Understanding Mortgage Lending Practices, Exams of Nursing

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Real Estate Trainers, Practice Exam #12 questions

with complete solutions

1. A person who earns $26/hr has a monthly gross income of nearest to what amount: A. $ B. $ C. $ D. $5200 correct answer: A. Multiply the hourly wage by 40 hours in the workweek, multiply by 52 weeks in the year, and divide by the 12 months in a year. 26 x 40 = $1040 x 52 = $54, ÷ 12 = $4506.
2. Which of the following forms allows the lender to request copies of the borrower's federal income tax return: A. 1003 B. FNM A 5467C. 4506-T D. FHLMC 6807 correct answer: C. 4506-T
3. Which of the following requires the lender to obtain a completed and signed copy of the form that gives the lender the opportunity to request electronic transcripts of the borrower's federal income tax returns: A. Underwriters B. The Board of Governors of the Federal Reserve Board C. The Federal Deposit Insurance Corporation (FDIC) D. Federal law correct answer: A. This is correct. Currently, the lender decides if and when to submit the form to the IRS.
4. When does the lender obtain a signed 4506-T from the borrower: A. Upon completion of the application B. At closing C. When receiving the application and at closing D. Just before loan approval correct answer: C. When receiving the application and at closing
5. A credit report accomplishes which of the following: A. It provides the lender with a record of the borrower's debt repayment B. It provides a basis for prediction of how the borrower will meet future financial obligations C. It provides a guarantee of repayment D. Both "A" and "B" correct answer: D. Both "A" and "B"
6. What is the range for possible credit scores:

A. 400 - 750

B. 300 - 850

C. 450 - 800

D. There is no floor or ceiling correct answer: B. 300 - 850

7. Which of the following is the mostly commonly reported credit score: A. Beacon B. Empirica C. Fico D. Amex correct answer: C. Fico
8. Which of the following best identifies loan-to-value ratio: A. The amount of money borrowed on a first mortgage compared to the value of the property B. The amount of money borrowed on a first mortgage compared to the value of the property determined by appraisal C. The amount of money borrowed on all of the mortgages secured against the property compared to the value of the property D. The amount of money borrowed on a first and second mortgage only compared to the value of the property correct answer: A. The amount of money borrowed on multiple mortgages compared to the value of the property is known as Combined-Loan-to-Value Ratio (CLTV).
9. Which value does a lender use to determine loan-to-value ratio if the sales price of the property and the appraisal are not the same: A. Sales price always B. Appraised value always C. The lesser of the sales price or appraised value D. The average of the sales price and appraised value correct answer: C. This allows the lender to take the most conservative approach.
10. With a loan that is above 80% LTV, which of the following are likely to be true: A. Qualifying standards may be more stringent B. The loan may carry a higher interest rate C. Loan origination fees may be higher D. Any or all of the above correct answer: D. This is correct. There may also be additional conditions and standards because the loan is viewed as less secure.
11. Which of the following best expresses the front end ratio: A. Section VI declarations on the 1003 B. Total monthly housing expense divided by gross monthly income

C. Total monthly housing expense and total monthly debt obligations divided by gross monthly income D. Total short and long-term monthly debt obligations divided by gross monthly income correct answer: B. Yes, front end ratio is the housing expense divided by gross monthly income.

12. Which of the following best expresses the back end ratio: A. Section VI declarations on the 1003 B. Total monthly housing expense divided by gross monthly income C. Total monthly housing expense and total long-term monthly debt obligations divided by gross monthly income D. Total short and long-term monthly debt obligations divided by gross monthly income correct answer: C. Yes, this represents the back end ratio.
13. Why must the borrower qualify under the back end ratio, notjust the front end ratio: A. Because it wouldn't be fair to low-income families to do otherwise B. Because it is a realistic measure of the borrower's ability to support the loan payments C. Because it considers all of the borrower's recurring financial obligations D. Both "B" and "C" correct answer: D. Yes, both of these answers are correct.
14. What is the front end ratio for VA loans: A. 28% B. 31% C. 36% D. VA does not use a front end ratio correct answer: D. VA does not use a front end ratio
15. Which of the following represents the front and back end ratios for FHA loans: A. 28%-32% B. 28%-36% C. 31%-43% D. 32%-45% correct answer: C. 31%-43%
16. Which of the following represents the front and back end ratios for Conventional loans: A. 28%-32% B. 28%-36% C. 31%-43% D. 32%-45% correct answer: B. This is correct. This information could be needed to answer a question where the correct percentages are not presented. You have to bring that information to the table.
17. Which of the following is the best definition of an appraisal:

A. An opinion of value B. A factual representation of value C. An opinion of market value D. An evaluation of a residential property correct answer: C. In the context of the NMLS, we are dealing with residential properties. Though there are many different types of value, market value is the one that most applies to residential properties. Though "A" is acceptable in most circumstances, it will not yield a point on this test if "market value" appears.

