Mississippi Real Estate Salesperson Exam — All Questions

In a typical mortgage or deed of trust, which document is the borrower's personal promise to repay the debt?

• a.The promissory note✓
• b.The deed of trust
• c.The mortgage
• d.The reconveyance

The promissory note is the borrower's written promise to repay the loan and is the evidence of the debt itself. The mortgage or deed of trust is the security instrument that pledges the property as collateral; it secures the note but does not create the debt. A reconveyance is issued when the debt is fully paid to release the lien.

A clause in a loan that allows the lender to demand the entire remaining balance be paid immediately if the borrower defaults is called a(n):

• a.Subordination clause
• b.Acceleration clause✓
• c.Alienation clause
• d.Defeasance clause

An acceleration clause lets the lender declare the whole unpaid balance due at once upon default, which is a necessary step before foreclosure. An alienation (due-on-sale) clause lets the lender call the loan due if the property is sold or transferred. A subordination clause changes lien priority. A defeasance clause requires the lender to release the lien once the debt is paid.

Which federal law requires lenders to disclose the true cost of credit, including the annual percentage rate (APR) and finance charges, to consumer borrowers?

• a.RESPA
• b.The Fair Housing Act
• c.The Equal Credit Opportunity Act
• d.The Truth in Lending Act (Regulation Z)✓

The Truth in Lending Act, implemented by Regulation Z, requires lenders to disclose credit terms such as the APR and total finance charges so borrowers can compare loans. RESPA governs settlement-cost disclosures and prohibits kickbacks. The Fair Housing Act bars discrimination in housing. The Equal Credit Opportunity Act prohibits discrimination in lending but does not set the cost-of-credit disclosure rules.

In a deed of trust, which party holds legal (or 'naked') title to the property until the loan is repaid?

• a.beneficiary
• b.trustee✓
• c.trustor
• d.mortgagee

In a deed of trust there are three parties: the trustor (borrower), the beneficiary (lender), and a neutral trustee who holds title as security and reconveys it when the debt is paid or sells it on default. The mortgagee is the lender in a two-party mortgage, not a deed of trust.

The loan clause that lets a lender call the entire remaining balance due if the borrower sells or transfers the property is the:

• a.a subordination clause changing lien priority
• b.alienation (due-on-sale) clause✓
• c.the acceleration clause triggered by the borrower's default
• d.a defeasance clause releasing the lien at payoff

An alienation or due-on-sale clause lets the lender demand full payment when the property is transferred, preventing an unapproved assumption. An acceleration clause makes the balance due on default, defeasance releases the lien at payoff, and subordination lowers a lien's priority.

The term 'hypothecation' means:

• a.transferring full legal ownership of the property permanently to the lender
• b.refinancing an existing loan at a lower rate
• c.pledging property as security for a loan while keeping possession✓
• d.paying off the entire loan balance ahead of schedule

Hypothecation is pledging property as collateral for a debt without giving up possession, which is exactly what a mortgage or deed of trust does; the borrower keeps living in the home while the lien secures the loan. It is not a transfer of ownership or a payoff.

The gradual repayment of a loan's principal and interest through regular, scheduled payments is called:

• a.hypothecation
• b.acceleration
• c.subordination
• d.amortization✓

Amortization is paying off a loan through scheduled payments that cover interest and reduce principal, so the balance reaches zero by the end of the term; early payments are mostly interest and later ones mostly principal. The other terms describe different loan features.

A loan whose regular payments do not fully retire the debt, leaving a large lump sum due at the end of the term, has a:

• a.a negative amortization cap
• b.a prepayment penalty
• c.balloon payment✓
• d.a fully amortized structure

A partially amortized (or interest-only) loan leaves an unpaid balance due as a lump-sum balloon payment at the end of the term. A fully amortized loan pays off completely with the last regular payment; negative amortization is a growing balance, and a prepayment penalty is a charge for early payoff.

Discount points paid to a lender at closing are used to:

• a.fund the initial escrow reserve
• b.buy down (lower) the loan's interest rate✓
• c.cover the property appraisal fee
• d.pay the real estate broker's sales commission

Discount points are prepaid interest a borrower pays at closing to lower (buy down) the note's interest rate; one point equals one percent of the loan amount. They are not commission, appraisal, or escrow charges, though they do affect the loan's overall cost.

