Question 1

Underwriting standards in Subprime Mortgage Lending include:

Accepted Answer

A)  The borrower's debt-to-income ratio should include the borrower's total yearly housing-related payments as a percentage of gross monthly income 
B)  Institutions should have a clear policy governing the use of risk-layering features, such as reduced documentation loans or simultaneous second lien mortgages 
C)  Stated income and reduced documentation loans to subprime borrowers should be made only if there are clear, documented mitigating factors 
D)  Mitigating factors should be present when risk layering features are combined in order to support the underwriting decision and the borrower's repayment capacity

Question 2

Which of the following entities is exempt from the requirements of the Government Securities Act?

Accepted Answer

A)  A bank that operates a securities underwriting department to provide underwriting services to issuers of government securities 
B)  A national bank that purchases and sells government securities only in its fiduciary capacity on behalf of clients in its trust department 
C)  A bank that operates a financial advisory service that provides advice to clients on the purchase and sale of government securities 
D)  A bank that operates an investment department to provide investment advice and purchase and sell all types of securities (including government securities) for clients

Question 3

A recent compliance review revealed that several branch officers are using obsolete loan application forms, which do not include disclosures related to credit insurance sales. Which of the following steps should be taken FIRST?

Accepted Answer

A)  Determine which customers were affected and take corrective action. 
B)  Contact the bank's primary regulator to determine the best course of action. 
C)  Instruct the branch to destroy all obsolete forms and immediately begin using the current versions. 
D)  Determine whether the branches use a separate document for required credit insurance sales disclosure.

Question 4

Which of the following are recommended practices in Avoiding Predatory and Abusive Lending Practices in Brokered and Purchased Loans-AL-2003-3?

Accepted Answer

A)  Have written agreements with third-party brokers that specifically and clearly address the rights and responsibilities of each party. Written agreements should 1. Ensure that no inappropriate compensation exists 2. Provide for indemnification to the bank 3. Enable banks to exit the arrangement through a termination procedure 4. Provide for the bank's and the OCC's ability to access all records of the third party and to audit the third party's operations 
B)  Verify that brokers and originators have established policies to ensure that loans will comply with all applicable laws 
C)  Establish an effective management information system to monitor the performance of third-party brokers and originators 
D)  All of the above

Question 5

ACME Bank is a $600 million institution with 15 branches within three counties. Because of its proximity to Mexico, the bank has many foreign national customers and makes many foreign wire transfers for its customers. Currently the bank's branch managers print the OFAC list of SDNs and place them in strategic places in each branch. The wire transfer department keeps its own copy of the list. The compliance officer has implemented an annual auditing program to check the bank's compliance with OFAC regulations. The findings of this audit are provided to the bank's board of directors annually. The bank's regulatory agency has indicated to management that the bank has a high risk for BSA/AML/OFAC compliance. Of the following actions, which would be the most effective to strengthen the bank's OFAC compliance?

Accepted Answer

A)  Conduct compliance audits twice a year 
B)  Purchase and implement interdiction software for the wire transfer area 
C)  As an internal control procedure, require the BSA officer to check the OFAC Web site daily for any changes to the SDN list 
D)  Routinely provide account transaction information to federal security agencies so suspicious patterns can be detected

Question 6

The OCC has determined that a national bank may not assume that, simply because a consumer's PIN or ATM card was used in a transaction, that transaction is authorized. Banks are required to take reasonable steps to determine whether the transaction was authorized. Such steps might include the bank's review of:

Accepted Answer

A)  Documentation or written, signed statements provided by the consumer 
B)  Historical information on the customer's pattern of use (such as time, location, types of transactions, and so on) 
C)  Problems reported by regular customers regarding the access device or ATM 
D)  Legal reports

Question 7

In April Lillian Redmond, the teller supervisor for First National Bank, discovers five counterfeit $20 bills in several teller drawers. In May and in June she discovers two additional counterfeit $20 bills. She has no knowledge of criminal activity on the part of any of the bank's employees or customers. She does not suspect any particular person in this transaction. Which of the following statements is true?

Accepted Answer

A)  Ms. Redmond must report the counterfeit funds on a SAR and must name the most likely individual(s) on the report. 
B)  Ms. Redmond must report the counterfeit funds on a SAR but is not required to name any individual(s) on the report. 
C)  Ms. Redmond need not file a SAR on this incident because the total amount is less than $25,000. 
D)  Ms. Redmond need not report this incident on a SAR because each incident is less than $5,000.

Question 8

On a written request from a member of the public, the bank must disclose the names of each of its executive officers and principal shareholders to whom the bank had aggregate credit outstanding at the end of the latest quarter that equaled or exceeded:

Accepted Answer

A)  10 percent of the bank's capital, and unimpaired surplus or $500,000, whichever is less; no disclosure is required if the aggregate credit was $30,000 or less. Disclosure of individual loan amounts is not required 
B)  5 percent of the bank's capital, and unimpaired surplus or $500,000, whichever is less; no disclosure is required if the aggregate credit was $25,000 or less. Disclosure of individual loan amounts is not required 
C)  6 percent of the bank's capital, and unimpaired surplus or $100,000, whichever is less; no disclosure is required if the aggregate credit was $25,000 or less. Disclosure of individual loan amounts is not required 
D)  5 percent of the bank's capital, and unimpaired surplus or $100,000, whichever is less; no disclosure is required if the aggregate credit was $35,000 or less. Disclosure of individual loan amounts is not required

Question 9

________________is defined as every aspect of an applicant's dealing with a creditor, beginning with information gathering and continuing through to the servicing and collection of the loan.

