NMLS Updated MLO Exam Questions and Answers by qasim

Under RESPA (Real Estate Settlement Procedures Act), settlement services include activities related to closing the mortgage loan, such as title company services and escrow agent services. These services are integral to the settlement process and ensure that the transaction is completed legally and correctly.

Flood insurance (A) is required for properties in flood zones but is not considered a settlement service.

Homeowners association fees (B) and the sale of the mortgage loan on the secondary market (D) are also not part of the settlement services.

References:

RESPA (Real Estate Settlement Procedures Act), 12 USC §2602

CFPB RESPA Guidelines on settlement services

The main purpose of the secondary market is to fund additional loans by allowing lenders to sell existing mortgages to investors. This process replenishes the lender’s capital, enabling them to originate more loans. The secondary market is where mortgage-backed securities (MBS) are bought and sold, providing liquidity to the mortgage market.

Other options such as funding second mortgages or second home loans are specific transactions that do not capture the overall purpose of the secondary market.

References:

Fannie Mae and Freddie Mac Secondary Market Guidelines

HUD Secondary Mortgage Market Overview

In an Adjustable-Rate Mortgage (ARM), the components that adjust periodically are the index and the interest rate. Here’s how it works:

The index is the benchmark interest rate that fluctuates with market conditions (e.g., LIBOR, SOFR).

The interest rate adjusts based on changes in the index, but the margin (the fixed percentage added to the index) remains constant throughout the life of the loan.

Thus, the index and interest rate are the variables that change periodically, while the margin remains fixed.

References:

Fannie Mae Selling Guide for ARMs

Freddie Mac ARM Guidelines

Prepaid charges refer to certain upfront costs paid at closing. These include:

Per diem interest (D), which covers the interest from the closing date to the end of the month.

Other items like origination fees (A), credit report fees (B), and conveyance taxes (C) are not considered prepaid charges; they are typically categorized as closing costs or settlement fees.

References:

Real Estate Settlement Procedures Act (RESPA)

TILA-RESPA Integrated Disclosures (TRID)