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NMLS SAFE EXAM
QUESTIONS WITH DETAILED VERIFIED ANSWERS (100% CORRECT ANSWERS)
"A. Age - CORRECT ANSWER All of the following are violations of the Fair Housing Act EXCEPT
A. Age B. National Origin C. Disability D.Religion"
"Encrumbrance - CORRECT ANSWER Claim against property held by one who is not the legal
owner"
"Trigger Term - CORRECT ANSWER Advertised term that requires additional disclosures"
"Advertising Disclosure - CORRECT ANSWER An advertisement must be presented "clearly
and conspicuously" to keep from being deceptive, unfair, or otherwise violate a Commission rule"
"Waving Right of Rescission - CORRECT ANSWER Extenuating circumstances such as "bona
fide personal financial emergency"
"Right of Rescission - CORRECT ANSWER Right that borrowers have to cancel a loan or line of
credit with a lender within three days of closing" "FTC
Federal Trade Commission - CORRECT ANSWER Mission is to promote consumer protection
and eliminate and prevent anticompetitive business practices" "CFPB
Consumer Financial Protection Bureau - CORRECT ANSWER Regulatory agency charged with
overseeing financial products and services offered to consumers" "TILA
Truth in Lending Act - CORRECT ANSWER Enacted 1968 promotes the informed use of
consumer credit by requiring disclosures about terms and costs and standardizes the manner in which costs with borrowing are calculated and disclosed"
"Per Diem Interest - CORRECT ANSWER Interest charged on a loan for one or more days"
"Annual Interest Rate Formula - CORRECT ANSWER Principal (X) Interest Rate = Annual
Interest Rate"
"Interest Only Mortgage - CORRECT ANSWER Mortgage where the mortgagor is only required
to pay off the interest that arises from the principal that is borrowed for a set period"
"Permanent Buydown - CORRECT ANSWER Borrower chooses to pay additional "discount
points" to buy down the interest rate for the life of the mortgage note"
"2/1 Buydown - CORRECT ANSWER Used on fixed rate loans over two years
Set of two initial temporary-start interest rates that increase in stair-step fashion until a permanent interest rate is reached"
"Discount Point - CORRECT ANSWER A form of pre-paid interest which effectively increases
the yield on the loan above the amount of the stated interest rate" "CLTV
Combined Loan to Value - CORRECT ANSWER An amount in addition to the Loan to Value,
which simply represents the first position mortgage or loan as a percentage of the property's value" "LTV
Loan to Value - CORRECT ANSWER Ratio of a loan to the value of an asset purchased"
"PITI - CORRECT ANSWER Principal, Interest, Taxes, Insurance
Refers to the components of a mortgage payment"
"DIF - CORRECT ANSWER Housing to Debt
Ratio that measures an individual's ability to manage monthly payment and repay debts"
"Forbearance - CORRECT ANSWER Agreement between the lender and the borrower to delay
foreclosure"
"Loan Modification - CORRECT ANSWER A permanent restructuring of the mortgage where
one or more of the terms of a borrower's loan are changed to provide a more affordable payment"
"Foreclosure - CORRECT ANSWER Legal process to collect debt on mortgaged property"
"Balloon Mortgage - CORRECT ANSWER A mortgage in which a large portion of the borrowed
principal is repaid in a single payment at the end of the loan period and does not amortize"
"ARM Interest Rate Adjustment - CORRECT ANSWER Margin + Interset = Rate"
"COFI
Cost of Fund Index - CORRECT ANSWER Regional average of interest expenses incurred by
financial institutions which in turn is used as a base for calculating variable rate loans"
"Fixed Rate - CORRECT ANSWER Interest rate that remains the same over the life of the loan"
"Non-Conforming Loan - CORRECT ANSWER Does not meet Freddie Mac or Fannie Mae
guidelines"
"Conforming Loan - CORRECT ANSWER Conforms to terms and conditions set by government"
"Conventional Loan - CORRECT ANSWER Not guaranteed or insured by the government but
can still follow federal guidelines"
"Acceleration Clause - CORRECT ANSWER Accelerated loan repayment if property is in
default"
"Exculpatory Clause - CORRECT ANSWER Relieves one party form liability due to actions of
another party"
"Defeasance Clause - CORRECT ANSWER Creditor can obtain title without foreclosure
process"
"Late Payement Penalty - CORRECT ANSWER When fees are attached to late payment"
"Pre-Payment Penalty - CORRECT ANSWER Fixed sum added to loan if loan is paid off early"
"Contract of Deed - CORRECT ANSWER Complete financing and sales contract agreed upon by
seller and seller with no note attached"
"Note - CORRECT ANSWER Promise to repay debt"
"Mortgage - CORRECT ANSWER Pledge of collateral to secure a loan"
"Approval letter - CORRECT ANSWER A document that states the loan amount a lender is
willing to make a borrower"
"Pre-Qualification Letter - CORRECT ANSWER Estimate of loan amount a borrower can get