Accepted Answer

A)  Credit terms 
B)  Credit rating 
C)  Credit transaction 
D)  Credit application

Question 10

Annual privacy notices are not required to be given to former customers, including cases where:

Accepted Answer

A)  A deposit account is active 
B)  A customer pays a load in full or institution charges off the loan 
C)  The institution no longer provides any open-end statements or notices to the customer 
D)  None of these

Question 11

In evaluating the coverage of a bank's Regulation U compliance for loans to purchase or carry margin stocks, which of the following securities is NOT covered in the regulatory definition of "margin stock"?

Accepted Answer

A)  Any OTC stock 
B)  A security issued by an investment company that is licensed under the Small Business Administration Act 
C)  A warrant or right to subscribe to, or purchase, a margin stock 
D)  An equity security registered, or having unlisted trading privileges, on a national exchange

Question 12

Which of the following businesses would be eligible to be an exempt person under the requirements of the Bank Secrecy Act?

Accepted Answer

A)  Jackson's Used Cars 
B)  Evanston Recreational Boats 
C)  Al Williams Seafood Restaurant 
D)  Goldsmith Aircraft Distributors

Question 13

____________ is an agent or a subagent of the owner of an item; agency terminates when it receives payment for an item in finally collected funds and makes the proceeds available to the sender, and the time for commencing all actions against it has expired.

Accepted Answer

A)  Clearing agent 
B)  The Reserve Bank 
C)  Foreign bank 
D)  Foreign banker

Question 14

The liability of paying and returning banks is subject to the following conditions and limitations EXCEPT:

Accepted Answer

A)  The paying or returning bank that sends an original check that is returned as a substitute check or paper or electronic representation thereof will not be responsible for amounts the Reserve Bank pays under Regulation CC absent the paying bank's or returning bank's agreement to the contrary 
B)  Regulation CC governs the paying and returning banks' liabilities when returning a substitute check or paper or electronic representation thereof 
C)  The paying or retuning bank that sends an electronic item that is not a representation of a substitute check will not be liable for losses attributable to the Reserve Bank's own lack of good faith or failure to exercise ordinary care 
D)  Paying and returning banks agree to indemnify each Reserve Bank for any loss or expense resulting from the paying or returning bank's lack of authorization or any action by a Reserve Bank within the scope of its authority related to the return of the check or any warranty made by the Reserve Bank

Question 15

A bank that is a government securities broker accepts money from a customer for the purchase of securities on Monday and does not purchase the securities by the end of the day on Tuesday. Does the bank have any responsibilities under the Government Securities Act?

Accepted Answer

A)  No. The bank has fulfilled its responsibilities under the Act. 
B)  Yes. The bank must purchase the securities before the close of business on Wednesday. 
C)  Yes. The bank must deposit the money in an account of the customer at the close of business on Tuesday. 
D)  No. The bank has until the close of business on Wednesday to purchase the securities before being liable to the customer for failure to effect a purchase.

Question 16

First National Bank has made three loans to Mrs. Elmwood. Two of the loans are regulated credits (they are for the purpose of purchasing margin stock and secured by margin stock). The third loan is for the purpose of purchasing margin and nonmargin stock, and the loan is secured by real estate and margin stock. Can the bank avoid having the third loan combined with the other two for Regulation U purposes?

Accepted Answer

A)  Yes, but the real estate must have a value of at least twice as much as the third loan. 
B)  No. At least the part of the loan attributable to the security of margin stock must be treated as a regulated credit and combined with the other two loans. 
C)  No. All of the third loan must be combined with the others. 
D)  Yes. As long as there is any other collateral, the loan will not be a regulated credit.

Question 17

These are the definitions of _____________: The refusal to grant credit in substantially the amount or on substantially the terms requested in an application (and the applicant uses or expressly accepts the credit offered) A termination of the account or an unfavorable change in the terms of an account, unless the change affects substantially all of the lender's accounts of that type. A refusal to increase the amount of credit available to an applicant who has made an application for an increase

Accepted Answer

A)  Adverse action-12 CFR 202.2(c) 
B)  Special-purpose credit-12 CFR 202.8 
C)  Refusals- 12 CFR 202.8 
D)  security agreements-12 CFR 202.2(c)

Question 18

If the institution offers both full and reduced documentation loans and there is a pricing premium attached to the reduced documentation loan, the consumer should:

Accepted Answer

A)  Be alerted to this fact 
B)  Not be alerted to this fact 
C)  Provide consumers with a clear statement of the options available 
D)  Not lead consumers with payment option ARMs to choose a non-amortizing or negatively amortizing payment

Question 19

Any person in one of the following category can be debt collector:

Accepted Answer

A)  A person operating a business whose principal purpose is to collect debts 
B)  A person who regularly collects or attempts to collect debts owed to another (this includes outside counsel who collects debts on behalf of the financial institution) 
C)  A creditor who collects its own debts using a name other than its own, giving the impression that a third party is collecting it 
D)  A creditor who collects its own debts because of his forefathers

Question 20

Which of the following institutions is exempt from the coverage of CRA?

Accepted Answer

A)  State National Bank of Ashgrove, a $15 million bank in a rural community, not located in an MSA 
B)  Trust Company, Inc., an institution offering only trust services located in a large urban area 
C)  ACME Savings Association, a federal thrift institution located in a mediumsized midwestern city, included in an MSA 
D)  First National Bank, a $250 million bank located in a rural area, not in an MSA

Exam 1: Certified Regulatory Compliance Manager