The U.S. NMLS Exam Prep Test!
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The Department of Real Estate needs to manage all Mortgage Loan Originator (MLO) license endorsements, which is done through the NMLS. The U. S. NMLS Exam Prep Test will help the Mortgage Originator with the tools they need to pass the Nationwide Mortgage Licensing System Test and kick their journey into the real estate sector. Try it out, and good luck.
- 1.
Under the USA Patriot Act, which of the following is NOT obtained by a mortgage broker from a borrower for customer identification purposes?
- A.
Passport number
- B.
Credit card number
- C.
Taxpayer identification number
- D.
Alien identification number
Correct Answer
B. Credit card numberExplanation
Under the USA Patriot Act, a mortgage broker obtains various forms of identification from a borrower for customer identification purposes. These forms of identification may include a passport number, taxpayer identification number, and alien identification number. However, a credit card number is not typically obtained for customer identification purposes. Instead, it is more commonly used for payment and financial transactions.Rate this question:
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- 2.
According to the Truth In Lending Act (TILA), which of the following notices by the creditor informs the customers about their rights to cancel a loan?
- A.
Good Faith Estimate (GFE)
- B.
Notice of right to rescind
- C.
Servicing disclosure statement
- D.
Affiliated business arrangement disclosure
Correct Answer
B. Notice of right to rescindExplanation
The correct answer is "Notice of right to rescind." The Truth In Lending Act (TILA) requires creditors to provide customers with a notice of their right to cancel a loan within a certain timeframe. This notice informs customers that they have the right to rescind or cancel the loan within three business days of signing the loan agreement. The Notice of right to rescind is an important part of consumer protection under TILA, allowing customers to reconsider their decision and cancel the loan if desired.Rate this question:
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- 3.
A mortgage company advertises on a real estate agent’s website by paying the required fees. Which company is in violation of the Real Estate Settlement Procedures Act (RESPA)?
- A.
The mortgage broker only
- B.
The real estate agent only
- C.
Both are in violation
- D.
Neither is in violation
Correct Answer
D. Neither is in violationExplanation
Both the mortgage broker and the real estate agent are not in violation of the Real Estate Settlement Procedures Act (RESPA) in this scenario. The act prohibits certain practices related to the referral of settlement services, such as kickbacks or unearned fees. In this case, the mortgage company is simply paying the required fees to advertise on the real estate agent's website, which does not violate RESPA as long as the fees are reasonable and for actual services provided.Rate this question:
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- 4.
If a consumer reporting agency makes an inquiry related to a joint credit account of a borrower and the spouse, which of the following information can be provided under the Equal Credit Opportunity Act (ECOA)?
- A.
Information about the borrower only
- B.
Information about the spouse only
- C.
Information about the borrower and the spouse
- D.
Information cannot be provided about the borrower or spouse
Correct Answer
C. Information about the borrower and the spouseExplanation
Under the Equal Credit Opportunity Act (ECOA), if a consumer reporting agency makes an inquiry related to a joint credit account of a borrower and the spouse, information about both the borrower and the spouse can be provided. This means that the agency can disclose information about both individuals' credit history, payment behavior, and any other relevant information related to the joint credit account.Rate this question:
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- 5.
A homeowner’s equity position reaches 20% of the original value of the property. Which of the following statements is true pertaining to the cancellation of the Private Mortgage Insurance (PMI)?
- A.
. The lender must automatically cancel the PMI
- B.
The homeowner can request cancellation of the PMI
- C.
The PMI gets automatically cancelled after 30 days
- D.
The PMI gets cancelled 20 days after the request is submitted
Correct Answer
B. The homeowner can request cancellation of the PMIExplanation
The correct answer is that the homeowner can request cancellation of the PMI. This means that the homeowner has the ability to initiate the process of canceling the PMI once their equity position reaches 20% of the original value of the property. It is not an automatic cancellation by the lender, and there is no specific timeframe mentioned for the cancellation process.Rate this question:
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- 6.
The purpose of the Fair Credit Reporting Act (FCRA) is to:
- A.
Reduce home insurance costs
- B.
Ensure the accuracy of the information in the consumer reports
- C.
Help consumer receive lower interest rates
- D.
Provide consumers with many finance options to choose from
Correct Answer
B. Ensure the accuracy of the information in the consumer reportsExplanation
The purpose of the Fair Credit Reporting Act (FCRA) is to ensure the accuracy of the information in consumer reports. This act was enacted to protect consumers from inaccurate and misleading information that may be included in their credit reports. By ensuring the accuracy of consumer reports, the FCRA aims to promote fairness and transparency in the credit reporting industry, allowing consumers to make informed financial decisions.Rate this question:
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- 7.
