National Mortgage Loan Originator (NMLS) Test — Questions and Answers

Question 1: An MLO may impose which of the following fees on the borrower prior to delivering the Loan Estimate disclosure and other necessary disclosures to the borrower:

Termite inspection fee
Appraisal fee
Survey fee
Credit report fee (Correct answer)

Correct answer: Credit report fee

At this point in the loan origination process, there is only one charge that can be taken before the delivery of the necessary disclosures.

Question 2: An assumable mortgage allows the buyer to:

Assume the seller's credit history
Skip the appraisal process
Avoid paying closing costs entirely
Take over the seller's existing mortgage at its original terms (Correct answer)

Correct answer: Take over the seller's existing mortgage at its original terms

An assumable mortgage allows a qualified buyer to take over the seller's existing loan at the original interest rate and terms, which can be advantageous in a rising rate environment.

Question 3: In mortgage processing, what is the purpose of a 4506-C form?

To request employment verification
To authorize the IRS to provide tax transcripts to the lender (Correct answer)
To order a credit report
To order the appraisal

Correct answer: To authorize the IRS to provide tax transcripts to the lender

The IRS Form 4506-C authorizes the IRS to release tax return transcripts directly to the lender, helping verify borrower-provided income documentation.

Question 4: When calculating qualifying income for a self-employed borrower using tax returns, which income figure is typically used?

Total business revenue
W-2 wages reported
Net profit after adding back depreciation and depletion (Correct answer)
Gross receipts

Correct answer: Net profit after adding back depreciation and depletion

For self-employed borrowers, lenders use net income from tax returns and add back non-cash deductions like depreciation and depletion.

Question 5: What is the maximum loan limit for a single-unit FHA-insured property in a standard-cost area for 2024?

$350,000
$498,257 (Correct answer)
$600,000
$726,200

Correct answer: $498,257

The 2024 FHA loan limit for a single-unit property in a standard-cost (floor) area is $498,257.

Question 6: The SAFE Act stipulates that a mortgage loan originator must be designated as an MLO to carry out all of the following tasks, with the exception of:

Perform work related to extensions of credit for timeshare plans (Correct answer)
Advise a consumer on rates, fees, and other costs
Take a residential mortgage loan application
Negotiate terms of a residential mortgage loan

Correct answer: Perform work related to extensions of credit for timeshare plans

To carry out tasks associated with timeshare plan credit extensions, one would not need the MLO certification.

Question 7: Under Regulation Z, when must a lender provide a borrower with the right to rescind on a refinance of their primary residence?

Only if the interest rate increases
Within 1 business day after application
Within 3 business days after consummation, delivery of the notice, or delivery of all material disclosures (Correct answer)
Only when the new loan amount is higher than the original

Correct answer: Within 3 business days after consummation, delivery of the notice, or delivery of all material disclosures

The right of rescission on refinances of primary residences expires three business days after the latest of consummation, delivery of the rescission notice, or delivery of all required disclosures.

Question 8: An adjustable-rate mortgage has a 5/1 structure with a 2/2/5 cap. If the start rate is 4%, what is the maximum rate the loan can reach over its lifetime?

9% (Correct answer)
8%
6%
11%

Correct answer: 9%

The lifetime cap of 5% over the start rate means 4% + 5% = 9% maximum.

Question 9: What is 'dual agency' in a real estate transaction, and why is it important to MLOs?

When a real estate agent represents both buyer and seller; MLOs should be aware to identify potential conflicts (Correct answer)
When an appraiser values two properties; prohibited by USPAP
When a lender services two loans simultaneously; irrelevant to MLOs
When an MLO also acts as the title agent; required by RESPA

Correct answer: When a real estate agent represents both buyer and seller; MLOs should be aware to identify potential conflicts

Dual agency occurs when one agent represents both buyer and seller; MLOs should understand this arrangement as it may create conflicts that affect the transaction and require disclosure.

Question 10: Which of the following is an example of 'predatory lending'?

Charging excessive fees or placing a borrower in a loan they cannot afford to benefit the lender (Correct answer)
Offering a lower rate to a borrower with excellent credit
Requiring a larger down payment for a riskier loan
Disclosing all fees accurately at application

Correct answer: Charging excessive fees or placing a borrower in a loan they cannot afford to benefit the lender

Predatory lending involves deceptive or abusive practices such as excessive fees, loan flipping, or placing borrowers in unsuitable products for the originator's financial gain.

Question 11: Which act requires lenders to provide borrowers with a Loan Estimate within three business days of receiving a complete loan application?

TRID (TILA-RESPA Integrated Disclosure) (Correct answer)
TILA
RESPA
HMDA

Correct answer: TRID (TILA-RESPA Integrated Disclosure)

TRID, effective October 2015, requires the Loan Estimate to be delivered within three business days of application.

Question 12: Under the SAFE Act, an MLO license can be suspended or revoked for:

Originating more than 100 loans per year
Fraud, misrepresentation, or a felony conviction involving dishonesty (Correct answer)
Failing to meet a production quota
Working for more than one lender simultaneously

Correct answer: Fraud, misrepresentation, or a felony conviction involving dishonesty

SAFE Act grounds for license denial, suspension, or revocation include fraud, misrepresentation, and felony convictions related to dishonesty or financial crimes.

Question 13: Which type of mortgage loan allows the borrower to pay only the interest for an initial period before principal payments begin?

Graduated payment mortgage
Interest-only mortgage (Correct answer)
Negative amortization mortgage
Balloon mortgage

Correct answer: Interest-only mortgage

An interest-only mortgage allows the borrower to pay just the interest portion for an initial period, after which payments adjust to include both principal and interest.

Question 14: An MLO fails to renew their state license before it expires and continues originating loans. Under the SAFE Act, this individual is:

Operating illegally and subject to fines and potential criminal prosecution (Correct answer)
Subject to a grace period of 60 days before penalties apply
Permitted to originate under a temporary license automatically issued by NMLS
Only required to pay a late renewal fee with no other consequences

Correct answer: Operating illegally and subject to fines and potential criminal prosecution

Originating loans without a valid license is a violation of the SAFE Act, exposing the individual to fines and potential criminal penalties.

Question 15: Which federal law requires lenders to provide borrowers with a Loan Estimate within three business days of receiving a loan application?

TILA-RESPA Integrated Disclosure (TRID) (Correct answer)
RESPA
HMDA
ECOA

Correct answer: TILA-RESPA Integrated Disclosure (TRID)

TRID, which integrates TILA and RESPA disclosures, requires the Loan Estimate be delivered within three business days of application.

Question 16: A borrower receives a gift of $15,000 from a parent to use toward a down payment on a conventional loan. What document is required to verify this is not a loan?

A bank statement showing the transfer
A gift letter signed by the donor (Correct answer)
A notarized affidavit from the borrower
A promissory note from the parent

Correct answer: A gift letter signed by the donor

A gift letter signed by the donor stating the funds are a gift with no repayment expectation is required by lenders for down payment gifts.

