Free and Premium NMLS MLO Dumps Questions Answers

Under the TILA-RESPA Integrated Disclosure (TRID) rules, any significant change to the Annual Percentage Rate (APR) beyond the allowed tolerance before closing requires the lender to provide a revised Closing Disclosure (CD). If the APR increases by more than 0.125% for fixed-rate loans, the lender must re-disclose the CD and provide the borrower with at least three business days to review the updated terms before consummation (closing).

In this case, the interest rate increase from 3.250% to 3.875% is a significant change that impacts the APR, triggering the need for re-disclosure and the mandatory three-business-day waiting period.

The lender must postpone the closing until the new three-day waiting period passes to ensure compliance with TRID regulations.

Under the SAFE Act, offering or negotiating the terms of a loan includes presenting specific loan terms to an applicant, whether verbally, in writing, or through any other communication method. This activity directly involves discussing or negotiating loan details like interest rates, loan amounts, and repayment terms, which requires licensure as a mortgage loan originator (MLO).

Providing general explanations (A) and arranging loan closings (D) do not require an MLO license because they do not involve negotiating or offering specific loan terms.

Making underwriting decisions (B) is also a separate activity not considered "offering or negotiating" loan terms.

Under ECOA, a creditor may decline a loan based on an applicant’s inability to repay, as demonstrated by verified income and other underwriting criteria. It is illegal to consider race, receipt of public assistance, or exercise of consumer rights as a basis for denial.

“A creditor may consider verified income in evaluating creditworthiness. Discrimination based on race, public assistance, or exercise of rights under the Consumer Credit Protection Act is prohibited.”

— 12 CFR § 1002.6, Regulation B (ECOA)

Flood insurance coverage is required to cover the lesser of:

The outstanding principal balance of the loan, or

The maximum coverage limit available under the National Flood Insurance Program (NFIP), which is $250,000 for residential properties.

The purpose of flood insurance is to protect the lender's interest in the property, ensuring that the loan amount is covered in the event of a flood.

The appraised value of the home (A) and the property value on file with the county (D) are irrelevant in determining flood insurance requirements.

In an 80/20 loan structure, the borrower obtains two loans: an 80% first mortgage and a 20% second mortgage, often referred to as a "piggyback loan." The 20% loan has second lien priority, meaning it is subordinate to the 80% loan. If the borrower defaults and the property is foreclosed, the lender holding the first mortgage (80%) is paid first, and the second mortgage (20%) is paid from any remaining proceeds.

The first lien is always the larger 80% loan, and the second lien covers the smaller 20% loan.

A subordinate lien (or junior lien) refers to any loan or claim against a property that is secondary to the first lien (the primary mortgage). Examples include second mortgages, home equity loans, or lines of credit.

“A subordinate lien is a mortgage or other lien that has a lower priority than a previous mortgage or lien.”

— SAFE MLO National Test Study Guide

A Suspicious Activity Report (SAR) is filed by financial institutions to report known or suspected violations of law or suspicious financial activities. The requirement to file SARs falls under the Bank Secrecy Act (BSA), which is designed to prevent money laundering, fraud, and other financial crimes. SARs must be filed with FinCEN (Financial Crimes Enforcement Network) whenever suspicious transactions are detected.

TILA (B), Gramm-Leach-Bliley Act (C), and RESPA (D) do not govern the filing of SARs.

When a mortgage loan originator (MLO) is also acting as a real estate broker in the same transaction, an Affiliated Business Arrangement (ABA) Disclosure is required under RESPA. This disclosure ensures that the borrower is made aware of the relationship between the parties involved in the transaction and any potential conflict of interest, especially if the MLO could benefit financially from both roles.

Loan application (A), appraisal disclosure (B), and the special information booklet (C) are separate required disclosures, but they do not address the issue of affiliated businesses.

If a mortgage loan includes a prepayment penalty, it must be disclosed on both the Loan Estimate (LE) and the Closing Disclosure (CD). These disclosures, mandated under the TILA-RESPA Integrated Disclosure (TRID) rule, ensure that borrowers are aware of any penalties they may face for paying off the loan early. The prepayment penalty must be clearly stated to comply with TILA (Truth in Lending Act) requirements.