with limited financial information"
"Commitment Letter - CORRECT ANSWER Indicates a borrower has passed lenders
underwriting guidelines and that they are willing to offer the borrower a home loan"
"Mortgage Approval Letter - CORRECT ANSWER Letter subject to property specified for a loan
and dependent on an appraisal" "AUS
Automated Underwriting System - CORRECT ANSWER A computer generated loan
underwriting decision, using completed loan application information"
"Capacity - CORRECT ANSWER A borrowers income assets"
"Credit - CORRECT ANSWER The ability of a borrower to obtain goods or services before
payment, based on the trust that payment will be made in the future"
"Collateral - CORRECT ANSWER Property a borrower can provide as security for a loan"
"Income Verification - CORRECT ANSWER Provides verification a borrower has the means for
repayment of debt"
"Infile Credit Report - CORRECT ANSWER One national credit bureau report"
"Tri-Credit Report - CORRECT ANSWER All three credit bureau reports"
"Factual Data Credit Report - CORRECT ANSWER two or three credit bureau reports"
"Credit Bureau - CORRECT ANSWER Clearinghouse that exchanges information with credit
grantors about a borrowers bill paying habits and history"
Owners- insures title is free of defects Lenders-benefit purchaser if loan is sold" "PMI
Private Mortgage Insurance - CORRECT ANSWER Protects lenders if borrower stops making
payments borrower pays until 20% of loan value is paid"
"Power of Sale - CORRECT ANSWER Grants lender the ability to secure full legal title to
property"
"Trust - CORRECT ANSWER Right of property to be held for the benefit of another"
"Truster - CORRECT ANSWER Person who grants the right to trust"
"Trustee - CORRECT ANSWER Holds the property of a trust"
"Specific Lien - CORRECT ANSWER Debts tied to single property
Highest priority lien holder has first rights to collect First in time, first in line"
"Involuntary Lien - CORRECT ANSWER Lien imposed upon the owner of real property"
"Voluntary Lien - CORRECT ANSWER Mortgage owner willingly entered into an agreement of
lien against their property"
"Lien - CORRECT ANSWER An interest or encumbrance held by a creditor in a debtee's real or
personal property"
"Secondary Mortgage Market - CORRECT ANSWER Where originated loans are sold to
warehouse lenders Origination fee is charged to warehouse lenders"
"Oral Rate Disclosures - CORRECT ANSWER When a borrower orally asks about a credit plan
lender must state the APR"
"TILA Document Retention 1026.25 - CORRECT ANSWER Creditor must retain the Escrow
Closing Notice and the Partial Payment Disclosure, both of which are new disclosures, for two years"
"TILA Document Retention 1026.25 - CORRECT ANSWER Requires a creditor to maintain for
three years records sufficient to evidence all compensation it pays to a loan originator"
"Regulation Z - CORRECT ANSWER Most of the specific requirements imposed by TILA are
found in" "CHARM Booklet
Consumer Handbook On Adjustable-Rate Mortgages - CORRECT ANSWER This is an
informational booklet containing general information on Adjustable Rate Mortgages (ARM's) that is provided by the lender to the loan applicant at the time of application for certain adjustable mortgage loans"
"Dodd-Frank Act - CORRECT ANSWER Promotes the financial stability of the United States
Passed in 2010" "CFPB Consumer Financial Protection Act
Title X Bureau - CORRECT ANSWER Regulates consumer financial products"
"GAO
Government Accountability Office - CORRECT ANSWER An agency of the U.S. government
that monitors and audits government spending and operations" "Title XIV, 14
Dodd-Frank - CORRECT ANSWER Establishes minimum standards for all mortgage products
Requires all originators to be properly qualified, registered and licensed" "TILA
Regulation 129(c) - CORRECT ANSWER This requires creditors to determine a consumer's
ability to repay a "residential mortgage loan" and establishes new rules and prohibitions on prepayment penalties." "ATR Ability to Repay
Regulation Z 1026.43(c) - CORRECT ANSWER Determines whether the creditor makes a
reasonable and good faith determination at or before. consummation that the consumer will have a reasonable ability to repay the loan according to its terms"
"Notices of Transfer of Loan Servicing - CORRECT ANSWER Each transferor servicer and
transferee servicer of any mortgage loan shall provide to the borrower a notice of transfer for any assignment, sale, or transfer of the servicing of the mortgage loan"
"1024.33 - CORRECT ANSWER Section under RESPA for mortgage servicing transfers"
"ABA
Affiliated Business Arrangement - CORRECT ANSWER Under RESPA, an arrangement where a
person refers mortgage-related business to a company in which the person "or an associate of such person" has an ownership interest of more than 1 percent in a provider of settlement services."
