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NMLS Safe Exam Pt 4

Ethics, Fraud, UST & Math

QuestionAnswer
What is mortgage fraud? Any material misstatement, misrepresentation, or omission relied upon by a lender or underwriter to fund or purchase a loan.
What is fraud for housing? When a borrower lies or omits facts to obtain a home loan.
What is fraud for profit? When industry insiders manipulate the loan process to steal equity or funds.
What are examples of fraud for housing? Lying about income, occupancy, or assets.
What are examples of fraud for profit? Inflated appraisals, straw buyers, kickbacks, and falsified documentation.
What is a straw buyer? A person who buys a home on behalf of another to conceal the true borrower’s identity or qualifications.
What is identity theft in mortgage lending? Using another person’s identity to fraudulently obtain a mortgage loan.
What is property flipping fraud? Purchasing and reselling a property at an inflated price with false appraisals or collusion.
What is equity skimming? Using false documents or straw buyers to obtain a mortgage and then renting the property without paying the mortgage.
What is asset rental fraud? Temporarily moving funds into an account to appear as if the borrower has the required reserves.
What is the penalty for mortgage fraud? Up to 30 years in federal prison and up to $1 million in fines.
What is the Uniform State Test (UST)? A portion of the SAFE exam covering federal and state-level content.
What is ethical behavior in mortgage lending? Acting with honesty, transparency, and in the best interest of the client.
What is steering? Directing a borrower toward a loan product that benefits the MLO more than the borrower.
What is churning? Excessively refinancing a loan to earn fees, not to benefit the borrower.
What is misrepresentation? Providing false information or failing to disclose material facts.
What is a red flag for fraud? Inconsistent income, unverifiable employment, mismatched documents, or signatures.
What are the three C’s of underwriting? Credit, Capacity, and Collateral.
What is capacity in underwriting? The borrower’s ability to repay based on income and debts.
What is collateral in underwriting? The value and condition of the property used as security.
What is credit in underwriting? The borrower’s history of repaying debts and managing credit.
What is front-end DTI ratio? Monthly housing expense ÷ gross monthly income.
What is back-end DTI ratio? Total monthly debts ÷ gross monthly income.
What is the formula for LTV? Loan amount ÷ lesser of purchase price or appraised value.
What is the formula for CLTV? Total of all loans ÷ lesser of purchase price or appraised value.
What is the formula for HCLTV (High Combined Loan-to-Value)? (All current liens + full credit line on HELOC) ÷ appraised value.
What is the formula for monthly PMI? Loan amount × PMI rate ÷ 12.
What is the formula for monthly property taxes? Annual tax amount ÷ 12.
What is the formula for monthly homeowner’s insurance? Annual premium ÷ 12.
What is per diem interest? Loan amount × interest rate ÷ 365 × number of days until first payment.
How do you calculate monthly interest? Loan amount × interest rate ÷ 12.
How do you calculate a discount point? 1 point
How do discount points affect rate? 1 point typically lowers the interest rate by 0.25%.
What is a bona fide discount point? A discount point that results in a lower interest rate and provides real savings to the borrower.
What are origination fees? Fees charged by the lender for processing the loan.
What is the max points and fees allowed for a Qualified Mortgage? 3% of the loan amount (for loans ≥ $100,000).
What is the definition of steering under LO Comp Rule? Advising a borrower to take a loan that benefits the originator over the consumer.
What are examples of unethical behavior? Misrepresentation, discrimination, steering, falsifying docs, withholding information.
What is the SAFE Act? A law that sets licensing and registration standards for MLOs.
Who must be licensed under the SAFE Act? Non-depository mortgage loan originators.
Who is exempt from SAFE Act licensing? Registered MLOs at depository institutions (e.g., banks and credit unions).
What is the NMLS? Nationwide Multistate Licensing System & Registry — tracks MLO licensing and history.
What is required for license renewal? Continuing education, criminal background check, credit check, and annual attestation.
How often must an MLO renew their license? Annually by December 31st.
How many hours of continuing education are required each year? 8 hours.
What happens if an MLO fails to complete CE on time? License status becomes inactive until requirements are met.
What is temporary authority? Allows qualified MLOs to originate loans for up to 120 days while obtaining full licensure in a new state.
What is prohibited under LO Compensation Rule? Compensation based on loan terms or steering to increase compensation.
