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Practice Exam for Residential Mortgage Lending Principles and Practices, 6e
1. The history of mortgage lending can be dated as far back to
a. The Greeks
b. England
c. California gold Rush
d. French Middle Ages
2- In American, real estate financing on an organized basis occurred after which war period?
a. WW I
b. WW II
c. The Civil war
d. Spanish War
3- The word mortgage comes from:
a. Old English
b. French word mort meaning dead and gage meaning pledge
c. California-ese
d. Lawyers in New York City
4- During the 1800s, which institution did the most mortgage lending?
a. Mortgage companies
b. Thrifts
c. Private investors
d. The federal government
5- During the Great Depression, which of the following institutions failed under the crunch?
a. Thrifts
b. Commercial banks
c. Savings and loans
d. All of the above
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6- The Fair Housing Act was enacted in 1968 to
a. make sure everybody got a house
b. allow women to buy homes in their own names
c. to provide mortgage insurance for lenders
d. protect certain groups of people from discrimination in real estate transactions
7- State laws affecting mortgages typically deal with
a. licensing
b. advertising practices
c. mortgage servicing
d. all of the above
8- A life estate
a. prevents the owner from getting a mortgage on the house until the tenant dies
b. makes sure the state can’t take the home away for a tax sale if an old person lives in it
c. allows someone to occupy the home for the rest of his or her life
d. means nothing after the couple gets divorced
9- What are elements of a lease
a. names of landlord and tenant
b. duration of lease
c. signatures
d. all of the above
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10- Taking title as tenant by the entirely is typically used for
a. tenants on same lease
b. people who buy property together and want to leave it to each other upon death
c. parents and children
d. married couples
11- Tom and Jane buy a house as tenants in common. Tom dies. What happens to the ownership of
the house?
a. Tom’s share will go to his heirs
b. Jane will get Tom’s share
c. Tom’s share will be sold on the open market
d. Jane can sell Tom’s share to anyone she wishes
12- A deed is recorded
a. at the bank who holds the mortgages
b. in the County Clerk’s office where the property is located
c. it does not have to be recorded
d. it is not recorded and the original deed should always be kept in a safety deposit box
13- What helps increase homeownership?
a. Lower interest rates
b. Greater housing inventory
c. Low unemployment rates
d. All of the above
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14- What factors increase the savings rate?
a. Less spending
b. Lower consumer confidence
c. Nervousness about the stock market
d. All of the above
15- Who implements the Monetary Policy?
a. The Federal Reserve
b. The President
c. Congress
d. A Committee of Senators
16- What is the primary difference between a mortgage banker and a mortgage broker?
a. A mortgage broker makes a yield spread premium from the lender whereas a mortgage
banker can only change fees
b. Mortgage bankers have better mortgage rates
c. A mortgage banker has a warehouse line to fund a loan before selling it to an investor
d. A mortgage banker has greater liability for fraud
17- People who keep their money in credit unions are referred to as
a. Depositors
b. members
c. Creditors
d. Old fashion
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18- How do lower interest rates affect a person’s borrowing?
a. The lower the interest rate, the higher the borrower’s credit limit
b. A person can spend more money on credit cards so he buys more things
c. The monthly payment will be lower so he can buy bigger things
d. It entices a person to buy more big ticket items
19- Which item is true about mortgage brokers?
a. Mortgage brokers fund loans
b. More loan are originated by mortgage brokers than banks and mortgage bankers
combined
c. Mortgage brokers approve loans to be sold to FNMA
d. Mortgage brokers originate loans
20- What is a true statement about wholesale lenders?
a. They make money from origination fees
b. They do not originate mortgages but may approve loans
c. They have a sales team that takes loan applications
d. They service all the loans they fund
21- What is an example of a GSE?