The Loan Estimate provides an early overview of loan terms, and the Closing Disclosure finalizes those terms.

An origination charge is an allowable closing cost typically found on the Closing Disclosure (CD). This fee is charged by the lender for processing the mortgage application and creating the loan. It may include administrative fees, underwriting fees, and other costs related to loan origination.

Referral fees (B) are illegal under RESPA.

Servicing fees (C) are not typically listed as closing costs but are part of ongoing loan maintenance.

Yield-to-loan fees (D) are not a standard item on a Closing Disclosure.

Prepaid items are costs that a borrower pays in advance at closing, such as interest, property taxes, and homeowners insurance. These are often collected to set up escrow accounts for future payments. Real estate taxes paid at closing are a classic example of a prepaid item.

“Prepaid items are charges that are paid in advance at closing for items such as interest, property taxes, and insurance premiums.”

— CFPB, Your Home Loan Toolkit

The SAFE Act (Secure and Fair Enforcement for Mortgage Licensing Act) requires all mortgage loan originators (MLOs) to obtain a unique identifier through the Nationwide Multistate Licensing System (NMLS) before engaging in the business of residential mortgage loan origination. This identifier is used to track MLOs across state lines and ensure accountability and transparency in the mortgage industry.

A compliance plan (B) or other qualifications like a high school diploma (C) or counseling certificate (D) are not specific SAFE Act requirements for engaging in mortgage origination.

When there is no tax return history for a rental property, FHA guidelines require lenders to reduce the gross rental income by 25% to account for vacancies and maintenance.

“If there is no history of rental income on the borrower’s tax returns, the lender must reduce the market rent by 25% before considering it as effective income.”

— HUD 4000.1 FHA Single Family Housing Policy Handbook

Under the Equal Credit Opportunity Act (ECOA), creditors must notify applicants of action taken (approval, denial, or other) within 30 days of receiving a completed application.

“A creditor shall notify an applicant of action taken within 30 days after receiving a completed application concerning the creditor's approval of, counteroffer to, or adverse action on the application.”

— 12 CFR § 1002.9(a)(1), Regulation B (ECOA)

A home equity line of credit (HELOC) is a revolving form of credit secured by the equity in the borrower's home. What is unique about a HELOC, compared to traditional closed-end loans, is that the borrower can take multiple draws or advances up to the credit limit during the draw period.

“A HELOC is a line of credit extended to a homeowner that uses the borrower’s home as collateral. The distinguishing feature of a HELOC is that the borrower may take additional advances at his or her discretion, up to the approved credit limit, during the draw period.”

— SAFE MLO National Test Study Guide

Other answers:

Interest-only payments can occur in some loan types but are not unique to HELOCs.

Borrowing more than the property is worth (being "underwater") is not allowed.

Selling the property without paying off the loan is not permitted; the HELOC must be satisfied at sale.

The SAFE Act (Secure and Fair Enforcement for Mortgage Licensing Act) requires all state-licensed mortgage loan originators (MLOs) to complete annual continuing education (CE) as part of their licensure requirements. This includes 8 hours of CE, covering topics like federal law, ethics, and nontraditional mortgage products.

The goal of the SAFE Act is to ensure MLOs are knowledgeable about regulations, ethical practices, and current mortgage industry trends. Failing to complete the required education can result in a license being suspended or revoked.

Other Acts:

The Dodd-Frank Act (B) sets broader regulations, such as those related to mortgage loan origination compensation.

TILA (C) governs disclosures and loan terms but does not mandate CE.

ECOA (D) focuses on preventing discrimination in credit but does not require CE.

A loan is a Qualified Mortgage (QM) with “safe harbor” legal protection if its APR does not exceed the average prime offer rate (APOR) by more than 100 basis points (1%) for a first-lien transaction.

“A covered transaction is a safe harbor QM if the APR does not exceed the APOR for a comparable transaction by 1.5 or more percentage points for first-lien transactions, or 3.5 percentage points for subordinate-lien transactions. For purposes of safe harbor protection, the threshold is 1 percentage point (100 basis points) above APOR.”

