NMLS Questions with accurate answers, 2022/2023 updates, Graded A.

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NMLS Questions with accurate answers, 2022/2023 updates, Graded A. Acceleration Clause - ✔✔Allows lenders to demand payment in full if the borrower defaults on the loan (can be construed a... s predatory lending) Alienation Clause (Due on Sale Clause) - ✔✔Says you must repay your mortgage if you sell your home to a new owner (loan is not assumable) Appraiser Independance Requirements replaced HVCC - ✔✔home valuation code of conduct Due on Demand Clause - ✔✔(Considered a predatory practice) The lender can demand repayment of the loan in full at anytime for any reason HOEPA - ✔✔Home Ownership and Equity Protection Act (Reg Z Sec 32) Amends TILA Nonrecourse Agreement - ✔✔Loan agreement under which the collateral securing a loan is the unltimate source of repayment, and the lender cannot hold the borrower personably liable in the event of default. Lender can seize (and sell) the collateral but cannot seize non-pledged asset or property. ReConveyance - ✔✔Method in which a lein is removed from a property when payment is made in full. Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 - ✔✔Purpose is to promote the financial stability of US by improving accountability and transparency in the financial system. Created the Consumer Financial Protection Bureau. Changed MLO compensation rules Housing and Economic Recovery Act (HERA) of 2008 - ✔✔Signed by GW Bush. Est. national minimum standards for mortgage training, including prelicensing and annual continuing education. Also, under the SAFE Act, all MLO's must beither state-licensed or federally registered. SAFE Act - Secure and Fair Enforcement for Mortgage Licensing Act: part of HERA of 2008 - ✔✔Requires all states to implement a MLO licensing process that meets standards through the Nationwide Mortgage Lending System & Registry (NMLS) In CA that compliance act is called SB - 36. SAFE Act Objectives - ✔✔*Provide uniform license applications and reporting requirements *Provide licensing database *Improve flow of info to and between regulators *Provide increased accountability and tracking of MLO's *Streamline the licensing process *Enhance consumer protection and support anti-fraud measures *Provide consumers info about MLO's *Require MLO's to act in "the best interest of the client" *Facilitate responsible behavior in the subprime mkt *Facilitate the collection and disbursement of consumer complaints NMLS - ✔✔Started in 2004 by the Conference of State Bank Supervisors (CSBS) and the American Assoc. of Residential Mortgage Regulators (AARMR) They wrote model legislation reviewed by HUD for states to follow Mortgage Loan Originator Definition - ✔✔Someone who for compensation or gain or expectation thereof: takes a residential mortgage loan application or offers or negotiates terms of a residential mortgage loan Independent Contractor - ✔✔May not engage in residential mortgage loan activities as a loan processor or underwriter unless state licensed Unique Identifier - ✔✔*Required by the SAFE Act for all state licensed MLO's or federally registered MLO's employed by a depository institution regulated by a federal banking agency or regulated by the Farm Credit Admin. *Required on all mktg materials, applications, required disclosures & business cards FINRA Financial Industry Regulatory Authority - ✔✔Built and maintains the online NMLS system RESPA (X) Real Estate Settlement Procedures Act 0f 1974 - ✔✔*Enforced by HUD *Intended to help consumers become better shoppers for settlement services and eliminate unnecessary increases in the costs of certain settlement services MLO License Not Required - ✔✔*Purely administrative or clerical tasks for a licensee *Only performing real estate brokerage work *Time share credit work *Loan processor or underwriter who does not represent to the public that they perform MLO work Federal Banking Agencies - ✔✔The Board of Gov.'s of the Fed. Reserve System, Comptroller of the Currency, Dir. of the Office of Thrift Supervision, National Credit Union Administration and the FDIC. Depository Institution - ✔✔Any bank or savings assoc. including credit union Non-Traditional Mortgage Product - ✔✔Any mortgage product other than a 30 yr fixed rate Residential Mortgage Loan - ✔✔Any loan primarily for personal, family or household use that is secured by a mortgage, deed of trust or other equivalent consensual security interest on a dwelling or residential real estate upon which a dwelling is constructed or is intended to be