Private Mortgage Exam
Of the statements below, which scenario likely requires a private lender? Select all that apply.
a) The borrower is buying a house whose closing date is four months away.
b) The borrower is buying a house whose closing date is four days away.
c) The borrower is buying a duplex that is vacant and in need of major renovations.
d) The borrower has average income and wants to consolidate their debt.
B & C
b) The borrower is buying a house whose closing date is four days away.
c) The borrower is buying a duplex that is vacant and in need of major renovations.
Which of the statements below is a potential conflict of interest for the lender/Investor?
a) Fails to disclose all potential issues to the borrower.
b) Chooses a lender that is offering a higher commission instead of a lender with a better rate for the borrower.
c) Fails to disclose they are working on behalf of both the borrower and lender/Investor.
d) Presents a deal to a lender without an exit plan.
d) Presents a deal to a lender without an exit plan.
What are the two types of risks that Agents/Brokers should discuss with their clients?
a) Probability of default and credit default risks
b) Concentration risk exposure and default risk
c) Country risk and institutional risk
d) General and specific risks
d) General and specific risks
Mortgage professionals must protect the borrowers' information. They must only use and disclose it with the borrower's consent or as compelled by law. This is a definition of which MBRCC Code of Conduct?
a) Disclosure
b) Honesty
c) Security and Confidentiality
d) Accountability
c) Security and Confidentiality
Which of these is a red flag for appraisal fraud?
a) Altered or forged identities and documentation .
b) The occupancy status is "unknown" rather than a tenant- or owner-occupied.
c) An urgent deadline.
d) The borrower's picture and ID information do not match other sources of information.
b) The occupancy status is "unknown" rather than a tenant- or owner-occupied.
What task a mortgage Administrator is NOT responsible for?
a) Processing renewals
b) Record keeping
c) Signing Form 1
d) Preparing mortgage discharges
c) Signing Form 1
Can an Agent use a private lender that isn't part of the Brokerage's portfolio?
a) Yes
b) No
c) Only if agreed upon by the Principal Broker
d) Only if disclosed to FSRA
b) No
Some private lenders will only lend against fully renovated and stabilized assets. If you're working on a mortgage application for a renovation, costs such as material shortages and price increases, labour shortages and wage increases, and cost and time overruns can pose a risk. What type of risk are we talking about here?
a) Credit risk
b) Investment risk
c) Collateral risk
d) Market risk
c) Collateral risk
As it pertains to suitability, what is arguably the most essential piece for mortgage professionals to be aware of?
a) To understand their clients' needs
b) To know their lenders and investors' profiles and availability c) To know both their clients and lenders/investors
d) All of the above
c) To know both their clients and lenders/investors
Kim and Lee purchased a home and unfortunately lost both of their jobs just weeks before the closing. They both have excellent credit and easily qualified for financing before the job loss. They took a $500,000 closed mortgage for a 1 year-term at 10% interest, which is double what a traditional lender would offer. They have a 3-month interest penalty and plan to refinance as soon as they find jobs. Six months after closing, Kim finds a job that is full time permanent with no probation, and earns enough to support a new mortgage at 6% plus 1% lender fee from an alternative institutional lender. Lee receives a job offer; however, he will start in month 9 of the 12-month term. With both incomes they will be well-qualified for conventional financing. What would you advise your clients to do?
a) Stay with the private lender to avoid the 3-month interest penalty
b) Close the refinance now at 6% and pay the penalty and fees
c) Wait until Lee gets his job so that they can qualify for a lower 5% rate with no fees from a conventional bank
d) None of the above
a) Stay with the private lender to avoid the 3-month interest penalty
What is the purpose of an exit strategy in a private mortgage? a) To provide a long-term solution for borrower's who don't qualify for a conventional mortgage loan
b) To assist borrowers in moving from a private lender to a conventional lender within a short period
c) To place clients in a long-term high-interest mortgage
d) To determine the best solution for the client based on their credit, property, or documentation
b) To assist borrowers in moving from a private lender to a conventional lender within a short period
Which of the following affects the LTV when underwriting a mortgage file with a private lender?
a) The property value
b) The lender's willingness to lend funds
c) The borrower's needs
d) All of the above
d) All of the above
Mario contacts you explaining that he has received some money from a family member and wants to invest it in a commercial property for the first time. Mario has very limited experience in real estate investing and is very risk-averse. He is on a fixed budget and living pay cheque to pay cheque. Which of the following is an example of a question that you would NOT ask to determine the borrower's risk tolerance?
a) What is your monthly/yearly income?
b) Do you rent or do you own a home?
c) Why are you choosing a commercial property?
d) Do you want to split the investment into two commercial properties?
d) Do you want to split the investment into two commercial properties?
The administration agreement between mortgage Administrator and each lender or Investor must include the following information:
a) The procedures in the event of a foreclosure or a power of sale.
b) The name in which the mortgage is or will be registered.
c) The amount of the fees.
d) All of the above.
d) All of the above.