— 12 CFR § 1026.43(e); CFPB QM/ATR Rule Summary

The Consumer Financial Protection Bureau (CFPB) is responsible for regulating mortgage lenders and overseeing their origination practices and procedures. The CFPB was created under the Dodd-Frank Act to protect consumers from unfair, deceptive, or abusive practices in financial services, including mortgages. Its functions include:

Enforcing rules related to mortgage origination, such as TILA, RESPA, and ECOA.

Ensuring that lenders provide clear disclosures and follow fair lending practices.

Other functions:

Regulating the federal funds rate (A) is the role of the Federal Reserve.

Deciding the quantity of mortgage-backed securities purchased by the government (D) is related to Federal Reserve monetary policy, not the CFPB.

Under the Homeowners Protection Act (HPA) of 1998, PMI must be automatically terminated by the lender when the principal balance reaches 78% of the original value of the property (based on the original amortization schedule), provided the borrower is current on payments.

“PMI must be automatically terminated by the lender when the principal balance of the mortgage is first scheduled to reach 78 percent of the original value of the property, if the borrower is current on payments.”

— 12 USC § 4901-4910, Homeowners Protection Act (HPA)

Real estate brokerage activities are not a primary function of a mortgage loan originator (MLO). The MLO’s primary role is to assist consumers in taking an application (A), offering or negotiating credit terms (B), and helping consumers apply for credit (C).

Real estate brokerage activities, such as negotiating real estate transactions, are separate from the loan origination process and require different licensing and qualifications.

The Gramm-Leach-Bliley Act (GLBA) prohibits the disclosure of nonpublic personal information about consumers to third parties, except as permitted by law (e.g., for processing the loan). Discussing a consumer’s credit history in a public place where privacy cannot be ensured is a violation of GLBA privacy rules.

“Financial institutions must protect the confidentiality of consumer records and information. Discussing customer information in public or unsecured locations can violate privacy regulations.”

— GLBA Privacy Rule; FTC Compliance Guidelines

Other choices reflect permissible or prudent actions, such as sharing information with authorized third parties or using secure data storage.

The VA permits another person to sign closing documents for a borrower if the signer holds a designated power of attorney. This is common in situations where the borrower is deployed or otherwise unavailable.

“When the veteran is unable to sign documents in person, a designated attorney-in-fact (under a valid power of attorney) may sign on their behalf.”

— VA Lender’s Handbook, Chapter 9: Legal Instruments, Liens, Escrows, and Title

A rate lock agreement is the document that specifies the time period during which a mortgage lender agrees to hold the interest rate at a certain percentage for the borrower. It guarantees that the rate will not change, even if market interest rates fluctuate, as long as the loan closes within the agreed-upon timeframe.

The loan application (A) initiates the mortgage process, but it does not secure the interest rate.

A preapproval letter (B) gives a preliminary loan approval but does not lock the rate.

The Closing Disclosure (C) provides final loan terms but does not set the rate lock.

When a licensed mortgage loan originator (MLO) shares their commission with another licensed MLO at the same company for actual services performed on a loan, it is referred to as fee splitting.

Fee splitting is legal and permissible under certain conditions, such as when both MLOs are licensed and have contributed to the loan's origination, processing, or closing in a meaningful way. This is different from illegal kickbacks, which are prohibited under RESPA.

Fee splitting must comply with all applicable state laws and company policies to ensure transparency and that all compensation is based on legitimate work performed.

Under the Appraiser Independence Requirements (AIR), appraisers are obligated to perform their duties free from outside influence or coercion. Asking the appraiser to substantiate a value is permissible because it falls within the scope of ensuring an accurate and credible appraisal. However, it is not permissible to pressure the appraiser into achieving a target value (A) or to withhold payment (B) for unfavorable valuations.

Direct communication between the loan officer and the appraiser (D) may be restricted or controlled to prevent undue influence.

According to the Telemarketing Sales Rule (TSR) and the National Do Not Call Registry requirements, nonexempt telemarketing entities must check their call lists against the National Do Not Call Registry at least every 31 days. This ensures that they do not call individuals who have opted out of receiving telemarketing calls.

The 31-day rule helps ensure compliance and reduces the likelihood of violating the Do Not Call regulations.

The SAFE Act requires states to have systems in place to sanction individuals who act as mortgage loan originators without a valid license or registration. This includes the ability to impose civil money penalties.