constructed a dwelling MLO Licensing Requirements - ✔✔* Submit to a background check *Provide personal history *Provide authorization for a credit report *Never had MLO license revoked *No conviction or pled nolo contendere for a felony during past 7 yrs preceeding date of application *No fraud, breach of trust, or money laundering ever *A pardon is not a conviction MLO personal financial responsibility - ✔✔No: *Current outstanding judgments *Current outstanding tax liens *Foreclosures in the past 3 years *Pattern of seriously delinquent accounts in past 3 yrs MLO pre-licensing education - ✔✔Federal Law & regulation (3 hours) Ethics (3 hours) Nontraditional mortgage products (2 hours) Electives (12 hours) MLO Exam - ✔✔Federal Mortgage related laws 35% General Mortgage knowledge 25% MLO activities 25% Ethics 15% Fail 3 times then must wait 6 months MLO License renewal requirements - ✔✔Federal Law & regulation (3 hours) Ethics (2 hours) Nontraditional mortgage products (2 hours) Electives (1 hours) MLO Compensation Rules - ✔✔Dodd-Frank Compensation Changes: *Compensation can't be based different cause it is a different kind of loan *Comp. can't be based on loan terms such as interest rate, apr or LTV *Can't get comp. directly from consumer and another source on the same loan *no pricing concessions *no "point banks" *MLO can't be penalized for GFE violations *Can't base comp on terms of previous transaction Safe Harbor Loan - ✔✔If the consumer is presented with loan options for each type loan, including: *Lowest interest rate *Lowest total for origination *Lowest interest rate without certain risky features The MLO: *Obtains options from creditors regularly worked with *Believes in good faith the consumer qualifies MLO Compensation Defined - ✔✔*Salary, commission, bonuses, awards or prizes *Payments from loan proceeds are considered payments directly from consumer. *Yield spread premium (YSP) according to RESPA is not considered payment from the borrower *Transactions are described as all closed-end consumer loans secured by 1 to 4 unit residential dwelling, closed end mortgages or reverse mortgages. MLO Compensation not allowed - ✔✔*Any comp. that is based on loan terms or conditions such as interest rate, APR, loan-to-value LTV *Comp. received directly from the consumer and any other source for the same loan MLO Comp can be based on these triggers - ✔✔*Overall loan volume *Long-term loan performance *Hourly basis *Existing/new customer *Flat fee *Pull-through rate ie. quality of loan files *Legitimate business expenses *Long-term loan performance *Different arrangement for each MLO RESPA - Transactions Covered - ✔✔*Loans secured with a mortgage placed on 1 to 4 family residential property *Includes most purchase loans, assumptions, refinances, property improvement loans and equity lines of credit *Amended in 1994 to include subordinate lien loans RESPA - Transactions not Covered - ✔✔*All cash sale *Sale where the individual seller takes back the mortgage *Rental property transaction *Property of 25 acres or more *Vacant or unimproved property (unless a dwelling will be constructed or moved on within 2 yrs. RESPA Provisions Prohibit - ✔✔*Prohibits giving or accepting a fee, kickback or anything of value in exchange for referrals of settlement service business involving a federally-related mortgage loan. *Prohibits fee-splitting and receiving unearned fees or a percentage of any charge made for services not done *Prohibits "required use" of specific settlement service providers, except in cases where a lender refers a borrower to an attorney, credit reporting agency, or real estate appraiser to represent the lende's interest in the transaction. RESPA things of value - ✔✔*Monies, things, discounts, salaries, commissions, fees, duplicate payments of a charge, stock, dividends, distributions of partnership profits, franchise royalties, credits representing monies that may be paid in future, opportunity to participate in a money-making program, retained or increased earnings, free or special rates or lease or rental payments based on the amount of business referred, trips and payments of another person's expenses or reduction in credit against an existing obligation. RESPA Provisions Allows - ✔✔*Allows things of minimal value used for promo purposes such as pens, mementos, coffee cups, hats, etc. *Allows legitimate discounts on services to consumers if a combination of settlement services is offered at a total price lower than the sum of the individual settlement services, as long as: **the use of any such