Question 17: A 5/1 ARM mortgage means:

The rate is fixed for 5 years, then adjusts annually (Correct answer)
Payments are interest-only for 5 years then fully amortize over 1 year
The rate is fixed for 1 year, then adjusts every 5 years
The loan has a 5% rate cap and adjusts monthly

Correct answer: The rate is fixed for 5 years, then adjusts annually

A 5/1 ARM has a fixed rate for the initial 5 years, after which the rate adjusts once per year based on an index plus margin.

Question 18: Which of the following statements most accurately reflects mandatory advances for construction loans:

Obligatory advances occur when the builder makes payments on the construction loan.
Obligatory advances refer to a builder paying subcontractors at the appropriate time.
It is funds paid to the builder as various phases of the construction project are completed. (Correct answer)
It is the way funds used to be distributed to the builder; however, now all funds are released upfront.

Correct answer: It is funds paid to the builder as various phases of the construction project are completed.

Obligatory advances in construction loans refer to the funds that the lender is contractually required to disburse to the builder as specific phases of the construction project are completed and inspected. These advances are not optional and are critical for funding the ongoing building process, ensuring that the builder has the necessary capital at each stage of construction.

Question 19: Which of the following describes the document that combines the Good Faith Estimate required by RESPA and the Truth in Lending Statement mandated by TILA:

The Closing Disclosure
The Loan Estimate (Correct answer)
The Mortgage Servicing Disclosure Statement
The Home Loan Toolkit

Correct answer: The Loan Estimate

The document that combines the Truth in Lending Act (TILA) disclosure and the Real Estate Settlement Procedures Act (RESPA) disclosure is called the "Loan Estimate." This document provides borrowers with important information about the terms and costs of their mortgage loan, including interest rates, loan amount, estimated monthly payments, closing costs, and more. It was introduced to simplify the mortgage disclosure process and make it easier for borrowers to understand the terms and costs associated with their loan application. The Loan Estimate must be provided to borrowers within three business days of submitting a mortgage application.

Question 20: What is the minimum FICO credit score required for FHA loan eligibility with 3.5% down payment?

640
620
660
580 (Correct answer)

Correct answer: 580

FHA guidelines allow a 3.5% minimum down payment for borrowers with credit scores of 580 or higher; scores between 500-579 require 10% down.

Question 21: What does HMDA require lenders to do?

Collect and report data on mortgage loan applications and originations to identify discrimination patterns (Correct answer)
Obtain flood certification for all loans
Provide borrowers with a copy of their credit report
Disclose all lender fees upfront

Correct answer: Collect and report data on mortgage loan applications and originations to identify discrimination patterns

HMDA (Home Mortgage Disclosure Act) requires lenders to collect and publicly report data on loan applications and originations to help identify discriminatory lending practices.

Question 22: Which loan program allows a veteran to purchase a home with no down payment and no private mortgage insurance requirement?

VA loan (Correct answer)
Conventional 97 loan
FHA 203(b)
USDA Rural Development loan

Correct answer: VA loan

VA loans are guaranteed by the Department of Veterans Affairs, allowing eligible veterans to buy with zero down payment and no PMI.

Question 23: Which of the following other names for the Real Estate Settlement Procedures Act (RESPA) is accurate:

Regulation C
Regulation B
Regulation Z
Regulation X (Correct answer)

Correct answer: Regulation X

The Real Estate Settlement Procedures Act (RESPA) is also commonly referred to as Regulation X. Regulation X is the regulatory implementation of RESPA and is enforced by the Consumer Financial Protection Bureau (CFPB) in the United States. It outlines specific requirements and guidelines related to real estate settlements, including the disclosure of settlement costs, the use of escrow accounts, and prohibitions against kickbacks and referral fees in real estate transactions.

Question 24: In mortgage lending, what is the purpose of a title search?

To calculate the annual property tax assessment
To verify the property's structural integrity
To identify any liens, encumbrances, or ownership defects on the property (Correct answer)
To determine the market value of the property

Correct answer: To identify any liens, encumbrances, or ownership defects on the property

A title search examines public records to uncover any claims, liens, or defects that could affect the lender's or buyer's ownership rights.

Question 25: Which of the following may the Rate-Checker accomplish for a borrower when used properly?

It incorporates information from the lenders’ external rate sheets.
Shows the rates borrowers like them are being offered. (Correct answer)
Approve or deny their loan.
Give personal advice as to whether the loan the consumer is getting is good for them.

Correct answer: Shows the rates borrowers like them are being offered.

This tool is designed to help borrowers understand the interest rates that borrowers similar to them are being offered. By providing borrowers with information about rates that are available to borrowers with similar profiles or characteristics, the Rate-Checker aims to help borrowers gauge what interest rates might be realistic or attainable for them based on their financial situation and creditworthiness.

Question 26: What is the primary purpose of Private Mortgage Insurance (PMI) on a conventional loan?

It covers property damage not insured by homeowner's insurance
It protects the lender against borrower default when LTV exceeds 80% (Correct answer)
It reimburses closing costs if the loan is denied
It protects the borrower if they lose their job

Correct answer: It protects the lender against borrower default when LTV exceeds 80%

PMI protects the lender, not the borrower, in the event of default on loans where the LTV is above 80%.

Question 27: Under the Equal Credit Opportunity Act (ECOA), a lender must notify applicants of a credit decision within how many days of a completed application?

45 days
30 days (Correct answer)
60 days
15 days

Correct answer: 30 days

ECOA requires lenders to notify applicants of the credit decision within 30 days of receiving a completed application.

Question 28: What is the purpose of mortgage discount points?

To reduce the required down payment
To extend the loan term
To increase the loan amount
To prepay interest upfront in exchange for a lower interest rate (Correct answer)

Correct answer: To prepay interest upfront in exchange for a lower interest rate

Discount points are prepaid interest paid at closing — typically 1% of the loan amount per point — to permanently reduce the interest rate on the mortgage.

Question 29: An individual who works for any of the following, with the exception of:

A subsidiary of a depository institution regulated by a Federal banking agency
A mortgage brokerage company under the authority of the DRE (Correct answer)
A depository institution
An institution regulated by the Farm Credit Administration

Correct answer: A mortgage brokerage company under the authority of the DRE

MLOs working with the DRE's permission need to be licensed.

Question 30: A reverse mortgage is designed for homeowners who are at least:

62 years old (Correct answer)
60 years old
65 years old
55 years old

Correct answer: 62 years old

HECM (Home Equity Conversion Mortgage) reverse mortgages are available to homeowners aged 62 and older, allowing them to convert home equity into loan proceeds.

