Principal Lending Manager (PLM) Practice Test

These questions are part of the practice quiz. Start practicing

• List common covenants in commercial loan agreements and give examples.
• Rescission results in:
• Know Your Customer (KYC) is relevant to lending decisions because it...
• How does IFRS 9 impairment accounting affect recognition of credit losses?
• Which statement best describes a VA loan's status under the Safe Harbor category?
• Which act is commonly associated with establishing licensing qualifications for mortgage professionals?
• Which item at loan closing ensures security perfection is addressed?
• Exposure caps in concentration risk management are used to
• What is the purpose of interim financial statements in lending?
• Which unit was created to detect, investigate, prosecute, and deter mortgage fraud and other major financial fraud crimes in Utah?
• Residual income is best described as the income remaining after deducting debt obligations from gross income.
• What does the Herfindahl index measure in a loan portfolio?
• Covenant-light vs covenant-heavy loan approaches and typical usage. Which statement is true?
• What are the key considerations for CRE underwriting?
• In a post-closing review, which activity is NOT typically performed?
• Explain how environmental, social, and governance (ESG) factors are integrated into lending decisions.
• What is a non-accrual loan and when is it typically placed on non-accrual?
• In underwriting, what is the purpose of sensitivity stress tests?
• Which data sources are recommended to assess a SME borrower without audited financial statements?
• Which statement best describes oversight of mortgage professionals in Utah?
• What is the role of regular reconciliations in PLM controls?
• Which of the following is NOT a method to manage concentration risk in a loan portfolio?
• Cross-default in lending agreements is designed to...
• What is impairment risk and how do lenders address it under expected credit loss models?
• What is a covenant and why are financial covenants used in loan agreements?
• On the initial license application, mortgage entities are required to designate a qualifying individual, also known as a:
• What should a well-structured credit memorandum include?
• Which statement correctly identifies LGD in credit risk?
• MIP is commonly required for which loan type?
• In liquidation of a secured loan, which liens are paid first from the collateral?
• What are the key considerations when evaluating a leveraged buyout (LBO) financing package?
• Soft enforcement of covenants is described as which of the following?
• Describe a basic approach to performing a credit stress test on a portfolio.
• How do you manage foreign exchange risk in cross-border lending?
• Which statement best contrasts qualified mortgages with non-qualified mortgages?
• Engaging in which will result in automatic revocation of the license?
• Why is appraisal quality critical in collateral-based lending?
• In a deed of trust, the right that the trustee has to proceed with non-judicial foreclosure is called?
• What is the primary impact of data governance on PLM decision making?
• Which of the following are financial statement red flags indicating credit risk?
• Who is responsible for reviewing all advertising and marketing materials used by a licensed entity and sponsored mortgage loan originators to ensure compliance?
• What is the Expected Credit Loss (ECL) framework and why is it significant?
• Which of the following is a typical operational control in PLM to prevent fraud?
• Which of the following is an example of open-ended credit?
• APR stands for what?
• How does risk appetite guide lending decisions?
• How do market risk and credit risk interact within a diversified lending portfolio?
• This federal law is primarily concerned with disclosures and advertising.
• In expected credit loss modeling, which formula computes expected loss?
• What is the purpose of a post-closing review?
• Which element is included when evaluating the profitability of a loan product?
• Which person holds primary responsibility for privacy and disposal of personal information within a mortgage entity?
• What must every loan originator be affiliated with?
• Why are industry benchmarks useful when evaluating a SME borrower without audited financial statements?
• MIP would be used for which of the following?
• Any loan modification agreement must include a provision allowing the borrower the right to cancel:
• In loan profitability analysis, which elements are included in net income but not in gross margin?
• Qualified mortgages are characterized by which feature?
• The S.A.F.E. Act is a subsection of which federal act?
• Which regulatory obligation affects lending beyond credit risk?
• Why might KYC documentation require ongoing monitoring beyond origination?