combo is optional to the buyer **the lower price is not made up by higher costs elsewhere in the settlement process RESPA Penalties - ✔✔Criminal and civil penalties include: *fines up to $10,000 *Imprisonment up to 1 year *Liability of up to 3 times the amount of the charge RESPA Section 9 Title Insurance Rules - ✔✔*Prohibits seller from requiring the home buyer to use a particular title insurance company, either directly or indirectly, as a condition of sale *Buyers can sue for 3 times charges for the title insur. RESPA Section 10 Escrow Account Limits - ✔✔*Limits amount lender can require borrower to put into escrow for purposes of paying taxes, hazard insur. and other charges related to the property to more than 1/12th (1 mos.) of the total of all due payable during the year, plus amount to pay for any shortage in acct. *Allows a cushion not to exceed 1/6th or 2 mos. due for a year *Requires the lender to perform escrow analysis 1/year and notify borrower of shortages and return excess of $50 or more, if borrower is not delinquent. *Does not require lender to impose an escrow acct, but: *Mortgage w/ mortgage insur. must have escrow acct *"Higher Priced" loan must have escrow acct. RESPA Affiliated Business Arrangements AfBA - ✔✔A situation where a person in a position to refer settlement services - or an associate of that person, has an affiliated relationship or interest of MORE than 1% in a provider of settlement services. RESPA Completed Application Definition - ✔✔Six items: *Borrower's name *Borrower's monthly income *Borrower's SSN to obtain a credit report *Property address *Estimate of value of the property *Loan amount RESPA Required Disclosures Within 3 Days of Completed Application - ✔✔*HUD Settlement Cost Booklet - contains consumer info regarding various real estate settlement services *Good Faith Estimate (GFE) of Settlement Costs - provides an estimate of each charge the buyer is likely to pay at settlement *Mortgage Servicing Disclosure Statement - discloses to the borrower whether the lender intends to servicer the loan or transfer servicing to another lender and provides info about complaint resolution *If the lender turns down the loan within 3 days, MLO doesn't have to provide the documents RESPA Required Disclosures Before Settlement Occurs - ✔✔*AfBA Disclosure - requires a settlement service provider to give an AfBA disclosure to the consumer at or prior to the time of referral to another provider with whom the referring party has ownership or interest. must describe the relationship and give the borrower an estimate of the second provider's charges *HUD-1 Settlement Statement: a standard form that clearly show all charges imposed on borrowers and sellers in connection with the settlement; *Borrower's may request HUD-1 1 business day before the actual settlement. RESPA Required Disclosures at Settlement - ✔✔*HUD-1 Settlement statement- shows the actual settlement costs for both buyer and seller *Initial Escrow Stmt: Itemizes the estimated taxes, insurance premiums, and other charges anticipated to be paid from escrow acct. in first 12 mos., including any cushion though usually given at settlement, the lender has 45 days from settlement to deliver RESPA Required Disclosures after Settlement - ✔✔*Annual Escrow Statement - required from loan servicer's once a yr. *Servicing Transfer Stmt: required if loan servicer sells or assigns the servicing rights to another servicer. Usually required 15 days before the effective date of the loan transfer. Include name, address, toll-free # and the date the new servicer will accept payment GFE Food Faith Estimate - ✔✔Serves as a clear and concise form showing the dollar amount of the settlement charges GFE provided to consumer - ✔✔Within 3 days after receipt of completed application GFE settlement charges available - ✔✔For at least ten (10) business days after it is issued GFE average charge calculations allowed - ✔✔If based on the period of time (between 30 days and 6 months), the type of loan, and the geographic area (not size of loan or property value). if used must be used for all loans in a specific loan classification GFE form includes: - ✔✔Page 1: Dates, loan summary, escrow amount info, estimated settlement charges Page2: Itemized list of origination charges, credits or points for interest rate selection, and charges for other settlement services; new form requires a lump sum origination charge that reflects the lender fee and the mortgage broker fee. Page 3: Tools that consumers can use to evaluate the settlement charges associated with