18. For what period of time is an appraisal valid: A. Just a certain date B. 30 days C. 45 days D. Six months correct answer: A. Anything can occur that might change value tomorrow.
19. Which of the following statements is true regarding the three approaches to value: A. They are interchangeable and can be used on any type of property B. They are used collaboratively and are supportive one of the other C. Each approach is independent of the others and is performed separately to arrive at an opinion of value D. The cost approach is used on a commercial office building correct answer: C. This is correct. The capitalization approach would be used on a commercial office building.
20. Which of the following definitions best applies to the sales comparison approach: A. Calculates the cost of the land and construction of improvements on the land B. Analyzes revenue and expenses of the property C. Compares the subject property with other similar property recently sold D. Should represent the upper limits of value correct answer: C. Compares the subject property with other similar property recently sold
21. Which of the following percentages represents FNMA's ceiling for net adjustments on comps: A. 5% B. 10% C. 15% D. 20% correct answer: C. This means you allow the plusses and minuses to cancel each other out. So on a comparable property that sold for $100,000, net adjustments should yield an adjusted value of no more than $115,000. Appraisers can exceed that, but would have to clearly support their procedures.
22. Which of the following percentages represents FNMA's ceiling for gross adjustments on comps:

A. 10%

B. 20%

C. 25%

D. 27.5% correct answer: C. This means you erase the plusses and minuses of each adjustment and add up the absolute value of the adjustments. So on a comparable property that sold for $100,000, gross adjustments should yield an adjusted value of no more than $125,000. Again, appraisers could exceed that, but would have to clearly support their procedures.

23. Which of the following statements is true regarding the way adjustments are made in the sales comparison approach: A. It is quickest and most accurate to simply adjust the subject property B. If a comp is missing an amenity the subject property has, subtract the value of that amenity from the sales price of the comp since the property is missing that feature C. If a comp has an amenity the subject property does not have, add the value of that amenity to the sales price of the comp since the property has that feature D. If the subject property has a pool, and comp #1 does not have a pool, add the value of the pool to the sales price of comp #1 correct answer: D. We're really asking, what would comp #1 have sold for if it had a pool, just like the subject property has a pool. An appraiser never adjusts the subject property.
24. Which of the following approaches to value is most rooted in market activity: A. Cost approach B. Sales comparison approach C. Capitalization D. Income approach correct answer: B. Sales comparison approach
25. Secondary market lenders require appraisers to use a minimum of how many comparables in a residential appraisal: A. Two B. Three C. Four D. Five correct answer: B. This is to ensure an accurate appraisal from sufficient data.
26. When an appraiser has determined adjusted values of three comparables, what is the next step: A. Average the adjusted values to determine the value of the subject property B. Determine the coefficient of the threshold C. Calculate the median of the range D. Reconcile the three adjusted values correct answer: D. This means to harmonize the analysis and give most weight to the comp that is most similar to the subject property. Adjusted values are never averaged.

27. The best comps are generally which of the following: A. The newest and largest properties B. The same age and same size C. The most similar and most recent D. They must be model matches and in the same subdivision correct answer: C. The most similar and most recent
28. The cost approach is used on all of the following types of properties, except: A. Non-income producing properties B. Special properties C. Houses D. None of the above correct answer: D. The cost approach is used on all of these property types.
29. What is the difference between the cost to build a house new and its market value: A. Plottage

. Depreciation C. Assemblage D. Accession correct answer: B. Depreciation

30. Which of the following approaches to value would be used to appraise a five-unit apartment building: A. Capitalization B. Unit-in-place method C. Gross rent multiplier D. Sales comparison approach correct answer: A. Capitalization is used for properties of five units or more. Four units and less require comparison, or the gross rent multiplier approach.
31. Lenders have what kind of an interest in property: A. Equitable interest B. Insurable interest C. Appurtenant interest D. Quiet enjoyment interest correct answer: B. Providing funds so a borrower can purchase a property carries with it a great deal of financial risk. Lenders must be protected with insurance.
32. Standard homeowner's hazard insurance covers all of the following, except: A. Reimburse the lender for the mortgage amount B. Replace the house because of loss due to fire C. Pay the homeowner for damage due to loss because a nearby river overflowed

D. The policy can be sufficient to cover a lawsuit against the homeowner if someone sues due to injury sustained on the property correct answer: C. This would require flood insurance.