What is the SAFE Act testing requirement? Must pass the SAFE MLO Test with UST component.
What is a passing score for the SAFE MLO Test? 75% or higher.
What is a conflict of interest in lending? A situation where the MLO’s personal interest interferes with the borrower’s best interest.
Can an MLO receive referral fees from third-party providers? No, referral fees are prohibited under RESPA Section 8.
What is an example of a RESPA violation? Giving a realtor a gift card for sending clients to an MLO.
What is the primary goal of ethical lending? To ensure fairness, transparency, and borrower protection.
What is the purpose of the Loan Originator Compensation Rule? To prevent steering and conflicts of interest in MLO pay.
What is prohibited under LO Comp? Compensation based on loan terms, dual compensation, and steering.
Can an MLO be compensated by both borrower and lender? No, dual compensation is prohibited.
Can an MLO offer a discount to a borrower from their commission? No, this is also prohibited under LO Comp Rule.
What is the MAP Rule? Mortgage Acts and Practices Rule — governs mortgage advertising practices.
What does the MAP Rule prohibit? Misleading claims in mortgage advertising or loan promotions.
What is churning in mortgage lending? Excessive refinancing that benefits the lender but not the borrower.
What is the Red Flags Rule designed to detect? Identity theft.
What is a trigger term? A loan term used in advertising that requires additional disclosures (e.g., APR, terms).
What must be disclosed if an ad says "No Money Down"? Down payment terms, APR, and total payments.
What is the penalty for violating TILA? Actual damages + statutory damages up to $5,000 + class action damages up to $1 million.
What is the penalty for violating RESPA Section 8? Up to $10,000 fine and/or 1 year in prison.
What is the penalty for mortgage fraud? Up to 30 years in prison and/or up to $1 million in fines.
What is the minimum required score to pass the NMLS SAFE Test? 75%.
How many questions are on the NMLS exam? 120 total (115 scored, 5 unscored).
How long is the SAFE exam? 190 minutes (3 hours, 10 minutes).
Can you flag questions for review during the exam? Yes.
What happens if you fail the SAFE exam? 30-day waiting period for first 2 fails; 6-month wait after 3rd fail.
What should you bring to the testing center? Two forms of ID, one with photo and signature.
What is the best way to prepare for the SAFE exam? Use flashcards, take practice exams, and study all NMLS content areas.
What is the 3/7/3 rule in TRID? LE within 3 days of app, 7 days before closing, 3 days if redisclosure is triggered.
How do you calculate DTI? Total monthly debt ÷ gross monthly income.
How do you calculate front-end ratio? Housing expense ÷ gross monthly income.
How do you calculate back-end ratio? Total monthly debt obligations ÷ gross monthly income.
What is considered a good DTI ratio? 36% or less.
What is considered a risky DTI ratio? Over 43%.
What is the max DTI for an FHA loan? 43% (sometimes up to 50% with compensating factors).
What is the max DTI for a VA loan? No set limit, but 41% is generally used.
What is the max LTV for a conventional loan with no PMI? 80%.
How do you calculate loan amount from LTV and value? Appraised value × LTV
How do you calculate monthly property taxes? Annual tax ÷ 12.
How do you calculate monthly insurance premium? Annual premium ÷ 12.
What is per diem interest? Daily interest charged from funding to first payment: Loan × rate ÷ 365 × days.
How do you calculate discount points cost? Loan amount × number of points × 1%.
What is the typical rate reduction per point? 0.25% per point.
How do you calculate total monthly PITI payment? Principal + Interest + Taxes + Insurance.
How do you calculate APR manually? (Fees + interest) over the life of the loan ÷ loan amount, expressed as an annual rate.
What does a higher APR than note rate indicate? The loan has high fees or discount points.
What does an ARM’s margin represent? The fixed percentage added to the index to determine the interest rate.
What is a common ARM index? LIBOR (now phased out), SOFR, or CMT.
What is an interest rate cap in an ARM? The maximum interest rate change allowed in a period or over the loan's life.
What is the initial cap in an ARM? The maximum first adjustment after fixed period ends.
What is a periodic cap in an ARM? The max the rate can increase at each adjustment after the initial change.
What is a lifetime cap in an ARM? The most the interest rate can increase over the life of the loan.
Created by: jenniferhudson
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