Question 31: The Gramm-Leach-Bliley Act (GLBA) requires financial institutions to:

Register with the SEC
Provide privacy notices and safeguard consumer financial information (Correct answer)
Offer loans to all applicants regardless of creditworthiness
Disclose all lending fees in advance

Correct answer: Provide privacy notices and safeguard consumer financial information

GLBA requires financial institutions to notify consumers about their information-sharing practices and implement security measures to protect nonpublic personal information.

Question 32: What does the acronym 'DTI' stand for in mortgage underwriting?

Debt-to-income (Correct answer)
Deferred-tax index
Down-payment to income
Default threshold indicator

Correct answer: Debt-to-income

DTI (debt-to-income) ratio compares a borrower's monthly debt obligations to gross monthly income and is a key underwriting metric.

Question 33: Which agency has primary supervisory authority over non-bank mortgage companies' compliance with federal consumer financial protection laws?

CFPB (Correct answer)
FDIC
Federal Reserve
OCC

Correct answer: CFPB

The Consumer Financial Protection Bureau (CFPB) has supervisory and enforcement authority over non-bank mortgage originators for federal consumer financial protection laws.

Question 34: What is the primary advantage of an FHA loan compared to a conventional loan for first-time homebuyers?

No income limits apply
No mortgage insurance is required
Higher loan limits in all markets
Lower minimum credit score and down payment requirements (Correct answer)

Correct answer: Lower minimum credit score and down payment requirements

FHA loans offer lower minimum credit score requirements (as low as 580 for 3.5% down) and more flexible underwriting, making homeownership accessible to more borrowers.

Question 35: A variable balance mortgage's interest rate fluctuates (VBM). What remains constant?

Tax implications
Payment amount (Correct answer)
Loan balance
Index

Correct answer: Payment amount

A Variable Balance Mortgage (VBM) is designed so that the interest rate fluctuates, but the borrower's monthly payment amount remains constant. To achieve this, the loan's principal balance adjusts, either increasing (negative amortization) or decreasing more slowly when rates rise, or decreasing more quickly when rates fall. This structure provides predictable payments despite interest rate changes.

Question 36: What is the SAFE Act's primary requirement for Mortgage Loan Originators?

Employment only at federally chartered institutions
Mandatory continuing education of 40 hours per year
Minimum net worth of $100,000 for all MLOs
Registration or state licensure with background checks and testing (Correct answer)

Correct answer: Registration or state licensure with background checks and testing

The SAFE Act requires MLOs to be either state-licensed or federally registered, including passing a background check and a national exam.

Question 37: Which loan program is specifically designed to help borrowers finance energy-efficient improvements as part of a purchase or refinance?

FHA 203(k)
VA Adaptive Housing Grant
Energy Efficient Mortgage (EEM) (Correct answer)
USDA Rural Energy for America

Correct answer: Energy Efficient Mortgage (EEM)

The Energy Efficient Mortgage (EEM) program, available through FHA and VA, allows borrowers to finance the cost of energy-efficient upgrades into their mortgage.

Question 38: Under TILA, the 'finance charge' includes all of the following EXCEPT:

Mortgage broker fees
Loan origination fees
Hazard insurance premiums paid to insurer of borrower's choice (Correct answer)
Discount points

Correct answer: Hazard insurance premiums paid to insurer of borrower's choice

Hazard insurance premiums paid to an insurer chosen by the borrower are excluded from the finance charge under TILA.

Question 39: A real estate agent might take part in one of the following fraud schemes:

Preparing false documentation such as sales contracts or property inspections
Arranging for a straw buyer
Raising listing prices to justify an appraised value
All of the above (Correct answer)

Correct answer: All of the above

Real estate agents can participate in various mortgage fraud schemes. This includes raising listing prices to justify an inflated appraised value, arranging for 'straw buyers' (individuals used to conceal the true borrower's identity or financial situation), and preparing false documentation such as sales contracts or property inspection reports. All these actions involve misrepresentation or concealment of material facts to defraud a lender.

Question 40: Which of the following income types is typically considered 'stable' for mortgage qualification?

Two-year history of self-employment income (Correct answer)
One-time bonus received last month
Lottery winnings
Unemployment benefits

Correct answer: Two-year history of self-employment income

Self-employment income with a two-year history is considered stable income; lenders average the two years to determine qualifying income.

Question 41: What is the purpose of a Verification of Employment (VOE) in the loan process?

To confirm the borrower's current employment status, position, and income (Correct answer)
To check the borrower's credit history
To appraise the subject property
To verify the borrower's tax returns

Correct answer: To confirm the borrower's current employment status, position, and income

A VOE is sent to the employer to independently verify the borrower's employment status, title, start date, and income details.

Question 42: Under the Homeowners Protection Act (HPA), automatic PMI termination on conventional loans must occur when LTV reaches what level based on the original amortization schedule?

80%
78% (Correct answer)
70%
75%

Correct answer: 78%

HPA requires servicers to automatically cancel PMI on the date the loan is scheduled to reach 78% LTV based on the original amortization schedule and original property value.

Question 43: A loan with a balloon payment requires the remaining principal balance to be paid in full at a set date. Under the Qualified Mortgage (QM) rule, balloon payment loans are generally:

Prohibited entirely for all lenders
Permitted for all loan types with no restrictions
Required for jumbo loans above conforming loan limits
Only permitted for small creditors in rural or underserved areas meeting specific criteria (Correct answer)

Correct answer: Only permitted for small creditors in rural or underserved areas meeting specific criteria

Under the QM rule, balloon payment mortgages can qualify as QMs only for small creditors operating in rural or underserved areas that meet specific CFPB criteria.

Question 44: An MLO's license expires and they continue to originate loans for two weeks before renewing. Under the SAFE Act, this behavior could result in:

Temporary license extension by NMLS
Civil and criminal penalties (Correct answer)
Automatic license reinstatement
A warning letter only

Correct answer: Civil and criminal penalties

Operating without a valid MLO license violates the SAFE Act and can lead to civil fines and criminal prosecution.

Question 45: What is accurate about the 1975 Home Mortgage Disclosure Act?

Its purpose is to fight redlining (Correct answer)
Its purpose is to fully disclose terms and conditions of the loan
Its purpose is to make sure borrowers can have PMI removed from a loan when the LTV drops to 80%
Its purpose is to ensure that borrower’s personal financial information is protected

Correct answer: Its purpose is to fight redlining

The Home Mortgage Disclosure Act (HMDA) was passed in 1975 with the primary purpose of fighting redlining. It requires financial institutions to collect and publicly disclose data about their mortgage lending activity, including information on loan applications and originations by geographic area and applicant demographics. This data helps regulators and the public identify potential discriminatory lending patterns and assess whether lenders are serving the housing needs of their communities.

Question 46: The Equal Credit Opportunity Act (ECOA) prohibits discrimination in credit transactions based on all of the following EXCEPT:

Race and national origin
Loan amount requested (Correct answer)
Marital status and age
Religion and sex

Correct answer: Loan amount requested

ECOA prohibits credit discrimination based on race, color, religion, national origin, sex, marital status, age, and receipt of public assistance income — not the loan amount itself.

