Underwriting Construction-to-Permanent Loans

Questions:

Construction Process:

The process of building and financing a home is more complex than financing the purchase of an existing home.

Consider:

• A homebuyer choosing an existing property need only find the home, negotiate a price, sign the purchase and sales agreement, and obtain a mortgage. The whole process can be completed in as little as two to three weeks.

• In comparison, the time required for the construction of a new home extends the mortgage approval process and prolongs closing of the permanent financing

• Permanent Financing

• A mortgage loan that goes into place upon completion of construction.

•  for several months.

Understanding each step involved in the construction process prepares the lender to make a sound underwriting decision. Just as the homebuilding process requires a buyer to be aware of more details and choices, new construction financing requires the lender to provide more loan product and underwriting details.

1. Acquire a lot to build on.

2. Execute a construction contract.

3. Work with a builder and/or sub-contractors

4. Obtain permits and engineering inspections.

5. Select materials.

6. Obtain a certificate of occupancy

A Fannie Mae single–closing transaction occurs when the mortgage includes both of the following: Interim construction loan and permanent financing

Select two that apply. Fannie Mae transaction types for two-closing construction-to-permanent financing may be which of the following?: cashout and limited cashout refinance

Fannie Mae allows the lender to add borrowers to the permanent financing when structuring a construction-to-permanent refinance transaction.: False

For a construction-to-permanent loan structured as a single-closing purchase transaction, what should be entered in 3. Real Estate Owned?: Nothing – this section should be reviewed to ensure there is NO entry for the lot

For a construction-to-permanent loan structured as a single-closing purchase transaction, where do you enter the lot price if the lot price and construction costs are on separate contracts?: Original Cost of Lot field on the the L1. Property and Loan Information screen; then on L4. Qualifying the Borrower - Minimum Required Funds or Cash Back screen, C. Land Value, select Original Cost of Lot from the drop-down menu.

For a construction-to-permanent loan structured as a single-closing refinance transaction, what button do you click on the 3. Real Estate Owned screen to create a record for the lot associated with the subject property?: Add Property

Select three that apply. For a construction-to-permanent loan structured as either a single-closing or two-closing refinance, which of the following steps do you complete on the Property Information screen?: Ensure the subject property indicator is checked. + Enter the estimated property value of the completed property in the Estimated Property Value field. + Select Retained from the drop-down list in the Status field.

Select three that apply. For a construction-to-permanent loan structured as a two-closing refinance transaction, which fields should NOT have amounts because they should not be used for that transaction structure?: A. Sales Contract Price +  Improvements, Renovations, and Repairs + Land Value

For a construction-to-permanent loan structured as a single- or two-closing refinance transaction, the Original Cost of Lot and Appraised Value of Lot fields should NOT be used because:If an amount is entered in either of these fields it will be included in the required funds.

Which of the following resources provides specific steps for entering data for Fannie Mae construction loans?: DU Job Aids: Construction-To-Permanent Transactions

A Freddie Mac construction conversion mortgage: Can be treated as either a purchase or refinance

When escrow holdbacks are permitting on a Freddie Mac construction to permanent loan, within how many days of the note date must improvements be satisfactorily completed? : 180

When entering a construction conversion mortgage to LPA, the Mortgage Type should be entered as: conventional

Acquisition cost is the sum of the documented costs of the construction excluding the sales price of the lot.: False

Select all that apply. Steps in establishing total acquisition costs for construction-to-permanent loans include the following:

• Review each change order to ensure no non-qualifying items are included.

• Correct!

• Review the original contract details to ensure no non-qualifying items are included.

• Correct Response

• Calculate the final construction contract price and review all change orders/addenda.

• Correct!

• Add the cost of qualifying items paid by the borrower out of pocket.

Change orders can result when a purchaser decides to _______ a contract of sale.

• Add an item to

• Delete an item from

• Upgrade an item on

• All of the above

Select two that apply. Interim construction financing provides short-term funds for which of the following?

• Building a new site-built home

• Purchasing and permanently affixing a new manufactured home

Which of the following property types is INELIGIBLE For Fannie Mae construction-to-permanent transactions?: attached condo unit

Fannie Mae construction-to-permanent financing allows an escrow holdback agreement for completion if all work is completed within ________ days of the mortgage note. 180

The underwriter uses the total acquisition cost for a construction-to-permanent loan primarily to determine: LTV ratio

For Freddie Mac construction-to-permanent loans, underwriting: May occur before or after the closing of the interim construction financing

Which of the following situations might result in a change order to the sales contract? All of the above

The final construction draw is released at what point in the construction process? Upon home completion

Which of the following expenses would be included in the acquisition cost?

All of the above

When entering a single-closing purchase construction-to-permanent loan into DU, which of the following is the first step?:Navigate to the Real Estate Owned section to ensure there is no entry for the lot.

Items purchased by the borrower out of pocket cannot be included in total acquisition cost calculations for construction-to-permanent loans. False

If the borrower is not the owner of record of the land prior to the closing of the interim construction financing, the Purpose of Loan field in LPA should be ______________. Purchase

Which of the statements below is true about change orders?: 

They should be reviewed in chronological order.