According to the Real Estate Settlement Procedures Act (RESPA), which of the following relationships between a lender and a settlement service provider does NOT require disclosures on the Good Faith Estimate (GFE)?
- A.
Provider is an associate of the lender
- B.
Provider has an outstanding loan with the lender
- C.
The lender and the provider use the same attorney for legal services
- D.
The lender has repeatedly used the services of the provider in the last 12 months
Correct Answer
B. Provider has an outstanding loan with the lenderExplanation
According to RESPA, the relationship between a lender and a settlement service provider that does not require disclosures on the Good Faith Estimate (GFE) is when the provider has an outstanding loan with the lender. This is because RESPA only requires disclosures for relationships that may create a potential conflict of interest or financial incentive for the provider. In this case, the outstanding loan does not create such a conflict or incentive.Rate this question:
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- 8.
How does Freddie Mac benefit the consumer?
- A.
Consumers can take more than one mortgage
- B.
By make mortgage products available to consumers
- C.
Freddie Mac does not ask for a private mortgage insurance (PMI)
- D.
If a consumer is unable to pay the installments, they can approach Freddie Mac for time
Correct Answer
B. By make mortgage products available to consumersExplanation
Freddie Mac benefits the consumer by making mortgage products available to them. This means that consumers have access to a variety of mortgage options and can choose the one that best suits their needs. This allows consumers to find a mortgage that fits their financial situation and goals. By providing this availability, Freddie Mac helps consumers in their home-buying process and makes it easier for them to secure a mortgage.Rate this question:
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- 9.
A mortgage broker licensee charges a fee that exceeds the fee initially disclosed to the borrower. What MUST the mortgage broker provide the borrower three days prior to the signing of the closing documents?
- A.
A copy of the borrower’s rights under the Consumer Loan Act
- B.
A redisclosure of the fee including a clear written explanation for the increase
- C.
The details of the mortgage broker’s trust account including subaccounts
- D.
The details of the mortgage broker’s surety bond company and the amount of the bond
Correct Answer
B. A redisclosure of the fee including a clear written explanation for the increaseExplanation
The correct answer is a redisclosure of the fee including a clear written explanation for the increase. This is because if a mortgage broker licensee charges a fee that exceeds the fee initially disclosed to the borrower, they are required to provide a redisclosure of the fee to the borrower. This redisclosure should include a clear written explanation for the increase in the fee. This ensures transparency and allows the borrower to fully understand the reasons for the fee increase before signing the closing documents.Rate this question:
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- 10.
A mortgage displays its sign at a real estate licensee’s office. Which of the following statements is CORRECT?
- A.
Only the mortgage company is in violation of the Real Estate Settlement Procedures Act (RESPA)
- B.
Only the real estate licensee is in violation or RESPA
- C.
Both the mortgage company and the real estate licensee are in violation of RESPA
- D.
Neither the mortgage company nor the real estate licensee is in violation of RESPA
Correct Answer
D. Neither the mortgage company nor the real estate licensee is in violation of RESPAExplanation
Both the mortgage company and the real estate licensee are not in violation of RESPA. The display of a mortgage sign at a real estate licensee's office does not necessarily indicate a violation of RESPA. RESPA primarily regulates the disclosure of settlement costs and prohibits certain practices such as kickbacks and referral fees. The act does not specifically address the display of signage at a real estate licensee's office. Therefore, in this scenario, neither party is in violation of RESPA.Rate this question:
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- 11.
The loan fees increase from the initial Good Faith Estimate (GFE). The mortgage broker MUST provide the borrower with:
- A.
Redisclosures
- B.
A discount on the fees
- C.
Refund of the GFE fee
- D.
Additional discount points
Correct Answer
A. RedisclosuresExplanation
If the loan fees increase from the initial Good Faith Estimate (GFE), the mortgage broker is required to provide the borrower with redisclosures. Redisclosures are updated loan estimates that reflect the new fees and terms of the loan. This ensures that the borrower is informed about any changes and has the opportunity to review and understand the updated terms before proceeding with the loan.Rate this question:
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- 12.
A mortgage broker refers clients to a title company. The mortgage broker owns 10% of the title company. The title company performs services and pays the mortgage broker a commission. The title company pays the mortgage broker annual dividends based on the amount of business that was referred to the title company. Which of the statements is CORRECT?
- A.
Only the mortgage broker is in violation of the Real Estate Settlement Procedures Act (RESPA)
- B.
Only the title company is in violation of the Real Estate Settlement Procedures Act (RESPA)
- C.