• When a homeowner allows his or her insurance to lapse, what can the lender do to insure the property?
• A swingline facility is typically characterized by which feature?
• The individual who is responsible for proper disposal of personal information is the:
• Which of the following is NOT a license type offered by the Division of Real Estate?
• How is DSCR calculated and what threshold indicates adequate debt service coverage?
• What is collateral coverage ratio and why is it important?
• Utah's Residential Mortgage Regulatory Commission consists of:
• Which type of credit product has a line of credit that can be drawn as needed and repaid over time?
• An advertisement by a mortgage loan originator that includes contact information for both the MLO and a real estate brokerage, describes the brokerage's role in transactions, and lists the services the MLO may provide is:
• Explain how ethical behavior and regulatory compliance contribute to sustainable lending.
• The Gramm-Leach-Bliley Act is concerned with:
• Qualified mortgages carry a presumption of compliance with the borrower's ability to repay standards. The presumption most directly relates to which element?
• What is the purpose of waivers in loan documentation?
• Which metrics are commonly used to evaluate the profitability of a loan product?
• Which of the following is NOT a license type offered by the Division of Real Estate?
• With regard to qualified mortgages, the Veterans Administration has stated that VA-insured or -guaranteed loans are:
• Upfront MIP is collected on which type of loans?
• How are risk rating triggers used in loan management?
• In a credit decision, what distinguishes borrower risk from guarantor risk?
• Which statement best describes how to evaluate profitability of a loan product for a bank?
• Which of the following is not an affirmative duty of a principal lending manager?
• An affiliated business arrangement established for illegal purpose of collecting excessive fees from consumers and splitting them among participants is known as:
• Which statement best describes the relationship among PD, LGD, and EAD in credit risk modeling?
• Explain the difference between term loans, revolvers, and lines of credit and when each is used.
• Why is an explicit exit strategy important in leveraged buyout financing?
• In a secured loan, what role does collateral play in liquidation recovery?
• Which combination of covenants are commonly found in commercial loan agreements?
• What role does scenario analysis play when evaluating industry risk?
• A party who has been served a cease and desist order from the Director may request a hearing within:
• In portfolio management, a risk rating grade is typically used for what purposes?
• The administrative body existing within the DRE to help in regulating mortgage professionals is:
• How does the loan asset class affect accounting and provisioning?
• How do you assess collateral value and adequacy for a secured loan?
• A determination of repayment ability must be based on all of the following, except:
• Which of the following is an example of an affirmative covenant in a commercial loan agreement?
• Which statement best describes revolving credit facilities compared with term loans?
• A cash flow-based underwriting approach is preferred when which conditions apply?
• Which Utah regulatory body is responsible for overseeing mortgage regulation?
• Which five categories comprise the five Cs of credit used in underwriting decisions?
• Which statement best describes supervision of mortgage professionals in Utah?
• A typical objective when restructuring a distressed loan is to...
• Which threshold CANNOT be used to identify high-cost loans according to federal law?
• Which option represents a comprehensive approach to workout options for a distressed loan?
• Inaccurate representations and warranties generally complicate what aspects?
• Which of the following is an output produced by credit risk rating models?
• What is the purpose of a loan closing checklist and what items are typically included?
• Risk appetite influences which of the following aspects of lending decisions?
• When sponsorship ends, which party should receive the originating records?
• How does liquidity factor into asset-based lending?
• What is the purpose of a watchlist check in credit underwriting?
• How should a lender assess a borrower's cash flow adequacy for a term loan?
• A licensed mortgage entity is changing its name.
• A person who qualifies as a PLM and works by or on behalf of another PLM in transacting mortgage business is:
• The license of a person who commits mortgage fraud is:
• Which DSCR value range commonly indicates adequate debt service coverage?
• Explain the role of capital adequacy in corporate lending and how it affects pricing.
• In leveraged loan underwriting, why is borrower governance and management quality important?