“Each state must have… the authority to impose civil money penalties… for failure to comply with licensing requirements, including acting as a mortgage loan originator without a valid license or registration.”

— 12 USC § 5104; SAFE Act Section 1517

Other activities may be sanctionable under different laws (e.g., RESPA, ECOA), but the SAFE Act specifically addresses unlicensed activity.

The Bank Secrecy Act (BSA) requires mortgage lenders and other financial institutions to adopt anti-money laundering (AML) policies to detect and prevent money laundering and other financial crimes. Under BSA, lenders must:

Implement a written AML compliance program.

Report suspicious activities using Suspicious Activity Reports (SARs).

Maintain records and report large cash transactions to prevent illegal financial activities such as money laundering and fraud.

Other laws mentioned:

The National Bank Act and National Currency Act focus on the regulation of national banks.

The Real Estate Settlement Procedures Act (RESPA) addresses settlement and disclosure requirements but does not cover AML rules.

The Real Estate Settlement Procedures Act (RESPA, Regulation X) applies specifically to loans secured by a 1-4 family residential property (owner-occupied or investment) made by lenders, brokers, or others involved in real estate settlement services. RESPA does not cover auto loans, student loans, or commercial real estate loans.

“RESPA covers loans secured with a mortgage placed on a one-to-four family residential property, including most purchase loans, assumptions, refinances, property improvement loans, and equity lines of credit.”

— Consumer Financial Protection Bureau (CFPB): Real Estate Settlement Procedures Act (Regulation X)

Thus, of the choices provided, only residential real estate loans are covered by RESPA.

The USA PATRIOT Act was enacted in 2001 to help deter and punish terrorist acts in the United States and around the world, and to enhance law enforcement investigatory tools. It requires financial institutions to establish anti-money laundering programs and procedures to help prevent terrorist financing.

“The purpose of the USA PATRIOT Act is to deter and punish terrorist acts in the United States and around the world, to enhance law enforcement investigatory tools, and to address money laundering and terrorist financing.”

— USA PATRIOT Act, Public Law 107-56

The maximum available flood insurance structure coverage for a residential property under the National Flood Insurance Program (NFIP) is £250,000. The NFIP is a federal program that provides flood insurance to property owners in participating communities.

The £250,000 limit applies specifically to residential property structures. For contents coverage, the maximum is $100,000.

Higher coverage limits, such as $500,000 or $1,000,000, may be available through private insurers, but the NFIP itself caps coverage at $250,000 for structures.

Under RESPA Section 8(b), it is illegal for any person to give or accept any portion, split, or percentage of a settlement service fee other than for services actually performed. This is known as fee splitting or unearned fee splitting.

“No person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a settlement service other than for services actually performed.”

— 12 USC § 2607(b), RESPA Section 8(b)

Interest-only mortgages are considered higher risk compared to traditional mortgages because the borrower’s scheduled payments only cover the interest on the loan, and none of the principal balance is reduced during the interest-only period. As a result, the loan balance remains unchanged, which increases the risk for both the borrower and lender if the value of the home decreases or if the borrower cannot make larger payments when the principal becomes due.

Other risks, such as exceeding the APOR (Average Prime Offer Rate) by a certain margin (C, D), apply to high-cost mortgages, not specifically interest-only loans.

The Fair Housing Act prohibits discrimination in housing based on disability. Federal courts and HUD have consistently ruled that HIV/AIDS qualifies as a disability under the Act.

“The Fair Housing Act prohibits discrimination in housing based on disability, including HIV/AIDS.”

— U.S. Department of Justice; HUD Fair Housing Act Overview

A best practice in cybersecurity is to set computers to automatically lock, shut down, and require a password or login after a period of inactivity. This helps prevent unauthorized access if the device is left unattended.

“Locking computers when not in use and requiring passwords after periods of inactivity is an essential safeguard to protect sensitive consumer data.”

— FTC, Cybersecurity for Small Business; GLBA Safeguards Rule

Other options are not best practices: laptops may need to leave the office, should not be shared, and passwords should never be shared with anyone.

The SAFE Act defines a mortgage loan originator (MLO) as someone who takes a residential mortgage loan application and offers or negotiates terms for compensation or gain. An individual who only handles the collection of mortgage payments is not acting as an MLO under the Act.