"Associate - CORRECT ANSWER A spouse, parent, or child of such person;
A corporation or business entity that controls, is controlled by, or is under common control with such person; An employer, officer, director , partner, franchisor, or franchisee of such person; or Anyone who has an agreement, arrangement, or understanding, with such person, the purpose or substantial effect of which is to enable the person in a position to refer settlement business to benefit financially from the referrals of such business." "CBA
Controlled Business Arrangement - CORRECT ANSWER A real estate brokerage office that
provides related services through subsidiary companies that operate within the brokerage office" "HDMA Home Mortgage Disclosure Act
Regulation C - CORRECT ANSWER Federal law enacted in 1975 that requires certain financial
institutions to provide mortgage data to the public. Grew out of a concern of credit shortages in urban areas"
"Redlining - CORRECT ANSWER A discriminatory practice by which banks refuse or limit loans
or mortgages within specific geographic areas" "CRA
"LAR
Loan Application Register - CORRECT ANSWER Refers to the format that has been prescribed
for reporting HMDA data" "FDIC
Federal Deposit Insurance Corporation - CORRECT ANSWER Created in 1933 this insures
deposits against bank failures to maintain public confidence and encourage stability in the financial system through the promotion of sound banking practices" "OCC
Office of the Comptroller of the Currency - CORRECT ANSWER Federal agency that serves to
charter, regulate and supervise the national banks and the federal branches and agencies of foreign banks, head is appointed by the President" "OTS
Office of Thrift Supervision - CORRECT ANSWER Federal agency under the Department of the
Treasury that chartered, supervised, and regulated all federally chartered and state-chartered savings banks and savings and loans associations." "NCUA
National Credit Union Administration - CORRECT ANSWER Independent federal agency
created to regulate, charter, and supervise federal credit unions" "FCRA Fair Credit Reporting Act
Section 1681b - CORRECT ANSWER Enacted in 1970 that regulates the collection of credit
information and access to your credit report to ensure fairness, accuracy and privacy of the personal information contained in the files of the credit reporting agencies." "FACTA or FACT ACT
Fair and Accurate Credit Transactions Act - CORRECT ANSWER Enacted in 2003, contains
provisions to help reduce identity theft and allows consumers to request and obtain a free credit report once every twelve months from each of the three nationwide consumer credit reporting companies" "CRA
Credit Reporting Agency - CORRECT ANSWER Businesses that maintains historical information
pertaining to credit experience on individuals or businesses"
"TCPA
Telephone Consumer Protection Act - CORRECT ANSWER Rule prohibiting telephone
solicitation calls to a residence before 8:00 am or after 9:00 pm, regulates telemarketing calls. It also is the authority to create the National Do-Not-Call List" "18 months with established relationship such as purchase
90 days after an inquiry is made - CORRECT ANSWER Time periods under TCPA, Telephone
Consumer Protection Act that a person can be contacted" "MARS
Mortgage Assistance Relief Services - CORRECT ANSWER Enacted 2010, directed at
companies that offer loan modification services to consumers for a fee; it requires certain disclosures and prohibits upfront fees."
"Non-Traditional Mortgages - CORRECT ANSWER Mortgages include interest-only mortgages,
adjustable rate mortgages (ARMs) and subprime mortgages"
"Amortization - CORRECT ANSWER A term that refers to the process of allocating the cost of
an intangible asset over a period of time. It also refers to the repayment of loan principal over time."
