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NMLS Safe Exam Pt 9
Glossary, Mnemonics, Formulas & Master Review
| Question | Answer |
|---|---|
| What is a promissory note? | A borrower's written promise to repay a loan under agreed terms. |
| What is a deed of trust? | A security instrument placing property title in a third party’s hands until the loan is repaid. |
| What is a lien? | A legal claim on a property as security for a debt. |
| What is PITI? | Principal, Interest, Taxes, and Insurance — components of a mortgage payment. |
| What is the APR (Annual Percentage Rate)? | The true cost of credit, including interest and all lender fees. |
| What is a discount point? | A fee paid upfront to lower the loan’s interest rate — 1 point |
| What is LTV (Loan-to-Value ratio)? | Loan amount ÷ (lower of purchase price or appraised value). |
| What is CLTV (Combined Loan-to-Value ratio)? | Sum of all liens ÷ property value. |
| What is TLTV (Total Loan-to-Value ratio)? | Total of all mortgages, including undrawn HELOC, ÷ property value. |
| What is DTI (Debt-to-Income ratio)? | Total monthly debt ÷ gross monthly income. |
| What is front-end DTI? | Housing expenses ÷ gross monthly income. |
| What is back-end DTI? | Total monthly obligations ÷ gross monthly income. |
| What is per diem interest? | Daily interest charged between funding and first full payment date. |
| What is the monthly interest formula? | Loan amount × interest rate ÷ 12. |
| What is a prepayment penalty? | A fee charged for paying off a loan early. |
| What is amortization? | The gradual repayment of a loan through scheduled payments over time. |
| What is a fully amortized loan? | A loan that is completely paid off at the end of the term. |
| What is a balloon mortgage? | A mortgage with low payments and one large lump sum due at the end. |
| What is a buy-down? | A temporary reduction in the interest rate paid upfront, often by the seller or builder. |
| What is equity? | The difference between the home’s value and what’s owed on the mortgage. |
| What is a lock-in? | A lender’s guarantee of a specific rate and terms for a set time period. |
| What is a float? | Allowing the interest rate to change with the market before locking. |
| What is a trigger term? | A term in an advertisement that requires additional disclosures under TILA. |
| What is a finance charge? | Total cost of credit as a dollar amount, including fees and interest. |
| What is the purpose of TRID? | To provide clear loan disclosures that help borrowers understand and compare offers. |
| What is the SAFE Act? | A law requiring licensing and registration for mortgage loan originators. |
| What is the NMLS? | Nationwide Multistate Licensing System — tracks MLO licenses and IDs. |
| What is the difference between registered and licensed MLOs? | Registered MLOs work for depository institutions; licensed MLOs do not. |
| What is the definition of a complete application under TRID? | Name, income, SSN, property address, estimated value, and loan amount sought. |
| What is the 3/7/3 Rule under TILA? | LE within 3 days, 7 days to close, 3 more days if re-disclosed. |
| What is the CHARM booklet? | Consumer Handbook on Adjustable Rate Mortgages — required for ARMs. |
| What does the Home Loan Toolkit replace? | The Special Information Booklet — required for most purchase transactions. |
| What are the ECOA-protected classes? | Race, color, religion, national origin, sex, marital status, age, public assistance. |
| Mnemonic for ECOA classes? | "RACES MAP" — Race, Age, Color, Ethnicity, Sex, Marital status, Assistance (public), and religion. |
| What are the Fair Housing Act protected classes? | Race, color, national origin, religion, sex, familial status, disability. |
| Mnemonic for FHA classes? | "Fresh Corn" — Familial status, Race, Ethnicity, Sex, Handicap, Color, Religion, National origin. |
| What is the SAFE mnemonic for test prep? | READ SMART — Review, Eliminate, Apply, Decide + Stay calm, Mark, Answer all, Review, Time. |
| What is the definition of consummation? | When the borrower becomes contractually obligated to the loan terms. |
| What is rescission? | The borrower’s right to cancel a refinance within 3 business days. |
| Which loans have a 3-day right of rescission? | Refinance of primary residences (not purchases or investment properties). |