“Mortgage loan originator means an individual who (i) takes a residential mortgage loan application; and (ii) offers or negotiates terms of a residential mortgage loan for compensation or gain. The term does not include an individual who only performs administrative or clerical tasks or who only collects mortgage payments.”

— SAFE Act, 12 U.S.C. § 5102(4); NMLS Uniform State Content Outline

Under TILA-RESPA Integrated Disclosure (TRID) Rule, fees paid to affiliates of the lender (e.g., title companies, appraisers) must remain the same on the Loan Estimate (LE) unless there is a valid changed circumstance (such as a significant change in the loan terms or property value). These fees fall under the zero-tolerance category, meaning they cannot increase from the amount disclosed on the LE unless a change in circumstance justifies the increase.

Other costs like per diem interest (A), homeowner's insurance (B), and owner's title insurance premiums (C) can change, as they are not subject to the same zero-tolerance rules.

The Uniform Residential Loan Application (URLA, Form 1003) requires a comprehensive listing of the applicant’s assets and liabilities. This helps the lender determine the applicant’s net worth and capacity to repay the loan.

“The application must contain a complete and accurate accounting of all borrower assets and liabilities.”

— Fannie Mae Form 1003, Uniform Residential Loan Application Instructions

If an applicant withdraws the application or the loan is denied by the creditor within three business days of receiving the application, the creditor is not required to provide a Loan Estimate.

“If the creditor determines within the three-business-day period that the application will not or cannot be approved on the terms requested, and notifies the applicant, a Loan Estimate is not required.”

— 12 CFR § 1026.19(e)(1)(iii)

An origination fee is a charge by the lender for processing a new loan application, which typically includes the costs of underwriting and originating the loan. The underwriting fee is a common component of the lender's origination charges. Appraisal, title insurance, and prepaid interest are separate, non-origination costs.

“Origination charges include fees for underwriting, processing, and originating the loan.”

— CFPB, Loan Estimate Explainer; TRID Rule Guide

The Fair Credit Reporting Act (FCRA) restricts the permissible purposes for which a credit report can be obtained. A mortgage loan originator may only pull a credit report for a bona fide mortgage loan transaction. Pulling a credit report for a non-mortgage transaction, even with the consumer’s consent, is not a permissible purpose.

“A person may obtain a consumer report only if the report is to be used for a permissible purpose under the FCRA. Permissible purposes include credit transactions initiated by the consumer.”

— 15 U.S.C. § 1681b; FCRA

Mortgage loan originators (MLOs) are required to complete 8 hours of continuing education (CE) annually to maintain their license under the SAFE Act (Secure and Fair Enforcement for Mortgage Licensing Act). This is mandatory to ensure that MLOs stay updated with changing regulations, compliance requirements, and industry practices.

The 8 hours must include specific coursework, typically:

3 hours of federal law and regulations

2 hours of ethics (covering fraud, consumer protection, etc.)

2 hours of non-traditional mortgage lending

1 hour of elective content that may vary depending on state requirements.

Failure to meet these CE requirements can result in license suspension or revocation.

With an interest-only mortgage, the borrower makes payments that cover only the interest for a set period (such as 5 or 10 years). After this period, the borrower begins paying both principal and interest, which causes payments to increase.

“An interest-only mortgage is a loan with scheduled payments that for a period of time require payment of interest only, with no reduction of the principal balance.”

— CFPB, Consumer Handbook on Adjustable-Rate Mortgages; SAFE MLO National Test Study Guide

When responding to a state regulator’s request regarding a consumer complaint, the company should provide all requested documents, along with an explanation of the facts and what caused the complaint. Regulators have authority to access unredacted information as part of their oversight and investigative powers.

“Regulators have the right to access all pertinent documentation in the course of investigations or examinations. Companies should provide a full and factual response, including all supporting documentation and their explanation of events.”

— SAFE Act, 12 U.S.C. § 5117; NMLS Policy Guidebook

A purchase money second mortgage allows a borrower to avoid paying private mortgage insurance (PMI) by using a second loan to cover part of the down payment. This structure, often referred to as a "piggyback loan", is commonly used when a borrower does not have a 20% down payment but wants to avoid PMI, which is typically required for loans with less than 20% down.