a. Fannie Mae
b. Freddie Mac
c. GinnieMae
d. All of the above
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22- A commercial bank
a. only originates mortgages
b. has members rather than depositors
c. is a private institution which collects deposits and uses them for financing public and
private loans
d. services government insured mortgages
23- The first savings bank was opened in
a. California
b. Canada
c. In New jersey by the British
d. Pennsylvania
24- The greatest risk to a lender is
a. interests rates go higher and it loses profit
b. default of the borrower
c. the value of the collateral declines
d. competition drives down profit from fees
25- Government sponsored enterprises are prohibited from
a. buying loans
b. making a profit
c. servicing loans they purchased
d. hiring a subservicer
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26- Which are some benefits of the secondary mortgage market?
a. Provides market liquidity
b. Moderates the flow of capital
c. Decreases the geographical spread in interest rates
d. All of the above
27- Which of the following is not an issuer of MBSs?
a. Ginnie Mae
b. Fannie Mae
c. FHA
d. Credit unions
28- Fannie Mae is
a. out of business
b. is now completely run by the U.S. Government
c. the parent company of Freddie Mac
d. the largest purchaser of mortgages
29- Which of the following is not an investor in the secondary market?
a. Commercial banks
b. Life insurance companies
c. Mortgage broker
d. Thrifts
30- Private label MBS issuance peaked around
a. 2000
b. 2003
c. 2006
d. 2009
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31- An adjustable rate mortgage is considered
a. risky, because of the potential rate and payment increase
b. a better deal by most
c. a money maker for the lenders
d. a gamble
32- What is the major factor of a conforming loan?
a. It is a “prime” mortgage
b. The loan amount
c. It meets the underwriting guidelines of Fannie and Freddie
d. It is a fixed rate loan
33- A non-traditional mortgage is defined by the SAFE Act as
a. a subprime loan
b. any loan that is not a 30 year fixed rate loan
c. a jumbo mortgage
d. an ARM loan
34- A 10/1 ARM is an example of a
a. balloon note
b. subprime loan
c. non- conforming loan
d. “Hybrid” mortgage
35- Margin, cap and index are all terms associated with
a. subprime loans
b. adjustable rate loans
c. non-conforming
d. credit cards
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36- A bi-weekly mortgage is paid
a. twice a week
b. twice a month
c. every two weeks
d. half a payment is made each week
37- Private Mortgage Insurance most benefits the
a. buyer
b. the insurance company
c. lender
d. HUD
38- A self-insured mortgage means
a. the lender does not obtain MI
b. the interest rate is higher
c. there is no chance of removing it from the payment when the LTV goes down
d. all of the above
39- PMI is required when the first mortgage loan to value is greater than
a. 78%
b. 75%
c. 80%
d. 95%
40- PMI is similar to
a. MIP
b. Flood insurance
c. Fire insurance
d. LTV
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41- Mortgage insurance companies must maintain which type of reserve?
a. Unearned premium
b. Loss
c. Contingency
d. All of the above
42- The higher the ____________ the higher the percentage of MI coverage required
a. loan amount
b. credit score
c. debt to income ratio
d. loan to value
43- FHA mortgage offer the borrower ____________ where VA loans provide_________
a. lower rates/higher fees
b. insurance/guarantee
c. guarantee/insurance
d. higher loan amounts/lower fees
44- A VA loan is offered to
a. eligible veterans and their spouses
b. children of veterans
c. only vets that received honorable discharges
d. people that served in the reserves
45- The ratio used for a VA loan is
a. 38/41
b. 41/45
c. 41
d. 45
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46- An appraisal for a VA loan is called a
a. appraisal
b. Certificate of Reasonable Value
c. REALTOR® comps
d. they do not use appraisals
47- The U.S. Department of Agriculture offers loans in
a. rural areas
b. where income is below the poverty line
c. only for coops
d. for active farm land
48- What is the population of a rural area?
a. Less than 5,000
b. Doesn’t matter if a majority of the people are farmers
c. There must be at least 50% farm land
d. Under 20,000
49- A construction loan is mainly used by
a. banks
b. builders and home owners
c. condo sponsors
d. developers
50- The value the lender uses to determine the loan to value for a construction loan is
a. the as completed value of the home
b. the cost of construction
c. either A or B above
d. as completed value less profit margin
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51- A lender uses what to determine how to disburse the loan proceeds
a. invoices of work and labor
b. on an as need basis
c. construction disbursement schedule
d. when the builder calls for more money
52- What should the builder provide to the lender at the end of the construction process?
