NMLS weights mortgage loan origination activities at 27% of the 115 scored questions. NMLS does not publish weights below that level, so our exam-length mix gives this module 3 of the 115, in proportion to its share of the outline topics in that area (outline section 4.D).
The full bank holds 15 questions for this module, each with a written explanation that cites its source. Below are the 8 free questions for this module, with answers.
The law and guidance the questions in this module cite most often.
The correct finance charge on a mortgage is $6,000. Which disclosed finance charge would NOT be treated as accurate?
Why: 12 CFR 1026.18(d)(1) treats the finance charge on a mortgage as accurate if it is understated by no more than $100 or is greater than the amount required. $5,850 is understated by $150; $5,925 is within $100; $6,050 and $6,400 are overstatements. The same $100 test applies under 1026.38(o)(2) for loans with a Closing Disclosure.
Source: 12 CFR 1026.18(d)(1); 1026.38(o)(2)
According to the CFPB's ARM handbook, what is an ARM's interest rate generally never lower than?
Why: CHARM, describing the Minimum/Maximum Interest Rate row of the AIR table: "Generally, an ARM's interest rate is never lower than the margin." The sample table with a 2.5% margin shows a 2.5% minimum.
Source: CFPB Consumer Handbook on Adjustable-Rate Mortgages (CHARM), pp. 12-13
Which of these charges on a home purchase loan is part of the finance charge? All fees are bona fide and reasonable.
Why: 12 CFR 1026.4(b)(3) lists "Points, loan fees, assumption fees, finder's fees, and similar charges" as finance charges. In a transaction secured by real property, 1026.4(c)(7) excludes bona fide and reasonable fees for title insurance, notary fees and pre-closing appraisal fees.
Source: 12 CFR 1026.4(b)(3), (c)(7)
An ARM's Adjustable Interest Rate table shows an initial rate of 3% and a maximum rate of 8%. By how many percentage points can the rate rise over the life of the loan?
Why: CHARM describes the Minimum/Maximum Interest Rate row as showing how high the rate could be over the life of the loan. Its sample AIR table shows 3% initial and 8% maximum, a lifetime rise of 8 - 3 = 5 percentage points.
Source: CFPB Consumer Handbook on Adjustable-Rate Mortgages (CHARM), pp. 12-13
A construction loan is paid out in several advances. The correct APR is 7.000% and 7.200% is disclosed. Is the APR accurate?
Why: 12 CFR 1026.22(a)(3) treats the APR in an irregular transaction as accurate within 1/4 of one percentage point, and defines irregular transactions to include those with multiple advances. 7.200% is 0.2 above, within 0.25.
Source: 12 CFR 1026.22(a)(3)
An ARM uses an index that currently stands at 2.75% and a margin of 2.25%. What is the fully indexed rate?
Why: The CFPB's Consumer Handbook on Adjustable-Rate Mortgages (CHARM) states "Interest rate = index + margin": the margin is an extra percentage the lender adds to the index. 2.75% + 2.25% = 5%.
Source: CFPB Consumer Handbook on Adjustable-Rate Mortgages (CHARM), p. 4
A lender charges every applicant a $300 application fee, whether or not the loan is approved. How is the fee treated for Truth in Lending purposes?
Why: 12 CFR 1026.4(c)(1) excludes from the finance charge "Application fees charged to all applicants for credit, whether or not credit is actually extended."
Source: 12 CFR 1026.4(c)(1)
A 5/1 ARM has a 3% initial rate, a margin of 2.5% and a 2% limit on the first change. At the first adjustment the index is 2%. What is the new rate?
Why: CHARM explains that at the first adjustment the initial rate changes to the index plus the margin, subject to the limits on interest rate changes. 2% + 2.5% = 4.5%, which is within the 2-point first-change limit (3% + 2% = 5%), so the rate becomes 4.5%. CHARM uses the same figures in its teaser-rate example.
Source: CFPB Consumer Handbook on Adjustable-Rate Mortgages (CHARM), pp. 12-13