the loan under different terms and to compare this loan and its settlement charges to other GFE's GFE charges may not exceed GFE amount: - ✔✔1. Our origination charge 2.Your points for the interest rate (after lock) 3.Your adjusted origination charge (after lock) 4.Transfer Taxes GFE charges may not exceed 10% GFE amount: - ✔✔1.Required services that we select 2.Title servies and lenders title insurance (if ours) 3.Owner's title insurance (if our company) 4.Required services, you can shop for (if you use ours) 5.Govt. recording charges GFE charges may exceed GFE amount: - ✔✔1.Required services you can shop for (& don't use ours) 2.Title servies and lenders title insurance (if not ours) 3.Owner's title insurance (if not our company) 4.Initial deposit for your escrow account 5.Daily interest rate charges 6.Homeowner's insurance GFE terms are binding unless: - ✔✔A new GFE is provided and an updated GFE is required within 3 business days of learning of changes GFE changes must be documented and retained for: - ✔✔At least 3 years GFE change reasons are: - ✔✔1.Changes that increase the settlement costs to exceed tolerances 2.Changes affecting eligibility for the specific loan terms in the GFE 3.Borrower requested changes affecting terms 4.Changes to the charge or for the interest rate chosen, the adjusted origination charges per diem interest, and loan terms related to the interest rate if the interest rate has not been locked by the borrower or if it has expired RESPA GFE changed circumstances: - ✔✔1.Acts of God, war, disaster or emergency 2.Information particular to the borrower or transaction that was relied upon for the GFE, like: credit quality of the borrower, amount of the loan, value of the property or other info that's found to be inaccurate 3.New information particular to borrower or transaction not used for GFE 4.Other circumstances particular to borrower or transaction, such as boundary dispute, need for flood insurance, or environmental problems RESPA GFE changed circumstances do not include: - ✔✔The borrower's name, monthly income, property address, estimate of the value of the property, loan amount sought and any info in any credit report obtained by the MLO prior to issuing the GFE, unless the info is found to be changed or inaccurate after the GFE is issued The original GFE expires in: - ✔✔10 Business Days (or longer if specified by MLO) if the borrower does not intend to continue the application GFE overages must be cured by MLO when: - ✔✔At settlement or within 30 calendar days after settlement HUD -1 Uniform Settlement Statement - ✔✔A settlement statement, required under RESPA, that details all costs associated with closing a loan, showing how much was paid, to what companies or parties, and for what purpose. HUD -1A Uniform Settlement Statement - ✔✔Used for loans with no seller, ie. refinancing and subordinate lien loans When is a settlement statement not needed? - ✔✔For open-end home equity plans subjet to TILA and Regulation Z HUD-1 Page 1 - ✔✔Contains borrower's id. info, property address, lender's loan number, settlement date and id. info for lender. Also has charges paid outside of closing (POC) HUD-1 Page 2 - ✔✔Itemizes settlement charges paid by borrower and seller 1.Items paid in connection with the loan 2.Items required by the lender to be paid in advance 3.Reserves deposited with the lender 4.Title charges 5.Govermnent recording and transfer fees 6.Any additional settlement charges HUD-1 Page 3 - ✔✔Comparison of GFE and HUD-1 including: 1.Charges that can't increase 2.Charges that can't increase more than 10% 3.Charges that can change 4.Loan terms TILA (Z) Truth in Lending Act - ✔✔Administered by the Board of Governors of the Federal Reserve System. Implemented by Regulation Z, from Title 1 of the Consumer Credit Protection Act TILA (Z) Truth in Lending Act purposes: - ✔✔1.Enhance economic stabilization 2.Strengthen competition among financial institutions 3.Assure meaningful disclosure of credit terms to allow consumers to compare 4.Does not set limits on interest rates or finance charges, but regulates the disclosure of these items 5. Establishes a 3 business day right of rescission in certain transactions HOEPA - Home Ownership and Equity Protection Act - ✔✔Amendment to TILA reg z in 2002 Enforced by FTC and Federal Reserve Board FTB Mostly covers "High Cost Loans" Allows consumers to sue lenders who violate HOEPA for recovery of statutory and actual damages, court costs and attorney's fees May enable a consumer to rescind the loan for up to 3 years if the lender is in