What is the main consequence of failing to detect mortgage fraud?
a) Loss of reputation
b) Financial loss
c) Legal action
d) Loss of clients
b) Financial loss
An organization must appoint a person to ensure it is compliant with laws around keeping personal information secure and controlled. This is an example of which principle for private businesses set out by the Office of the Privacy Commissioner of Canada?
a) Accountability
b) Safeguards
c) Accuracy
d) Limiting Collection
a) Accountability
What is the expected time it should take for a borrower to sign a commitment letter?
a) Two days
b) Three days
c) One week
d) 24 hours
a) Two days
Managing and setting expectations for the borrower involve which of the following?
a) Creating a "material risks statement" for the borrower and having them sign it
b) Reassuring the borrower that you will do what is best for them
c) Creating a "game plan" with the borrower that outlines steps they are prepared to take to get back to a traditional or alternative lender and having the borrower sign it.
d) All of the above
d) All of the above
Which questions below are used to determine suitability? Choose all that apply.
a) How did the Brokerage meet the lender/Investor? Through a referral?
b) What is the Investor's mortgage and investment knowledge level: beginner, intermediate or advanced?
c) What is the Investor's experience investing in mortgages?
d) All of the above
d) All of the above
Which of the following is NOT an example of a successful exit strategy?
a) Discussing with the borrower what the deal will look like long-term
b) Selling a property
c) Looking for another private loan
d) None of the above
c) Looking for another private loan
Which of the following best describes the purpose of a "letter of intent" in a mortgage process?
a) A legally binding document outlining the final rate, fees and conditions
b) A preliminary document outlining the rates, fees and conditions before a more thorough assessment
c) A combined document of the commitment letter and the letter of intent
d) A document outlining the funding date and other important details
b) A preliminary document outlining the rates, fees and conditions before a more thorough assessment
Private lenders will not lend money to a borrower who did not get independent legal advice, except for one case . Which case? a) When the borrower is a lawyer themselves
b) When the principal sum of the mortgage is under $50,000
c) When the broker has a legal background
d) When the principal sum of the mortgage is above $50,000
b) When the principal sum of the mortgage is under $50,000
The factors to consider when evaluating lender terms and conditions include only the renewal terms extra fees, payment options and prepayment penalty policy.
a) True
b) False
b) False
What is the purpose of the borrower meeting with a lawyer for independent legal advice (ILA) when obtaining a mortgage from a private lender?
a) To ensure the mortgage transaction is done properly.
b) To allow the borrower to review all mortgage and legal documents and ask questions about the mortgage transaction.
c) To educate the borrower about what a mortgage is and its potential consequences.
d) All of the above
d) All of the above
What information should be discussed when reviewing the commitment letter with the client? Choose all that apply.
a) NSF Fees
b) Material Risks
c) Incentives
d) All of the above
d) All of the above
It is suggested you send a copy of the commitment letter and disclosure documents before sending via DocuSign, as it's often difficult for the borrower to read the details before the next electronic signature populates.
a) True
b) False
a) True
What is the most important factor to consider when selecting a private lender for a mortgage application?
a) The lender's underwriting policies
b) The lender's reliability
c) The amount of money the lender has readily available
d) The property and exit strategy
a) The lender's underwriting policies
Which of the following must be provided to your lender/Investor to ensure project approval?
a) A good executive summary
b) A good elevator pitch
c) A long, detailed report
d) A structured interview with the lender/investor
a) A good executive summary
Is a person who is both a registered real estate professional and a licensed mortgage Broker allowed to act in both capacities?
a) Yes
b) No
c) Yes, but they must disclose any conflicts or potential conflicts of interest prior to submitting a mortgage application.
d) Yes, but they must provide proof of an active realtor and Broker licence prior to submitting a mortgage application.
c) Yes, but they must disclose any conflicts or potential conflicts of interest prior to submitting a mortgage application.
30. What elements could challenge the equitable treatment of both the borrower and lender/Investor?
a) Gathering required information
b) Assessing required information
c) Selecting the lender
d) All of the above
d) All of the above
If your Brokerage's service relationship is to work for both the borrower and the lender, then you must do the following:
a) Advise the borrower of this relationship status when working with private lenders.
b) Exercise discretion on behalf of the borrower and the lender. c) Duty of care. This requires that the licencee act in the clients' best interest, with competence, loyalty and full disclosure.
d) All of the above
d) All of the above
Fill in the blanks. Meeting with a lawyer for independent legal advice (ILA) gives the borrowers a chance____________ all of the mortgage and legal documents and ask questions about the mortgage _____________ and its consequences without interference or compulsion from the lender.