Question 47: Except for the following, all of the SAFE Act's goals are:

Provide a comprehensive licensing database
Facilitate the collection and disbursement of consumer complaints
Regulate loan transactions involving 1-4 units of residential owner-occupied properties (Correct answer)
Improve the flow of information to and between regulatory agencies

Correct answer: Regulate loan transactions involving 1-4 units of residential owner-occupied properties

Residential owner-occupied properties with 1 to 4 units are never mentioned in the SAFE Act. It does make reference to any residential mortgage loan used largely for domestic, family, or personal purposes.

Question 48: Which of the following triggers a revised Loan Estimate under TRID?

Title company updates its fee schedule
Borrower changes their email address
Borrower requests a different loan product after initial LE (Correct answer)
Appraiser is changed by the lender

Correct answer: Borrower requests a different loan product after initial LE

A valid changed circumstance such as a borrower-requested change in loan product allows the lender to issue a revised Loan Estimate and potentially reset tolerances.

Question 49: Which mortgage program is specifically designed for purchasing and renovating a property in a single loan?

203(b) standard FHA loan
VA IRRRL
USDA streamline refinance
FHA 203(k) rehabilitation loan (Correct answer)

Correct answer: FHA 203(k) rehabilitation loan

The FHA 203(k) loan combines the purchase price and rehabilitation costs into a single mortgage, allowing buyers to finance both acquisition and renovation.

Question 50: What does LTV stand for, and how is it calculated?

Lender-to-Verify; total assets divided by loan amount
Loan-to-Value; loan amount divided by appraised value (Correct answer)
Leverage-to-Value; purchase price divided by down payment
Loan-to-Verify; income divided by loan amount

Correct answer: Loan-to-Value; loan amount divided by appraised value

LTV (Loan-to-Value) is calculated by dividing the loan amount by the lesser of the appraised value or purchase price.

Question 51: Which FHA loan program is specifically designed for borrowers who want to finance both the purchase and rehabilitation of a home?

FHA HECM
FHA 203(k) (Correct answer)
FHA Title I
FHA 203(b)

Correct answer: FHA 203(k)

The FHA 203(k) program allows borrowers to finance the purchase price plus renovation costs into a single mortgage.

Question 52: Under TRID, the Loan Estimate must be delivered to the applicant within how many business days of receiving a completed loan application?

Seven business days
Five business days
Three business days (Correct answer)
One business day

Correct answer: Three business days

Lenders must deliver or place in the mail the Loan Estimate no later than three business days after receiving the consumer's loan application.

Question 53: If a borrower pays 2 discount points on a $200,000 loan, how much does the borrower pay in points?

$400
$4,000 (Correct answer)
$2,000
$200

Correct answer: $4,000

Each discount point equals 1% of the loan amount; 2 × 1% × $200,000 = $4,000.

Question 54: What is the minimum down payment required for an FHA-insured loan for borrowers with a credit score of 580 or higher?

5%
3%
3.5% (Correct answer)
0%

Correct answer: 3.5%

Borrowers with a credit score of 580 or above are eligible for an FHA loan with a minimum down payment of 3.5%.

Question 55: Which of the following entities carries out the Home Ownership and Equity Protection Act's (HOEPA) enforcement?

FRB
FBI
HUD
CFPB (Correct answer)

Correct answer: CFPB

The Home Ownership and Equity Protection Act (HOEPA) is a federal law designed to protect consumers from predatory lending practices in high-cost mortgages. Enforcement of HOEPA, along with other consumer financial protection laws, falls under the jurisdiction of the Consumer Financial Protection Bureau (CFPB). The CFPB was established to ensure fair and transparent markets for consumer financial products and services.

Question 56: Which of the following is not covered by the 10-business day provision for the estimation of charges and terms for all settlement services?

All of the above (Correct answer)
Charges and terms dependent on the interest rate
The interest rate
The charge or credit for the interest rate chosen, the adjusted origination charges, and per diem interest

Correct answer: All of the above

Many borrowers choose to lock in the interest rate in conjunction with the MLOs in order to prevent disappointment because the 10-business day provision does not lock the interest rate.

Question 57: The Ability-to-Repay (ATR) rule requires lenders to make a reasonable, good-faith determination that a borrower can repay a loan. Which loan category is presumed to comply with the ATR rule?

Balloon payment loans
Interest-only loans
Qualified Mortgage (QM) (Correct answer)
Negative amortization loans

Correct answer: Qualified Mortgage (QM)

Qualified Mortgages receive a safe harbor or rebuttable presumption of compliance with the ATR rule under CFPB regulations.

Question 58: RESPA's affiliated business arrangement (AfBA) disclosure must be provided:

At the time of referral to an affiliated service provider (Correct answer)
Within three days of application
When the appraisal is ordered
At closing only

Correct answer: At the time of referral to an affiliated service provider

When a settlement service provider refers a consumer to an affiliate, RESPA requires the AfBA disclosure to be given at the time of that referral.

Question 59: An MLO receives a referral fee from a title company for steering clients their way. Under RESPA, this is:

Legal if the fee is disclosed on the Closing Disclosure
Legal if both parties are licensed real estate professionals
Illegal — RESPA prohibits kickbacks for referrals of settlement services (Correct answer)
Legal if the fee does not exceed 1% of the loan amount

Correct answer: Illegal — RESPA prohibits kickbacks for referrals of settlement services

RESPA Section 8 strictly prohibits kickbacks or unearned fees between settlement service providers for referring business.

Question 60: A VA loan is available to eligible veterans and active-duty service members and features which of the following unique benefits?

Available to all U.S. citizens
No down payment requirement and no private mortgage insurance (Correct answer)
Maximum loan limit of $250,000
Fixed interest rates only

Correct answer: No down payment requirement and no private mortgage insurance

VA loans offer eligible military borrowers 100% financing (no down payment) and no PMI, significantly reducing upfront and ongoing costs.

Question 61: Which type of mortgage index is considered the most stable because it is based on a moving average of Treasury yields over a longer period?

SOFR
11th District Cost of Funds Index (COFI) (Correct answer)
Prime Rate
1-Year Constant Maturity Treasury (CMT)

Correct answer: 11th District Cost of Funds Index (COFI)

The COFI is calculated as a weighted average of interest expenses for the 11th Federal Home Loan Bank District and changes slowly, making it the most stable common ARM index.

Question 62: The Fair Credit Reporting Act (FCRA) gives consumers the right to dispute inaccurate information in their credit report, and the credit bureau must investigate within:

15 days
60 days
30 days (Correct answer)
45 days

Correct answer: 30 days

Under FCRA, credit bureaus must investigate consumer disputes within 30 days (extended to 45 days if the consumer provides additional information during that period).

Question 63: What does 'LTV' stand for in mortgage lending?

