estimate must be provided to a loan applicant no more than three business days after submission of an application. Provision of this disclosure may be made by personal delivery, overnight delivery, or through the U.S. Mai

The Uniform Residential Loan Application is also known as the:

- 1008

- 1003

- 4506

- 2106

1003

The Uniform Residential Loan Application (URLA) is also known as the 1003. It is the loan application used when a loan will be sold to Freddie Mac or Fannie Mae, insured by the FHA, or guaranteed by the Veterans Administration.

Assume a borrower was allowed to shop for title insurance and chose a provider listed on the creditor's preferred provider list. Which of the following best describes the applicable tolerance?

- No tolerance requirement

- Zero tolerance

- 10% tolerance

- Tolerance depends on certain factors

10% tolerance

Fees related to third-party service providers and recording fees are grouped together and subject to a 10% tolerance. Charges subject to the 10% tolerance limitation are recording fees and charges for third-party provider services if the charge is not paid to the creditor or its affiliate and the consumer is permitted to shop for a service provider and chooses a provider from the creditor's written list.

The section of the Uniform Residential Loan Application titled; "Information for Government Monitoring Purposes":

- Must note the applicant's sex, race, and ethnicity based on the lender's visual observation or the applicant's surname if the applicant refuses to provide the information

- Is included to aid the federal government in monitoring compliance with the Fair Lending Act

- Is mandatory, to ensure compliance with federal laws

- Must be completed only if the applicant is in a protected class

Must note the applicant's sex, race, and ethnicity, based on the lender's visual observation or the applicant's surname if the applicant refuses to provide the information.

Completion of Section X of the 1003, "Information for Government Monitoring Purposes," is required to aid the federal government in monitoring compliance with fair lending laws (the Fair Lending Act is not a federal fair lending law). If the applicant does not choose to provide the required information, the loan originator must note the applicant's sex, race, and ethnicity based on the loan originator's visual observation and/or the applicant's surname.

Which of the following best describes the tolerance applicable to the escrow account?

- Tolerance depends on certain factors

- Zero tolerance

- No tolerance requirement

- 10% tolerance

No tolerance requirement.

There is no tolerance requirement for an escrow account. In other words, the creditor may charge more than it discloses in the Loan Estimate as long as the original estimate was based on the best available information at the time. Other charges that do not have a tolerance limitation include prepaid interest and property insurance premiums.

In the Loan Estimate, fees related to recording and to third-party service providers the borrower can shop for are grouped together and subject to:

- No tolerance limitation

- 10% tolerance

- 15% tolerance

- Zero tolerance

10% tolerance.

Quotes of recording fees and third-party service provider fees (when the borrower can shop for their own providers) made on the Loan Estimate are subject to the 10% tolerance limitation.

Which of the following would be an acceptable down payment on an FHA-insured loan for a newly-constructed single-family residence?

- A grant from a nonprofit organization

- A seller contribution of 5% of the selling price

- A "bonus" from the mortgage broker associated with the project

- The builder's credit

A grant from a nonprofit organization.

Some or all of a down payment on an FHA-insured loan may come from a gift from an immediate relative, a labor union or employer, a government agency or public entity, or a nonprofit charitable organization. A gift donor, or the source of the funds, may not come from a person or entity with an interest in the sale of the property; in other words, it may not come from the seller or builder or mortgage licensee as each would have an interest in the consummation of the deal.

If a lender wished to request copies of tax forms directly from the IRS, they would use IRS form number:

- 4506

- 1040

- 2106

- 2200

4506

IRS Form 4506 would be the form used by a lender to secure a copy of a borrower's tax return.

Which of the following does not need to be mailed to the borrower within three days of the loan application for a purchase transaction?

- Loan Estimate

- Right of Rescission Notice

- Mortgage Servicing Disclosure

- Your Home Loan Toolkit: A Step-by-Step Guide

Right of Rescission Notice.

The Right of Rescission Notice must be provided to each borrower who signs on the loan at the time of loan closing.

Which of the following would not be an acceptable source for a down payment?

- An unsecured loan from the borrower's father

- A bonus received from the borrower's primary employer

- A loan secured by borrower's boat

- A gift from a stepsibling

An unsecured loan from the borrower's father.

Each of the following would be an acceptable source for a down payment: a savings or checking account, a gift from relatives (a gift letter may be required), the sale of property, a seller contribution, the cash value of a life insurance policy, or a money market account. An unsecured loan to the borrower would not be acceptable as a down payment.