a) To write, papers
b) To review, transaction
c) To change, sequence
d) To amend, details
b) To review, transaction
What is the purpose of a borrower obtaining independent legal advice (ILA) when taking out a mortgage from a private lender? a) To receive legal advice from the lender's lawyer
b) To review the mortgage and legal documents and ask questions without interference from the lender
c) To ensure the transaction is done properly with the help of a broker
d) To be educated about what a mortgage is and its consequences
b) To review the mortgage and legal documents and ask questions without interference from the lender
A restaurant owner - who has yet to file the first two years business and personal income taxes as a part of their tax strategy - is applying for a mortgage and can afford any reasonable mortgage payment. What type of lender would you choose for this borrower?
a) A private lender who has the best rates for low loan-to-value type of deals
b) A private lender who specializes in higher risk lending and bail people out who are in mortgage arrears (fees are relatively high based on the risk)
c) A private lender who offers 40-year amortized payments and longer terms
d) A private lender who can fund the mortgage quickly
c) A private lender who offers 40-year amortized payments and longer terms
It is recommended to send the lawyer an email ahead of time to let them know they will be receiving instructions to act on the client's behalf to close their mortgage?
a) True
b) False
a) True
What is the purpose of the Letter of Instruction?
a) To verify the identity of the borrower
b) To provide the lawyer with the details required to draft the final mortgage document
c) To set out the mortgage details
d) To disburse the mortgage funds
b) To provide the lawyer with the details required to draft the final mortgage document
Which of the following is a possible condition that may be included in a commitment from a private mortgage lender?
a) A fire insurance policy reflecting the lender's lien against the property
b) Proof of income
c) A criminal background check
a) A fire insurance policy reflecting the lender's lien against the property
How long does the lender have to review the Form 1 before issuing the commitment letter?
a) One day
b) Two days
c) Three days
d) One week
b) Two days
A borrower is coming to the end of a 1-year term with a private lender. The borrower's exit strategy was to fix their credit in order to qualify for a traditional lender, but they have failed to increase their credit score. What is the biggest risk factor in this situation?
a) The private mortgage is interest only and the borrower still owes the same amount at the end of the term.
b) Private lenders often don't give the borrower several months of a grace period.
c) There is no guarantee the private lender will renew the mortgage.
d) There is no risk to the borrower.
c) There is no guarantee the private lender will renew the mortgage.
A hardworking blue-collar couple have both lost their jobs. They are looking for a cash flow relief by doing debt consolidation. They have built up quite a bit of equity in their home and are looking for an equity takeout to help them until they find jobs. What type of lender would you choose for this borrower?
a) A private lender who has the best rates for loans with a low loan-to-value
b) Another private lender who specializes in higher risk lending and will bail people out who are in mortgage arrears (fees are relatively high based on the risk)
c) Another private lender offers 40-year amortized payments and longer terms
d) All of the above
a) A private lender who has the best rates for loans with a low loan-to-value
Which of the following condition is typically NOT required for a private lender mortgage loan?
a) Criminal background check
b) Exit plan
c) Appraisals
d) Drive-by inspection
a) Criminal background check
A mortgage professional can evaluate the individual lender/Investor's risk profile by assessing which of the following four elements?
a) Knowledge, time, balance, other interested parties
b) Knowledge, time, ratios, other interested parties
c) Interest rates, balance, other interested parties
d) Ratios, balance, rates and other interested parties
a) Knowledge, time, balance, other interested parties
When completing the Know Your Investor form, what are some of the questions an Agent/Broker should ask? Choose all that apply.
a) What experience do they have as an Investor?
b) Where is the investment money coming from?
c) Who are the brokers they prefer to work with?
d) What is their exit strategy?
e) All of the above
e) All of the above
All conditions have to be fulfilled promptly so the lender, lawyer and Agent/Broker have enough time to close the transaction.
a) True
b) False
a) True
Why must it be clear from the start that the Agent/Broker is representing both parties' interests?
a) Because of the "full disclosure" concept
b) For the Agent/Broker to protect themselves
c) For full transparency in transactions for both parties
d) All of the above
d) All of the above
Managing and Setting Expectations of the Lender/Investor can be done in three steps. Which of the following is NOT one of the three steps?
a) Tell an Investor up front that you are acting on behalf of the borrower as well
b) Disclosure up front is key: create a "material risks statement" for the lender/Investor
c) Ask for proof of their available funds
d) Have the lender/Investor sign the material risks statement
c) Ask for proof of their available funds
There are no set amounts for administrative fees on private mortgages.
a) True
b) False
a) True
When should the Administrator contact the lender for renewal?
a) At the date of renewal.
b) Exactly a year before renewal.
c) At least 90 days before renewal.
d) At least 60 days before renewal.
d) At least 60 days before renewal.
Who controls the foreclosure process?
a) The courts
b) The Regulator (FSRA)
c) Brokerage
d) Lender
a) The courts
What must be disclosed in writing to the borrower, lender or Investor in regard to fees paid to the mortgage Brokerage?
a) The amount of the fee
b) The name of the Brokerage
c) The purpose of the fee
d) The type of mortgage being referred
a) The amount of the fee