Lender Title Verification
Loan-to-Value ratio (Correct answer)
Loan Term Value
Long-Term Variable rate

Correct answer: Loan-to-Value ratio

LTV (Loan-to-Value) is the ratio of the loan amount to the appraised value or purchase price of the property, whichever is lower.

Question 64: Which federal law requires lenders to inform applicants of the action taken on their credit application within 30 days?

FCRA
ECOA (Correct answer)
TILA
RESPA

Correct answer: ECOA

ECOA requires creditors to notify applicants of adverse action within 30 days of receiving a completed application, or 30 days after taking the adverse action.

Question 65: Under TILA, what is the 'amount financed'?

The principal balance after the first payment
The total loan amount including all fees
The loan amount minus prepaid finance charges (Correct answer)
The total of all payments over the loan term

Correct answer: The loan amount minus prepaid finance charges

The amount financed equals the loan amount minus any prepaid finance charges, representing the actual dollars the borrower has use of.

Question 66: Which of the following is an example of redlining?

Charging higher rates to borrowers with lower credit scores
Denying a loan because the property appraises below the purchase price
Requiring larger down payments for investment properties
Refusing to lend in certain neighborhoods based on racial composition (Correct answer)

Correct answer: Refusing to lend in certain neighborhoods based on racial composition

Redlining is the illegal practice of refusing to lend or provide services in specific geographic areas based on the racial or ethnic composition of those areas.

Question 67: RESPA applies to federally related mortgage loans, which includes loans:

Only for first-time homebuyers
Secured by a lien on residential real property involving federally insured lenders or federal programs (Correct answer)
Exceeding the conforming loan limit
Only made by federally chartered banks

Correct answer: Secured by a lien on residential real property involving federally insured lenders or federal programs

RESPA covers loans secured by residential real property when made by federally insured lenders, government-sponsored enterprises, or otherwise involving federal connection.

Question 68: What is the difference between a rate-and-term refinance and a cash-out refinance?

Rate-and-term only modifies the rate or term; cash-out provides the borrower with proceeds above the payoff amount (Correct answer)
Rate-and-term changes the lender; cash-out changes the term only
Rate-and-term is for primary residences only; cash-out is for investment properties
Rate-and-term requires PMI; cash-out does not

Correct answer: Rate-and-term only modifies the rate or term; cash-out provides the borrower with proceeds above the payoff amount

A rate-and-term refinance adjusts the interest rate or loan term without increasing the loan balance, while a cash-out refinance results in a new loan exceeding the existing balance with the difference paid to the borrower.

Question 69: A Qualified Mortgage (QM) generally cannot have a DTI ratio exceeding what threshold?

45%
50%
36%
43% (Correct answer)

Correct answer: 43%

Under the general QM definition, the borrower's total DTI ratio cannot exceed 43% at the time of origination.

Question 70: Which of the following is not required to have a unique identifying number in order to act as an MLO under the SAFE Act:

An MLO working under the authority of the DRE
None of the above (Correct answer)
An employee of an insured depository institution
An MLO working under the authority of the DBO

Correct answer: None of the above

The employee of an insured depository institution is registered with the NMLS, not licensed, although all MLOs require a unique identifier number.

Question 71: Which TRID form replaced the HUD-1 Settlement Statement?

Loan Estimate
Closing Disclosure (Correct answer)
Settlement Summary
Final Truth-in-Lending

Correct answer: Closing Disclosure

The Closing Disclosure replaced the HUD-1 Settlement Statement and the final Truth-in-Lending disclosure under the TRID rule effective October 2015.

Question 72: Which party is responsible for ensuring the Closing Disclosure is delivered on time under TRID?

The title company only
The creditor (lender) (Correct answer)
The real estate agent
The settlement agent only

Correct answer: The creditor (lender)

The creditor bears ultimate responsibility under TRID for ensuring the Closing Disclosure is provided to the borrower at least three business days before consummation.

Question 73: A residential mortgage loan is any loan that is primarily used for one of the purposes listed below, with the exception of:

Family use
Household use
1-4 owner-occupied use (Correct answer)
Personal use

Correct answer: 1-4 owner-occupied use

Owner occupied properties are not mentioned in the SAFE Act. The SAFE Act defers to TILA, Sec. 103(v), which defines a habitation as a residential building, a mobile home, or individual condominium or cooperative units that house one to four families.

Question 74: A borrower applies for a loan and the lender denies the application. Under the Equal Credit Opportunity Act (ECOA), within how many days must the lender provide an adverse action notice?

15 days
60 days
45 days
30 days (Correct answer)

Correct answer: 30 days

ECOA requires creditors to notify applicants of adverse action within 30 days of receiving a completed application.

Question 75: The TRID rule (TILA-RESPA Integrated Disclosure) combined which two disclosure forms?

HUD-1 and GFE
Loan Estimate and Closing Disclosure (Correct answer)
Truth-in-Lending and HUD-1
Good Faith Estimate and Truth-in-Lending

Correct answer: Loan Estimate and Closing Disclosure

TRID replaced the Good Faith Estimate and early Truth-in-Lending with the Loan Estimate, and replaced the HUD-1 and final Truth-in-Lending with the Closing Disclosure.

Question 76: Under Dodd-Frank's ability-to-repay (ATR) rule, lenders must verify a borrower's ability to repay using:

Projected future income estimates
The borrower's credit score alone
Reasonably verified third-party documentation of income, assets, and debts (Correct answer)
Only the borrower's stated income

Correct answer: Reasonably verified third-party documentation of income, assets, and debts

The ATR rule requires lenders to make a reasonable, good-faith determination using verified documents — not stated or projected income — that the borrower can repay the loan.

Question 77: Which entity maintains the Nationwide Multistate Licensing System (NMLS) used for mortgage licensing?

Consumer Financial Protection Bureau (CFPB)
Department of Housing and Urban Development (HUD)
Conference of State Bank Supervisors (CSBS) (Correct answer)
Federal Reserve Board

Correct answer: Conference of State Bank Supervisors (CSBS)

The NMLS is maintained by the Conference of State Bank Supervisors (CSBS) and is the system through which MLOs apply for and maintain their licenses.

Question 78: A borrower wants to use gift funds for their down payment on a conventional loan. Which of the following is required?

The gift must be repaid within 12 months
A signed gift letter and evidence that the funds were transferred (Correct answer)
No documentation is needed if under $10,000
Only family members may provide gifts for FHA loans

Correct answer: A signed gift letter and evidence that the funds were transferred

Conventional guidelines require a gift letter stating no repayment is expected and documentation showing the transfer of funds.

Question 79: Under TILA's right of rescission, which transaction is NOT eligible for rescission?

Refinance with a new lender on primary residence
Second mortgage on primary residence
Home equity line of credit on primary residence
Purchase money mortgage on primary residence (Correct answer)

Correct answer: Purchase money mortgage on primary residence

The right of rescission under TILA does not apply to purchase money mortgages used to acquire the dwelling that secures the loan.