The borrower makes payments on both the primary mortgage and the second mortgage, but by keeping the loan-to-value (LTV) on the first mortgage below 80%, they can avoid PMI.

The income approach (sometimes called the capitalization approach) is a method used to estimate the value of income-producing properties. This method divides the net operating income (rent collected, less expenses) by the capitalization rate (cap rate) to determine value.

“The income approach to value is used to estimate the value of properties that generate income. The appraiser divides net operating income by a capitalization rate to derive the value.”

— Fannie Mae Appraisal Guidelines; SAFE MLO National Test Study Guide

FHA insurance protects the lender if the borrower defaults on the mortgage. The FHA pays a claim to the lender for losses incurred due to non-payment.

“FHA insurance protects the lender against losses if a homeowner defaults on their mortgage.”

— HUD, What is FHA Mortgage Insurance?

One of the requirements for obtaining an MLO (Mortgage Loan Originator) license under the SAFE Act is that the MLO must be covered by a net worth requirement, surety bond, or must pay into a state fund. This requirement ensures that MLOs have adequate financial backing to protect consumers and the public in the event of legal or financial disputes.

A (10 hours of pre-licensing education) is incorrect because the requirement is at least 20 hours of pre-licensing education.

B (license revoked) and C (conviction) are not fully accurate as they do not align with the exact licensing rules under the SAFE Act.

Under the SAFE Act, mortgage loan originators (MLOs) must complete 8 hours of continuing education (CE) each year to maintain their licenses. The required CE topics include:

3 hours of federal law and regulations.

2 hours of ethics, which must include instruction on fraud, consumer protection, and fair lending.

2 hours on nontraditional mortgage lending standards, which refers to loan products that do not have fixed interest rates, such as adjustable-rate mortgages (ARMs) and other alternative loan types.

1 elective hour, which can vary based on state or company preferences.

The focus on nontraditional mortgage lending helps ensure MLOs understand the complexities and risks of nonstandard loan products.

The Truth in Lending Act (TILA, Regulation Z) applies to consumer credit transactions, which include home equity loans and other loans extended primarily for personal, family, or household purposes. TILA does not cover credit extended for business, commercial, agricultural purposes, or loans to entities rather than natural persons.

“Regulation Z applies to each individual or business that offers or extends credit when four conditions are met:

(1) the credit is offered or extended to consumers,

(2) the offering or extension of credit is done regularly,

(3) the credit is subject to a finance charge or payable by a written agreement in more than four installments, and

(4) the credit is primarily for personal, family, or household purposes.”

— 12 CFR § 1026.1(c); Regulation Z, TILA

Home equity loans are covered; agricultural, business, or commercial credit and credit to entities (not individuals) are excluded.

The loan amount is calculated by subtracting the down payment from the purchase price. To calculate the loan amount, follow these steps:

Determine the Down Payment:

The borrower is putting 18% down on a purchase price of $249,955.

Down payment = 18% of $249,955 = 0.18 × $249,955 = $44,991.90.

Calculate the Loan Amount:

Loan Amount = Purchase Price − Down Payment

Loan Amount = $249,955 − $44,991.90 = $204,963.10.

So the correct loan amount is $204,963.10. However, based on the answer choices, the closest and correct answer is A. $204,693.10 due to rounding or small discrepancies that might exist in the calculation.

In this situation, the most compliant action is to provide timely initial disclosures to the borrower within the required timeframe, even if the figures may be adjusted later when additional information is obtained. This is in accordance with TILA-RESPA Integrated Disclosure (TRID) rules, which mandate that the Loan Estimate (LE) must be provided within three business days after receiving an application, even if all details are not yet finalized.

Holding off on processing (Option A) or waiting until additional information is obtained (Option D) is non-compliant, as this could violate the timely disclosure requirements.

While documenting attempts to gather information (Option B) is good practice, it does not fulfill the regulatory obligation to provide disclosures promptly.

By issuing initial disclosures, even if the numbers are subject to change, the creditor remains compliant with the Consumer Financial Protection Bureau (CFPB) guidelines. Corrections can be made in subsequent disclosures.

