NMLS Practice Test Quiz

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NMLS Practice Test Quiz - Quiz

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. Buckle 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 Read morea 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!


NMLS Practice Test Questions and Answers

  • 1. 

    According to the Dodd-Frank Wall Street Reform and Consumer Protection Act, when must the borrower be provided with a copy of their appraisal?

    • A.

      Within 90 days of the closing

    • B.

      No later than 3 days prior to settlement

    • C.

      Within 30 days of the closing

    • D.

      Within 60 days of settlement

    Correct Answer
    B. No later than 3 days prior to settlement
    Explanation
    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 settlement. This ensures that the borrower has enough time to review the appraisal and make informed decisions before finalizing the settlement.

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  • 2. 

    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?

    • A.

      She can refer the borrower to another mortgage company and not receive a referral fee.

    • B.

      She can complete a referral agreement informing all parties that she will receive a fee.

    • C.

      She can originate the loan and place it with a non-conforming investor.

    • D.

      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.

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  • 3. 

    Which transaction would not be covered by the 3 Day Right of Rescission under TILA?

    • A.

      Closing on a Home Equity Loan that is a 2nd lien on a primary residence.

    • B.

      Consummating a Debt Consolidation Refinance of a primary residence.

    • C.

      Refinancing a higher interest mortgage to a lower interest rate on a primary residence.

    • D.

      Purchase of a primary residence with a 5/1 Hybrid ARM.

    Correct Answer
    D. 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.

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  • 4. 

    According to the Final Rule on  Valuation Independence which amended Regulation Z, which of the following would be permitted?

    • A.

      Asking the appraiser for a pencil search to ensure a desired value.

    • B.

      Telling the appraiser that no more appraisals will be ordered if the value isn't reached.

    • C.

      The Listing Realtor providing the most recent sales in the neighborhood to the appraiser.

    • D.

      Ordering the appraisal from the Originator's spouse to guarantee a desired value.

    Correct Answer
    C. 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.

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  • 5. 

    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?

    • A.

      Steering

    • B.

      Predatory Lending

    • C.

      Blockbusting

    • D.

      Redlining

    Correct Answer
    D. Redlining
    Explanation
    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.

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  • 6. 

    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?

    • A.

      Section 32 of the Truth in Lending Act

    • B.

      Section 9 of the Real Estate Settlement Procedures Act

    • C.

      Title 8 of the Civil Rights Act of 1968

    • D.

      Section 16 of the Equal Credit Opportunity Act

    Correct Answer
    B. Section 9 of the Real Estate Settlement Procedures Act
    Explanation
    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.

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  • 7. 

    A loan originator asks a borrower if they plan on having more children, violating which federal law that prohibits discrimination?

    • A.

      Gramm-Leach-Bliley Act

    • B.

      Community Reinvestment Act

    • C.

      Home Mortgage Disclosure Act

    • D.

      Equal Credit Opportunity Act

    Correct Answer
    D. Equal Credit Opportunity Act
    Explanation
    The correct answer is the Equal Credit Opportunity Act. This law prohibits lenders from discriminating against borrowers based on certain protected characteristics, including family status. Asking a borrower about their plans to have more children could be seen as discriminatory, as it may be used to deny them credit or offer them less favorable terms based on their family status.

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  • 8. 

    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?

    • A.

      Affiliated Business Arrangement Disclosure

    • B.

      Mortgage Servicing Disclosure

    • C.

      Truth in Lending Disclosure

    • D.

      Anti Coercion Disclosure Notice

    Correct Answer
    A. Affiliated Business Arrangement Disclosure
    Explanation
    MNOP Mortgage has an ownership interest in QRS Title and WXY Real Estate, which means they have a financial connection with these companies. To ensure compliance with regulations and provide transparency to borrowers, MNOP Mortgage should provide an Affiliated Business Arrangement Disclosure. This disclosure informs borrowers about the relationship between MNOP Mortgage and the referred companies, allowing them to make an informed decision. It is a requirement to provide this disclosure to protect both the borrower and the lender and ensure fair business practices.

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  • 9. 

    Which type of mortgage does not require the borrower to make monthly payments after closing?

    • A.

      An Interest Only Home Equity Line of Credit

    • B.

      A Home Equity Conversion Mortgage

    • C.

      A Payment Option ARM

    • D.

      A Shared Appreciation Mortgage

    Correct Answer
    B. A Home Equity Conversion Mortgage
    Explanation
    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.

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  • 10. 

    Which of the characteristics listed below would not be considered a nontraditional loan?

    • A.

      Permanent Buydown

    • B.

      Fixed Rate

    • C.

      20 year term

    • D.

      5/1 Hybrid ARM

    Correct Answer
    B. Fixed Rate
    Explanation
    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.

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  • 11. 

    According to the National Flood Insurance Program, which of the following agencies identifies areas that will require flood insurance?

    • A.

      FHLMC

    • B.

      FHFA

    • C.

      FNMA

    • D.

      FEMA

    Correct Answer
    D. FEMA
    Explanation
    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.

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  • 12. 

    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?

    • A.

      Transfer Taxes

    • B.

      The Origination Charge

    • C.

      Government Recording Charges

    • D.

      The credit or charge for the specific interest rate chosen

    Correct Answer
    C. Government Recording Charges
    Explanation
    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.

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  • 13. 

    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? 

    • A.

      Money Laundering

    • B.

      Tax Evasion

    • C.