One discount point equals what percentage of the loan amount?

• a.0.1%
• b.10%
• c.1%✓
• d.0.5%

One point equals one percent (1%) of the loan amount - for example, one point on a $200,000 loan is $2,000. Points are used either as discount points to lower the rate or as an origination fee, and they are calculated on the loan, not the sale price.

Under Regulation Z, if an advertisement states a 'trigger term' such as a specific down payment or monthly payment, the ad must also disclose:

• a.other key credit terms such as the annual percentage rate (APR)✓
• b.the property's most recent assessed value
• c.the listing broker's commission rate
• d.the full legal name and mailing address of the property's seller

Under Regulation Z, using a trigger term in an ad (such as a specific down payment, payment amount, or term) requires disclosure of additional credit terms, including the APR, so consumers see the full cost. The other items are unrelated to Truth in Lending advertising.

RESPA (the Real Estate Settlement Procedures Act) applies to and primarily regulates:

• a.the annual assessment of real property for taxation
• b.the state licensing, testing, and continuing education of real estate agents
• c.appeals of local zoning decisions
• d.federally related mortgage loans and their settlement (closing) costs✓

RESPA governs federally related mortgage loans, requiring settlement-cost disclosures and prohibiting kickbacks and referral fees for settlement services. It does not handle agent licensing, property tax assessment, or zoning appeals.

RESPA specifically prohibits a lender or title company from paying or receiving:

• a.a loan origination fee for work performed
• b.an unearned kickback for referring settlement business✓
• c.a standard document recording charge
• d.a legitimate discount point that is charged to the borrower

RESPA's Section 8 bars kickbacks, referral fees, and unearned fees among settlement service providers because they inflate consumer costs. Discount points, origination fees, and recording charges are legitimate charges for actual services, which RESPA allows.

Under the TILA-RESPA Integrated Disclosure (TRID) rule, the borrower must receive the Closing Disclosure at least how many business days before loan consummation?

• a.1
• b.7
• c.2
• d.3✓

Under TRID, the lender must deliver the Closing Disclosure to the borrower at least three business days before loan consummation, giving time to review the final terms and costs. The Loan Estimate is due within three business days after application; this waiting period helps prevent last-minute surprises.

The Equal Credit Opportunity Act (ECOA) prohibits a lender from basing a credit decision on all of the following EXCEPT:

• a.the applicant's receipt of public assistance
• b.the applicant's sex, marital status, or age
• c.the applicant's demonstrated creditworthiness and ability to repay✓
• d.the applicant's race, color, religion, or national origin background

ECOA bars credit discrimination based on race, color, religion, national origin, sex, marital status, age, or receipt of public assistance. A lender may - and must - evaluate an applicant's creditworthiness, income, and ability to repay, since those are legitimate lending factors.

A conventional mortgage loan is best described as one that is:

• a.always insured by the Federal Housing Administration
• b.not insured or guaranteed by any government agency✓
• c.always guaranteed by the Department of Veterans Affairs
• d.funded directly with money from the federal government

A conventional loan carries no government insurance or guarantee; the lender relies on the borrower's credit and the property, often requiring private mortgage insurance if the down payment is under 20%. FHA loans are insured and VA loans are guaranteed, but the government does not fund them directly.

Private mortgage insurance (PMI) on a conventional loan primarily protects:

• a.the seller's equity in the home
• b.the lender against loss if the borrower defaults✓
• c.the borrower personally if they happen to lose their job
• d.the appraiser from a valuation error

PMI protects the lender (not the borrower) against loss if a borrower with a low down payment defaults; it is typically required when the loan-to-value ratio exceeds 80% and can usually be canceled once enough equity is reached. It does not protect the borrower, seller, or appraiser.

An FHA loan is:

• a.insured by the FHA and made by approved private lenders✓
• b.available only to eligible military veterans
• c.made directly by the federal government to buyers
• d.guaranteed against loss by the Department of Veterans Affairs

FHA loans are made by FHA-approved private lenders and insured by the Federal Housing Administration, which lets lenders offer low down payments to qualified buyers. VA loans are guaranteed for veterans, neither is funded directly by the government, and FHA loans are open to the general public.