33. Which of the following can the lender do relative to hazard insurance: A. Place hazard insurance on the property if the homeowner does not B. Require buyers to pay 12 months worth of premiums prior to closing C. Require homeowners to deposit money into an impound account for payment of hazard insurance D. All of the above correct answer: D. All of the above
34. How does the MLO know that a mortgage will require flood insurance: A. The appraiser will identify the property as being in a flood zone B. The buyer will notify the lender C. The lender will tell the broker that the property is in a flood zone D. There will be water lines on the side of the house correct answer: A. Yes, the term "appraiser" should be in the correct answer.
35. All of the following are true statements regarding FHA loans, except: A. FHA loans are insured by the federal government B. Lenders approved by FHA may submit borrowers' applications to a regional HUD Homeownership Center for approval C. The only borrowers that can be approved for an FHA loan U.S. citizens or lawful permanent residents D. Some lenders can act as Direct Endorsers (DEs) and can underwrite their own FHA loan applications correct answer: C. FHA loans can also be made to lawful non-permanent residents under certain conditions.
36. Lawful non-permanent residents can be approved for an FHA loan if all of the following conditions are met, except: A. The property will be the borrower's principal residence B. The borrower's front-end ratio is not greater than 28% C. The borrower has a valid social security number D. The borrower is eligible to work in the United States correct answer: B. This is not a requirement.
37. Which of the following conditions qualify as principal residence for a non-permanent resident under the FHA program: A. The borrower must move in within 60 days of closing B. The borrower must remain in possession for a minimum of 12 months C. The borrower must not have a late mortgage payment for the first 12 months D. Both "A" and "B" correct answer: D. Both "A" and "B"

38. All of the following are true statements regarding VA loans,except: A. VA loans are guaranteed by the federal government through the Veterans Benefits Administration, part of the Department of Veterans Affairs B. VA-approved lenders submit loan applications to the VA for approval C. The VA never makes loans directly to borrowers D. VA-approved lenders may act as VA Automatic Endorsers correct answer: C. This is rarely done, but may be done in remote areas where financing is hard to find.
39. All of the following statements are true regarding Rural Development Section 502 loan programs, except: A. A Section 502 loan may be guaranteed B. A Section 502 loan is available to rural areas with a population of no more than 30, C. A Section 502 loan can be made directly to a borrower if no local lender is available D. A Section 502 loan applies to single-family homes only correct answer: B. The definition of "rural" is generally up to 20,000 in population.
40. The minimum down payment for an FHA loan with a FICO score of 580 minimum is which of the following: A. No down payment B. 3% C. 3.5% D. 5% correct answer: C. 3.5%
41. Which of the following represents the fee for UFMIP on an FHA loan: A. UFMIP is 1% of loan amount. B. UFMIP is 1.5% of loan amount. C. UFMIP is 1.75% of loan amount. D. UFMIP is 2.25% of loan amount. correct answer: C. MIP varies according to amount of loan and the LTV. UFMIP is nonrefundable.
42. VA loans are available for which of the following parties: A. Anyone who has ever taken the military oath for service B. Any veteran of the U.S. armed forces C. Any veteran of the U.S. armed forces, depending on their length of continuous service D. Any veteran of the U.S. armed forces, except the National Guard or Coast Guard correct answer: C. Any veteran of the U.S. armed forces, depending on their length of continuous service
43. Which of the following is the equivalent of discharge papers for a VA loan:

A. COE

B. DD-

C. UFMIP

D. AMI correct answer: B. The DD-214 is either Discharge Papers or the Report of Separation issued by the Department of Defense.

44. Which of the following represents the maximum guarantee amount of a VA loan: A. $100, B. $104, C. $417, D. The VA guarantee is 100% of whatever the loan amount is correct answer: B. $104,
45. Why does the lender require a Certificate of Eligibility for a borrower on a VA loan: A. To know that their credit is acceptable B. To establish the amount and status of the veteran's eligibility C. To ensure that the veteran meets the front-end LTV ratio D. To have clearance to purchase the required insurance correct answer: B. To establish the amount and status of the veteran's eligibility
46. Which of the following are the housing expense ratios used on a VA loan: A. Front end 28%/Back end 36% B. Front end 31%/Back end 43% C. Front end 32%/Back end 41% D. VA does not use a front end ratio/back end 41% correct answer: D. VA does not use a front end ratio/back end 41
47. Which of the following statements is true regarding FNMA's use of the housing expense ratio: A. Their standards are identical to FHA, 31%/43% B. They put most emphasis on the front end ratio because that is the housing expense ratio in relation to value C. They put most emphasis on the back end ratio because it considers all of the borrower's recurring debt obligations and the benchmark is 36% D. FNMA operates by its own standards and does not use housing expense ratios correct answer: C. They put most emphasis on the back end ratio because it considers all of the borrower's recurring debt obligations and the benchmark is 36%D. FNMA operates by its own standards and does not use housing expense ratios
48. What is the maximum VA loan amount: A. There is no maximum, but it cannot exceed the appraisal B. $417,

C. $585,

D. $286,400 correct answer: A. With no down payment, the maximum loan amount is four times the amount of the Veteran's entitlement.

49. What is the required down payment for a VA loan: A. Zero in all cases B. 3.5% of the loan amount C. 5% of the loan amount D. Zero if the VA loan guarantee is equal to at least 25% of the loan amount correct answer: D. Zero if the VA loan guarantee is equal to at least 25% of the loan amount
50. What is the highest VA loan amount VA will allow without a down payment: A. $250, B. $358, C. $417, D. $500,000 correct answer: C. The down payment is zero if the loan guaranty is equal to at least 25% of the loan amount. The maximum guarantee amount is $104,250. $104,250 ÷ 25% = $417,000.