Chapter 1 — Quiz

Twenty-four questions. Multiple choice and short answer, written in the style of the SAFE MLO test where the material is exam-relevant. Answer key in the collapsed block at the bottom — write your answers down first.

1. Which document is the borrower's evidence of the debt?

A. The security instrument B. The promissory note C. The Closing Disclosure D. The deed

2. Which document creates the lien against the property?

A. The promissory note B. The security instrument C. The title commitment D. The appraisal

3. Which of the following is recorded in the county land records?

A. The note B. The security instrument C. Both D. Neither

4. In a mortgage, the borrower is the:

A. Mortgagee B. Trustee C. Mortgagor D. Beneficiary

5. A deed of trust involves how many parties?

A. One B. Two C. Three D. Four

6. In a deed of trust, the lender is the:

A. Trustor B. Trustee C. Beneficiary D. Grantor

7. States using a deed of trust generally permit which type of foreclosure?

A. Judicial only B. Non-judicial C. Strict foreclosure only D. Neither

8. Which best describes the primary market?

A. Where mortgage-backed securities are traded B. Where loans are originated between borrower and lender C. Where servicing rights are bought and sold D. Where the agencies publish their guidelines

9. Fannie Mae's principal activity is to:

A. Originate mortgage loans to consumers B. Insure mortgage loans against default for the FHA C. Purchase loans that meet its published guidelines and securitize them D. Regulate mortgage loan originators

10. Which party issues the underwriting decision on a residential loan file?

A. The loan officer B. The processor C. The underwriter D. The closing agent

11. Which party is neutral between buyer and seller at the closing table?

A. The loan officer B. The closer C. The closing agent D. The underwriter

12. The entity that collects the monthly payment and administers the escrow account after closing is the:

A. Investor B. Servicer C. Aggregator D. Warehouse lender

13. A mortgage broker:

A. Underwrites and funds loans in its own name B. Takes applications and places them with wholesale lenders who fund in their own name C. Purchases closed loans from correspondents D. Guarantees securities backed by government loans

14. A correspondent lender typically funds loans at closing using:

A. Its depositors' funds only B. A warehouse line of credit C. Funds advanced by Fannie Mae D. The borrower's earnest money

15. Which of the following most directly explains why lenders treat agency guidelines as absolute?

A. Regulators audit guideline compliance annually B. A loan that no aggregator will buy leaves the lender holding it with borrowed money C. Guidelines are federal statutes D. Underwriters are personally liable for guideline violations

16. On a \$365,750 loan at 6.625%, the first month's interest is closest to:

A. \$1,829 B. \$2,019 C. \$2,342 D. \$3,034

17. Under the S.A.F.E. Act, a mortgage loan originator is a person who takes a residential mortgage loan application or:

A. Processes loan documents B. Offers or negotiates terms of a residential mortgage loan for compensation or gain C. Appraises residential property D. Records the security instrument

18. A borrower's loan is sold six weeks after closing. This means:

A. The borrower's rate and terms may be renegotiated by the new owner B. The lien must be re-recorded in the borrower's name C. The note has changed hands; the recorded lien and the loan's terms are unchanged D. The borrower must reapply with the new investor

19. Which of these does the promissory note typically not contain?

A. The interest rate B. The monthly principal-and-interest payment C. The property's legal description D. The maturity date

20. "Jointly and severally liable" on a note with two borrowers means:

A. Each borrower owes half the debt B. Each borrower owes the entire debt C. Liability is divided in proportion to income D. Only the borrower with the higher score is liable

Short answer

21. In two sentences, explain why the note is not recorded but the security instrument is.

22. A colleague says, "The bank lends its depositors' money for thirty years." Explain what is wrong with this as a description of most U.S. residential mortgage lending.

23. Name the four facts a loan officer needs before quoting a rate, and explain why omitting any one of them turns a quote into a guess.

24. The chapter argues that "the person who decides never meets the borrower, and the person the borrower trusts cannot decide." State what a loan officer's job is, in one sentence, in light of that gap.

Answer key **1.** B — the promissory note is the evidence of the debt. **2.** B — the security instrument creates the lien. **3.** B — only the security instrument is recorded. This pair (Q1–Q3) is the most heavily tested distinction in the chapter. **4.** C — mortgagor. The "-or" grants the mortgage. **5.** C — three: trustor (borrower), trustee (neutral holder), beneficiary (lender). **6.** C — beneficiary. **7.** B — non-judicial, under the power of sale granted to the trustee. Note that this is a *general* pattern; state law governs and varies. **8.** B. **9.** C — Fannie Mae does not originate loans to consumers. This is a reliable exam question. **10.** C — the underwriter. Neither the loan officer nor the processor has approval authority. **11.** C — the closing agent (title company, escrow company, or attorney) is neutral. The *closer* works for the lender; do not confuse the two. **12.** B — the servicer. **13.** B. **14.** B — a warehouse line of credit, repaid when the loan is sold. **15.** B — an unsaleable loan funded with borrowed money is an existential problem for a lender. **16.** B — \$365,750 × (0.06625 ÷ 12) = **\$2,019.24**. Choice A is the discount points; C is the full P&I payment; D is PITI plus mortgage insurance. **17.** B — "offers or negotiates terms of a residential mortgage loan for compensation or gain." **18.** C — the debt changed hands. The borrower's rate, payment, and terms are unchanged, and the recorded lien stays where it is. **19.** C — the note does not describe the property. The security instrument does. **20.** B — each borrower is liable for the entire debt, not a share of it. **21.** The note is a private contract evidencing a debt between the parties; the security instrument creates a claim against a specific parcel of land, and the purpose of a public land record is to let anyone determine what is attached to that parcel. Recording the lien puts the world on notice; recording the promise would serve no such function. **22.** Most U.S. residential lenders fund loans with borrowed money — a warehouse line — and sell them within weeks into the secondary market, replacing their capital and lending again. The thirty-year fixed-rate interest-rate risk is ultimately borne by investors who buy mortgage-backed securities, not by the depository. Portfolio lending, where a bank does hold the loan, exists but is a minority of the market. **23.** Representative credit score, loan-to-value, occupancy and property type, and lock period. Each is an input to a price adjustment grid; without all four, the rate returned is the rate for *some* file, not this one. Chapter 29 rebuilds a quote from these inputs. **24.** To stand in the gap: to present a file that answers the underwriter's questions before they are asked, and to translate the underwriter's requirements into finite tasks the borrower can actually complete on a deadline. Any answer capturing *anticipate* and *translate* is correct.