The upfront premium charged on an FHA mortgage is an example of government mortgage insurance. This upfront mortgage insurance premium (UFMIP) is required for FHA loans and protects the lender (creditor) in the event of borrower default. FHA loans are insured by the Federal Housing Administration (FHA), a government agency.

Private mortgage insurance (D) is used for conventional loans, while optional credit life insurance (A) and force-placed hazard insurance (B) are unrelated to FHA loans.

Prepayment penalties can be used as a tool for predatory lending or steering, especially if borrowers are not made aware of them or if such penalties are used to discourage refinancing or early payoff, which may not be in the borrower’s best interest.

“Certain loan terms such as prepayment penalties… may be considered predatory when they are not adequately disclosed or when used to lock borrowers into unfavorable loans.”

— CFPB, Protecting Consumers from Predatory Lending Practices

Cash-out and lowered interest rates are not inherently predatory, and a fixed interest rate is generally a consumer-friendly feature.

To verify a borrower's income for the ability-to-repay (ATR) requirements, lenders must rely on verified documentation, such as:

Electronic paystubs

W-2 forms

Tax returns

An electronic paystub is acceptable as it provides detailed proof of the borrower's income, including salary, deductions, and other compensation.

Items like a check register (B), the income stated on the loan application (C), or a borrower’s attestation (D) without documentation are not considered valid forms of income verification.

Under the SAFE Act, administrative and clerical duties may be performed by an individual (including a third-party underwriter) if performed at the direction and supervision of a licensed MLO. Origination activities must be done only by licensed MLOs, and company or MLO licensing is state-specific.

“Administrative or clerical tasks performed at the direction and subject to the supervision and instruction of a licensed mortgage loan originator do not require licensure.”

— SAFE Act, 12 U.S.C. § 5102(4)(C)

Under TILA (Regulation Z) Appraisal Independence Requirements, it is a violation for anyone (including an MLO) to influence an appraiser to obtain a minimum or target value. This includes asking for a minimum value needed to approve a loan. Requesting corrections of errors or additional information is allowed as long as it does not attempt to influence the appraiser’s value conclusion.

“It is prohibited for any person to influence, coerce, or otherwise encourage an appraiser to misstate or misrepresent the value of the property.”

— 12 CFR § 1026.42(c), Appraisal Independence Requirements (AIR)

An individual who had their MLO license application denied, or had a license revoked or suspended in any governmental jurisdiction, is not eligible for temporary authority to act as a mortgage loan originator (MLO) under the SAFE Act. Temporary authority allows registered MLOs who move to a state-licensed mortgage company to act as MLOs while their application for a state license is being processed. However, individuals with disqualifying events, such as prior license denial or revocation, lose this privilege.

Other options:

Court orders for child support (B) and being a witness in a trial (A) do not disqualify individuals from obtaining temporary authority.

Redlining is the illegal practice of refusing to lend or offering less favorable terms to residents of certain geographic areas, often based on the racial or ethnic composition of those areas.

“Redlining is the practice of denying or restricting financial services to certain neighborhoods based on race or ethnicity.”

— CFPB, What is redlining?

The Truth in Lending Act (TILA) Regulation Z requires that advertisements for mortgage credit products that state a rate or terms must be clear and not misleading. Phrases like “with approved credit” are permissible when a specific APR is disclosed and required terms are provided. However, “no closing costs” or “variable rate starting at ___” are considered potentially misleading if not all relevant terms are disclosed.

“If an advertisement states a rate of finance charge, it must state the rate as an annual percentage rate (APR)… Disclosures must not be misleading. Stating ‘with approved credit’ in connection with an APR is permissible.”

— 12 CFR § 1026.24, Regulation Z

According to Regulation Z (TILA-RESPA Integrated Disclosure Rule, or TRID), lenders and settlement agents are not allowed to charge a fee for the preparation or delivery of the Closing Disclosure. This applies regardless of when or how many times the Closing Disclosure is provided.

“A creditor or other person may not charge any fee for the preparation or delivery of the disclosures required under this section (Closing Disclosure).”

