NMLS Practice Test Quiz
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MNOP Mortgage has an ownership interest in QRS Title and WXY Real Estate. To provide Safe Harbor protection, which disclosure should they provide if they refer the borrower to either company?
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Affiliated Business Arrangement Disclosure
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Mortgage Servicing Disclosure
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Truth in Lending Disclosure
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Anti Coercion Disclosure Notice
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Welcome to the thrilling world of the NMLS Practice Test Quiz. This exhilarating quiz is designed to challenge your understanding of the NMLS (Nationwide Multistate Licensing System) and provide an interactive experience like no other.
With NMLS Practice Exam 2, you'll dive headfirst into a whirlwind of questions that will put your mortgage knowledge to the ultimate test. See moreBuckle up as you navigate through a labyrinth of scenarios, regulations, and calculations. Get ready to be swept away by the thrilling challenge that awaits!
This quiz is tailored to suit all levels of expertise. Whether you're a rookie or a seasoned pro, NMLS Practice Exam 2 guarantees an exciting and immersive experience that will keep you on the edge of your seat. Get your thinking cap on and prepare to face the gripping world of mortgages head-on!
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- 2.
A loan originator's manager indicates that the "red push pins" on the map in the office represent areas where the company doesn't lend. This is an example of what type of discriminatory practice?
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Steering
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Predatory Lending
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Blockbusting
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Redlining
Correct Answer
A. RedliningExplanation
The loan originator's manager indicating that the "red push pins" on the map represent areas where the company doesn't lend is an example of redlining. Redlining is a discriminatory practice where certain neighborhoods or areas are systematically denied access to loans or other financial services based on factors such as race, ethnicity, or income level. By refusing to lend in specific areas, the company is engaging in redlining and perpetuating inequality in access to credit.Rate this question:
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- 3.
According to the National Flood Insurance Program, which of the following agencies identifies areas that will require flood insurance?
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FHLMC
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FHFA
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FNMA
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FEMA
Correct Answer
A. FEMAExplanation
FEMA, the Federal Emergency Management Agency, is the agency that identifies areas that will require flood insurance. FEMA is responsible for mapping and assessing flood-prone areas in the United States, and they provide flood insurance rate maps (FIRMs) that determine the risk level for flooding in different areas. Based on these maps, FEMA identifies areas that are at high risk for flooding and require homeowners to have flood insurance.Rate this question:
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- 4.
According to the Final Rule on Valuation Independence which amended Regulation Z, which of the following would be permitted?
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Asking the appraiser for a pencil search to ensure a desired value.
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Telling the appraiser that no more appraisals will be ordered if the value isn't reached.
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The Listing Realtor providing the most recent sales in the neighborhood to the appraiser.
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Ordering the appraisal from the Originator's spouse to guarantee a desired value.
Correct Answer
A. The Listing Realtor providing the most recent sales in the neighborhood to the appraiser.Explanation
The Final Rule on Valuation Independence, which amended Regulation Z, prohibits any actions that could influence or pressure the appraiser to reach a desired value. Asking for a pencil search or telling the appraiser that no more appraisals will be ordered if the value isn't reached would be considered attempts to influence the appraiser's opinion. Ordering the appraisal from the Originator's spouse to guarantee a desired value would also be seen as a conflict of interest. However, providing the most recent sales in the neighborhood to the appraiser is permitted as long as it is done in a neutral and unbiased manner to assist the appraiser in their valuation process.Rate this question:
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- 5.
Which situation would not be a violation of Section 8 of RESPA?
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A Title Company paying a loan originator $200 for every closing referred.
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A Realtor asking for a $500 fee for sending business to an originator.
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Two loan originators at the same lender splitting a commission on a loan they both worked on.
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A bank originator receiving a referral fee for denied borrowers.
Correct Answer
A. Two loan originators at the same lender splitting a commission on a loan they both worked on.Explanation
Under Section 8 of the Real Estate Settlement Procedures Act (RESPA), it is generally prohibited for individuals or entities involved in real estate transactions to give or receive anything of value in exchange for referrals of settlement service business. This is to prevent kickbacks, referral fees, or other forms of payment that could incentivize steering consumers toward specific service providers. In the scenario provided, two loan originators at the same lender splitting a commission on a loan they both worked on does not violate Section 8 of RESPA because it involves individuals who are both employed by the same lender and are simply sharing a commission for their work on a specific loan. This practice is common within the industry and does not involve the payment of referral fees or kickbacks for the referral of business to an outside party. Therefore, it would not be considered a violation of RESPA.Rate this question:
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- 6.
A mortgage loan originator works for a Mortgage Broker that does not originate FHA loans. She has a borrower who wants an FHA loan. Which of the following is correct?
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She can refer the borrower to another mortgage company and not receive a referral fee.