a. A final certificate of occupancy/occupancy permit
b. A bill
c. Any receipt for over runs
d. A gift to the banker for all of their troubles
53- Which item is not a benefit to the lender for construction lending?
a. Earning a higher interest rate
b. Reaching a different type of customer
c. Making larger loans
d. Renewal of local hosing stock
54- What would be the least risky construction loan for a lender?
a. Homeowner building a primary residence
b. Builder spec house
c. Multi family home rehab
d. Second mortgage for rehab job
55- A home equity loan is defined as
a. second mortgage
b. HELOC
c. home improvement loan
d. all of the above
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56- The interest rate for a home equity loan can be
a. fixed
b. adjustable
c. adjustable with a conversion to fixed feature
d. all of the above
57- Home equity loan amounts are strongly based on
a. the amount of equity in the home
b. borrowers credit
c. qualifying ratio
d. type of home
58- What is the biggest difference between a closed end second mortgage and a HELOC
a. the HELOC can have multiple advances
b. the fees are higher for the second
c. a HELOC is more of a risk for the borrower
d. the interest rate is fixed
59- A HELOC introductory rate is also known as a
a. initial rate
b. teaser rate
c. bait and switch
d. hybrid loan
60- What is the most common index used to calculate the interest rate for the HELOC?
a. Cost Of Funds Index (COFI)
b. 1 year Treasury Index
c. prime rate
d. London Interbank Offering Rate (LIBOR)
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61- FCRA stands for
a. Fair and Accurate Credit Transaction
b. Fair Credit Reporting Act
c. Fair Credit Report Administration
d. Farm Credit Record Administration
62- The main objective of the Gramm Leach Bliley Act is to
a. make sure the consumer’s financial privacy is maintained
b. regulate the mortgage brokers
c. insure people can get a free copy of their credit report
d. insure the consumer understands the costs and fees associated with borrowing money
63- The most important form required by The Truth in Lending Act is
a. HUD-1
b. The Right to Rescind
c. Good Faith Estimate
d. The Truth in Lending Disclosure
64- The _____________ requires the Equal Housing Opportunity Logo be shown on all advertising
a. Equal Credit Opportunity Act
b. Fair Housing Act
c. RESPA
d. Fair Credit Reporting Act
65- The USAPATRIOT Act was created by which President
a. William Clinton
b. George W. Bush (Jr.)
c. Lyndon Johnson
d. George H.W. Bush(Sr.)
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66- The SAFE Act defines a mortgage loan originator as
a. any individual who takes a mortgage loan application or negotiates mortgage terms
b. a mortgage broker or banker
c. anyone who deals with mortgages
d. a loan officer
67- During the interview process, the mortgage loan originator
a. counsels the client
b. takes a mortgage loan application
c. pre-qualifies a consumer for a mortgage
d. all of the above
68- ECOA states that the lender
a. must treat all people equally
b. may not discourage a person from applying for a mortgage loan or refuse to take a loan
application
c. should give everybody the same rate and fees
d. never be mean
69- Fannie Mae Form 1003 is another name for
a. the appraisal
b. the loan application
c. the credit report
d. the closing statement
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70- Which form must be provided within 3 business days of receipt of a mortgage loan application?
a. The Good Faith Estimate
b. The HUD-1
c. The Fannie Mae 1003
d. The Appraisal (URAR)
71- An underwriter analyzes which of the following risk factors?
a. Credit
b. Interest rate
c. Collateral
d. All of the above
72- Most lenders follow the underwriting guidelines outlined by
a. Fannie Mae and Freddie Mac
b. their own rules
c. Wall Street
d. HUD
73- Which is considered the “newest” of the four “C”s of underwriting?
a. Capacity
b. Credit
c. Compliance
d. Collateral
74- Which is better for a buyer to have to shop for a home?