• What does the Debt Service Coverage Ratio (DSCR) measure in CRE underwriting?
• Which factor is part of a robust collateral-based assessment?
• Which of the following best describes the party who should supervise all affiliate loan managers within a mortgage organization?
• Which of the following is a core element connected to qualified mortgages as described?
• How does a lender validate financial projections used in underwriting?
• Which factors are commonly used when evaluating collateral risk for CRE loans?
• The Mortgage and Financial Fraud Unit exists within:
• If fees for third-party settlement service providers are paid directly to a creditor or affiliate, the tolerance for differences between the estimated and actual charges is:
• Which steps describe performing a sensitivity analysis for a loan's debt service coverage ratio (DSCR) under different macro scenarios?
• The event that starts the clock on the record retention period for mortgage professionals is:
• Which statement best describes a standby letter of credit (L/C) in lending?
• Upfront mortgage insurance premium collection is typically associated with which loan type?
• Rescission refers to what?
• How do you test a borrower's debt service under stressed scenarios?
• The DRE is headed by the:
• If documentation is inconsistent during onboarding, what is the appropriate action?
• Why is documentation quality critical in lending?
• Which factor is NOT typically a key risk factor in asset-based lending?
• Qualified mortgages are beneficial because they come with a presumption of compliance that the borrower meets which standards?
• Under licensing requirements, a licensed loan originator may work for which entity?
• Conclusive presumption applies to which category of mortgages?
• Qualified mortgages are designed to ensure compliance with ability to repay standards. Which of the following is a defining feature of qualified mortgages?
• Which elements must be included in a mortgage advertisement with a real estate brokerage to remain compliant?
• During loan onboarding, which of the following would be considered a red flag?
• A wholesale lending arrangement that permits a mortgage broker to originate, close, and fund a loan using a warehouse line of credit is called:
• How do Basel III liquidity metrics influence lending decisions for banks?
• Which item is a main component of a loan closing checklist?
• Which statement best describes the Utah advertising rule for MLOs working with real estate brokers?
• What are common collateral types for commercial real estate loans and what risk factors do they introduce?
• What does LTV stand for and why is it critical in collateral-based lending?
• USDA loans are primarily for properties located in:
• A conforming loan meets guidelines established by which entities?
• How do you measure concentration risk in a loan portfolio?
• Explain the difference between credit risk and market risk in lending portfolios.
• Qualified mortgages' presumption relates to the borrower's ability to repay standards. Which concept is most closely associated with this presumption?
• Outline common loan covenants and provide examples.
• This subsection of the federal Housing and Economic Recovery Act was established to ensure minimum qualification standards for mortgage professionals.
• Which of the following is NOT a license type offered by the Division of Real Estate?
• This informational disclosure is due to the consumer no later than three business days after receipt of a completed application for a mortgage loan:
• Distinguish secured vs unsecured lending and the typical implications for risk and pricing.
• Which document is the informational disclosure due within three business days after receipt of a completed application for a mortgage loan?
• Which of the following is NOT a license type offered by the Division of Real Estate?
• In Utah, mortgage loan originators must solicit and conduct business solely in the name of which entity?
• PITI stands for what?
• Principal lending managers have an affirmative duty to:
• What is the purpose of testing debt service under stressed scenarios?
• Which of the following best describes how to assess a borrower's liquidity risk in treasury management?
• What does CECL stand for and what is its impact on loan loss reserves?
• How do you assess macroeconomic and industry risk in a credit assessment?
• Which statement most accurately describes Utah's Residential Mortgage Regulatory Commission?
• The Recovery Fund liability for a single licensee may not exceed what amount?
• What is the primary objective of credit underwriting in commercial lending?
• Which statement is true about qualified mortgages in relation to the ability-to-repay standard?
• What is the correct DSCR formula and what does it indicate?
• Which outcome does strong documentation quality help achieve?