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She can complete a referral agreement informing all parties that she will receive a fee.
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She can originate the loan and place it with a non-conforming investor.
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She can refer the loan to a friend of hers at a Mortgage Lender and receive a referral fee.
Correct Answer
A. She can refer the borrower to another mortgage company and not receive a referral fee.Explanation
The correct answer is that the mortgage loan originator can refer the borrower to another mortgage company and not receive a referral fee. This is because the mortgage broker she works for does not originate FHA loans, so she cannot originate the loan herself. Instead, she can refer the borrower to another company that does handle FHA loans, without receiving any compensation for the referral.Rate this question:
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- 7.
According to TILA, if the APR varies by more than what tolerance must it be re-disclosed to the borrower?
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.250%
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.500%
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.125%
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.750%
Correct Answer
A. .125%Explanation
According to the Truth in Lending Act (TILA) and Regulation Z, if the Annual Percentage Rate (APR) on a mortgage loan varies by more than 0.125% (or 1/8th of a percentage point) from the APR disclosed in the initial Loan Estimate, it generally triggers a requirement for the lender to provide a revised Loan Estimate to the borrower. This is part of the tolerance rules under TILA-RESPA Integrated Disclosure (TRID) regulations.Rate this question:
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- 8.
A loan originator asks a borrower if they plan on having more children, violating which federal law that prohibits discrimination?
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Gramm-Leach-Bliley Act
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Community Reinvestment Act
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Home Mortgage Disclosure Act
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Equal Credit Opportunity Act
Correct Answer
A. Equal Credit Opportunity ActExplanation
The Equal Credit Opportunity Act (ECOA) prohibits discrimination in lending practices based on several factors, including familial status. Asking a borrower about their plans for having more children falls under familial status and is considered discriminatory under ECOA. This law aims to ensure fair lending practices and prevent lenders from making credit decisions based on factors unrelated to creditworthiness.Rate this question:
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- 9.
According to the Dodd-Frank Wall Street Reform and Consumer Protection Act, when must the borrower be provided with a copy of their appraisal?
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Within 90 days of the closing
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No later than 3 days prior to settlement
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Within 30 days of the closing
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Within 60 days of settlement
Correct Answer
A. No later than 3 days prior to settlementExplanation
According to the Dodd-Frank Wall Street Reform and Consumer Protection Act, the borrower must be provided with a copy of their appraisal no later than 3 days prior to the loan's settlement (closing). This requirement is part of the Act's provisions aimed at ensuring transparency and fairness in the lending process, allowing borrowers sufficient time to review their appraisal and understand how the value of the property being financed was determined before completing the transaction. This rule helps protect consumers by ensuring they are informed about key aspects of their loan and the value of their property before they are legally committed to the loan terms.Rate this question:
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- 10.
George is buying a house, and the seller insists he use a specific title company or the transaction won't close. This violates which federal law?
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Section 32 of the Truth in Lending Act
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Section 9 of the Real Estate Settlement Procedures Act
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Title 8 of the Civil Rights Act of 1968
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Section 16 of the Equal Credit Opportunity Act
Correct Answer
A. Section 9 of the Real Estate Settlement Procedures ActExplanation
Section 9 of the Real Estate Settlement Procedures Act prohibits sellers from requiring buyers to use a specific title company as a condition for closing the transaction. This law ensures that buyers have the freedom to choose their own title company and promotes fair competition in the real estate settlement process.Rate this question:
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- 11.
When using an FHA mortgage to finance the purchase of a home, how long does the borrower have to move in and occupy the home after closing?
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15 days
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45 days
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30 days
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60 days
Correct Answer
A. 60 daysExplanation
In most cases the FHA borrower has up to 60 days to move into the home and begin using it as the primary residence under the terms of FHA home loan agreements in the occupancy requirements section. Even if you have cleared all the hurdles mentioned above, closing day is not a good idea as moving day.Rate this question:
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- 12.
Based on the SAFE Mortgage Licensing Act of 2008, a conviction of which of the following crimes would bar an applicant for 7 years from licensure?
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Money Laundering
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Tax Evasion
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Video Voyerism
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Felony Assault
Correct Answer
A. Felony AssaultExplanation
Based on the SAFE Mortgage Licensing Act of 2008, a conviction for Felony Assault would generally result in a 7-year waiting period before an applicant can be licensed as a mortgage loan originator. This Act imposes certain criminal history standards and disqualifications for individuals seeking licensure in the mortgage industry, and felony assault is one of the disqualifying offenses. Please note that specific requirements and disqualifications may vary by state, so it's essential to check the regulations in the specific state in which the applicant is seeking licensure.Rate this question:
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- 13.
Which statement is true regarding the effect a buydown plan can have on a borrower's payments?