| What is the timeline for LE delivery? | Within 3 business days of application. |
| What is the CD delivery rule? | Must be received 3 business days prior to consummation. |
| What is the revised LE rule? | Must be delivered within 3 business days of valid change and no later than 4 days before closing. |
| How long must LE be retained? | 3 years. |
| How long must CD be retained? | 5 years. |
| What is the aggregate adjustment? | A calculation ensuring the lender doesn’t overcollect for escrow accounts. |
| What is the maximum cushion allowed in escrow accounts? | 1/6 of the total disbursements for the year (2 months). |
| What is a yield spread premium (YSP)? | Compensation from the lender to the broker for a higher interest rate. |
| What is a loan origination fee? | A charge by the lender for processing the loan, usually as a percentage of loan amount. |
| What is UFMIP? | Upfront Mortgage Insurance Premium — paid on FHA loans. |
| What is annual MIP? | Ongoing mortgage insurance premium on FHA loans, paid monthly. |
| When can MIP be removed on FHA loans? | Only if the loan was originated with ≥10% down — after 11 years. |
| What is the VA guarantee? | VA guarantees a portion of the loan to the lender — no mortgage insurance is required. |
| What is the COE in a VA loan? | Certificate of Eligibility — verifies borrower’s entitlement. |
| What is the VA funding fee? | One-time fee (waived for disabled vets) that helps offset program cost. |
| What is entrapment risk in advertising? | Presenting bait terms that the consumer cannot actually qualify for. |
| What is the Red Flags Rule? | Requires institutions to identify, detect, and prevent identity theft. |
| Who enforces the Red Flags Rule? | The FTC (Federal Trade Commission). |
| What is a covered account under the Red Flags Rule? | An account with risk of identity theft (e.g., mortgage, credit card). |
| What’s the purpose of the Disposal Rule? | To ensure sensitive consumer information is properly discarded. |
| What is the purpose of Regulation C? | Implements HMDA — requires reporting of loan application data to monitor fair lending. |
| What is a LAR? | Loan/Application Register — a record of HMDA-reportable data. |
| What is the purpose of Regulation B? | Implements ECOA — prohibits discrimination in lending. |
| How long must adverse action notices be retained? | 25 months. |
| What are adverse action reasons under ECOA? | Denial of credit, unfavorable changes, or revocation of credit. |
| What is the purpose of Regulation Z? | Implements TILA — governs credit terms and advertising. |
| Who enforces Regulation Z? | CFPB (Consumer Financial Protection Bureau). |
| What is Regulation X? | Implements RESPA — governs settlement procedures and disclosures. |
| What’s the purpose of the Initial Escrow Disclosure? | Shows estimated payments into and disbursements from escrow for the first year. |
| What is the Annual Escrow Statement? | Discloses actual activity in escrow accounts and any overages/shortages. |
| When is the Initial Escrow Disclosure due? | At or within 45 days of settlement. |
| What is considered a business day under TRID (LE)? | Any day the creditor’s office is open. |
| What is a business day for CD delivery? | All calendar days except Sundays and federal holidays. |
| When must the Affiliated Business Disclosure be given? | At time of referral or within 3 business days of application. |
| What is the retention period for ABADs? | 5 years. |
| What is a servicing transfer disclosure? | A notice sent when the loan servicer changes. |
| When is the goodbye letter due? | No later than 15 days before the effective date of transfer. |
| When is the welcome letter due? | Within 15 days after the servicing transfer. |
| What is the 60-day grace period for servicer transfers? | No late fees or negative reporting during the 60 days after transfer. |
| What’s the definition of a covered loan under RESPA? | A federally related mortgage loan for 1-4 family residential property. |
| What’s the purpose of the Homeownership Counseling Disclosure? | Informs borrowers about third-party counseling resources. |
| What is a sham entity under RESPA? | A fake business used to disguise illegal referral fees. |
Created by:
jenniferhudson
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