For Freddie Mac's construction conversion and renovation mortgages, within how many days of the effective date of permanent financing must verifications of employment and income be made? 120

Select two that apply. Freddie Mac offers two types of construction-to-permanent financing. They are:

Construction to conversion

Renovation

When calculating acquisition costs, which of the following would NOT meet the criteria for a “qualifying item” to be used in a construction-to-permanent loan?

Area rug for living room

Underwriting Beyond the Basics

Questions: 

Select all that apply. Private investors may require lenders to submit a jumbo loan to an agency AUS in order to:

• Possibly obtain documentation relief

• Obtain a credit risk evaluation

Select all that apply: Jumbo investors may require a second appraisal or an appraisal completed or reviewed by/from an:

• Designated appraiser

• Specific list of qualified appraisers

• More seasoned appraiser

A jumbo or non-conforming program may allow for flexibilities, including all of the following, EXCEPT:

• Waiving the collateral review

Select all that apply. A jumbo investor may accept the AUS recommendation from DU or LPA with:

• A minimum fico score

• Additional documentation requirements

Select all that apply. Which of the following are common characteristics of a rural market?

• Wide variations in housing and site improvements

• Absence of public utilities and services such as health and sanitation

• Shared school districts

When appraising a two-to four-unit property, the strongest indicator of value is the:

• Income approach

Both fannie mae and freddie mac support affordable homeownership in declining markets by requiring which of the following actions?

• Minimum down payment requirements

Data entry and submission steps for submitting jumbo loans to Loan Product Advisor are no different than those used for a conforming loan submission.

• True

Select all that apply. Which of the following principles always apply when underwriting jumbo loans?

• Analyze reliable asset and income data

• Provide a thorough collateral review

• Determine ability to manage credit

Select all that apply. Which of the following circumstances can affect property values?

• Local economy

• Current market conditions

• Neighborhood

The subject property is located on twenty acres of land, so the appraiser evaluates five acres of a parcel. This evaluation is eligible for sale to Fannie Mae and Freddie Mac.

• False

Select all that apply. According to agency expectations of both parties in the mortgage and valuation process, what is the lender responsible for?

• Ensure the inclusion of listings and contract sales by the appraiser in addition to the most recent closed sales to accurately portray market conditions.

• Review the appraisal report for compliance with standards of property analysis and evaluation of subject as marketable collateral for the mortgage loan.

• Follow established quality controls to safeguard against improper actions or conduct by employees, agents or third-party originators that may "compromise the accuracy of the appraisal report."

Almost identical homes sit in close proximity to one another. Property A includes a large barn that cost $25,000 to build. Property B does not include a barn. Property A sold for $250,000 while Property B sold for $240,000. According to the contributory value approach, what is the correct sales comparison adjustment?

• $10,000

Select all that apply. What factors are the focus when examining borrower risk for a jumbo loan?

• Ability to Repay

• Willingness to repay

A jumbo loan is a home loan that is ineligible for purchase by Fannie Mae and Freddie Mac because it is too large.

• True

Your appraiser derives the average gross rent multiplier from six nearby comparables as 123.5. Projected gross rents for the subject property of the mortgage loan you are underwriting is $9,600 per annum. What is the estimated market value for this property according to the income approach?

• $98,800

Jumbo lenders often establish a single ratio analysis rather than using:

• Housing debt-to-income

Select all that apply. Jumbo investors may offer flexibilities and restrictions that may include:

• Lender-funded mortgage insurance

• Single-ratio or residual income qualifying

• Varying reserves

Select all that apply. What two pieces of financial information are required to calculate the gross rent multiplier for a property?

• The total gross rent possible

• The sales price

Select all that apply. Some private sector investors have developed their own proprietary automated underwriting systems. Which of the following are true about the use of these systems?

• They have been successful in assessing risk for the mortgage loans purchased by their respective companies

• They have not achieved the same market acceptance from other private sector jumbo investors that has been accorded to Fannie Mae and Freddie Mac

Risk Assessment using Credit Scores

Select two. A credit score is a numeral value or a categorization derived from a/the:

• Modeling System

• Statistical tool

Credit scoring was first developed in the_______.

• 1950s

Select two. Only a person or business with________may gain access to another person’s credit report.

• Written instruction of the consumer

• Permissible purposes

Select three. Advantages of credit scores include:

• They are an accurate and reliable tool for predicting mortgage delinquencies

• They facilitate faster credit decisions

• They remove human bias in risk assessment

Select two. Which of the following do GSEs Fannie Mae and Freddie Mac require for both automated and manually underwritten mortgage loans?

• FICO credit scores for each borrowers

• One report from each of the three major credit repositories

Consumer Reporting Agency (CRA) model: 

• Analyzes information in a borrower’s consumer credit file

Behavior scoring model:

• Examines internal data from a serviver’s billing file on existing loans

Application model:

• Usually calculated directly by a lender and is based on information in the lender’s file

Select three. What factors are not considered in a credit score?

• Alimony payments

• Income

• Age

Fico factors ranked from most to least important

1. How well the consumer has paid back in the past (most)

2. How much the consumer currently owes on debts

3. What kinds of credit the consumer has 

4. How long the consumer has had credit (least)

Compared to a consumer that uses 75% of total available credit, a consumer that uses 25% of total available credit represents:

• Less risk

At least how many reason codes must be listed with each FICO credit score?

