National and UST Mortgage Practice
Exam 1 Questions and Answers Graded
A+
Which of the following is intended to ensure that consumers are provided with
information on the nature and costs of the settlement process? - Correct answer-
The answer is RESPA.
The purpose of RESPA and Regulation X is to help consumers become better
shoppers for settlement (closing) services by providing them with information on
the nature and costs of the settlement process. RESPA and Regulation X are also
intended to eliminate kickbacks and referral fees that unnecessarily increase the
costs of certain settlement services.
Which of the following best describes a loan with a principal balance exceeding
Fannie Mae or Freddie Mac guidelines? - Correct answer-The answer is jumbo.
Conventional loans that conform to the eligibility guidelines for purchase by
Fannie Mae or Freddie Mac are considered conforming loans. Fannie Mae and
Freddie Mac have a maximum loan limit for loans they will purchase, which is
©COPYRIGHT 2025, ALL RIGHTS RESERVED 1
,adjusted annually. Loans to persons with satisfactory credit but that exceed this
loan limit are called jumbo loans or nonconforming loans. Because these loans
cannot be sold to Fannie Mae or Freddie Mac, they often have a higher interest rate
than conforming loans.
A borrower receives $1,000 per month in rental income. How much of the income
may be used to qualify the borrower for a loan? - Correct answer-The answer is
$750.
Generally, 75% of rental income may be used to qualify a borrower for a loan. This
formula is based on an industry standard that taxes, insurance, and maintenance
costs will equal about 25% of the income that a property generates. In this case,
75% × $1,000 = $750.
Assume a borrower completes an online loan application, including all six required
elements, but never hits "submit." Which of the following is true regarding the
lender's obligation to issue a Loan Estimate? - Correct answer-The answer is the
lender is not required to issue a Loan Estimate.
A lender must provide the Loan Estimate either in person or by placing it in the
mail no more than three business days after receipt of the consumer's application
AND no later than seven business days prior to consummation. If a loan
©COPYRIGHT 2025, ALL RIGHTS RESERVED 2
,application has not been submitted, a lender is not required to issue a Loan
Estimate.
The Red Flags Rule identifies all of the following as possible red flags, except: -
Correct answer-The answer is the borrower is buying an investment property.
The Red Flags Rule requires financial institutions (including mortgage lenders)
that hold any consumer account, or other account for which there is a reasonably
foreseeable risk of identity theft, to develop and implement an Identity Theft
Prevention Program. Signs indicating possible identity theft include presentation of
suspicious documents and personal identifying information (e.g., an address that
does not match any address in the consumer report). Buying an investment
property is not, in itself, a red flag.
Under which of the following circumstances would the lender on a conventional
loan be required to drop the mortgage insurance? - Correct answer-The answer is
the loan reaches 78% LTV based on the original purchase price.
Generally, a conventional loan of up to 80% of the property's value will be made
without private mortgage insurance. The annual premiums and the insurance stop
automatically once the loan is paid down to 78%, or may be canceled at the
borrower's request once the loan balance reaches 80% of the value of the property
at the time the loan was made.
©COPYRIGHT 2025, ALL RIGHTS RESERVED 3
, The S.A.F.E. Act applies to mortgage loan originators who take applications for, or
offer or negotiate terms of, residential mortgage loans, which would include: -
Correct answer-The answer is a mobile home to be used as a residence, even if it is
not attached to the land.
The S.A.F.E. Act defines a mortgage loan originator as an individual who takes
residential mortgage loan applications, or offers or negotiates terms of residential
mortgage loans for compensation or gain. The S.A.F.E. Act's definition of
"residential mortgage loan" includes a loan secured by a consensual security
interest on a dwelling and cross-references the definition of the term "dwelling" in
the Truth-in-Lending Act (TILA). Regulation Z, which implements TILA, defines
a dwelling as a residential structure that contains one to four units, whether or not
that structure is attached to real property. The term includes an individual
condominium unit, cooperative unit, mobile home, and trailer, if it is used as a
residence.
What is Freddie Mac's automated underwriting system called? - Correct answer-
The answer is Loan Product Advisor.
Freddie Mac's automated underwriting system is called Loan Product Advisor
(formerly known as Loan Prospector), while Fannie Mae's is called Desktop
Underwriter.