Bothe the mortgage broker and the title company are in violation of the Real Estate Procedure Act (RESPA)
- D.
Neither the mortgage broker nor the title company is in violation of the Real Estate Settlement Procedure Act (RESPA)
Correct Answer
D. Neither the mortgage broker nor the title company is in violation of the Real Estate Settlement Procedure Act (RESPA)Explanation
The mortgage broker refers clients to the title company, which is a common practice in the industry. The fact that the mortgage broker owns 10% of the title company does not automatically violate RESPA, as long as the referral is not based on the ownership interest. The title company pays the mortgage broker a commission for the services provided, which is also a common practice. Additionally, the annual dividends paid by the title company are based on the amount of business referred, which is not a violation of RESPA as long as it is not a payment for a referral. Therefore, neither the mortgage broker nor the title company is in violation of RESPA.Rate this question:
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- 13.
Truth in Lending Act (TIL) requires disclosure of:
- A.
Estimated closing costs
- B.
Credit history of the borrower
- C.
Key details of the property on which loan was taken
- D.
Key terms of the credit transaction
Correct Answer
D. Key terms of the credit transactionExplanation
The Truth in Lending Act (TIL) is a federal law that requires lenders to disclose key terms of a credit transaction to borrowers. This includes information such as the annual percentage rate (APR), finance charges, payment schedule, and any penalties or fees associated with the loan. By disclosing these key terms, borrowers are able to make informed decisions about their credit transactions and understand the true cost of borrowing.Rate this question:
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- 14.
In whose name is a loan closed that is “table-funded”?
- A.
Loan originator
- B.
Independent contractor
- C.
Mortgage broker licensee
- D.
Designated mortgage broker
Correct Answer
D. Designated mortgage brokerExplanation
A loan that is "table-funded" means that the closing of the loan is done in the name of a designated mortgage broker. In this case, the designated mortgage broker is responsible for the loan closing process. This means that they are the ones who handle the necessary paperwork, ensure that all requirements are met, and finalize the loan transaction. The loan originator, independent contractor, and mortgage broker licensee may be involved in the loan process, but the designated mortgage broker is the one who ultimately closes the loan.Rate this question:
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- 15.
Under the Fair Credit Reporting Act, who is responsible for ensuring that the reporting of consumers’ credit standing and reputation protects the consumer’s right to privacy?
- A.
Mortgage broker
- B.
Consumer credit counseling agencies
- C.
Credit reporting agencies
- D.
Board of Governors of the Federal Reserve Systems
Correct Answer
C. Credit reporting agenciesExplanation
Under the Fair Credit Reporting Act, credit reporting agencies are responsible for ensuring that the reporting of consumers' credit standing and reputation protects the consumer's right to privacy. These agencies collect and maintain information about individuals' credit histories and provide this information to lenders, employers, and other authorized entities. They are required to handle this information securely and confidentially, and to only disclose it to authorized parties. This helps to protect consumers' personal and financial information from being misused or accessed by unauthorized individuals or entities.Rate this question:
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- 16.
Truth in Lending Act (TILA) is designed to protect consumers in:
- A.
Property offers
- B.
Credit transactions
- C.
Real estate practices
- D.
Property evaluation
Correct Answer
B. Credit transactionsExplanation
The Truth in Lending Act (TILA) is a federal law that aims to protect consumers in credit transactions. It requires lenders to disclose important information about the terms and costs of credit, such as interest rates, fees, and repayment terms. By providing consumers with this information, TILA helps them make informed decisions and protects them from unfair or deceptive lending practices. Therefore, the correct answer is credit transactions.Rate this question:
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- 17.
A lender provides a borrower with an initial amortization schedule for Private Mortgage Insurance (PMI) disclosure at loan closing for an adjustable-rate mortgage. The lender MUST also provide a written notice stating the :
- A.
Borrower’s right to refuse a PMI
- B.
Borrower’s right to cancel PMI
- C.
Lender’s right to extend the time for monthly payments for a PMI
- D.
Lender’s right to increase the monthly payment amount for PMI
Correct Answer
B. Borrower’s right to cancel PMIExplanation
The lender is required to provide a written notice stating the borrower's right to cancel PMI. This means that the borrower has the option to cancel their private mortgage insurance at a later date if they choose to do so.Rate this question:
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- 18.
Which of the following properties are considered residential real estate?
- A.
Hotel
- B.
Fourplex
- C.
Mobile home park
- D.
Apartment building
Correct Answer
B. FourplexExplanation
A fourplex is considered residential real estate because it is a type of housing that consists of four separate units within a single building. Each unit is designed for residential purposes, and individuals or families can live in them as their primary residence. Unlike a hotel or mobile home park, which may have transient or temporary occupants, a fourplex is intended for long-term residential use. Similarly, an apartment building is also considered residential real estate as it consists of multiple units designed for residential purposes.Rate this question:
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- 19.
