ECOA 7/20 Exam 2023/2024 with Complete Solutions

Which of the following is not true concerning ECOA? It requires lenders to notify loan applicants of their application status within 30 days Its provisions are implemented by Regulation B It requires lenders to give borrowers a copy of their appraisal and a notice stating they are entitled to a copy of the appraisal It requires the disclosure of the APR on all advertisements which contain an interest rate - ANSWER-The answer is it requires the disclosure of the APR on all advertisements which contain an interest rate. Regulation B implements the provisions of ECOA. Under ECOA, a creditor is required to provide an applicant with a copy of all appraisals and other written valuations developed in connection with an application for credit that is to be secured by a first lien on a dwelling. A copy of each appraisal or other written valuation must be provided the earlier of promptly upon completion or three business days prior to consummation of the transaction for closed-end credit or account opening for open-end credit. The creditor must mail or provide a notice of the applicant's right to receive a copy of all written appraisals developed in connection with the application no later than three business days after receiving a completed application. ECOA also requires creditors to notify loan applicants within 30 days regarding application status (i.e., incomplete, accepted, denied, etc.). The residual income method applies to which of the following types of loans? Jumbo Conventional VA FHA - ANSWER-The answer is VA. The VA uses two methods for qualifying its borrowers: a 41% debt-to-income ratio (including housing and fixed debt), and the residual income method, which determines whether the veteran has enough income after paying fixed debts to cover daily living expenses. This method can qualify a borrower whose ratio might exceed the 41% limit. Which of the following issues is not addressed in the standard deed of trust and note for an owner-occupied primary residence? Insurance on the property How quickly a borrower must occupy the property Keeping hazardous substances on the property Actual amounts for taxes and insurance - ANSWER-The answer is actual amounts for taxes and insurance. In the typical real estate sales transaction, the seller gives the buyer a deed at closing and the buyer gives the lender a promissory note and a security instrument (i.e., a mortgage or trust deed) that creates a lien on the property. The promissory note is both a promise to repay the money borrowed with interest and evidence of the debt. It shows the payor and payee, the amount owed, the rate of interest and whether it is fixed or adjustable, the due date(s) for payment, and the terms of the loan. The mortgage or trust deed secures repayment of the note. Its covenants address topics that include occupancy, insurance, and hazardous materials, but it does not typically specify actual amounts for taxes and insurance. Which of the following best describes the benefit of mortgage insurance to the borrower? Reduced hazard insurance premiums Lower down payment requirements Mortgage insurance only benefits the lender Relaxed underwriting conditions - ANSWER-The answer is lower down payment requirements. So that he/she may get a loan with a small down payment, a borrower pays a mortgage insurance premium either as a lump sum at closing covering the life of the loan, or by paying the first year's premium at closing and then paying annual premiums as part of the mortgage payment. The amount of the premium is a percentage of the loan amount based on the borrower's down payment. Which of the following would not be on a deed of trust? Legal description Loan amount Interest rate Borrower's name - ANSWER-The answer is interest rate. In the typical real estate sales transaction, the seller gives the buyer a deed at closing and the buyer gives the lender a promissory note and a security instrument (i.e., a mortgage or trust deed) that creates a lien on the property. The promissory note is both a promise to repay the money borrowed with interest and evidence of the debt. The mortgage or trust deed secures repayment of the note. Housing costs, including principal, interest, taxes, and insurance, are not typically specified on the deed of trust. Which of the following can usually be added to a self-employed borrower's net income from the borrower's tax returns when calculating the borrower's income? Total from IRS 2106 Depreciation Total from IRS 4506 State taxes paid - ANSWER-The answer is depreciation. For a sole proprietorship (a self-employed borrower), the income, expenses, and taxable profits are reported on the Profit or Loss from Business (Schedule C) on the owner's individual tax return (IRS Form 1040). The individual's actual income would be the net income shown on the Schedule C, plus any recurring capital gains or non-cash expenses, such as depletion