Question 80: All of the following fees would be exempt from the finance charge, with the exception of:

Appraisal review fees (Correct answer)
Fees for inspections for assess the condition of the property
Credit report fees
Appraisal fee

Correct answer: Appraisal review fees

TILA exempts certain bona fide third-party fees from the finance charge if they are reasonable and customary, such as appraisal fees, credit report fees, and fees for property inspections. An 'appraisal review fee,' however, is often considered a charge related to the creditor's internal assessment of the collateral, rather than a direct third-party service for the borrower, and thus may be included in the finance charge.

Question 81: Which of the following best describes a non-traditional mortgage product, as defined by the SAFE Act:

An open-end mortgage
A mortgage with a term of less than 30 years
Any mortgage other than 30-year fixed (Correct answer)
An adjustable rate mortgage

Correct answer: Any mortgage other than 30-year fixed

According to the SAFE Act, this qualifies as a factual statement.

Question 82: Which tolerance category under TRID allows zero tolerance for increases from the Loan Estimate to the Closing Disclosure?

Prepaid interest
Lender fees and affiliated services (Correct answer)
Recording fees
Required services where borrower may shop

Correct answer: Lender fees and affiliated services

Lender charges and fees for required services where the borrower cannot shop fall in the zero-tolerance bucket, meaning they cannot increase from LE to CD.

Question 83: Under TRID, how many business days before consummation must the Closing Disclosure be received by the borrower?

3 business days (Correct answer)
2 business days
1 business day
5 business days

Correct answer: 3 business days

The Closing Disclosure must be received by the borrower at least three business days before loan consummation.

Question 84: Under RESPA, a 'controlled business arrangement' is now referred to as:

Joint venture agreement
Preferred provider arrangement
Captive reinsurance arrangement
Affiliated business arrangement (Correct answer)

Correct answer: Affiliated business arrangement

RESPA amendments renamed 'controlled business arrangements' to 'affiliated business arrangements' (AfBA), which require specific disclosure when referrals occur.

Question 85: Which of the following situations may result in the estimate of the costs and terms for all settlement services remaining available for longer?

If the Fed hikes the interest rate
If the borrower wants to close quickly
If the MLO extends the period of availability (Correct answer)
If the lender authorizes an extension

Correct answer: If the MLO extends the period of availability

If the Mortgage Loan Officer (MLO) extends the period of availability, the estimate of the costs and terms for all settlement services supplied in the Loan Estimate (LE) form may continue to be available for a longer time.

Question 86: The VA Interest Rate Reduction Refinance Loan (IRRRL) is designed to:

Streamline a refinance of an existing VA loan to a lower rate with minimal documentation (Correct answer)
Purchase a new primary residence for veterans
Allow veterans to take cash out of their home equity
Convert a conventional loan to a VA loan

Correct answer: Streamline a refinance of an existing VA loan to a lower rate with minimal documentation

The VA IRRRL is a streamlined refinance program that allows veterans to refinance an existing VA loan to a lower interest rate with reduced documentation and no appraisal in most cases.

Question 87: Under the Fair Housing Act, which is an example of 'redlining'?

Charging higher rates to riskier borrowers
Offering lower rates to first-time homebuyers
Requiring higher down payments on investment properties
Denying mortgage credit to applicants in minority neighborhoods regardless of creditworthiness (Correct answer)

Correct answer: Denying mortgage credit to applicants in minority neighborhoods regardless of creditworthiness

Redlining is the illegal practice of denying services or increasing requirements in minority or low-income neighborhoods, regardless of individual applicants' qualifications.

Question 88: What is a 'balloon mortgage' and what risk does it pose to borrowers?

A mortgage with no amortization schedule; risk of increasing loan balance
A mortgage for high-value properties; risk of lower LTV
A mortgage with low payments followed by a large lump-sum payment due at maturity; risk of inability to pay or refinance (Correct answer)
A mortgage with a variable rate; risk of rising payments

Correct answer: A mortgage with low payments followed by a large lump-sum payment due at maturity; risk of inability to pay or refinance

A balloon mortgage has smaller monthly payments (often interest-only or based on a 30-year amortization) but requires a large lump-sum payoff at the end of the balloon term, risking default if the borrower cannot pay or refinance.

Question 89: Which of the following statements about a cash-out mortgage is accurate:

It could be a refi that provides the owner with cash.
All of the above (Correct answer)
It could be a junior or senior loan.
It allows borrowers to tap into the equity buildup.

Correct answer: All of the above

A cash-out mortgage accurately encompasses all the provided descriptions. It can be a refinance that provides the owner with cash by taking out a new loan larger than the existing one, allowing them to tap into their accumulated home equity. Furthermore, it can be structured as either a junior (second) or senior (first) lien, depending on the borrower's needs and the property's existing encumbrances.

Question 90: An MLO who accepts a gift valued over $50 from a settlement service provider in exchange for referrals may be violating:

RESPA Section 8 (Correct answer)
FCRA
TILA
Dodd-Frank Section 1403

Correct answer: RESPA Section 8

RESPA Section 8 prohibits giving or receiving anything of value as a referral fee, making referral-based gifts a clear violation regardless of dollar amount.

Question 91: USDA Rural Development loans are designed for borrowers who:

Are purchasing properties in metropolitan areas only
Have credit scores above 740
Are first-time homebuyers with more than 20% down
Meet income limits and are purchasing in eligible rural and suburban areas (Correct answer)

Correct answer: Meet income limits and are purchasing in eligible rural and suburban areas

USDA Rural Development loans target low-to-moderate income borrowers purchasing homes in USDA-eligible rural and suburban areas, offering 100% financing.

Question 92: The new regulation is applicable to all of the following, with the exception of:

Loans made to certain trusts for tax and estate planning purposes
Vacant land
Loans made to a business entity (Correct answer)
Construction loans

Correct answer: Loans made to a business entity

The new regulation expressed in the Loan Estimate (LE) form, which is part of the TILA-RESPA Integrated Disclosure (TRID) rule, applies to a variety of mortgage transactions involving consumer borrowers. However, it generally does not apply to loans made to a business entity. The TRID rule primarily focuses on transactions involving individual consumers and their residential mortgage loans.

Question 93: Which of the following best describes how a home equity loan and a home equity line of credit are different:

The home equity loan is usually a one-time loan for a specific amount of money. (Correct answer)
The HELOC is a closed-end loan.
The HELOC requires approval every time the borrower wants more money.
They each tap the equity in one’s house.

Correct answer: The home equity loan is usually a one-time loan for a specific amount of money.

The fundamental difference lies in their structure: a home equity loan is a closed-end loan, providing a lump sum of money upfront that is repaid over a fixed term. In contrast, a Home Equity Line of Credit (HELOC) is an open-end loan, allowing the borrower to draw funds as needed, repay them, and redraw again up to a credit limit. This makes the home equity loan a one-time disbursement for a specific amount.