a. A Prequalification
b. A Preapproval
c. Neither
d. Either- they are both the same thing
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75- The type of loan with the highest rate of default is
a. cash out refinance
b. coops
c. investment property
d. fixed rate primary residence
76- The purpose of an appraisal is to
a. establish the value and condition of the property
b. see if the property is near a factory or shopping center
c. know how long it took to sell
d. find out who owns the house
77- The standardized form on which a residential appraisal is prepared is
a. the narrative appraisal form
b. the Fannie Mae 1003
c. Form 1040
d. the Fannie Mae 1008 URAR
78- Which type of approach is best to establish the value of a primary residence?
a. Cost approach
b. Income approach
c. Reconciliation approach
d. The sales approach
79- What might warrant the need for an appraisal?
a. Sale of a home
b. Insurance estimates
c. Tax assessment
d. All of the above
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80- When personal property is included in the sale of a home
a. it is part of the sale price, thus part of the appraised value
b. it is not included in the total value of the home
c. the realtor should not disclose this to the appraiser
d. the buyer and seller should make a side deal and not tell anybody
81- At what point will a residential mortgage closing typically be scheduled?
a. Three business days after the application is received
b. After the appraisal is completed
c. When the lender clears the commitment conditions for the application
d. When the borrower signs the note and mortgage documents
82- RESPA requires which document to be provided at the closing of a home purchase?
a. HUD- 1
b. GFE
c. TIL
d. Appraisal
83- According to regulation, the costs for services on the HUD-1 must come closest to those on
document?
a. 1003
b. TIL
c. GFE
d. None
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84- Which document must the lender file with the IRS for a purchase transaction?
a. 4506
b. 1003
c. K-1
d. 1009-B
85- Which entity will most likely handle a closing?
a. Title company
b. Attorney
c. Escrow Agent
d. All of the above
86- What functions can a servicer perform?
a. Collecting real estate taxes and insurance escrows and making payments
b. Taking customer’s calls
c. Providing payoff letters
d. of the above
87- What would the servicer first send to the borrower if the payment was late?
a. Default notice
b. Late notice
c. 30 day notice
d. Increased interest rate notice
88- Which of the following would not be a likely reason for default of a mortgage?
a. Sold the house
b. Loss of employment
c. Divorce
d. Death of co-borrower
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89- Typically, how late does a borrower have to be to receive a demand letter?
a. 30 days
b. 60 days
c. 90 days
d. 120 days
90- What are alternatives to a foreclosure sale?
a. Deed in lieu
b. Short sale
c. Cash for keys
d. All of the above
91- Mortgages are typically sold in?
a. Lots
b. Contracts
c. Pools
d. Auctions
92- The majority of mortgages are sold
a. to GSEs
b. to Wall Street
c. privately
d. by auction
93- What is recourse in the secondary market?
a. A lawsuit between the loan originator and the servicer
b. A clause that protects the buyer in case of fraud
c. What the servicer comes after the borrower for in case of default
d. The seller buyback liability because of specific event
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94- A lender not certain about when an application will close might sell it
a. with recourse
b. mandatory
c. best efforts
d. none of the above
95- What is the average time for proper loan seasoning?
a. Six months
b. Twelve months
c. Twenty four months
d. There should be no seasoning
96- The most powerful relationship a mortgage loan originator may have is with
a. REALTORS®
b. Attorneys
c. Financial planners
d. All of the above
97- According to an MBA survey, which of the following is not one of the three most important
attributes to attracting mortgage customers who are new to the area?
a. Real estate agent referrals
b. Availability of various loan products
c. Low interest rates
d. Good company reputation
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98- By law a mortgage loan originator must have which of the following on his or her business cards?
a. Cell number
b. Address of branch
c. NMLS number
d. List of documents needed for application
99- The most competitive factor mortgage loan officers face when applicants are mortgage shopping
is
a. customer service
b. fees
c. rates
d. speed
100- Which of the following federal regulations has the greatest effect on how a loan officer acts
during a loan application?
a. FCRA
b. RESPA
c. ECOA
d. FHA
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Exam Answer Key for Residential Mortgage Lending Principles and Practices, 6e
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