©COPYRIGHT 2025, ALL RIGHTS RESERVED 4
Exam 1 Questions and Answers Graded
A+
Which of the following is intended to ensure that consumers are provided with
information on the nature and costs of the settlement process? - Correct answer-
The answer is RESPA.
The purpose of RESPA and Regulation X is to help consumers become better
shoppers for settlement (closing) services by providing them with information on
the nature and costs of the settlement process. RESPA and Regulation X are also
intended to eliminate kickbacks and referral fees that unnecessarily increase the
costs of certain settlement services.
Which of the following best describes a loan with a principal balance exceeding
Fannie Mae or Freddie Mac guidelines? - Correct answer-The answer is jumbo.
Conventional loans that conform to the eligibility guidelines for purchase by
Fannie Mae or Freddie Mac are considered conforming loans. Fannie Mae and
Freddie Mac have a maximum loan limit for loans they will purchase, which is
©COPYRIGHT 2025, ALL RIGHTS RESERVED 1
,adjusted annually. Loans to persons with satisfactory credit but that exceed this
loan limit are called jumbo loans or nonconforming loans. Because these loans
cannot be sold to Fannie Mae or Freddie Mac, they often have a higher interest rate
than conforming loans.
A borrower receives $1,000 per month in rental income. How much of the income
may be used to qualify the borrower for a loan? - Correct answer-The answer is
$750.
Generally, 75% of rental income may be used to qualify a borrower for a loan. This
formula is based on an industry standard that taxes, insurance, and maintenance
costs will equal about 25% of the income that a property generates. In this case,
75% × $1,000 = $750.
Assume a borrower completes an online loan application, including all six required
elements, but never hits "submit." Which of the following is true regarding the
lender's obligation to issue a Loan Estimate? - Correct answer-The answer is the
lender is not required to issue a Loan Estimate.
A lender must provide the Loan Estimate either in person or by placing it in the
mail no more than three business days after receipt of the consumer's application
AND no later than seven business days prior to consummation. If a loan
©COPYRIGHT 2025, ALL RIGHTS RESERVED 2
,application has not been submitted, a lender is not required to issue a Loan
Estimate.
The Red Flags Rule identifies all of the following as possible red flags, except: -
Correct answer-The answer is the borrower is buying an investment property.
The Red Flags Rule requires financial institutions (including mortgage lenders)
that hold any consumer account, or other account for which there is a reasonably
foreseeable risk of identity theft, to develop and implement an Identity Theft
Prevention Program. Signs indicating possible identity theft include presentation of
suspicious documents and personal identifying information (e.g., an address that
does not match any address in the consumer report). Buying an investment
property is not, in itself, a red flag.
Under which of the following circumstances would the lender on a conventional
loan be required to drop the mortgage insurance? - Correct answer-The answer is
the loan reaches 78% LTV based on the original purchase price.
Generally, a conventional loan of up to 80% of the property's value will be made
without private mortgage insurance. The annual premiums and the insurance stop
automatically once the loan is paid down to 78%, or may be canceled at the
borrower's request once the loan balance reaches 80% of the value of the property
at the time the loan was made.
©COPYRIGHT 2025, ALL RIGHTS RESERVED 3
, The S.A.F.E. Act applies to mortgage loan originators who take applications for, or
offer or negotiate terms of, residential mortgage loans, which would include: -
Correct answer-The answer is a mobile home to be used as a residence, even if it is
not attached to the land.
The S.A.F.E. Act defines a mortgage loan originator as an individual who takes
residential mortgage loan applications, or offers or negotiates terms of residential
mortgage loans for compensation or gain. The S.A.F.E. Act's definition of
"residential mortgage loan" includes a loan secured by a consensual security
interest on a dwelling and cross-references the definition of the term "dwelling" in
the Truth-in-Lending Act (TILA). Regulation Z, which implements TILA, defines
a dwelling as a residential structure that contains one to four units, whether or not
that structure is attached to real property. The term includes an individual
condominium unit, cooperative unit, mobile home, and trailer, if it is used as a
residence.
What is Freddie Mac's automated underwriting system called? - Correct answer-
The answer is Loan Product Advisor.
Freddie Mac's automated underwriting system is called Loan Product Advisor
(formerly known as Loan Prospector), while Fannie Mae's is called Desktop
Underwriter.
©COPYRIGHT 2025, ALL RIGHTS RESERVED 4