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The seller cannot pay for the buydown because they are an interested party.
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The borrower qualifies at the initial interest rate, allowing them to qualify for a larger loan.
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The payment gradually decreases, giving the buyer more leverage.
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The borrower starts with a lower interest rate and payment during the first few years.
Correct Answer
A. The borrower starts with a lower interest rate and payment during the first few years.Explanation
A buydown plan allows the borrower to start with a lower interest rate and payment during the first few years. This means that the borrower will have lower monthly payments initially, which can be beneficial for budgeting purposes. However, it's important to note that the interest rate and payment will gradually increase over time, so the borrower should be prepared for the potential increase in expenses in the future.Rate this question:
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- 14.
Which type of mortgage does not require the borrower to make monthly payments after closing?
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An Interest Only Home Equity Line of Credit
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A Home Equity Conversion Mortgage
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A Payment Option ARM
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A Shared Appreciation Mortgage
Correct Answer
A. A Home Equity Conversion MortgageExplanation
A Home Equity Conversion Mortgage (HECM) does not require the borrower to make monthly payments after closing. Instead, the borrower receives payments from the lender, which are typically used to pay off the existing mortgage or cover other expenses. This type of mortgage is commonly used by older homeowners who want to convert their home equity into cash without the burden of making monthly payments. The loan is repaid when the borrower sells the home or no longer uses it as their primary residence.Rate this question:
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- 15.
Under which circumstance would it be acceptable to re-disclose to the borrower?
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The loan originator forgot to include the Processing Fee in the Origination Charge.
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The borrower asked to change programs from a 30 year fixed rae loan to a 5/1 Hybrid ARM.
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The APR went down by .110%.
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The Title Company that the Lender selected increased their Settlement Charge from $450 to $850
Correct Answer
A. The Title Company that the Lender selected increased their Settlement Charge from $450 to $850Explanation
If the Title Company that the Lender selected increased their Settlement Charge from $450 to $850, it would be acceptable to re-disclose to the borrower. This is because the change in the settlement charge significantly affects the borrower's loan terms and costs, and therefore, the borrower should be informed of this change.Rate this question:
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- 16.
Jose and Mary want to get pre-approved for a mortgage before searching for their property. Jose is a former Military Policeman and currently works as a Deputy Sheriff, earning $3,927.08 per month. Mary is a Dental Hygienist making $2,926 per month. What is the maximum monthly mortgage payment, PITI, they can qualify for, considering the DTI ratio is 28%?
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$1,918.86
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$2,108.95
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$1,700.77
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$3,061.38
Correct Answer
A. $1,918.86Explanation
To determine the maximum monthly mortgage payment (PITI) Jose and Mary can qualify for, we need to calculate their combined monthly income and then apply the Debt-to-Income (DTI) ratio of 28%.
First, calculate their combined monthly income:
Jose's income: $3,927.08 per month
Mary's income: $2,926 per month
Combined income: $3,927.08 + $2,926 = $6,853.08 per month
Next, apply the DTI ratio of 28%:
Maximum PITI = Combined monthly income × DTI ratio
Maximum PITI = $6,853.08 × 0.28
Maximum PITI = $1,918.86
Therefore, the maximum monthly mortgage payment (PITI) they can qualify for is $1,918.86.Rate this question:
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- 17.
Which of the following Notes requires regular payments of principal and interest?
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Installment Note with Balloon
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Partially Amortizing Installment Note
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Fully Amortizing Installment Note
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Straight Note
Correct Answer
A. Fully Amortizing Installment NoteExplanation
A fully amortizing installment note requires regular payments of both principal and interest. This means that the borrower will make equal payments over the life of the loan, with each payment covering both the interest accrued and a portion of the principal balance. As a result, the loan will be fully paid off by the end of the term. This is different from other types of notes, such as a straight note or a partially amortizing installment note, where the payments may not fully cover the principal balance.Rate this question:
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- 18.
Which transaction would not be covered by the 3 Day Right of Rescission under TILA?
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Closing on a Home Equity Loan that is a 2nd lien on a primary residence.
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Consummating a Debt Consolidation Refinance of a primary residence.
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Refinancing a higher interest mortgage to a lower interest rate on a primary residence.
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Purchase of a primary residence with a 5/1 Hybrid ARM.
Correct Answer
A. Purchase of a primary residence with a 5/1 Hybrid ARM.Explanation
The 3 Day Right of Rescission under TILA allows borrowers to cancel certain types of loans within three business days of signing the loan agreement. This right does not apply to the purchase of a primary residence with a 5/1 Hybrid ARM. The 3 Day Right of Rescission typically applies to refinancing transactions, such as closing on a Home Equity Loan or a Debt Consolidation Refinance, where the borrower is obtaining a new loan to replace an existing loan. However, when purchasing a primary residence with a 5/1 Hybrid ARM, the borrower is not refinancing an existing loan but rather entering into a new purchase transaction, so the right of rescission does not apply.Rate this question:
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- 19.