If a borrower makes $60,000 per year, what is the most a housing payment could be for the borrower under conventional manual underwriting guidelines?

- $1,800

- $1,200

- $1,500

- $1,400

$1,400

Without considering any compensating factors, a borrower's housing ratio should not exceed 28%.

In this example: $60,000 ÷ 12 = $5,000/month; $5,000 × 28% = $1,400

According to the Homeowners Protection Act, what is the earliest point at which PMI can be terminated?

- When the loan reaches 80% loan-to-value, the borrower is in good standing, and submits a written cancellation request

- After at least two years, if the borrower is in good standing and submits a written cancellation request

- When the loan reaches 78% loan-to-value or at least five years after closing, whichever occurs first

- When the loan reaches 80% loan-to-value, PMI is automatically terminated

When the loan reaches 80% loan-to-value, the borrower is in good standing, and submits a written cancellation request.

According to the Homeowners Protection Act, the earliest point at which PMI can be terminated is when the loan reaches 80% loan-to-value, if the borrower is in good standing and submits a written cancellation request. If the borrower does not request cancellation or is not in good standing, PMI may stay in place until 78% LTV is reached.

If required, the amount of flood insurance must be the lower of:

- 80% of the replacement cost or the unpaid principal balance of the loan

- The insurable value or the unpaid balance of the loan

- The insurable value or the appraised value

- 100% of the replacement cost or the unpaid balance of the loan

100% of the replacement cost or the unpaid balance of the loan.

A lender may not make, increase, extend, or renew a loan that is secured by improved real estate or a mobile home located in an area designated by the government as a Special Flood Hazard Area (SFHA), unless the building or mobile home and any personal property securing the loan are covered by flood insurance for the entire loan term with a limit of the lesser of the outstanding principal loan balance or 100% of the replacement cost of the property, less the value of the land.

Which of the following terms would be associated with the income approach to appraisals?

- Comparable sales

- Capitalization rate

- Neighborhood analysis

- Construction costs

Capitalization rate.

The income approach is used to appraise properties that produce rental income. It bases the value of the property on the net income the owner will receive and a rate of return (i.e., the capitalization rate) the owner should find acceptable.

If a portion of a loan applicant's income consists of commissions:

- The adjusted gross income on IRS Form 1040 may be used as proof of income

- An average of the applicant's commission income for the prior two years may be used in underwriting

- That commission income may not be included in determining ability to repay

- Evidence of receipt of continuing commission income must be provided

An average of the applicant's commission income for the prior two years may be used in underwriting.

Stable monthly income may include secondary sources of income that may vary in terms of quantity, quality, and durability. Commission income may be included by averaging the applicant's commissions over a two-year period. Additionally, when commission income is at least 25% of the borrower's income, the most recent two years' personal tax returns may be required.

Which of the following would most likely be filed by a self-employed borrower who files taxes as a sole proprietor?

- Schedule F

- Schedule E

- Form 4506

- Schedule C

Schedule C.

An individual who owns a business as a sole proprietor, when applying for a mortgage loan, would submit IRS Schedule C. The individual's income is the net income shown on the Schedule C plus any recurring capital gains or non-cash expenses (e.g., depletion, depreciation) that were deducted in arriving at the adjusted income.

Which of the following would be the most influential factor in determining the hazard insurance premium on a home?

- Value of the lot

- Flood zone determination

- Replacement cost of the home

- Appraised value of the home

Replacement cost of the home.

With regards to hazard insurance, a lender may require the borrower maintain hazard insurance on real property securing a mortgage loan in an amount equal to the replacement value of the property. Fannie Mae provides that, for any first lien mortgage, the minimum hazard insurance coverage required is the lesser of 100% of the insurable value of the improvements, as established by the property insurer, or the unpaid principal balance of the mortgage, as long as it equals the minimum amount required to compensate for damage or loss on a replacement cost basis.

Which of the following best describes factors which determine the minimum hazard insurance requirements as required by the lender on a residential property?

- The loan amount and insurable value

- Replacement cost of the property and the appraised value

- Appraised value and LTV

- Mortgage insurance and replacement cost

The loan amount and insurable value.

A lender may require a borrower of a first lien mortgage to maintain minimum hazard insurance coverage in an amount that is the lesser of 100% of the insurable value of the improvements, as established by the property insurer, or the unpaid principal balance of the mortgage.