• Four

A FICO score from one nationwide credit reporting company is equivalent to the same numerical score from another because:

• The scores are normalized so that they will be consistent

Select two. The FICO Expansion Score was introduced for consumers that have:

• No traditional credit

• Thin Credit

Which credit risk model examines borrower and loan characteristics?

• Mortgage Score

There are three basic steps for assessing comprehensive risk. Put the three steps in the order in which they are performed

1. Evaluate primary risk

2. Evaluate contributory risk

3. Determine comprehensive risk

Select three. Which of the following are influential contributory risk factors on mortgage default?

• Presence of co-borrower

• Mortgage term

• Previous mortgage payment history

Select three. Which of the following typically generates a loan-level price adjustment on a loan?

• Credit Score

• Type of property

• LTV

Transactor

• Low-risk category; defined a someone that pays their credit card in full every month

Partial payer

• Moderate to low-risk category; defined as someone that actively pays down their balances monthly 

Revolver

• High-risk; defined as someone that carries a balance and typically makes only minimum payment on their credit card

Sally pays off her credit card balance monthly; Chris makes only the minimum payment due most every month. Which statement is true?

• Sally will be considered a lower risk than Chris

A borrower has been car shopping over an extended time due to their work schedule resulting in credit reports being pulled roughly twice a month. This would most likely result in:

• Poor Credit Score

Select three. An extenuating circumstance is:

• Beyond the borrower’s control

• An isolated occurrence

• An event that creates a large decrease in income or increase in expenses

Which of the following statements is true of consumer reporting agencies?

• CRAs collect financial information about consumers from collection agencies, creditors, and public records

Which of the following three categories of borrowers represent the highest risk to a lender based on their trended credit history?

• Revolver

Select three. Which of the following groups of consumers are less likely than the general population to have a credit score?

• Consumers who distrust the credit/banking system

• Immigrants to the united states

• New credit users

A credit score does not factor in the ________ that the borrower went into default. For this reason, lenders may take extenuating circumstances into account.

• Reason

Select two. Newer versions of credit scoring models that could be used consistently among the three CRAs over time without the need for major alterations was achieved through:

• A consistent design blueprint

• Periodic redevelopments

Select three. Credit scores are used in mortgage lending to do which of the following?

• Provide a composite view of a borrower at a specific point in time.

• Assess a borrower's credit behavior patterns, past and present.

• Predict future credit performance and how likely a potential borrower is to repay future debts

Select three. Credit scores are used in which of the following areas of mortgage lending?

• Portfolio management

• Loan administration

• Loan production

Select two. Credit score reason codes:

• Are listed in order of their impact on the score

• Describe the most influential reasons why higher credit scores were not granted

A ________ credit score may result in a loan-level pricing adjustment.

• Low

Select three. Credit scores benefit mortgage lenders by:

• Providing faster credit decisions

• Removing human bias

• Instilling confidence to extend credit

Which of the following Congressional acts requires mortgage lenders to provide borrowers with their credit scores and the factors affecting the score?

• Fair credit reporting act

When is it necessary for a CRA to list five reason codes on a consumer’s credit report?

• When “inquiries” is the fifth reason that influenced the credit score

What do predictive variables analyze?

• Both positive and negative data

Select two. All credit scores are calculated by computerized statistical models. These statistical models are complicated formulas that analyze consumer information and produce a numerical score. The formulas are based on factors that have been proven to predict credit behavior and are:

• Considered trade secrets

• Proprietary to each agency

Select three. Which of the following are acceptable methods for improving a credit score?

• Keeping revolving balances below 50% of the high credit limit

• Paying bills on time

• Not opening unnecessary accounts

In addition to the credit or FICO score, there are other risk models, such as those that produce bankruptcy scores. Bankruptcy scores measure:

• Risk of consumer bankruptcy

Select three. Credit files change:

• As credit data changes

• With any key activity

• As balances change

Select three. Which of the following circumstances contribute to inaccurate scores?

• An account belonging to a “Jr” reported on his father’s credit report

• Identity theft

• Paying an account in full prior to the date reported

Select two. Which of the following factors are considered in most scoring systems?

• Length of credit history

• How the consumer handled credit in the past

Lenders who use credit scores have _____ confidence and will typically offer credit to _____ people

• More; more

What problem is addressed by the use of scorecard segmentation?

• Different types of consumers have varying characteristics that are predictive of risk

As the LTV/CLTV reaches 95%, how must the credit score range be rated to maintain acceptable risk for most investors?

• Upper range

Select two. Under US law, which of the following factors may NOT be considered in ANY credit scoring model?

• Whether the consumer receives welfare

• Consumer’s marital status

How does each CRA use scorecard segmentation to determine a borrower's credit score?

• Consumer credit information is run through the one scorecard that best fits that consumer's profile. The resulting score is the consumer's credit score

Select three. Which of the following are options for qualifying a borrower who has no credit score when underwriting a loan?

• Using expansion scoring

• Using a nontraditional credit report

• Documenting a nontraditional credit history

Select three. CRAs collect information about consumers from:

• Public records

• Collections agencies

• Creditors

By _____, both the conventional and governmental mortgage sectors acknowledged risk–based scoring as a valuable and fair credit scoring model.

