MLO Domain 3: General Mortgage Knowledge Welcome to your MLO Domain 3: General Mortgage Knowledge 1. MLO: General Mortgage Knowledge What is the impact of a higher loan-to-value (LTV) ratio on mortgage insurance? A. Decreases the need for mortgage insurance B. Increases the cost of mortgage insurance C. Has no effect on mortgage insurance D. Eliminates the requirement for mortgage insurance None 2. MLO: General Mortgage Knowledge In the context of mortgages, what does PITI stand for? A. Principal, Interest, Tax, Insurance B. Payment, Income, Terms, Interest C. Principal, Income, Tax, Insurance D. Payment, Interest, Terms, Insurance None 3. MLO: General Mortgage Knowledge Which document legally binds the borrower to repay the loan according to the terms of the mortgage? A. Promissory Note B. Mortgage Deed C. Truth in Lending Disclosure D. Closing Disclosure None 4. MLO: General Mortgage Knowledge Which of the following best describes a 'jumbo loan'? A. A loan that exceeds the conforming loan limits set by the Federal Housing Finance Agency B. A government-insured loan C. A loan with an adjustable interest rate D. A loan that is smaller than the typical mortgage None 5. MLO: General Mortgage Knowledge The Annual Percentage Rate (APR) on a mortgage is designed to reflect: A. The base interest rate of the loan B. The true cost of borrowing, including interest and other charges C. The cost of mortgage insurance only D. The monthly principal and interest payment None 6. MLO: General Mortgage Knowledge A 'deed of trust' is used in place of a mortgage in some states. What key difference does this document introduce? A. It eliminates the need for a promissory note B. It allows the borrower to act as the trustee C. It involves a third-party trustee who holds the legal title until the loan is paid off D. It reduces the amount of closing costs None 7. MLO: General Mortgage Knowledge What is the significance of the loan estimate in the mortgage process? A. It finalizes the interest rate of the loan. B. It provides the borrower with detailed costs of the loan. C. It is the final agreement between the lender and the borrower. D. It serves as the appraisal document for the property. None 8. MLO: General Mortgage Knowledge In mortgage underwriting, what is 'front-end ratio' primarily concerned with? A. The borrower's total monthly debt payments divided by monthly income. B. The portion of monthly income spent on housing expenses. C. The ratio of the loan amount to the appraised property value. D. The comparison of the borrower's income to the median income in the area. None 9. MLO: General Mortgage Knowledge Which of the following best defines a 'balloon payment' in the context of a mortgage? A. An extra payment made to reduce the principal balance. B. A large, lump-sum payment due at the end of a loan term. C. A payment that fluctuates based on interest rate changes. D. A refund issued to the borrower for overpayment. None 10. MLO: General Mortgage Knowledge What does 'negative amortization' mean in the context of a mortgage loan? A. The loan balance decreases over time. B. The monthly payments are less than the interest accruing, causing the loan balance to increase. C. The interest rate on the loan decreases over time. D. The loan is paid off more quickly than scheduled. None 11. MLO: General Mortgage Knowledge The Right of Rescission primarily applies to which of the following types of mortgage transactions? A. Purchase of a primary residence B. Refinance of a primary residence by a different lender C. Refinance of a primary residence by the same lender with no cash-out D. Home equity line of credit 'HELOC' on a primary residence None 12. MLO: General Mortgage Knowledge What role does the Federal Reserve play in the mortgage industry? A. It directly sets mortgage interest rates. B. It insures mortgage loans against default. C. It influences mortgage rates through monetary policy. D. It provides loans to mortgage borrowers. None 13. MLO: General Mortgage Knowledge Points' paid at closing to reduce the interest rate on a mortgage are known as: A. Origination points. B. Discount points. C. Broker points. D. Settlement points. None 14. MLO: General Mortgage Knowledge What factor is MOST critical when a lender evaluates the 'capacity' component of the 3 Cs of credit in mortgage underwriting? A. The borrower's credit score. B. The borrower's employment history. C. The borrower's current income level. D. The borrower's debt-to-income (DTI) ratio. None 15. MLO: General Mortgage Knowledge A mortgage loan that does not comply with the standards of Fannie Mae or Freddie Mac is known as: A. A prime mortgage. B. A conforming mortgage. C. A non-conforming mortgage. D. A government-insured mortgage. None 16. MLO: General Mortgage Knowledge In a mortgage application, what does the term 'underwriting' refer to? A. The process of evaluating a property's value. B. The process of assessing the risk of lending to a borrower. C. The act of finalizing the loan terms with the borrower. D. The procedure for recording the mortgage deed. None 17. MLO: General Mortgage Knowledge The Home Mortgage Disclosure Act 'HMDA' requires lenders to report: A. The racial demographics of all applicants. B. The outcome of all mortgage applications. C. Only the interest rates offered to borrowers. D. The credit scores of all mortgage applicants. None 18. MLO: General Mortgage Knowledge The 'adjustment period' in an Adjustable-Rate Mortgage (ARM) refers to: A. The time between changes in the interest rate or monthly payment. B. The initial period when the interest rate remains fixed. C. The duration it takes to pay off the mortgage. D. The time allowed for loan modification negotiations. None 19. MLO: General Mortgage Knowledge When a borrower is said to be 'upside down' on their mortgage, it means that: A. They have paid off more than 50% of the loan balance. B. The mortgage interest rate has decreased since origination. C. The amount owed on the mortgage is less than the home's value. D. The amount owed on the mortgage is greater than the home's value. None 20. MLO: General Mortgage Knowledge A 'prepayment penalty' clause in a mortgage agreement serves to: A. Reward borrowers for early repayment of the loan. B. Penalize borrowers for paying off the loan early within a certain period. C. Adjust the loan's interest rate for early repayment. D. Decrease the loan's principal balance more rapidly. None 1 out of 20 Time is Up! Time's up