A mortgage broker has advertised “$1200 down” for a house in a local newspaper. According to the Truth In Lending Act (TILA), which of the following information must be disclosed in the same advertisement?
- A.
The location of the house
- B.
The total area of the house
- C.
The annual percentage rate
- D.
The annual property taxes
Correct Answer
C. The annual percentage rateExplanation
According to the Truth In Lending Act (TILA), the annual percentage rate (APR) must be disclosed in the same advertisement for a mortgage broker advertising a house with "$1200 down". The APR is an important piece of information for potential buyers as it represents the true cost of borrowing, including both the interest rate and any additional fees or charges associated with the loan. By disclosing the APR, the mortgage broker is providing transparency and allowing customers to compare different loan offers more easily.Rate this question:
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- 20.
A creditor can retain files that are prohibited by the Equal Credit Opportunity Act (ECOA) when the information:
- A.
About an applicant was obtained from a legal firm
- B.
About an applicant was obtained from another creditor
- C.
Was requested and obtained from a source after 1997
- D.
Was obtained from a consumer reporting agency without the creditor requesting it
Correct Answer
D. Was obtained from a consumer reporting agency without the creditor requesting itExplanation
The correct answer is that a creditor can retain files that were obtained from a consumer reporting agency without the creditor requesting it. This means that if the creditor receives information about an applicant from a consumer reporting agency without actively seeking it, they are allowed to keep those files. The Equal Credit Opportunity Act (ECOA) does not prohibit the retention of such files in this specific scenario.Rate this question:
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- 21.
What is the minimum amount of a home’s appraised value required to be paid to avoid taking Private Mortgage Insurance (PMI)?
- A.
10%
- B.
15%
- C.
20%
- D.
30%
Correct Answer
C. 20%Explanation
To avoid taking Private Mortgage Insurance (PMI), a minimum of 20% of a home's appraised value needs to be paid. PMI is typically required by lenders when a borrower puts down less than 20% of the home's value as a down payment. By paying at least 20%, the borrower has more equity in the home, reducing the lender's risk and eliminating the need for PMI.Rate this question:
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- 22.
If the creditor fails to send the required disclosures related to Truth in Lending Act (TILA), within how many years does the customer have to rescind from the date of consummation of transaction?
- A.
1
- B.
2
- C.
3
- D.
4
Correct Answer
C. 3Explanation
If the creditor fails to send the required disclosures related to Truth in Lending Act (TILA), the customer has three years to rescind from the date of consummation of the transaction. This means that if the creditor does not provide the necessary information within the specified time frame, the customer has the right to cancel or rescind the transaction within three years of its completion.Rate this question:
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- 23.
Which of the following documents is NOT part of the books and records a mortgage broker must retain and make available for examination?
- A.
Advertisements
- B.
Trust accounting record
- C.
Mortgage transaction documents
- D.
Continuing education course contents
Correct Answer
D. Continuing education course contentsExplanation
Continuing education course contents are not part of the books and records that a mortgage broker must retain and make available for examination. The other options - advertisements, trust accounting record, and mortgage transaction documents - are all documents that are typically required to be retained and made available for examination by a mortgage broker.Rate this question:
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- 24.
A lender has advertised “7.25%APR” in a newspaper advertisement. Which of the following information must be provided in the same advertising?
- A.
The payment period for the loan
- B.
The finance charge for the loan
- C.
No financial information is required
- D.
Last date for the offer at the same rate
Correct Answer
A. The payment period for the loanExplanation
The payment period for the loan must be provided in the same advertising because the APR (Annual Percentage Rate) only represents the interest rate on the loan. The payment period determines the duration over which the borrower will make payments, and it is crucial information for potential borrowers to consider before taking out the loan.Rate this question:
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- 25.
A borrower has approached a lender for refinancing a residential property. According to the Truth In Lending Act (TILA), which of the following information does the lender have to provide to the borrower?
- A.
A new disclosure for the refinancing of credit
- B.
The disclosure for the initial credit will have to be reissued
- C.
A new disclosure for the refinancing credit only if the borrower requests it
- D.
No new disclosures are required if a disclosure was provided for the initial credit
Correct Answer
A. A new disclosure for the refinancing of creditExplanation
According to the Truth In Lending Act (TILA), the lender is required to provide a new disclosure for the refinancing of credit to the borrower. This means that the lender must give the borrower updated information about the terms and conditions of the refinancing loan.Rate this question:
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