• 2000

Regulatory Compliance in Loan Origination

The housing finance crisis of the late 200s triggered a new wave of legislation regulation the mortgage industry.

• True

The SAFE Act is intended to provide consumers with which of the following protections?

• Increased accountability and tracking of mortgage loan originators, with education, licensing, and registration requirements

Homeowners Protection Act (HPA)

• The goal of this act is to help consumers cancel private mortgage insurance (PMI). It includes requirements concerning disclosures, automatic cancellation at certain thresholds, and return of unearned premiums

Truth in Lending Act (TILA)

• The goal of this act is to promote the informed use of consumer credit by requiring disclosures about credit terms and costs. It includes requirements for full disclosure of all direct and indirect costs of credit and repayment terms within specific time frames, among other disclosures, and also provide consumers a right of rescission in certain transactions

TILA-RESPA Integrated Disclosures Rule (TRID)

• The goal of this rule is to make the TILA and RESPA required disclosures provided at application and closing more clear and helpful to consumers trying to understand the costs and terms of mortgage loans during the application and settlement process. It reconciled various requirements under RESPA and TILA and consolidated the previously required four forms into two (Loan Estimate and Closing Disclosure) for most mortgage loans

Real Estate Settlement Procedures Act (RESPA)

• The goal of this act is to provide consumers with pertinent and timely disclosures regarding the nature and costs involved in the real estate settlement process. It also prohibits kickbacks and places certain restrictions and requirements on the use of escrow accounts

The Truth in Lending Act (TILA) was enacted to promote the informed use of consumer credit by requiring disclosures about:

• Terms and costs of credit

Which act set the stage for future fair lending laws by prohibiting discrimination in housing on the basis of race?

• Civil Rights Act

Gramm-Leach Bliley Act (GLBA)

• The purpose of this act is to protect consumers from individuals and companies that obtain consumers’ personal finance information under false, unauthorized, or fraudulent pretenses. Its provisions include the Financial Privacy Rule and the Safeguards Rule

Fair and Accurate Credit Transactions Act (FACTA)

• This act seeks to curb identity theft and to allow consumers easier access to their credit reports. It is associated with the Red Flags Rule, and it allows consumers to request a free copy of their credit report once every 12 months, among other provisions

Fair Credit Reporting Act (FCRA)

• This law is designed to ensure that consumer reporting agencies exercise fairness, confidentiality and accuracy in preparing and disclosing credit information. It places obligations on providers of consumer credit reports and allows consumers to obtain and dispute credit information, among other provisions

Under FACTA, a consumer can request a free copy of his or her credit report every three months.

• False

What is the Average Prime Offer Rate (APOR)

• The annual percentage rate that is based on average interest rates, fees, and other terms on mortgage offered to highly qualified borrowers

Select three that apply. If a loan is a higher-priced mortgage loan, which of the following requirements would apply?

• A full interior appraisal

• Free second appraisal from the lender, if the subject property is considered “flipped”

• Escrow account (in many cases)

For loans subject to the Home Ownership and Equity Protection Act, when must borrowers be sent additional disclosures?

• At least three business days prior to closing

Select two that apply. Which of the following titles of the Dodd-Frank Act have the most obvious and direct impact on mortgage lending regulation?

• X

• XIV

The Consumer Financial Protection Bureau (CFPB) was established by the Dodd-Frank Act in:

• 2010

The SAFE Act establishes minimum standard for:

• Licensing and registration of mortgage loan originators

Select two that apply. Which of the following are included in SAFE Act’s definition of a mortgage loan originator?

• An individual who offers or negotiates terms for compensation or gain

• An individual who takes a residential mortgage loan application

Underwriters and processors as well as mortgage loan originators must be registered with NMLS.

• False

State-Licensed Loan Originator

• Hakeem is mortgage loan originator working for an independent mortgage banker in illinois

Registered Loan Originator

• Luisa is mortgage loan originator working in the call center of a large national bank that is FDIC insured

Loan Originator with Temporary Authority

• Molly has been a registered mortgage loan originator with a credit union in Connecticut for three years. She’s planning to move to New Jersey and begging working for an independent mortgage banker there; she has begun the process of obtaining her NMLS state license in New Jersey

A mortgage loan originator applying for NMLS registration or state licensing may NOT:

• All of above

Per the SAFE Act, each state has the right to prohibit additional practices in that state, in addition to those identified in the State Model Language

• True

Which agency is responsible for enforcement of the SAFE Act at the federal level?

• Consumer Financial Protection Bureau

Annual Percentage Rate (APR)

• The cost of the mortgage loan expressed as a yearly rate. The calculation includes not only the interest rate but also the points, mortgage broker fees, and other charges associated with the loan

Finance Charge

• The cost of consumer credit as a dollar amount; it represents the total amount of interest and loan charges the borrower would pay over the entire life of the mortgage loan. It includes any charge payable directly or indirectly by the borrower and any charge that the lender imposes directly or indirectly in connection with the extension of credit.