A key benefit of a VA-guaranteed loan for eligible veterans is that:

• a.it eliminates every closing cost on the purchase
• b.it is a grant that never has to be repaid
• c.it charges the veteran borrower absolutely no interest at all over the term
• d.it can allow an eligible veteran to purchase with no down payment✓

The VA guarantee protects the lender against loss, allowing eligible veterans to buy with little or no down payment and no monthly mortgage insurance. It is still a loan that must be repaid with interest, and it does not waive all closing costs.

Under a straight (term) note, each periodic payment covers:

• a.only the property taxes and insurance
• b.principal only, with no interest ever charged
• c.equal payments of principal and interest that fully retire the debt over time
• d.interest only, with the full principal due at the end of the term✓

A straight, or term, loan is interest-only during the term, so the entire principal remains due as a lump sum at maturity. An amortized loan blends principal and interest to pay off the balance; payments do not cover principal alone or only taxes and insurance.

The clause in a mortgage or deed of trust that permits a later loan to take priority over an existing lien is the:

• a.acceleration clause
• b.subordination clause✓
• c.a defeasance clause releasing the lien
• d.prepayment clause

A subordination clause is an agreement that an existing lien will move to a lower priority so a new loan can take precedence, often used with construction financing. Defeasance releases a lien at payoff, acceleration makes the balance due on default, and a prepayment clause addresses early payoff.

Usury laws are designed to:

• a.set a minimum down payment on every loan
• b.require the purchase of federal flood insurance coverage
• c.cap the maximum interest rate a lender may charge✓
• d.mandate title insurance on all sales

Usury laws set a legal ceiling on the interest rate a lender may charge, protecting borrowers from excessive rates; charging above the limit is usury. They do not address flood or title insurance or down payment minimums.

When a buyer takes title 'subject to' an existing mortgage rather than assuming it, the buyer:

• a.must pay off the existing balance at closing
• b.becomes fully and personally liable for the entire mortgage debt owed
• c.is not personally liable but can lose the property if payments stop✓
• d.must formally qualify with the lender to assume it

Buying 'subject to' a loan means the buyer makes the payments but takes on no personal liability; if payments stop, the lender can foreclose and the buyer loses the property, though the original borrower remains liable. Assuming a loan, by contrast, makes the buyer personally liable and usually requires lender approval.

In the secondary mortgage market, entities such as Fannie Mae and Freddie Mac:

• a.buy existing loans from lenders so those lenders have more funds to lend✓
• b.originate and close brand-new loans directly with individual home buyers
• c.insure FHA loans against default
• d.set the federal benchmark interest rates

The secondary market buys and sells existing mortgages; Fannie Mae and Freddie Mac purchase loans from primary lenders, replenishing their funds so they can make more loans. They do not lend directly to consumers, set the Federal Reserve's rates, or insure FHA loans.

A borrower's loan-to-value ratio is 90%. Compared with an 80% LTV loan, a lender generally views the 90% loan as:

• a.higher risk, so it often requires mortgage insurance✓
• b.exactly identical risk to the 80% loan
• c.substantially lower risk to the lender than the 80% loan
• d.automatically exempt from any insurance

A higher loan-to-value ratio means a smaller down payment and less borrower equity, so the lender faces greater risk and typically requires mortgage insurance above 80% LTV. A lower LTV is safer for the lender, not the same or exempt.

What is the primary function of the secondary mortgage market, where entities such as Fannie Mae and Freddie Mac operate?

• a.It sets the interest rates that every lender in the country is legally required to charge
• b.It buys existing loans from lenders so they have fresh funds to originate new ones✓
• c.It makes loans directly to home buyers at the closing table and services them for the full term
• d.It provides government insurance that reimburses lenders for every borrower who defaults

The secondary market buys already-originated loans from primary lenders, restoring their liquidity so they can lend again. Fannie Mae and Freddie Mac do not lend to consumers directly (that is the primary market), do not set mandatory rates, and do not blanket-insure all defaults.

