Qualification: Underwriting, Appraisal, Title & Insurance: practice questions

A home was bought by a relocation company 45 days ago from a transferred employee and is now being resold at a 15% higher price with a higher-priced loan. Is a second appraisal needed?

1. No; purchases from a relocation agency in an employee move are exempt ✓
2. Yes; the price rose by more than 10% within 90 days of the last sale
3. Yes, unless the relocation company made improvements to the home
4. No, because a relocation company cannot hold title to a home

Why: 12 CFR 1026.35(c)(4)(vii) exempts from the additional appraisal an acquisition "(E) From an employer or relocation agency in connection with the relocation of an employee", along with purchases from government agencies, foreclosing lenders, heirs and others.

Source: 12 CFR 1026.35(c)(4)(vii)

After force-placing flood cover, a servicer receives proof that the borrower's own policy was in force all along. What must it do within 30 days?

1. Keep both policies until the next renewal date of either one
2. Cancel the force-placed policy and refund overlapping premiums ✓
3. Refund half the force-placed premium and keep the policy in place
4. Nothing, since the borrower did not respond within 45 days

Why: 12 CFR 339.7(b)(1): within 30 days of confirming existing cover, the institution or servicer must notify the insurer to terminate the force-placed insurance and refund premiums paid by the borrower for any period of overlap, as 42 U.S.C. 4012a(e)(3) also requires.

Source: 12 CFR 339.7(b)(1); 42 U.S.C. 4012a(e)(3)

Where the flipping rule requires two appraisals on a higher-priced mortgage loan, which of these is correct?

1. One appraiser may do both, as long as the two inspections are 30 days apart
2. The consumer must pay for both, as the second protects only the consumer
3. They must be by different appraisers, and the consumer pays for one at most ✓
4. The second may be an automated valuation, provided the first is full

Why: 12 CFR 1026.35(c)(4)(ii): the two appraisals "may not be performed by the same certified or licensed appraiser"; (c)(4)(iii) requires each to meet (c)(3)(i); and (c)(4)(v): "the creditor may charge the consumer for only one of the appraisals", so the consumer pays for 1 of the 2 at most.

Source: 12 CFR 1026.35(c)(4)(ii)-(v)

A creditor relies on the applicant's employment income. How may it verify her current employment status?

1. Only through a written verification signed by the employer
2. Only from two years of federal tax returns she has filed
3. Orally, provided it makes a record of what it was told ✓
4. It need not verify employment if her income is verified

Why: 12 CFR 1026.43(c)(3)(ii): "a creditor may verify a consumer's employment status orally if the creditor prepares a record of the information obtained orally".

Source: 12 CFR 1026.43(c)(3)(ii)

Where the flipping rule requires two appraisals on a higher-priced loan, what must one of them analyse?

1. The buyer's income and debts over the three years before the application
2. The seller's reasons for selling and the length of time the home was listed for sale
3. The rents of comparable homes nearby, to test the price as an investment
4. The price difference, market changes and improvements since the seller bought ✓

Why: 12 CFR 1026.35(c)(4)(iv): one appraisal must analyse "(A) The difference between the price at which the seller acquired the property and the price that the consumer is obligated to pay ...; (B) Changes in market conditions ...; and (C) Any improvements made to the property" in between.

Source: 12 CFR 1026.35(c)(4)(iv)

Which of these is a "valuation management function" under Regulation Z's valuation independence rules?

1. Setting the interest rate the borrower will pay on the loan
2. Pulling the borrower's credit report from a consumer reporting agency
3. Ordering the flood zone determination for the mortgaged property
4. Reviewing or verifying the work of a person who prepares valuations ✓

Why: 12 CFR 1026.42(b)(4) defines valuation management functions as recruiting, selecting or retaining a valuer, contracting with or employing one, managing the valuation process, and "(iv) Reviewing or verifying the work of a person that prepares valuations."

Source: 12 CFR 1026.42(b)(4)

An ARM has a 4% introductory rate and a fully indexed rate of 6.5%. Which rate must the creditor use to work out the payment for the ability-to-repay determination?

1. 4%, as the rate in force when the first payment falls due
2. 6.5%, as the greater, with fully amortizing payments ✓
3. 5.25%, the average of the introductory and indexed rates
4. The lifetime maximum rate allowed by the loan's caps

Why: 12 CFR 1026.43(c)(5)(i): the payment is calculated using "(A) The fully indexed rate or any introductory interest rate, whichever is greater; and (B) Monthly, fully amortizing payments that are substantially equal."

Source: 12 CFR 1026.43(c)(5)(i)

The funds for an FHA borrower's Minimum Required Investment must NOT come from which of these?

1. The borrower's own savings
2. The seller of the property ✓
3. A gift from her sister
4. Her employer's housing grant

Why: HUD Handbook 4000.1 II.A.4.d.ii(B), applying section 203(b)(9)(C) of the National Housing Act: the MRI "must not come from: (1) the seller of the Property; (2) any other person or entity who financially benefits from the transaction ... or (3) anyone who is or will be reimbursed" by them.

Source: HUD Handbook 4000.1 (Update 17, 11/26/2025), II.A.4.d.ii(B)

A servicer learns the flood policy on a designated loan has lapsed and notifies the borrower. If the borrower does nothing, when must the servicer force-place cover?

1. After 45 days from the notice ✓
2. After 30 days from the notice
3. After 60 days from the notice
4. After 90 days from the notice

Why: 12 CFR 339.7(a): "If the borrower fails to obtain flood insurance within 45 days after notification, then the FDIC-supervised institution or its servicer shall purchase insurance on the borrower's behalf", and may charge the borrower for it. 42 U.S.C. 4012a(e)(2) puts the same 45-day duty on the "lender or servicer".

Source: 12 CFR 339.7(a); 42 U.S.C. 4012a(e)(2)

While PMI remains on a loan, what must the servicer send the borrower each year?

1. A new appraisal showing the home's current market value and LTV ratio
2. A written statement of the PMI cancellation rights and a contact number ✓
3. A copy of the insurer's annual report and the premiums it has collected
4. Nothing more, once the notices at consummation have been given in writing

Why: 12 U.S.C. 4903(a)(3): the servicer must disclose "in an annual written statement (A) the rights of the mortgagor under this chapter to cancellation or termination ...; and (B) an address and telephone number" for contacting the servicer.

Source: 12 U.S.C. 4903(a)(3)