Which of the characteristics listed below would not be considered a nontraditional loan?
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Permanent Buydown
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Fixed Rate
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20 year term
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5/1 Hybrid ARM
Correct Answer
A. Fixed RateExplanation
A fixed rate loan is not considered a nontraditional loan because it has a consistent interest rate throughout the loan term. Nontraditional loans typically have unique features such as adjustable interest rates or unconventional payment structures. The other options listed - Permanent Buydown, 20 year term, and 5/1 Hybrid ARM - all have elements that deviate from the traditional fixed rate loan structure.Rate this question:
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- 20.
What is the minimum number of business days before a mortgage loan can be consummated and remain in compliance with TILA?
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5
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7
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3
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10
Correct Answer
A. 7Explanation
The minimum number of business days before a mortgage loan can be consummated, to remain in compliance with the Truth in Lending Act (TILA), is 7 business days from the delivery of the Loan Estimate to the borrower. TILA requires that borrowers receive a Loan Estimate no later than the third business day after they submit a loan application, and the loan cannot be consummated until at least seven business days have passed from the delivery of the Loan Estimate. Therefore, the correct answer is:Rate this question:
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- 21.
Clarence, a Korean War veteran, encounters age discrimination from a seller who refuses to sell him a house. Which federal law has the seller violated?
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Fair Housing Act
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Real Estate Settlement Procedures Act
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Equal Credit Opportuinity Act
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Truth in Lending Act
Correct Answer
A. Fair Housing ActExplanation
The Fair Housing Act prohibits discrimination in the sale, rental, and financing of housing based on protected characteristics, including race, color, national origin, religion, sex, familial status, and disability. Since Clarence is being discriminated against due to his age, and age is a protected characteristic under the Fair Housing Act, the seller has violated this federal law.Rate this question:
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- 22.
According to RESPA, which of the following charges can have a 10% variance between the amount disclosed on the initial Good Faith Estimate and the amount the borrower pays at settlement?
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Transfer Taxes
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The Origination Charge
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Government Recording Charges
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The credit or charge for the specific interest rate chosen
Correct Answer
A. Government Recording ChargesExplanation
The RESPA rule allows for up to a 10% variance between the Good Faith Estimate and actual settlement charges for specific third-party services and government recording charges, not for the interest rate credit or charge. TILA mandates a 3-business-day waiting period after the initial Loan Estimate is received and another 3 days after the Closing Disclosure is given, ensuring borrowers have time to review loan details before consummation.Rate this question:
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- 23.
The Sales Comparison Approach to value is considered the most accurate of the appraisal methods for residential properties. What is it also known as?
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The Income Approach
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The Market Data Approach
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The Cost Approach
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The Appreciation Approach
Correct Answer
A. The Market Data ApproachExplanation
The Sales Comparison Approach, also known as the Market Data Approach, is considered the most accurate method for appraising residential properties. This approach involves comparing the subject property to similar properties in the market that have recently sold. By analyzing the sales data of these comparable properties, appraisers can determine the fair market value of the subject property. This approach takes into account factors such as location, size, condition, and amenities to provide an accurate valuation. The Income Approach, Cost Approach, and Appreciation Approach are different methods used for appraising properties, but they are not considered as accurate as the Sales Comparison Approach for residential properties.Rate this question:
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- 24.
According to FNMA Guidelines, what is the maximum total gross adjustment to the sales price of a comparable property that should not be exceeded for it to be considered a good comparable property?
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20%
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15%
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25%
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10%
Correct Answer
A. 25%Explanation
According to FNMA (Fannie Mae) guidelines, the maximum total gross adjustment to the sales price of a comparable property that should not be exceeded for it to be considered a good comparable property is typically 25%. This means that when appraising a property, adjustments to the sales price of a comparable property should generally not exceed 25% in either direction (upward or downward) to maintain its validity as a comparable property. However, it's important to note that specific guidelines may vary, and appraisers should follow the most current FNMA guidelines and local regulations when determining adjustments and comparable property selection.Rate this question:
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- 25.
After providing the borrower with the Good Faith Estimate, how long is the loan originator bound by its terms?
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3 business days.
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7 business days
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10 business days
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Until the loan closes
Correct Answer
A. 10 business daysExplanation
Under TRID rules, the loan originator is generally bound by the terms disclosed in the Loan Estimate for ten business days after it is provided to the borrower. This means that the loan terms and costs outlined in the Loan Estimate should remain available to the borrower for at least ten business days.Rate this question:
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Current Version
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Dec 23, 2024Quiz Edited by
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May 08, 2014Quiz Created by
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