Question 94: What distinguishes a 'jumbo loan' from a conforming loan?

Jumbo loans are insured by the FHA
Jumbo loans have lower interest rates
Jumbo loans exceed the conforming loan limits set by FHFA (Correct answer)
Jumbo loans require less documentation

Correct answer: Jumbo loans exceed the conforming loan limits set by FHFA

A jumbo loan exceeds the conforming loan limits established by the FHFA and cannot be purchased by Fannie Mae or Freddie Mac, requiring different underwriting standards.

Question 95: What is the maximum escrow cushion a servicer may hold under RESPA Section 10?

Six months' escrow payment
Three months' escrow payment
Two months' escrow payment (Correct answer)
One month's escrow payment

Correct answer: Two months' escrow payment

RESPA Section 10 limits escrow account cushions to a maximum of two months of escrow payments to protect borrowers from excess withholding.

Question 96: Under the SAFE Act, which of the following is a pre-licensure education requirement for a state-licensed MLO?

10 hours including 3 hours of federal law
20 hours including 3 hours of federal law, 3 hours of ethics, and 2 hours of nontraditional mortgage lending (Correct answer)
25 hours including 5 hours of state law
15 hours with no specific subject requirements

Correct answer: 20 hours including 3 hours of federal law, 3 hours of ethics, and 2 hours of nontraditional mortgage lending

The SAFE Act requires 20 hours of pre-licensure education covering federal law, ethics, nontraditional mortgage products, and electives before an MLO can obtain a state license.

Question 97: Under the Dodd-Frank Act, a 'Qualified Mortgage' (QM) provides lenders with:

The right to charge any fee amount
A presumption of compliance with the ability-to-repay rule (Correct answer)
Exemption from TRID disclosures
Immunity from all lawsuits

Correct answer: A presumption of compliance with the ability-to-repay rule

A QM provides either a safe harbor (for lower-priced QMs) or a rebuttable presumption (for higher-priced QMs) that the lender satisfied the ability-to-repay (ATR) requirement.

Question 98: In underwriting, 'compensating factors' are used to:

Replace the need for an appraisal
Eliminate the requirement for mortgage insurance
Reduce the interest rate on the loan
Justify approval despite one or more risk factors exceeding guidelines (Correct answer)

Correct answer: Justify approval despite one or more risk factors exceeding guidelines

Compensating factors such as substantial reserves, low LTV, or a long stable employment history can support loan approval when a borrower exceeds standard DTI or credit thresholds.

Question 99: Under the SAFE Act, an individual who takes a residential mortgage loan application and offers or negotiates terms is considered a:

Mortgage loan originator (Correct answer)
Loan processor
Real estate agent
Underwriter

Correct answer: Mortgage loan originator

The SAFE Act defines a mortgage loan originator as any individual who takes a residential mortgage loan application or offers or negotiates terms of such a loan.

Question 100: Under TILA, what is the primary purpose of the Annual Percentage Rate (APR) disclosure?

To show the lender's profit margin
To indicate the monthly payment amount
To disclose the loan origination fee only
To provide a standardized measure of the true cost of credit (Correct answer)

Correct answer: To provide a standardized measure of the true cost of credit

APR under TILA provides a standardized cost measure that includes interest and certain fees, allowing borrowers to compare loan offers on equal footing.

Question 101: The Housing and Economic Recovery Act (HERA) of 2008's Title V is most commonly known as:

The SAFE Act (Correct answer)
RESPA
TILA
CRA

Correct answer: The SAFE Act

The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 is its full name.

Question 102: What is the maximum conforming loan limit for a single-family property in most U.S. counties (as set by FHFA)?

$417,000
$548,250
$726,200
$806,500 (Correct answer)

Correct answer: $806,500

As of 2025, the baseline conforming loan limit for a one-unit property in most counties is $806,500.

Question 103: What is 'steering' as defined under the Dodd-Frank Act's loan originator compensation rules?

Directing borrowers to lenders offering the best rates
Recommending specific title companies
Directing borrowers to loan products not in their interest to increase MLO compensation (Correct answer)
Advising borrowers on which credit bureau to use

Correct answer: Directing borrowers to loan products not in their interest to increase MLO compensation

Steering refers to directing consumers toward loan products that are not in their best interest primarily because doing so yields higher compensation for the loan originator.

Question 104: Which federal law prohibits lenders from using race, color, national origin, religion, sex, familial status, or disability as factors in residential real estate transactions?

Community Reinvestment Act (CRA)
Fair Housing Act (FHA) (Correct answer)
Equal Credit Opportunity Act (ECOA)
Truth in Lending Act (TILA)

Correct answer: Fair Housing Act (FHA)

The Fair Housing Act prohibits discrimination in the sale, rental, and financing of housing based on the seven protected classes.

Question 105: What does RESPA require lenders to provide within three business days of receiving a complete loan application?

Appraisal report
Closing Disclosure
Credit report
Loan Estimate (Correct answer)

Correct answer: Loan Estimate

Under RESPA/TRID, lenders must deliver or mail the Loan Estimate within three business days of receiving a completed loan application.

Question 106: Where on the Loan Estimate is the expiration date for the availability of charges and terms?

Page 1 of the Loan Estimate in the Loan Terms section
Page 1 of the Loan Estimate in the Rate Lock section (Correct answer)
Page 3 of the Loan Estimate in the Other Considerations section
Page 2 of the Loan Estimate in the Loan Costs section

Correct answer: Page 1 of the Loan Estimate in the Rate Lock section

It is advised that the student become quite familiar with the new forms, including what is on them, where various things are located, what the various provisions mean, and what their purposes are, in order to prepare well for the test. Consider the advantages for the consumer.

Question 107: Which of the following organizations created and maintains the NMLS online system:

FFIEC
FINRA (Correct answer)
FTC
ABA

Correct answer: FINRA

In the securities business, they run a number of comparable systems under the direction of the Financial business Regulatory Authority.

Question 108: A construction-to-permanent loan differs from a standalone construction loan in that:

It requires a higher credit score than conventional loans
It only covers the construction phase and must be refinanced
It automatically converts to permanent financing upon construction completion without a second closing (Correct answer)
It is only available through the FHA

Correct answer: It automatically converts to permanent financing upon construction completion without a second closing

A construction-to-permanent loan covers the construction phase and then automatically rolls into permanent mortgage financing at completion, saving borrowers from a second closing.

Question 109: RESPA Section 8 prohibits which of the following?

Paying kickbacks or unearned fees for referrals of settlement services (Correct answer)
Charging origination fees
Issuing Loan Estimates
Requiring escrow accounts

Correct answer: Paying kickbacks or unearned fees for referrals of settlement services

RESPA Section 8 specifically prohibits giving or receiving anything of value in exchange for referrals of real estate settlement service business.

Question 110: What does the term 'points' refer to in mortgage lending?