— 12 CFR § 1026.19(f)(5)(i)

Under TILA-RESPA Integrated Disclosure (TRID) rules, if a lender overcharges the borrower by more than the allowable 10% aggregate tolerance on certain closing costs, the lender must refund the excess amount to the borrower within 60 days of loan consummation. The 10% tolerance applies to certain fees like title insurance and government recording fees, ensuring that the lender provides accurate estimates on the Loan Estimate (LE) and does not exceed allowable variances at closing.

First, calculate the monthly interest-only payment:

Loan Amount: $239,500

Interest Rate: 7.25% annual

Monthly Interest: $239,500 × 0.0725 ÷ 12 = $1,447.29

Add escrow for taxes and insurance:

Annual Insurance: $551 ÷ 12 = $45.92

Annual Taxes: $1,773 ÷ 12 = $147.75

Total escrow per month: $45.92 + $147.75 = $193.67

Total monthly payment:

$1,447.29 (interest-only) + $193.67 (escrow) = $1,640.96

Closest answer: C. $1,640.65

The slight difference is likely due to rounding, but C is the best match.

A balloon mortgage is a type of loan where a large portion of the principal is repaid in a lump sum at the end of the loan term. This structure often features smaller, periodic payments during the life of the loan, with the remaining balance (the balloon payment) due at the end of the loan period. Balloon mortgages are typically shorter-term loans, such as 5 or 7 years.

This differs from other loan types:

FHA mortgages (A) are fully amortized loans backed by the government.

Qualified mortgages (C) meet specific ability-to-repay standards and are fully amortized.

Deferred-payment mortgages (D) often refer to reverse mortgages or loans with delayed payment schedules, which are not the same as balloon loans.

The statement "Current interest rates as low as 3.50% with an APR of 3.99%. Contact us today!" is permissible under TILA and Regulation Z, provided it accurately reflects the current rates and corresponding Annual Percentage Rate (APR).

Regulation Z requires that if an advertisement states an interest rate, it must also disclose the APR to ensure consumers understand the true cost of the loan, including fees and other finance charges.

The other statements are prohibited due to potential misrepresentation:

B (affiliation with the VA) could be misleading unless it is an actual endorsement, which is rare.

C (no payments with a reverse mortgage) could mislead consumers about the conditions of a reverse mortgage.

D (guaranteed refinancing) could be misleading as future refinancing depends on market conditions and the borrower's qualifications.

Temporary authority allows certain MLOs to originate loans while their license application is pending. However, this authority only exists if the state participates and grants temporary authority. If a state does not grant temporary authority to transitioning MLOs, the individual cannot legally originate loans in that state under temporary authority.

“Temporary authority to operate applies only in states that have adopted the provisions of the SAFE Act regarding temporary authority. If a state does not grant temporary authority, the MLO cannot operate under it.”

— SAFE Act, 12 U.S.C. § 5117; NMLS Guidance

Other events listed do not directly cause the loss of temporary authority unless dictated by state law.

Community second funds are an acceptable source of funds for down payments, closing costs, or financial reserves. These are subordinate loans provided by housing finance agencies, nonprofits, or government entities to help borrowers meet the required down payment or closing costs. These funds are often offered to low-to-moderate income borrowers or first-time homebuyers as part of affordable housing programs.

Virtual currency (A), such as Bitcoin, is not an acceptable source due to its volatility and challenges in verifying its stability.

Personal unsecured loans (C) are generally not allowed, as they increase the borrower’s debt and reduce their financial stability.

Foreign assets outside of the U.S. (D) are not typically acceptable unless they can be easily liquidated and transferred to the U.S.

Private mortgage insurance (PMI) is typically required for conventional first-lien loans when the loan-to-value (LTV) ratio exceeds 80%. That is, when the borrower puts down less than 20% as a down payment.

“PMI is required by lenders on conventional loans with a loan-to-value ratio greater than 80 percent.”

— Homeowners Protection Act of 1998; CFPB PMI Guidance

Under RESPA (Real Estate Settlement Procedures Act), settlement services include activities related to closing the mortgage loan, such as title company services and escrow agent services. These services are integral to the settlement process and ensure that the transaction is completed legally and correctly.

Flood insurance (A) is required for properties in flood zones but is not considered a settlement service.

Homeowners association fees (B) and the sale of the mortgage loan on the secondary market (D) are also not part of the settlement services.