and depreciation, that was deducted in arriving at the adjusted income, since the borrower did not actually have to spend the amount claimed for non-cash expenses. The licensing requirements of the S.A.F.E. Act require all but which of the following? Registered MLOs must complete 20 hours of pre-licensing education Registration with the NMLS Successfully pass federal and applicable state components of a test with at least a 75% score Use of a unique identifier on all advertising materials - ANSWER-The answer is registered MLOs must complete 20 hours of pre-licensing education. The S.A.F.E. Act includes requirements for registration with the NMLS, pre-licensing education and federal and state testing, and obtaining and displaying a unique identifier on documents, including advertising materials. Pre-licensing education requirements pertain to state-licensed loan originators, not to registered loan originators, who are not subject to licensing requirements. The S.A.F.E. Act creates several consumer protection provisions. Which of the following is not a provision created through the enactment of the S.A.F.E. Act? Encourages responsible behavior through licensing standards Provides consumers access to information about originators Allows consumers a full refund if the originator is found to have engaged in unethical acts Facilitates collection and distribution of consumer complaints between regulators - ANSWER-The answer is allows consumers a full refund if the originator is found to have engaged in unethical acts. The S.A.F.E. Act includes provisions to enhance professional standards within the mortgage industry by imposing licensing requirements, providing consumers access to information about licensees at no charge through its online registry, and facilitating the collection and disbursement of consumer complaints on behalf of state and federal mortgage regulators. While the S.A.F.E. Act does have provisions ensuring compensation to victims of mortgage law violations, it does not guarantee such consumers a full refund in all cases of unethical conduct. The requirement that borrowers receive the Consumer Handbook on Adjustable-Rate Mortgages is required under which regulation? Regulation X Regulation Z Regulation C Regulation M - ANSWER-The answer is Regulation Z. Regulation Z cites a series of required disclosures, including the Consumer Handbook on Adjustable-Rate Mortgages (the CHARM Booklet), published by the Federal Reserve Board and the Federal Home Loan Bank Board, or a similar booklet. For an FHA loan that requires MIP, the annual mortgage insurance premium (payable monthly as part of the mortgage payment), is based on all of the following, except: Loan term State in which the subject property is located LTV Loan program - ANSWER-The answer is state in which the subject property is located. The FHA funds insurance from a mortgage insurance premium (MIP) charged to the borrower. Most FHA mortgages require payment of an upfront mortgage insurance premium (UFMIP). The UFMIP is nonrefundable (except to the extent that a portion may be applied to the UFMIP of another FHA-insured mortgage within three years). In addition, most FHA loans require payment of an annual mortgage insurance premium, payable monthly as part of the mortgage payment. This premium is based on the loan program, the loan term, and the loan-to-value (LTV) ratio. Which of the following fees would NOT be used in calculating the APR? Closing fee Underwriting fee Mortgage insurance Title insurance - ANSWER-The answer is title insurance. The annual percentage rate (APR) represents the relationship of the total finance charge to the total amount financed, as a yearly rate. It is not the same as the nominal rate (i.e., the interest rate shown in the note), as it includes all finance charges, not just interest. Among other charges, finance charges include points, loan fees, and mortgage insurance premiums, but not title insurance premiums. Assume that the Loan Estimate is mailed on Tuesday. The office is open six days a week and closed on Sundays. What is the earliest day on which the transaction could close? The following Wednesday The following Friday The following Monday The following Tuesday - ANSWER-The answer is the following Wednesday. A creditor must provide the Loan Estimate either in person, via overnight delivery, or by placing it in the mail or delivering it no more than three business days after receipt of the consumer's application AND no later than seven business days prior to consummation. For the purposes of determining the waiting period that must elapse between providing a Loan Estimate and consummation, a "business day" is defined to mean all calendar days except Sundays and legal public holidays. Here, the Loan Estimate is mailed on Tuesday. Seven business days from Tuesday would be the following Wednesday (Wednesday, Thursday, Friday, Saturday, Monday, Tuesday, Wednesday). Considering the