Ginnie Mae (the Government National Mortgage Association) differs from Fannie Mae and Freddie Mac primarily because Ginnie Mae:

• a.Guarantees securities backed by federally insured or guaranteed loans like FHA and VA✓
• b.Makes low-interest loans directly to qualifying first-time buyers out of the federal Treasury
• c.Sets and enforces the interest rates charged on every residential mortgage nationwide
• d.Purchases only conventional loans that private lenders originate on the open market

Ginnie Mae is a wholly government-owned corporation that guarantees mortgage-backed securities composed of government-backed loans (FHA, VA, and similar). Fannie Mae and Freddie Mac are government-sponsored enterprises that deal mainly in conventional conforming loans; none of these entities set rates for all mortgages.

A 'conforming' conventional loan is one that:

• a.Carries absolutely no cap on its interest rate and no restriction on its total loan amount
• b.Is guaranteed by the Department of Veterans Affairs for eligible service members and veterans
• c.Is insured by the Federal Housing Administration in exchange for a mortgage insurance premium
• d.Meets Fannie Mae and Freddie Mac purchase standards, including the loan-size limits✓

Conforming loans satisfy the underwriting and maximum-loan-amount guidelines that let Fannie Mae or Freddie Mac buy them. FHA-insured and VA-guaranteed loans are government-backed programs, not conventional conforming loans; loans that exceed the size limits are called jumbo (non-conforming).

In the mortgage market, what is the key difference between the primary market and the secondary market?

• a.There is no meaningful difference; the two terms describe exactly the same lending activity
• b.The primary market processes only refinances and the secondary market only new purchase loans
• c.The primary market handles only commercial loans while the secondary market handles home loans
• d.The primary market originates loans; the secondary market trades those loans among investors✓

Primary-market lenders (banks, credit unions, mortgage companies) originate loans directly with borrowers. The secondary market is where those existing loans are bought and sold to investors, which recycles capital back to the originators.

Under an FHA loan program, the federal government's role is to:

• a.Insure the lender against loss while a private approved lender makes the loan✓
• b.Lend the money directly to the borrower out of United States Treasury funds at closing
• c.Guarantee a portion of the loan, but only when the borrower is an eligible veteran
• d.Set and approve the sale price of the home that is being financed with the loan

The FHA does not lend money; it insures loans made by approved private lenders, and borrowers pay a mortgage insurance premium (MIP) for that protection. Direct veteran benefits come from the VA, and the FHA has no role in pricing the property.

A VA-guaranteed loan is designed for eligible veterans and typically allows:

• a.Any borrower at all to purchase a home with no credit review and no income verification
• b.The VA itself to purchase the home and then rent it back to the eligible veteran
• c.A guarantee that applies only if the veteran also pays for private mortgage insurance
• d.A qualified veteran to buy with little or no down payment✓

The VA guarantees a portion of the loan, reducing the lender's risk enough that eligible veterans can often buy with no down payment. Borrowers still must qualify, the VA does not buy the home, and VA loans do not use private mortgage insurance (they use a funding fee instead).

Under the federal Homeowners Protection Act, PMI on many owner-occupied residential loans must be automatically terminated when the loan balance reaches:

• a.50% of the original value, at roughly the midpoint of a standard thirty-year amortization
• b.the exact day the loan closes, so the coverage is really in effect for only a moment
• c.78% of the property's original value, if payments are current✓
• d.100% of the original value, meaning it can never actually be canceled during the loan term

The Homeowners Protection Act requires automatic PMI termination when the loan is scheduled to reach 78% of the original value (and it allows a borrower to request cancellation at 80%). This prevents lenders from charging PMI indefinitely once the equity cushion is large enough.

What is the difference between PMI and the mortgage insurance premium (MIP) charged on FHA loans?

• a.PMI is always paid by the seller at closing, while MIP is always paid later by the buyer
• b.They are two identical charges that carry different names for pure marketing purposes
• c.PMI covers conventional loans, while MIP is the insurance on FHA-insured loans✓
• d.MIP applies only to VA loans, and PMI applies only to jumbo non-conforming loans

PMI is the private mortgage insurance on conventional low-down-payment loans, whereas MIP is the government mortgage insurance premium on FHA-insured loans. Both protect the lender, but they belong to different loan programs; VA loans use neither (they charge a funding fee).