"Negative Amortization - CORRECT ANSWER An increase in the principal balance of a loan
caused by making payments that fail to cover the interest due" "LTV
Loan to Value Ratio - CORRECT ANSWER Ratio used by lenders to express the ratio of a loan to
the value of an asset purchased" "DTI
Debt to Income Ratio - CORRECT ANSWER Ratio lenders use to measure an individual's ability
to manage monthly payment and repay debts" "CMT
Constant Maturity Treasury Rate - CORRECT ANSWER An adjustment for equivalent maturity,
used by the Federal Reserve Board to compute an index based on the average yield of various Treasury securities maturing at different periods" "LIBOR
IntercontinentalExchange London Interbank Offered Rate - CORRECT ANSWER A benchmark
rate that some of the world's leading banks charge each other for short-term loans" "COFI
Cost of Funds Index - CORRECT ANSWER A regional average of interest expenses incurred by
financial institutions, which in turn is used as a base for calculating variable rate loans"
"Hard Money Loan - CORRECT ANSWER A specific type of asset-based loan financing through
which a borrower receives funds secured by real property which the LTV is 65-70%"
"Risk Layering - CORRECT ANSWER Relaxing more than one traditional underwriting
standards which increases the risk of defalt"
"Piggyback Loan - CORRECT ANSWER When a borrower takes out two loans simultaneously
which lowers equity and increases credit risk"
"Introductory Rate - CORRECT ANSWER Interest rate charged to a customer during the initial
stages of a loan"
"Recast - CORRECT ANSWER Involves paying off a lump sum of the principal amount and
asking to have the monthly payments reset according to the original interest rate and loan terms"
"Hard Penalty - CORRECT ANSWER A prepayment penalty assessed if the mortgage is prepaid
within a certain time period"
"Soft Penalty - CORRECT ANSWER A prepayment penalty that applies to refinancing only is
called a" "FICO
Fair Isaac Corporation - CORRECT ANSWER The largest and best known of several companies
that provide software for calculating a person's credit score" "TPO
Third Party Organization - CORRECT ANSWER A separate individual or organization other than
the two principals involved. Provides an auxiliary product not supplied by the primary manufacturer to the end user"
"Red Flag Rule - CORRECT ANSWER Created by the (FTC) to help prevent identity theft,
enacted 2008"
"Fraud for Housing - CORRECT ANSWER A borrower provides false information about
employment, income or assets in order to qualify for a loan." "Fraud for Profit
also known as Industry Insider Fraud - CORRECT ANSWER Includes a straw borrower whose
credit report is used, a dishonest appraiser who intentionally and significantly overstates the value of the subject property"
"Straw Buyer - CORRECT ANSWER A person who buys something on behalf of someone else in
order to circumvent legal restrictions or enable fraud"
"Chunking - CORRECT ANSWER Starts as a seminar or program where the scam artist pitches
real estate investments to an investor and uses their personal information to obtain mortgages."
"Backwards Application - CORRECT ANSWER Fabrications of a borrower's income and assets
to meet the loan's minimum application requirements through inflated income, fictitious assets, and altered credit reports."
"Title 18, section 1010 - CORRECT ANSWER HUD Title number that fraud punishments are
under" "FERA
Fraud Enforcement and Recovery Act - CORRECT ANSWER Law that enhanced criminal
enforcement of federal fraud laws, enacted 2009"
"Power of Attorney - CORRECT ANSWER The authority to act for another person in specified
or all legal or financial matters"
"Regulation V - CORRECT ANSWER Regulation covering Fair Credit Reporting Act (FCRA)"
" - CORRECT ANSWER ECOA - Reg B " Be Equal"
HMDA - Reg C " C you at Home" RESPA - Reg X " Xray of my RESPAratory system" TILA - Reg Z " Today I Learned About Zebra's ""
"$5,000 or prison for 1 year or both - CORRECT ANSWER Iff someone willfully gives false
information or consistently understates the APR or fails to comply with TILA the fine is"
" - CORRECT ANSWER 3/7/3 Rule
3 - Give the form 3 business days after application and only collect the cost of a credit report in 1st three days 7 - Wait 7 days to close 3- If anything changes provide another form and wait 3 days to close loan."