violation. HOEPA - Home Ownership and Equity Protection Act is triggered? - ✔✔When the APR exceeds the rates in Treasury securities of comparable maturity - based on the 15th of the month before the month in which the application is received by: More than 8 percentage points for a 1st Mortgage More than 10 percentage points for a 2nd mortgage or if: The total points and fees paid by the consumer exceed the higher of 8% of the loan amount or $611 in 2012 example fees = 3800 on 50000 loan 3800/(50000-3800) = 8.23% HOEPA total finance charges include: - ✔✔All normal costs plus: Closing costs paid to the lender or an affiliated 3rd party Any optional credit, life, accident, or loss of income insurance, even if the cost of insurance may have been disclosed. This may even occur at closing and then triggers the disclosure and rescission requirements Dodd-Frank in 2010 lowered high cost loan definitions to: - ✔✔Total points and fees exceeding 5% on mortgage loans of at least $20,000 or 8% or a certain dollar amount for loans below $20,000 APR exceeds average prime offer rate by 6.5% on first lien loans for $50,000 or more or 8.5% on smaller and 2nd lien loans Prepayment penalty applies for more than 3 yrs after closing or that exceed 2% of the prepayment HOEPA Prohibited practices include: - ✔✔1.Balloon payments on HOEPA loans with terms less than 5 years. HOEPA loans must have regular payments to pay down the principal or at least pay interest 2.Negative amortization 3. Default interest rates - higher than pre-default rates 4.A repayment schedule that consolidates more than two periodic payments that are to paid in advance from the proceeds of the loan 5.Prepayment penalties unless limited to the first 5 years of the loan or the consumers total monthly debt including the HOEPA loan is more than 50% of gross monthly income 6.Due on demand clauses Additional TILA Regulation Z prohibited practices: - ✔✔Creditors may not: 1.Grant loans without regard to the borrower's ability to repay the loan 2.Disburse home improvement loan proceeds to anyone but the borrower, or jointly the borrower and contractor 3.Refinance a HOEPA loan to another HOEPA loan with in the first 12 months of origination 4.Wrongfully document a closed-end high cost loan as an open-end loan, ie. home equity line of credit TILA Reg Z applies to: - ✔✔All real estate loans for personal, family or household purposes, (not business or commercial) if the loan is: Subject to finance charges Payable by a written agreement in more than four installments TILA Reg Z disclosures are required in 2 general areas: - ✔✔When creditors offer credit but before the transaction is consummated When credit terms are advertised to potential customers TILA Reg Z disclosures that are required within 3 business days of completed app.: - ✔✔Truth in lending disclosure statement When your home is on the line Consumer handbook on adjustable rate mortgages CHARM and ARM loan program details TILA Reg Z new disclosures are required at least 3 business days before closing.: - ✔✔If there are any estimated figure changes TILA Reg Z requires evidence of compliance: - ✔✔To be kept for at least 2 years after the disclosures were required to be made TILA Reg Z allows only one fee to be collected before disclosures: - ✔✔Fee for the credit report Truth in Lending Disclosure Statement TIL - ✔✔Required for mortgages subject to RESPA secured by consumer's dwelling (other than HELOC's) Must be given NLT 3 business days after completed application for mortgage loan Must be delivered NLT 7th business day prior to loan consumation TIL must include the following items: - ✔✔1.Finance charge expressed as an annual percentage rate 2.Total finance charges including: total interest over the life of the loan, upfront fees, e.g., origination fee, loan fee, commitment fee, assumption fee, prepaid interest, prepaid PMI, prepaid credit life insurance, etc. 3.Amount financed - total amount of credit extended 4.Total of payments paid at the end of the loan 5. Mandatory statement: "you are not required to complete this agreement merely because you have received these disclosures or signed a loan application" TILA Reg. Z other required data: - ✔✔1.Name of the lender 2.Notice of a right to receive an itemization of the amount financed, including principal, all finance charges detailed, and any discounts, points, fee, MIP, etc. that are financed 3.Number, amount and timing of payments 4.New payment, late payment and prepayment provisions 5.Description and identification of the security 6.Whether the loan may be assumed 7.Notice that the consumers may not be able to refinance to a lower rate in the future. 