A lender that charges an interest rate higher than the maximum allowed by law is engaged in:

• a.Subordination, the voluntary lowering of one lien's priority beneath another lien
• b.Usury✓
• c.Amortization, the gradual repayment of a loan through regular periodic payments
• d.Redlining, the discriminatory refusal to lend within certain mapped neighborhoods

Usury is charging interest above the legal maximum rate. Redlining is discriminatory refusal to lend in certain areas, subordination changes lien priority, and amortization is the gradual repayment of a loan through periodic payments.

Which of the following is a hallmark of predatory lending?

• a.Steering a borrower into a needlessly costly loan with hidden fees✓
• b.Encouraging the borrower to shop around and compare competing loan estimates before deciding
• c.Fully and clearly disclosing the annual percentage rate and all finance charges to the borrower
• d.Offering the borrower the lowest interest rate and best terms for which they actually qualify

Predatory lending uses abusive tactics such as excessive hidden fees, loan flipping, equity stripping, and steering borrowers into unaffordable or overpriced loans. Clear disclosure, offering the best available rate, and encouraging comparison shopping are hallmarks of responsible, not predatory, lending.

The Home Ownership and Equity Protection Act (HOEPA), an amendment to the Truth in Lending Act, adds protections for:

• a.Every commercial real estate loan made to a business, regardless of the loan's rate or size
• b.Only borrowers using VA-guaranteed or FHA-insured government mortgage loan programs
• c.Borrowers taking out certain high-cost, high-fee mortgages✓
• d.Lenders, by shielding them from losses when a high-cost borrower ultimately defaults

HOEPA amended TILA to give borrowers of designated high-cost (high-rate, high-fee) mortgages extra disclosures and protections against abusive terms. It targets consumer high-cost loans, not commercial loans, and it protects borrowers rather than lenders.

In a typical residential transaction (subject to negotiation and local custom), which closing cost is MOST commonly the buyer's responsibility?

• a.The payoff of the existing mortgage balance that the seller still owes on the property
• b.The brokerage commission that is owed to the listing broker under the listing agreement
• c.The capital gains income tax the seller may owe on any profit realized from the sale
• d.The loan-origination and appraisal fees for the buyer's new mortgage✓

Costs tied to obtaining the buyer's loan, such as origination and appraisal fees, are ordinarily the buyer's. Paying off the seller's existing mortgage, the brokerage commission, and the seller's income taxes are seller costs. All allocations are negotiable, but these are the customary defaults.

The Real Estate Settlement Procedures Act (RESPA) makes it illegal for settlement-service providers to:

• a.Pay or receive kickbacks or unearned referral fees for steering business✓
• b.Disclose the borrower's estimated and final closing costs before the loan is consummated
• c.Charge any fee whatsoever to the borrower for services that were actually performed
• d.Offer the borrower a loan that carries an adjustable rather than a fixed interest rate

RESPA prohibits kickbacks and unearned fees among settlement-service providers (for example, paying a broker to steer buyers to a particular title company). It requires, rather than forbids, cost disclosure, and it has nothing to do with banning ARMs or legitimate fees for actual work.

Under the TRID rule (which integrated RESPA and TILA disclosures), the borrower must generally receive the Closing Disclosure:

• a.On the very day of closing, handed to the borrower at the settlement table itself
• b.Only if the borrower specifically requests a copy of it in writing from the lender
• c.No sooner than thirty days after the closing has already taken place and funded
• d.At least three business days before the loan is consummated✓

TRID requires the lender to deliver the Closing Disclosure so the borrower receives it at least three business days before consummation, giving time to review final terms and compare them to the earlier Loan Estimate. Same-day or after-the-fact delivery would defeat that review period.

A discount point paid on a mortgage loan is best described as:

• a.Prepaid interest equal to 1% of the loan that lowers the note rate✓
• b.A fee equal to one percent of the sale price that is paid directly to the listing broker
• c.A penalty the borrower owes for paying the loan off earlier than the scheduled maturity
• d.A charge that actually raises, rather than lowers, the borrower's note interest rate

Each discount point equals 1% of the loan amount and is prepaid interest the borrower pays up front to 'buy down' (lower) the interest rate. It is figured on the loan, not the sale price; a charge for early payoff is a prepayment penalty, not a point.