"Redisclose - CORRECT ANSWER If the APR changes by more than .125% on a fixed rate loan or
by .25% on an ARM you must"
"Primary Residence Refinance, HELOC, Equity Loan - CORRECT ANSWER There is only
rescission in a"
"The Margin on an ARM - CORRECT ANSWER Is set by the lender and never changes"
"Index - CORRECT ANSWER This is tied to the market"
"Fully Index Rate Formula - CORRECT ANSWER M+I=R"
"Caps - CORRECT ANSWER Protects borrowers from huge swings in the market"
"2 - CORRECT ANSWER What the most a loan with 2/6 cap can increase in an adjustment
period"
"Mortgage Lenders make loans and Mortgage Brokers arrange loans - CORRECT ANSWER
Difference between mortgage lender and mortgage broker"
"An MLO of a non-depository firm that arranges mortgages for clients - CORRECT ANSWER
What type of MLO must be licensed?"
" - CORRECT ANSWER Have Prelicensing Education of 20 hours minimum
3 hrs Fed Law 3 hrs Ethics/Fraud 2 hrs non traditional Mortgage Products"
"Contract of Deed - CORRECT ANSWER A complete financing agreement and sales contract in
one executed document"
"Hard Prepayment Penalty - CORRECT ANSWER Set time frame, the property if sold or
refinanced during this time frame, would allow the lender to charge a set penalty"
"Soft Prepayment Penalty - CORRECT ANSWER Cannot refinance without penalty but you may
sell"
"Due on Sale - CORRECT ANSWER If you sell your property, you must payoff any outstanding
debt"
"Demand Feature - CORRECT ANSWER Lender demands full payment, usually due to default"
" - CORRECT ANSWER Taxes take priority over any lien!!!!!!!!"
" - CORRECT ANSWER Conforming Loans are always
Conventional, however Conventional Loans are not always Conforming"
"Conforming - CORRECT ANSWER Loan has a limit of $417,000"
"Jumbo Loans - CORRECT ANSWER Known as non conforming because they exceed the FNMA
Loan limit of $417,000"
"A conventional mortgage that is nonconforming - CORRECT ANSWER Which of the following
best describes a 2nd mortgage?"
" - CORRECT ANSWER The SAFE ACT defines a NON Traditional Loan as anything other than a
30 yr fixed rate loan."
"1003 - CORRECT ANSWER Uniform Residential Loan Application ( URLA)"
"1008 - CORRECT ANSWER Underwriting and Transmittal Summary"
"Qualifying Ratios - CORRECT ANSWER Manual Underwriting 28%/36%"
"4506T - CORRECT ANSWER Document that contains a tax transcript"
"8821 - CORRECT ANSWER Tax Info Authorization form"
" - CORRECT ANSWER Max seller concession allowed on conventional loan is 6%"
"MIP is lifetime - CORRECT ANSWER MIP stay's on an FHA loan that is greater than 90%LTV"
"MIP stays on for 11 years - CORRECT ANSWER Loans at 90% LTV and under"
"Take .85% of $200k / 12 = $141.66 - CORRECT ANSWER If the premium is .85% and the loan is
$200,000, what is the monthly mortgage insurance payment?"
" - CORRECT ANSWER - Anyone is eligible for an FHA loan
- Gift funds can be used to close (also, borrower's own funds and grant money can be used for down payment)
- sellers can contribute 6% towards closing costs
- NO Prepayment Penalties
- Qualifying Ratios are 31%/43%
- 3.5% down payment" "COE
Certificate of Eligibility - CORRECT ANSWER Determined by obtaining a Veterans report of
separation from service DD214"
"Veterans Entitlement - CORRECT ANSWER The amount of the Guarantee, is based on when,
how , branch of service and discharge"
"1% - CORRECT ANSWER Max Origination fee a lender can charge a veteran on VA loan is"
"USDA Loan - CORRECT ANSWER >100% financing
Only offered in rural areas (Towns with a population of 35,000 or less) Guarantee fee is 1% - which can be financed in the loan which means the max LTV is 101%"
"ARM Loan - CORRECT ANSWER > Start Rate (Teaser) - Lower introductory rate
An Index - which is tied to the loan (LIBOR, T - Bill, COFI) LIBOR -London Interbank Offered Rate COFI - Cost of Funds Index