Amount Financed

• The loan amount minus most of the upfront fees the lender charges. It is the principal amount borrowed less the points and other prepaid finance charges. The note, security instrument, and all other legal and closing documents express the amount financed as the same principal amount for which the borrower has applied

Total of payments

• The amount of money the borrower will have paid over the life of the mortgage. This includes principal, interest, mortgage insurance (if applicable) and loan costs

Select three that apply. The Truth in Lending Act (TILA) includes requirements and prohibitions for which of the following areas?

• Disclosure of costs and terms of the loan

• Advertising

• Product-specific disclosures

Select four that apply. RESPA requires consumer disclosure regarding which of the following?

• Cost of settlement services

• Escrow accounts

• Servicing transfers

• Affiliated business arrangements

In what way does the Closing Disclosure meet RESPA disclosure requirements?

• It itemizes the costs of the actual fees associated with the mortgage transaction.

Select two that apply. What information is included in the Comparisons section of the Loan Estimate?

• The total amount the consumer will have paid in principal, interest, mortgage insurance, and loan costs in the first five years of the loan

• The total amount of interest the borrower will pay over the loan terms expressed as a percentage of the loan amount (TIP)

Regarding the Services You Cannot Shop For section, the CFPB advises borrowers that the indicated costs are representative of the best prices available for those services and there is no need to comparison shop

• False

Where would a consumer find the amount paid to the mortgage loan originator on the Loan Estimate?

• Closing Costs Details - Loan Costs A Origination Charges

Where can the consumer find information about transfer of servicing on the Loan Estimate?

• Other Considerations

What does the CFPB advise the consumer to do if the Costs at Closing shown on the Closing Disclosure do not match the most recent Loan Estimate?

• Ask the lender to explain why

How do regulators determine whether or not the Loan Estimate was made in good faith?

• By calculating the difference between the estimated charges originally provided in the Loan Estimate and the actual charges paid by or imposed on the consumer in the Closing Disclosure

When must the HOEPA disclosure statement be completed?

• At least three business days before closing

Under ECOA, if a financial institution decides to approve credit, the notice of approval must be an express statement of approval provided to the consumer in writing.

• False

Which of the following does FCRA NOT require financial institutions to disclose to consumers?

• The top seven reasons for adverse action

Select four that apply. For a fixed-rate residential mortgage that is NOT high-risk, what information is required in the initial disclosure?

• The borrower’s right to request cancellation of PMI, and based on the initial amortization schedule, the date the loan balance is scheduled to reach 80 percent of the original value of the property

• The borrower’s right to request cancellation on an earlier date, if actual payments bring the loan balance to 80 percent of the original value of the property sooner than the date based on the initial amortization schedule

• That PMI will automatically terminate when the LTV ratio reaches 78 percent of the original value of the property and the specific date that is projected to occur (based on the initial amortization schedule)

• The Act provides for exemptions to the cancellation and automatic termination provisions for high-risk mortgages and whether these exemptions apply to the borrower’s loan

HPA disclosures are the same for fixed-rate mortgage loans, adjustable-rate mortgage loans, and high-risk mortgage loans

• False

HPA requires initial and annual disclosures

• True

Under HPA,  if mortgage insurance is paid by the lender, the borrower must receive a notice explaining:

• That LPMI does not automatically terminate

Select five that apply. Which of the following are bases on which is it prohibited to discriminate under both ECOA and the FH Act? (Familial status and marital status, which have = partial overlap, are excluded from the question)

• Color

• National Origin

• Race

• Religion

• Sex

Which of the following is FALSE about HMDA?

• HMDA prohibits discriminatory behaviors such as redlining.

GLBA

• This act governs how financial institutions collect, share, and protect consumers non-public personal information. Its privacy provisions include three principle parts: pretexting provisions, the financial privacy rule, and the safeguards rule

FACTA

• This act is an important amendment to another critical consumer credit information act. It adds requirements focused on helping consumers fight identity theft and maintain the privacy of their credit information. It includes requirements for providing free annual credit reports, fraud alerts, and notices regarding rights for victims of identity theft, the right to dispute inaccurate information on a credit report, and the use of risk-based pricing

FCRA

• The goal of this act is to ensure that consumers have the access to the same credit information about themselves that lenders use to make credit decisions, as well as to promote privacy, accuracy, and fairness in how consumer reporting agencies handle consumer information.

Which act requires consumers to have access to the same information about their credit history as the lenders use to make credit related decisions?

• Fair Credit Reporting Act

Higher-Priced Covered Transaction (HPCT)

• Requirements are detailed in Section 1026.43. This category concerns whether the loan archives safe harbor status under the ATR/QM Rule.

Higher-Priced Covered Transaction (HPML)

• Requirements are detailed in Section 1026.35. These loans have special appraisal, escrow, and certain other ECOA and TILA requirements. They are fairly common,

High-Cost Mortgage (HCM)

• Requirements are detailed in section 1026.32. These are loans originally defined by the HOEPA Act and subject to the 2013 HOEPA rule. They have several restrictions, including no balloon payments, no negative amortization, and no prepayment penalties. They are fairly rare due to the many restrictions - most lenders avoid originating them.