• Which statement best differentiates secured and unsecured lending?
• Why are industry risk ratings used together with scenario analysis?
• In loan profitability analysis, what is the difference between gross margin and net income?
• Fixed-rate financing is typically chosen to achieve budgeting certainty in which rate environment?
• What is a primary reason accurate representations and warranties are included in loan documents?
• Which components are included in loan pricing?
• Covenant-light loans require stronger monitoring of which elements?
• Which of the following best describes cross-border lending risk management with regard to currency risk?
• What is the purpose of loan covenants and how should a lender respond to a covenant breach?
• What is the importance of robust portfolio monitoring and early-warning indicators in PLM?
• What is a risk rating grade and how is it used in portfolio management?
• How does higher loan-to-value (LTV) typically affect pricing and risk in secured lending?
• What is a consequence of strong data governance for PLM reporting?
• The initial escrow statement is typically provided:
• In the five Cs of credit, which category describes the macro/industry context affecting the borrower?
• Consummation refers to:
• What does a DSCR greater than 1 imply about debt service coverage?
• Which statement about qualified mortgages is true?
• Which statement best describes a step in a credit risk rollover assessment for maturing facilities?
• Which step is the first in an orderly workouts process?
• What is the required record retention period for mortgage professionals?
• Which are typical inputs for credit risk rating models?
• Which factors are used to evaluate borrower industry risk?
• A swingline facility is typically characterized by which feature?
• What is a credit memorandum and what sections should it include?
• How is economic capital determined for a lending portfolio?
• In collateral evaluation, which factors determine the loan-to-value ceiling?
• APR is the annual cost of funds over the life of the loan including fees. Which option best matches this definition?
• The amount of income left over after debt is subtracted is called:
• A conclusive presumption of compliance applies to:
• Which metric is used to evaluate risk concentration in a loan portfolio?
• The Mortgage and Financial Fraud Unit exists within:
• On the initial licensing process, what title is given to the designated qualifying individual?
• Which technique is used to test a borrower's sensitivity to interest rate changes?
• Which item is NOT a license type offered by the Division of Real Estate?
• Why are FHA loans beneficial to lenders?
• Which type of analysis best describes combining projections and scenarios to estimate future performance?
• What is a cross-default clause and when is it used?
• What is the recommended approach to conflicts of interest in lending decisions?
• Under VA guidance, which loans are considered Safe harbor qualified mortgages?
• What best describes concentration risk in a loan portfolio?
• What is an audit trail and why is it essential in loan operations?
• How would you address potential fraudulent collateral or documentation?
• Define asset-based lending (ABL) and identify key risk factors.
• What is the purpose of liquidity facilities in treasury management?
• In lending, collateral perfection is achieved by which action?
• Which of the following statements is most consistent with the concept of a presumption of compliance in qualified mortgages?
• What is the primary purpose of AML/KYC in lending?
• What does the debt service coverage ratio (DSCR) measure in underwriting?
• Which practice is used to monitor risk exposure in a loan portfolio?
• Within how many days must a hearing be requested after a cease and desist order is served?
• Which covenant requires maintaining a minimum DSCR?
• How does Basel III influence lending decisions and capital allocation?
• How does loan pricing incorporate credit risk and cost of funds?
• How does the expected credit loss (ECL) differ from incurred loss models?
• A person who had a mortgage loan originator license revoked in another state must wait at least how long before being able to obtain a Utah license?
• What is the role of a loan committee in the lending process?
• What factors are considered to assess management quality in underwriting?
• Under CECL, when are expected credit losses recognized?
• What is the role of the loan authority matrix and approvals in the lending process?
• Contrast forward-looking vs backward-looking financial analysis in lending?
• In what scenario would a bank most likely choose a floating-rate, secured line over a fixed-rate financing?
• When sponsorship is terminated, the originator must turn all records in his or her possession over to:
• How do risk ratings influence portfolio concentration and pricing strategies?