8.Payment summary table indicating initial interest rate and corresponding monthly payment 9.Additionally, for an ARM the payment schedule must include the max. interest rate and payment that can occur during the first 5 years and a worst case example showing the max. rate and payment possible over the life of the loan. APR - ✔✔Annual Percentage Rate tells a borrower the total cost of financing a loan in percentage terms, as a relationship of the total finance charges to the total amount financed. APR includes not just the interest rate, but the total cost of the loan, including all other finance charges spread out over the life of the loan Regulation Z defined finance charges - ✔✔The cost of consumer credit as a dollar amount. Includes any charge payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor as a condition of credit. Includes fees and and amounts charged by someone other than the creditor if the creditor: Requires the use of a 3rd party or retains a portion of the 3rd party charge Regulation Z defined finance charges by 3rd party conducting the closing - ✔✔Are considered finance charges only if the creditor: 1.requires the particular services for which the consumer is charged; 2.Requires the imposition of the charge; or 3.Retains a portion of the 3rd party charge Examples of finance charges: - ✔✔Interest, time price differential, any add-on or discount system of additional charges Service, transaction, activity, carrying charges Points, loan fees, assumption fees, finder's fees. Appraisal review, investigation and credit report investigation fees, MLO fees from consumer or creditor Premiums for insurance protecting the creditor Credit life, accident, health or loss of income insurance written in connection with a credit transaction Examples of charges excluded from finance charges: - ✔✔Application fee charged to all applicants, whether or not credit is actually extended Seller's points Fees for title examination, abstract of title, title insurance, property survey Fees for preparing loan-related documents, such as deeds, mortgages, and reconveyance or settlement documents Notary and credit report fees Property appraisal fees or fees for inspections if the service is performed prior to the closing APR Accuracy and Redisclosure - ✔✔APR cannot vary above or below the APR initially disclosed by more than 1/8% or .125 for a regular transaction or 1/4% .25 for an irregular transaction Irregular Transaction: - ✔✔TILA defined: Multiple advances Irregular payment schedule Irregular payment amounts, other than first and final If APR changes prior to loan consummation: - ✔✔TILA requires the borrower be given corrected disclosure of all terms. This triggers an additional waiting period of 3 business days after they are received. If the disclosures are mailed they are considered received after 3 business days making the additional time 6 business days Waiting period can be waived for a bona fide personal financial emergency, documented in writing and dated by the borrower 3/7/3 Rule TILA disclosure requirements - ✔✔Initial disclosure must be given (or placed in the mail) with in 3 business days of a receipt of a completed application The earliest a loan may be consummated is on the 7th day after disclosures are delivered/mailed Any corrected disclosures must by received at least 3 business days before the loan is consummated Sunday and 10 legal holidays are not business days Rescind Rules apply to: - ✔✔Credit transactions for existing homes i.e.: Home equity loans Home improvement loans Refinances Rescind Rules do not apply to: - ✔✔Purchase loans Construction loans Commercial loans Loans on vacation or second homes Refinancing by the same creditor A transaction in which a state agency is a creditor Rescind Rules provisions: - ✔✔Consumers may exercise the right to rescind until midnight of the 3rd business day following loan consummation, delivery of the required rescission notice, or delivery of all material disclosures, whichever occurs last. Must provide 2 copies of a Notice of Right to Rescind to to each borrower Rescinded by one is effective for all Right to Rescind notice must disclose: - ✔✔The retention or acquisition of a security interest in the borrower's dwelling The consumer's right to rescind How to exercise the right with a form to use with the creditor's address The effects of rescission The date on which the rescission period ends [Show More]

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