For high-cost loans subject to the Home Ownership Equity Protection Act, all of the following loan terms are prohibited EXCEPT:

• Adjustable Rates

The Consumer Financial Protection Bureau has the authority to write rules for consumer protections for a variety of financial institutions, including banks and non-banks

• True

The Fair and Accurate Credit Transaction Act does all of the following to prevent fraud. EXCEPT:

• Prevent identity fraud victims from disputing inaccurate data reported

The HOEPA disclosure statement discloses all of the following EXCEPT:

• That credit scoring was used to determine qualification for a mortgage loan

The Equal Credit Opportunity Act (ECOA) makes it illegal to discriminate on the basis of which of the following?

• All of the above

The purpose of the Affiliated Business Arrangement Disclosure is to inform borrowers that:

• They are not required to use the affiliate that their lender or real estate agent has suggested

The Home Ownership and Equity Protection Act (HOEPA) allows for prepayment penalties only when the borrower has agreed to them in writing.

• False

The Safeguards Rule under the Gramm-Leach-Bliley Act requires all financial institutions to:

• Protect consumer information while it is in the institution’s control or custody

Although the primary purpose of this law is to promote equal treatment of creditworthy customers in terms of access to credit, it also includes disclosure requirements. Which law is it?

• ECOA

Under the Ability-to-Repay and Qualified Mortgage rule, which of the following is NOT among the considerations that must be taken into account in determining a borrower’s ability to repay a mortgage loan?

• Borrower’s life expectancy

According to TILA, any advertising regarding a mortgage loan must include the annual percentage rate if certain trigger terms such as the amount of any payment or the amount of anu finance charge are stated.

• True

Select three that apply. Which of the following are violations of the SAFE Act?

• Engage in any unfair or deceptive practice toward any person

• Directly or indirectly employ any scheme, device, or artifice to defraud or mislead borrowers, lenders or any person

• Conduct any business covered by the SAFE Act without holding a valid license

All mortgage loan originators must be state-licensed

• False

Which of the following is NOT one of the requirements for licensed mortgage loan originators under the SAFE Act?

• Recertify annually through reexamination

Reverse redlining occurs when:

• Applicants in low to moderate income communities with protected classes of people are targeted for loan products with higher rates and fees

Which of the following is not typically a responsibility of the mortgage loan originator?

• Processing a residential mortgage loan

The Dodd-Frank Act created new financial regulatory requirements to address the numerous problems and practices that contributed to the financial crisis of the late 2000s

• True

TILA regulates information a creditor must provide regarding the cost and terms of credit at which of the following times.

• All of the above

Which of the following is true regarding the evaluation of a loan application under the Equal Credit Opportunity Act?

• A creditor CANNOT use child-bearing go speculate whether the applicant’s income could be interrupted

Which federal agency was created by the Dodd-Frank Act in 2010 with the intention of consolidating implementation and enforcement authority for consumer protection laws under one roof?

• Consumer Financial Protection Bureau (CFPB) 

Under HOEPA, lenders may approve loans based solely on the collateral value of the property.

• False

Under FCRA, if credit is extended to a consumer on terms that are materially less favorable than those terms the financial institution has extended to a substantial proportion of consumers, the financial institution usually must:

• Disclose the reason for risk-based pricing

The 2013 HOEPA Rule imposes a requirement for homeownership counseling but does not require lenders to provide information about approved counseling organizations.

• False

Select three that apply. Which of the following represent a valid “change of circumstance”?

• A loan going from float to locked status

• Borrower waiting for two weeks after application to provide intent to proceed

• Change of loan program to enable approval of a denied loan

The Fair and Accurate Credit Transaction Act of 2003, which amended FRCA, primarily focuses on which of the following?

• Helping consumers fight identity theft and maintain the privacy of their credit information

Which important disclosure issued at the time of application lists specific settlement charges that the individual borrower will likely have to pay in association with the closing of a mortgage loan?

• Loan Estimate

Which of the following is NOT  a requirement for mortgage loan originator state licensing?

• 4 hours of observed practice

The SAFE Act’s objective is to protect consumers seeking mortgage loans and to ensure that the mortgage lending industry is operating without unfair, deceptive, and fraudulent practices by:

• Mortgage Loan originators

Which Act created CFPB?

• Dodd-Frank Act

The SAFE Act requires states to establish minimum standards for the licensing and registration of state-licensed mortgage loan originators

• True

Under the Homeowners Protection Act (HPA), at what LTV is PMI automatically terminated if the borrower is not delinquent and the loan is not a high-risk loan?

• 78%

Final closing costs shown on the Closing Disclosure cannot vary outside of certain tolerances from cost shown on the Loan Estimate. When discussing these tolerance, zero tolerance means the same thing as no tolerance

• False

If a mortgage loan originator has his or her NMLS license revoked by a state due to violations of the Safe Act, it has a potential domino effect of the license being revoked in all other states in which the mlo has a license

• True

Under this law consumers must be advised and made aware of how information may be used to make financial decisions and extend credit 

• FCRA

Under the Safe Act a real estate agent or broker would need to be State licensed as a mortgage loan originator if they received compensation from any of the following except which one?

• For clerical duties

According to ecoa, the Creditor has the option to exclude the reasons for taking adverse action in the adverse action notification as long as:

• The creditor discloses that the consumer has the right to request the reason

The Consumer Financial Protection Bureau is responsible for implementing and enforcing all of the following laws except:

• Fair Housing Act (FH Act)

Under HPA when is the servicer required to notify the borrower that refinancing the mortgage loan could eliminate LPMI?