The lender's profit margin built into the interest rate
Credit score increments used to determine rate pricing
The number of months remaining on the loan term
Prepaid interest paid at closing to reduce the interest rate (Correct answer)

Correct answer: Prepaid interest paid at closing to reduce the interest rate

One point equals 1% of the loan amount paid at closing, typically to buy down the interest rate (discount points) or as origination fees.

Question 111: In a purchase transaction, a seller agrees to pay 3% of the purchase price toward the buyer's closing costs. This arrangement is called:

A seller concession
A lender credit
A gift letter contribution
An interested party contribution (Correct answer)

Correct answer: An interested party contribution

When a seller or other interested party contributes toward the buyer's costs, it is formally called an interested party contribution (IPC), subject to agency limits.

Question 112: Under TILA, a borrower has a right of rescission for how many business days on a refinance of their primary residence?

3 business days (Correct answer)
1 business day
2 business days
5 business days

Correct answer: 3 business days

TILA grants borrowers a three-business-day right to rescind a refinance transaction involving their principal dwelling with a new lender.

Question 113: Which of the following methods would allow an appraiser to most successfully inflate the value of the subject property in an appraisal:

Lower the condition of the subject property to fair when it’s really good
Fail to develop the cost approach
Use inappropriate comps (Correct answer)
Minimize adjustments

Correct answer: Use inappropriate comps

An appraiser can most effectively inflate the value of a subject property by using inappropriate comparable sales (comps). By selecting properties that are superior in size, condition, location, or recent sale price, or by manipulating data related to these comps, the appraiser can artificially justify a higher valuation for the subject property. This misleads lenders and buyers about the property's true market value.

Question 114: What does it imply when TILA clauses talk about a creditor giving credit to a consumer?

Corporations that were formed by consumers
People, not a company (Correct answer)
Sole proprietorships and partnerships
Businesses, if not more than a sole proprietorship

Correct answer: People, not a company

The Truth in Lending Act (TILA) is designed to protect individual consumers by ensuring clear disclosures about the cost of credit. Therefore, when TILA refers to a 'consumer,' it specifically means a natural person, not a business entity like a company or corporation. This distinction ensures the protections apply to personal, family, or household credit transactions.

Question 115: The SAFE Act requires mortgage loan originators to be registered or licensed under which system?

CFPB
NMLS (Correct answer)
HMDA
FDIC

Correct answer: NMLS

The SAFE Act established the Nationwide Multistate Licensing System (NMLS) as the centralized registry for MLO licensing and registration.

Question 116: What is lender-paid mortgage insurance (LPMI), and what is its tradeoff?

PMI is paid by the seller at closing; buyer gets lower rate
The lender pays PMI in exchange for a higher interest rate on the loan (Correct answer)
The government pays PMI on FHA loans; no tradeoff
PMI is financed into the loan balance; monthly payments stay the same

Correct answer: The lender pays PMI in exchange for a higher interest rate on the loan

LPMI means the lender covers the mortgage insurance premium but charges a higher interest rate, which cannot be canceled like borrower-paid PMI.

Question 117: How long does it take to pay off a bridge loan?

In the transition between two properties.
When the bridge is completed.
When the second loan is taken out. (Correct answer)
When the first loan is terminated.

Correct answer: When the second loan is taken out.

A bridge loan is a short-term loan designed to provide temporary financing, often used to bridge the gap between selling an old home and buying a new one, or to cover costs until permanent financing is secured. It is typically paid off when the borrower secures their permanent, long-term financing for the new property, which is effectively when the subsequent or 'second' loan is taken out.

Question 118: A 'teaser rate' on an adjustable-rate mortgage refers to:

A rate offered exclusively to first-time homebuyers
An artificially low initial interest rate that adjusts upward after a set period (Correct answer)
A fixed rate that never changes over the life of the loan
A penalty rate charged after the first missed payment

Correct answer: An artificially low initial interest rate that adjusts upward after a set period

A teaser rate is a below-market introductory interest rate on an ARM that resets to a higher rate after the initial fixed period ends.

Question 119: What document is used to verify a borrower's income from wages and is issued by employers annually?

Schedule C
1040 transcript
1099-INT
W-2 (Correct answer)

Correct answer: W-2

The W-2 form, issued by employers, reports wages and withholdings and is used by underwriters to verify a salaried borrower's annual income.

Question 120: Which RESPA section requires lenders to provide an annual escrow account statement to borrowers?

Section 10 (Correct answer)
Section 8
Section 9
Section 6

Correct answer: Section 10

RESPA Section 10 limits the amount lenders may require in escrow accounts and mandates annual escrow account disclosure statements.

Question 121: Which of the following describes the pre-licensing education requirements for MLO candidates the best?

Eight hours of revolving Federal and State-specific topics
Twenty hours to include Federal topics only
Twenty hours to include Federal and State-specific topics (Correct answer)
Eight hours every year

Correct answer: Twenty hours to include Federal and State-specific topics

Before receiving a license, a 20-hour course is a one-time requirement that covers both federal and state-specific issues.

Question 122: All of the following are listed as not requiring an MLO designation under the SAFE Act's definition of administrative and clerical work, with the exception of:

Communication with a consumer to obtain information necessary for the processing and underwriting of a residential mortgage loan
The distribution of information common for the processing or underwriting of a residential mortgage loan
The receipt and collection of information common for the processing or underwriting of a residential mortgage loan
Collecting information on behalf of the consumer with regard to a residential mortgage loan (Correct answer)

Correct answer: Collecting information on behalf of the consumer with regard to a residential mortgage loan

The right response includes gathering customer information from numerous industry sources. An MLO designation is necessary because this falls within MLO activities. The other options entail interacting with the customer to receive, gather, distribute, and communicate information from the customer for the aim of assembling the loan application package. This is administrative in nature.

Question 123: A borrower receives a mortgage with a rate of 6.5% and the APR disclosed is 6.78%. What accounts for the difference?

The APR reflects the margin added to the index
The APR is the rate after discount points are removed
The APR includes taxes and insurance
The APR includes fees and costs of credit spread over the loan term (Correct answer)

Correct answer: The APR includes fees and costs of credit spread over the loan term

APR includes the interest rate plus financing costs such as origination fees and points, expressed as a yearly rate.

Question 124: Under the CAN-SPAM Act, electronic marketing communications from MLOs must include:

A disclosure approved by the CFPB
A clear opt-out mechanism and the sender's physical postal address (Correct answer)
The exact APR for offered products
The borrower's credit score

Correct answer: A clear opt-out mechanism and the sender's physical postal address

CAN-SPAM requires commercial emails to include a functioning opt-out mechanism and a valid physical postal address for the sender.

National Mortgage Loan Originator (NMLS) Test

The National Mortgage Loan Originator (NMLS) Test certifies an individual's competency to originate mortgage loans. It covers federal mortgage-related laws, ethics, loan origination activities, and general mortgage knowledge.

125

Questions

190 min

Time Limit

75%

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