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Which of the following best defines negative amortization: A. It is the same as interest only, with no interest being paid. B. Not only is no principal being paid, but not all of the interest due is being paid, hence the loan balance is growing due to this deferred interest. C. It is the same as...

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  • October 11, 2024
  • 14
  • 2024/2025
  • Exam (elaborations)
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  • AMORTIZATION

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EXAM 7
Which of the following best defines negative amortization:

A. It is the same as interest only, with no interest being paid.

B. Not only is no principal being paid, but not all of the interest due is being paid, hence the loan balance
is growing due to this deferred interest.

C. It is the same as a partially amortized loan, with the principal reducing very slowly.

D. The principal is reducing so slowly it is a negative factor in the lives of the borrowers. - correct answer
The correct answer is B. If the loan continues in a negative amortization status, the balance of the loan
will soon be significantly greater than it was at the beginning of the loan. This is because unpaid interest
is accruing and is being added to the loan balance.



Which of the following is the most adequate definition of rescind:

A. To withdraw.

B. To take back.

C. To annul or to vacate.

D. Any of the above. - correct answer The correct answer is D. All of these answer
choices provide an adequate understanding of what rescind means.



What is the significance of the creditor or mortgage broker receiving an official loan application from a
consumer?

A. It starts the processing of the loan request.

B. It triggers mandated disclosures to the borrower.

C. It places the creditor and broker under obligation to the borrower.

D. All of the above. - correct answer The correct answer is D. Yes, all of these are set
in motion.



According to the SAFE Act, which of the following must have the MLO license:

A. Anyone who for compensation or expectation of it, originates loans.

B. Underwriters.

C. Contract loan processors.

, D. A and C. - correct answer The correct answer is D. Yes, underwriters do not have
to have the MLO designation. And a loan processor working for one company whose wages are reported
on a W-2 form does not have to have the MLO designation. But a contract loan processor who services
more than one client must have the MLO designation.



Which of the following is the best, most inclusive definition of a nontraditional mortgage product:

A. A mortgage where the payment changes during the term.

B. Anything other than a fully amortized loan.

C. Anything other than a 30-year, fully amortized, fixed rate loan.

D. Same as a nonconforming loan. - correct answer The correct answer is C. This is
the definition of a nontraditional mortgage product according to the SAFE Act.



Loan programs are broadly classified as which of the following:

A. Conventional.

B. Government agency sponsored.

C. Conforming or nonconforming.

D. All of the above. - correct answer The correct answer is D. Yes, these are the
broad categories.



Why are such a wide variety of mortgage products offered by lenders:

A. To meet the varied needs of borrowers.

B. To comply with federal mandates.

C. To comply with FANNIE MAE guidelines.

D. To ensure that those with less than perfect credit can buy a house. - correct answer
The correct answer is A. The objective is to ensure that a borrower can be accepted for a loan program
that he or she can be successful in paying off. Unfortunately, not every applicant qualifies for a loan.



In a conventional loan with a 15-year term, which of the following is the primary reason that the interest
rate is lower than for a 30-year term loan:

A. The borrower needs it to be lower in order to afford the payment on the shorter term.

B. There is less risk for the lender.

C. The interest rate is actually higher on 15-year loans due to a statistically higher default rate.

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