      Video Voyerism

    • D.

      Felony Assault

    Correct Answer
    D. Felony Assault
    Explanation
    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.

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  • 14. 

    Under which circumstance would it be acceptable to re-disclose to the borrower?

    • A.

      The loan originator forgot to include the Processing Fee in the Origination Charge.

    • B.

      The borrower asked to change programs from a 30 year fixed rae loan to a 5/1 Hybrid ARM.

    • C.

      The APR went down by .110%.

    • D.

      The Title Company that the Lender selected increased their Settlement Charge from $450 to $850

    Correct Answer
    D. The Title Company that the Lender selected increased their Settlement Charge from $450 to $850
    Explanation
    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.

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  • 15. 

    According to TILA, if the APR varies by more than what tolerance must it be re-disclosed to the borrower?  

    • A.

      .250%

    • B.

      .500%

    • C.

      .125%

    • D.

      .750%

    Correct Answer
    C. .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.

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  • 16. 

    What is the minimum number of business days before a mortgage loan can be consummated and remain in compliance with TILA?

    • A.

      5

    • B.

      7

    • C.

      3

    • D.

      10

    Correct Answer
    B. 7
    Explanation
    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:

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  • 17. 

    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?

    • A.

      20%

    • B.

      15%

    • C.

      25%

    • D.

      10%

    Correct Answer
    C. 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.

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  • 18. 

    The Sales Comparison Approach to value is considered the most accurate of the appraisal methods for residential properties. What is it also known as?

    • A.

      The Income Approach

    • B.

      The Market Data Approach

    • C.

      The Cost Approach

    • D.

      The Appreciation Approach

    Correct Answer
    B. The Market Data Approach
    Explanation
    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.

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  • 19. 

    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%?

    • A.

      $1,918.31

    • B.

      $2,108.95

    • C.

      $1,700.77

    • D.

      $3,061.38

    Correct Answer
    A. $1,918.31
    Explanation
    To calculate the maximum monthly mortgage payment, including Principal, Interest, Taxes, and Insurance (PITI), that Jose and Mary can qualify for with a debt-to-income (DTI) ratio of 28%, we'll follow these steps:
    Calculate their total monthly income:
    Jose's monthly income = $3,927.08
    Mary's monthly income = $2,926.00
    Total monthly income = Jose's income + Mary's income = $3,927.08 + $2,926.00 = $6,853.08
    Determine the maximum allowable monthly debt payment based on the 28% DTI ratio:
    Monthly income x DTI ratio = $6,853.08 x 0.28 = $1,918.31
    Subtract their existing monthly debts, if any, from the maximum allowable monthly debt payment. Let's assume they have no existing debts.
    The remaining amount is the maximum monthly PITI payment they can qualify for. This includes the principal, interest, property taxes, and homeowners' insurance.
    So, with a 28% DTI ratio and based on their total monthly income, Jose and Mary can qualify for a maximum monthly mortgage payment (PITI) of approximately $1,918.31.

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  • 20. 

    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?

    • A.

      Fair Housing Act

    • B.

      Real Estate Settlement Procedures Act

    • C.

      Equal Credit Opportuinity Act

    • D.

      Truth in Lending Act

    Correct Answer
    A. Fair Housing Act
    Explanation
    The seller has violated the Fair Housing Act. This federal law prohibits discrimination in the sale, rental, and financing of housing based on factors such as race, color, religion, sex, national origin, familial status, and disability. Age discrimination is also protected under this act, making it illegal for the seller to refuse to sell a house to Clarence based on his age as a Korean War veteran.

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  • 21. 

    After providing the borrower with the Good Faith Estimate, how long is the loan originator bound by its terms?

    • A.

      3 business days.

    • B.

      7 business days

    • C.

      10 business days

    • D.

      Until the loan closes

    Correct Answer
    C. 10 business days
    Explanation
    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.

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  • 22. 

    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?

    • A.

      15 days

    • B.

      45 days

    • C.

      30 days

    • D.

      60 days

    Correct Answer
    D. 60 days
    Explanation
    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.

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  • 23. 

    Which situation would not be a violation of Section 8 of RESPA?

    • A.

      A Title Company paying a loan originator $200 for every closing referred.

    • B.

      A Realtor asking for a $500 fee for sending business to an originator.

    • C.

      Two loan originators at the same lender splitting a commission on a loan they both worked on.

    • D.

      A bank originator receiving a referral fee for denied borrowers.

    Correct Answer
    C. 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.

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  • 24. 

    Which of the following Notes requires regular payments of principal and interest?

    • A.

      Installment Note with Balloon

    • B.

      Partially Amortizing Installment Note

    • C.

      Fully Amortizing Installment Note

    • D.

      Straight Note

    Correct Answer
    C. Fully Amortizing Installment Note
    Explanation
    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.

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  • 25. 

    Which statement is true regarding the effect a buydown plan can have on a borrower's payments?

    • A.

      The seller cannot pay for the buydown because they are an interested party.

    • B.

      The borrower qualifies at the initial interest rate, allowing them to qualify for a larger loan.

    • C.

      The payment gradually decreases, giving the buyer more leverage.

    • D.

      The borrower starts with a lower interest rate and payment during the first few years.

    Correct Answer
    D. 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.

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  • Current Version
  • Apr 04, 2024
    Quiz Edited by
    ProProfs Editorial Team
  • May 08, 2014
    Quiz Created by
    Shawnaxmarie
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