definitions provided by the S.A.F.E. Act, which of the following mortgage industry professionals may legally communicate with a consumer to obtain the information necessary to process a loan application? A state-licensed loan originator An unlicensed loan processor An unlicensed underwriter Any of these - ANSWER-The answer is any of these. An unlicensed loan processor or underwriter may obtain and analyze information (such as verifications of income, employment, and deposits) needed in processing and underwriting a residential mortgage loan, and communicate with consumers in order to obtain that information. However, loan processors or underwriters may not take applications or offer, negotiate, or counsel the consumer about residential loan rates or terms; only licensed loan originators are permitted to do so. What two main aspects of a loan application does an underwriter examine to determine if lender guidelines are being met? Applicant and collateral Applicant and credit Credit and income Credit and collateral - ANSWER-The answer is applicant and collateral. Underwriting is the process of deciding whether to make a loan based on credit, employment, assets, and other factors. To ensure that loans are marketable in the secondary market, the underwriter assesses the borrower's ability and willingness to repay and the property's ability to serve as collateral for the debt. If a borrower waives the right to receive a copy of an appraisal: They must receive a copy within 30 days of closing The lender is never required to give the borrower a copy of the appraisal They must receive a copy seven days before closing They must receive a copy at or before consummation - ANSWER-The answer is they must receive a copy at or before consummation. Under ECOA, a creditor is required to provide an applicant with a copy of all appraisals and other written valuations developed in connection with an application for credit that is to be secured by a first lien on a dwelling. A copy of each appraisal or other written valuation must be provided the earlier of promptly upon completion or three business days prior to consummation of the transaction for closed-end credit or account opening for open-end credit. An applicant may waive the timing requirement and agree to receive a copy at or before consummation or account opening. All of the following individuals are exempt from requirements to obtain a mortgage loan originator license, except for a person who: Extends credit only for timeshare plans Negotiates a residential mortgage loan secured by a dwelling that is the individual's residence Negotiates the terms of a residential mortgage on behalf of a cousin Is an employee of a local government agency and who acts as a loan originator in their official duty as an employee - ANSWER-The answer is negotiates the terms of a residential mortgage on behalf of a cousin. S.A.F.E. Act exemptions include individuals solely involved in extensions of credit referring to timeshare plans; an individual who is an employee of a federal, state, or local government agency or housing finance agency, acting as a loan originator only pursuant to his or her official duties; and an individual who offers or negotiates terms of a residential mortgage loan secured by his own dwelling, or only with or on behalf of an immediate family member. However, a cousin is not considered an immediate family member under the legal definition, which includes a spouse, child, sibling, parent, grandparent, or grandchild, including stepparents, stepchildren, stepsiblings, and adoptive relationships. Richie Rich has been approved for a 90% loan. Richie is under contract to purchase a home for $400,000 and put $5,000 earnest money down with the contract. If Richie's lender is charging 1% origination, 1% discount, and the title company fees total $1,350, how much does Richie need to bring to closing? $49,350 $46,850 $43,550 $48,550 - ANSWER-The answer is $43,550. 90% LTV means Richie will need to bring 10% of the loan amount, or $40,000, to closing, minus the $5,000 he already paid as earnest money. To this he must add 1% of the $360,000 loan amount, or $3,600, for the 1% origination fee, and an additional 1% of the loan amount ($3,600) for the discount. Finally, he must add the $1,350 title charge: $40,000 − $5,000 + $3,600 + $3,600 + $1,350 = $43,550. A lender's title insurance policy would insure against all of the following, except: Future tax liens Mechanic's liens Judgments Undisclosed encumbrances - ANSWER-The answer is future tax liens. A lender's title insurance policy insures the lender or mortgagee against loss caused by a borrower's invalid title or loss of priority of the mortgage or deed of trust due to legal claims based on undisclosed encumbrances. Title insurance protects the lender against losses caused by problems that arose prior to the purchase of the property, such as mechanic's liens, judgments, and covenants and