• No later than 30 days after the termination date that would apply for BPMI

Which of the following statements is true regarding enforcement of the Safe Act?

• Each individual state has specific exam processes and requirements for SAFE Act compliance

Who is responsible for filing a Home Mortgage Disclosure Act (HMDA) report?

• Lender who makes the credit decision

Which of the following privacy and consumer identification laws limits the furnishing of credit reports to those authorized to receive them and places disclosure obligations on the users of consumer credit reports?

• Fair Credit Reporting Act

Which of the following was NOT a practice of discrimination in the 1960s and 1970s?

• Salaries of unmarried men were reduced because lenders assumed they would get married and have to support a family

Select three that apply. Which of the following might be used to refer to the CFPB’s simplification and consolidation of consumer disclosures required by RESPA and TILA?

• Know Before You Owe

• TILA-RESPA Integrated Disclosure (TRID)

• Integrated Mortgage Disclosures Under the Real Estate Settlement Procedures Act (Regulation X) and the Truth in Lending Act (Regulation Z)

As required by HPA, for most loans, lenders must provide borrowed with an initial disclosure notifying the borrower that PMI will automatically be canceled after:

• The mortgage has been paid down to 78% of the original value

Higher-Priced Mortgage Loan regulations under HOEPA require:

• Verification of the borrower’s ability to repay the loan

Detecting Mortgage Loan Fraud

The perpetrator’s desire to own a home is the motivating factor for committing which tupe of fraud?

• Fraud for Property

Select three. Some of the best resources to help combat mortgage fraud are:

• Freddie mac

• Fannie Mae

• Industry-Specific Trade Associations

Select three. Which of the following GSEs, federal agencies, and private companies provide various tools and information to help mortgage lenders detect, track, and prevent fraud?

• Fannie Mae

• FBI

• Lexis Nexis

Select two. The Fraud Enforcement and Recovery Act of 2009 (FERA) was signed into law by the President in an effort to:

• Crack down on fraud in the mortgage industry

• Broaden the Department of Justice’s authority to prosecute fraud

Does collusion always occur between industry insiders?

• No

The red flags for straw buyers are similar to those of fraud for property

• True

Select three. How are legitimate flip sales different from fraudulent flip sales?

• Fraudulent flip involve the transfer of the property in order to increase loan proceeds

• In fraudulent flip transactions, the perpetrator has no intention of paying back the loan

• Loan files from legitimate flippers generally contain true financial information

Select two. Which of the following are red flags for builder bailouts?

• Source of funds in the loan file is questionable

• Marketing materials advertise “no money down”

A “buy and bail” fraud can occur when a borrower:

• Decides to default on payments because of the value of the home

In most cases, how do foreclosure specialists track down their “targets”?

• By reading the “Notice of Defaults” listed in the public records

If a file contains inconsistencies such as a mismatch between the buyer’s age and professional level, an unrealistic commuting distance, or contradictory income/asset information, it ay indicate that:

• There is a straw buyer applying for the loan

The sales contract should always be compared to the:

• Appraisal

What would an illegal credit cleaning company suggest that a consumer do to improve his or her credit?

• Rent a seasoned “trade line” with a strong history to make the report look better

Select two. You have a verification of employment form with an illegible signature and no listed title for the person who signed it. Additionally, the address for the employer is a P.O. box. What are some things you can do to further verify employment?

• Perform a verbal verification of employment by using the phone number listed online and asking for the Human Resources department

• Check online for a physical address of the employer

What is one red flag on asset documentation that might indicate the borrower is a straw buyer?

• Bank statements reflect automatic payroll deposits that are not consistent with employment listed on the loan application

Why is careful review of the appraisal imperative to fraud deference?

• Because most fraud for profit schemes rely on fraudulent appraisals

Select two. Lenders should perform background checks on which of the following?

• Loan officers

• Branch managers

Select two. When a borrower provides information to a loan originator, the loan originator should:

• Share all information with your processing and underwriting team, especially if there are concerns about the file

• Not accept documentation that cannot be verified as coming directly from the borrower

Select three. Fannie Mae recommends that lenders focus quality control checks on the following common areas of loan defects:

• Occupancy status

• Income verification

• Appraisal/value

Select two. Which of the following websites can help you review a property description?

• Realtor.com

• Zillow

Select three. In an effort to make fraud detection a priority within the organization, lenders should:

• Perform background checks on staff, such as originators and branch managers

• Provide ongoing training

• Audit appraisers

Are straw buyers usually part of a builder bailout scheme?

• No

To better identify potential fraud trends, the quality control department should:

• Group quality control results by branch, loan originator, etc.

Select three. Which of the below are indicative of fraudulent flipping?

• Using a straw buyer to purchase the property

• Obtaining an inflated appraisal

• Borrowing as much as possible against the property

When a fraud perpetrator targets members of an identifiable group and uses that group as a front, this is known as:

• Affinity Fraud

Select three. A bank statement that shows a number of periodic, large deposits over just the last month. This could be a red flag for which of the following issues?

