Free NMLS Mortgage Loan Origination Activities Questions and Answers

Question 1

An MLO is working on a loan application for a borrower who is purchasing a new primary residence. The only fee collected from the borrower at the time of application is for a credit report. Which of the following actions is permissible before the borrower has received a Loan Estimate and expressed their intent to proceed?

Accepted Answer

Requiring verification of income and assets.

Answer

According to the TILA-RESPA Integrated Disclosure (TRID) rule, a creditor or any other person may only charge a consumer a bona fide and reasonable fee for obtaining the consumer's credit report before the consumer has received the Loan Estimate and indicated an intent to proceed. A creditor may collect information such as income and asset documentation to verify the borrower's ability to repay, but cannot impose any other fees until after the borrower has received the Loan Estimate and indicated they want to move forward with the loan.

Question 2

A mortgage loan originator's advertisement for a fixed-rate mortgage prominently features an attractive monthly payment amount. Under Regulation Z (TILA), which of the following is also required to be included in the advertisement, and with equal prominence?

Accepted Answer

The total of payments over the life of the loan and the repayment period.

Answer

Regulation Z, which implements the Truth in Lending Act (TILA), has specific rules for advertising. If an advertisement for closed-end credit (like a mortgage) states the amount of any payment (a 'triggering term'), it must also disclose the amount or percentage of the down payment, the terms of repayment (the repayment period), and the 'annual percentage rate' (APR) with equal prominence. For certain purchases, the total of payments must also be disclosed.

Question 3

Under the Ability-to-Repay (ATR) rule, which of the following is NOT one of the eight specific underwriting factors a lender must consider and verify when making a reasonable, good-faith determination of a borrower's ability to repay a mortgage loan?

Accepted Answer

The borrower's potential for future income growth.

Answer

The Ability-to-Repay (ATR) rule requires lenders to consider eight specific factors: (1) current or reasonably expected income or assets; (2) current employment status; (3) the monthly payment on the loan; (4) the monthly payment on any simultaneous loans; (5) the monthly payment for mortgage-related obligations; (6) current debt obligations, alimony, and child support; (7) the monthly debt-to-income ratio or residual income; and (8) credit history. Potential for future income growth is not one of the mandated factors.

Question 4

An MLO is originating a first-lien mortgage that qualifies as a Higher-Priced Mortgage Loan (HPML). Under Regulation Z, for which of the following transaction types would an escrow account for property taxes and insurance NOT be required?

Accepted Answer

A temporary or 'bridge' loan with a term of 12 months or less.

Answer

Regulation Z generally requires creditors to establish an escrow account for first-lien HPMLs. However, there are specific exemptions. These exemptions include transactions for temporary or 'bridge' loans with terms of 12 months or less, reverse mortgages, and initial construction loans.

Question 5

An individual loan originator is compensated based on a percentage of the loan amount for every loan they close. According to the Loan Originator Compensation Rule, which of the following compensation practices is prohibited?

Accepted Answer

Receiving a higher percentage of the loan amount for loans with higher interest rates.

Answer

The Loan Originator Compensation Rule, part of the Truth in Lending Act (Regulation Z), prohibits paying a loan originator based on the terms of a transaction, such as the interest rate. Compensation cannot vary based on the loan's rate or other terms. Permissible compensation methods include a fixed percentage of the loan amount for all loans, an hourly rate, or certain bonuses not tied to individual loan terms.

(NMLS) National Mortgage Licensing System Practice Test

(NMLS) National Mortgage Licensing System Practice Test

Free NMLS Mortgage Loan Origination Activities Questions and Answers