General Mortgage Knowledge practice

All 6 free general mortgage knowledge questions

1. Under the Secure and Fair Enforcement for Mortgage Licensing Act, what is a nontraditional mortgage product?

   • A Any mortgage product other than a 30-year fixed rate mortgage Correct
   • B Any loan that allows negative amortization Negative amortization describes one such product, and the definition is far wider than that.
   • C Any interest-only or payment-option loan These are examples, and the definition sweeps in every product that is not a 30-year fixed rate mortgage.
   • D Any loan a federal agency does not insure Federal insurance or guarantee decides whether a loan is conventional, not whether it is nontraditional.

   Under the Act the term means any mortgage product other than a 30-year fixed rate mortgage, so even a 15-year fixed rate loan is a nontraditional mortgage product for licensing purposes.

   SAFE Act, 12 USC s. 5102(7)

2. In the mortgage industry's standard vocabulary, what is it that makes a mortgage loan a conventional mortgage?

   • A No federal government agency insures or guarantees it Correct
   • B Its loan amount is inside the current loan limit Loan size is the conforming test, which sits on top of the conventional test rather than defining it.
   • C A secondary market investor has agreed to buy it Who buys the loan afterwards does not change whether a federal agency stands behind it.
   • D The interest rate is fixed for the whole term A conventional loan may carry a fixed or an adjustable rate, so the rate structure decides nothing.

   A conventional mortgage means one that no federal government agency insures or guarantees, so what decides the label is who stands behind the loan rather than its size, its rate or its buyer.

3. On a variable-rate loan, what does Regulation Z mean by the fully-indexed rate?

   • A The index value plus the margin at consummation Correct
   • B The discounted rate the borrower starts on An introductory or discounted rate is what the borrower actually pays at first, which is a different figure.
   • C The maximum rate under the lifetime cap The lifetime cap sets the ceiling the rate may ever reach, not the rate the index and margin produce.
   • D The rate at the first scheduled adjustment The rate at the first adjustment turns on the index value on that later date, not on the value at consummation.

   The fully-indexed rate means the interest rate calculated using the index value and the margin at the time of consummation, so it is what the borrower would pay with no introductory discount applied.

   Regulation Z, 12 CFR s. 1026.18(s)(7)(vi)

4. Under Regulation Z, when does the amount owed on a reverse mortgage transaction become due, apart from default?

   • A When the consumer dies, transfers the dwelling, or moves out Correct
   • B When the consumer reaches a stated age Age decides who may take out the loan, not when the balance falls due.
   • C At the end of a fixed ten-year term The obligation is not written to a fixed maturity date of this kind.
   • D When the balance first exceeds the property's value The loan is nonrecourse, so a balance above the property's value does not by itself make it payable.

   A reverse mortgage transaction is a nonrecourse obligation on which principal, interest and any shared appreciation fall due, other than on default, only after the consumer dies, the dwelling is transferred, or the consumer stops occupying it as a principal dwelling.

   Regulation Z, 12 CFR s. 1026.33(a)(2)

5. Regulation Z defines the finance charge as the cost of consumer credit as a dollar amount. Which charge does it exclude?

   • A A charge payable in a comparable cash transaction Correct
   • B Interest on the amount financed Interest is the first example on the list of finance charges.
   • C Points and loan fees paid by the consumer Points and loan fees are named as finance charges when the consumer pays them.
   • D The premium for insurance protecting the creditor A premium for insurance protecting the creditor against default is on the list of finance charges.

   The finance charge covers any charge the consumer pays that the creditor imposes as an incident to or a condition of the credit, except any charge of a type payable in a comparable cash transaction, so a fee a cash buyer would pay anyway stays out.

   Regulation Z, 12 CFR s. 1026.4(a)

6. How does Regulation Z describe the annual percentage rate on a closed-end mortgage loan?

   • A A measure of credit cost, expressed as a yearly rate Correct
   • B The cost of consumer credit as a dollar amount The cost of credit stated as a dollar amount is the finance charge rather than the annual percentage rate.
   • C The interest rate stated in the promissory note The note rate is one input, and the annual percentage rate also reflects the timing of the money moving both ways.
   • D The index value plus the lender's margin Index plus margin gives the fully-indexed rate on a variable loan, not the measure of the cost of credit.

   The annual percentage rate means a measure of the cost of credit, expressed as a yearly rate, that relates the amount and timing of the value the consumer receives to the amount and timing of the payments made.

   Regulation Z, 12 CFR s. 1026.22(a)(1)