• Straw Buyer

• Builder Bailout

• Down payment coming from an undisclosed debt

Select three. Which of the following can result when a lender does not originate and service quality loans?

• Civil and criminal penalties

• Repurchase obligations

• Administrative and regulatory sanctions

Suspicious Activity REports (SARs) are filled with the:

• Financial Crimes Enforcement Network (FinCEN)

Select two. Which of the following statements are true regarding fraud for profit?

• It affects both the origination and servicing sides of the industry

• It can result in substantial loss to lenders

Select two. An underwriter should cross-check recent comparable sales in the neighborhood when:

• There is an excessive distance between comparables and the subject

• There are excessive adjustments to the comps, even though properties are selling rapidly

Select three. To defend against fraud, processor and underwriters should:

• Conduct independent verification through third-party resources of information provided by borrowers

• Screen all third-party originated loans through investor exclusionary lists

• Share information regarding suspected fraud with colleagues

A parent buying a house for a child, but stating on the application that the parent will occupy the home, would be considered which type of straw buyer?

• Friendly straw buyer

Select three. Which of the following resources are available to the public to assist in fraud prevention?

• Directories that enable a reverse phone and address look up and house number verification by zip code

• Websites that describe common mortgage fraud schemes targeting consumers and agencies that can help handle and report fraud

• Websites to view a property description, estimated values, sales and foreclosures in a specific neighborhood

Appraisal Independence Requirements (AIR)________ contact between the appraiser and parties to the transaction

• Prevent

Select three. Which of the following are variations of foreclosure rescue schemes?

• Lease Backs 

• Equity Stripping

• Equity Skimming

As part of quality control activities, what types of loans should be reviewed at a higher frequency?

• Loans from new or low volume counterparties

Select two. A review of a borrower’s bank statement shows automatic deposits for his monthly salary that do not match the information provided on the verification of employment. What might this indicate?

• Straw Buyer

• Falsified Income

Elaborate fraud schemes often involve collusion between:

• Industry Insiders

Select three. To help create a culture that makes fraud detection a priority and a responsibility for each employee, which of the following third-party resources should be leveraged?

• AVM

• GSE Exclusionary lists

• MERS database

Select two. If the length of time on the credit report is inconsistent with the borrower’s age or employment history, this could indicate:

• A straw buyer

• Identity theft

Select three. To defend against fraud, processors and underwriters should:

• Be familiar with their originators and brokers

• Share information with other staff members

• Follow comprehensive written procedures

Select three. A Suspicious Activity Report (SAR) is report filed by a financial institution with FinCEN under which of the following conditions?

• Insider abuse involving any amount (Fraud by any employee or officer)

• Violations aggregating $25,000 or more, regardless of potential suspects

• Potential money laundering aggregating $5000 or more

Select three. If the application states that the down payment is other than cash (e.g rent payment, sale of personal property), this could indicate what types of fraud for profit schemes?

• Flip Sale

• Builder Bailout

• Lease/buyback

Select three. What are some red flags on the credit report that might indicate the borrower has obtained additional debt for down payment?

• All accounts paid in full recently

• Recent inquiries from other mortgage lenders

• Credit report shows additional debt on closing date

The Fraud Enforcement adn Recovery Act of 2009 (FERA) broadened the definitions of “financial institutions” and the term “proceeds” with regard to mortgage lending fraud

• True

Which of the following best describes “collusion”?

• A secret agreement for an illegal or deceitful purposes

Approximately what percentage of fraud reports filed contain some type of fraud or misrepresentation on the loan application?

• 75%

Select three. Why is it important to use a public records search service website like “searchSystems” when underwriting a loan?

• To see who own a business

• To resolve any identity questions

• To check on public records in case the credit report has been altered

Select three. Which of the following could be a source of straw buyers for a fraud perpetrator?

• People in jail

• Friends

• People who are deceased

Mortgage fraud reporting includes trends in all of the following. EXCEPT:

• Tips for how mortgage professional can review appraisal for fraud

An earnest money deposit appears to have been paid by someone other than the borrower. This may indicate:

• A straw buyer

When a fraud perpetrator target members of an identifiable group and uses that group as a front, this is known as:

• Affinity Fraud

What is the one thing that MUST happen in order for a scam artist to pull off a fraudulent short sale “flip”?

• Getting the lender to agree to a below market sales price and payoff amount

Select two. What steps should you take if you suspect the Verification of Employment has been completed by someone other than the employer?

• Verify the employer’s address and phone number using a third-party resource

• Call the employer and ask for the Human Resources department

Which of the below best describes a forensic loan audit with regard to foreclosure rescue schemes?

• A company offers a borrower help in identifying lending violations that occurred when the borrower’s mortgage was created

Wanting to own a home is motivating factor for committing fraud for property

• True

Select two What type of economic scenario could prompt a rise in builder bailout fraud?

• Overbuilding in the area

• Housing slump

What is the name of a popular database containing information submitted from major mortgage lenders, agencies, and insurers regarding fraud and material misrepresentation incidents?

• Mortgage Industry Data Exchange (MIDEX)

Select two. Investment clubs target naive investors to promote high return real estate investment and make their profits by:

• Charging a large fee to belong to the club

• Disguising purchases as refinances to avoid down payment