restrictions. It would not cover future tax liens. Each of the following is true about the Department of Housing and Urban Development (HUD), except: The Federal Housing Administration, with its liberal-eligibility FHA loan programs, operates under HUD's authority It provides or makes referrals related to housing counseling for loan applicants seeking a HECM or high-cost home loan Public housing and multi-family housing fall under its purview It has a major role in overseeing the mortgage industry - ANSWER-The answer is it has a major role in overseeing the mortgage industry. Although the federal Department of Housing and Urban Development (HUD) no longer oversees the mortgage industry (that job has been taken over by the Consumer Financial Protection Bureau, or CFPB), it continues to operate in a number of important areas relating to housing. These areas include programs related to community planning and development, public housing and multi-family housing, and providing counseling for those seeking to purchase a home. The Federal Housing Administration (FHA) also operates under HUD; the FHA sponsors loan programs with relatively liberal qualification requirements, insuring financial institutions that offer loans to individuals who might not qualify for a prime loan. Which of the following in an ad for residential mortgage financing would trigger additional disclosures? "VA financing available" "Affordable payments" "5.75% APR" "5% down payment" - ANSWER-The answer is "5% down payment." Under TILA, an ad must disclose a number of additional credit terms if it contains a trigger term. A trigger term includes certain credit terms specifically cited in an ad, including the amount or percentage of any down payment (e.g., "5% down," "95% financing," "$6,200 down"), except when the amount of the down payment is zero; the number of payments or period of repayment (e.g., "360 monthly payments," "a 30-year loan"); the amount of any payment (e.g., "payments of less than $1,400 per month"); and the amount of any finance charge (e.g., "total financing costs of less than $3,000"). In an FHA loan, which of the following is true regarding the upfront mortgage insurance premium (UFMIP)? A portion of it may be applied to the UFMIP of another FHA-insured mortgage It is refundable It is pertinent to only a small minority of FHA loans It takes the place of the annual mortgage insurance premium - ANSWER-The answer is a portion of it may be applied to the UFMIP of another FHA-insured mortgage. The FHA funds the insurance from a mortgage insurance premium (MIP) charged to the borrower. Most FHA mortgages require payment of an upfront mortgage insurance premium (UFMIP). The UFMIP is nonrefundable, except to the extent that a portion may be applied to the UFMIP of another FHA-insured mortgage within three years. In addition, most FHA loans require payment of an annual mortgage insurance premium, payable monthly as part of the mortgage payment. This premium is based on the loan program, the loan term, and the LTV. Under the Fair Housing Act: Lending decisions cannot be made based on residency status Charging different fees based on race is prohibited Lenders must provide clear, plain-language disclosures Lenders are required to report demographic information to the federal government - ANSWER-The answer is charging different fees based on race is prohibited. The Fair Housing Act prohibits discrimination in the sale, rental, and financing of any residential housing based on race, color, religion, national origin, sex, familial status, or mental or physical handicap, and therefore, prohibits charging different fees based on race. Residency status is not a protected category under the Fair Housing Act. Disclosure requirements are not imposed by the Fair Housing Act. Government reporting requirements are covered under the Home Mortgage Disclosure Act (HMDA). Stan has been in his house for 15 years and built up $100,000 in equity. He decides to do some remodeling and pay off some bills, and he wants to use a closed-end home equity loan to pay for it. He meets with Lending Guys and, because he has a great credit history, gets loan approval right away. Two weeks later he signs the documents. Which of the following is true? Stan may rescind the loan at any time during the term of the loan Stan's loan is not subject to provisions of the Real Estate Settlement Procedures Act Stan may rescind the loan within 3 business days of consummation Stan was required to provide Lending Guys with a Certificate of Completion prior to signing his final documents, indicating that he has completed homeownership counseling with a HUD-approved provider - ANSWER-The answer is Stan may rescind the loan within 3 business days of consummation. A borrower refinancing a primary dwelling with an open or closed end loan may cancel (rescind) the loan within 3 business days following closing. This right does not extend to the entire term. A