Mortgage Loan Originator Assessment 3 — Questions and Answers
Question 1: Under ECOA, within how many days must a lender provide an adverse action notice after denying a credit application?
- 30 days (Correct answer)
- 60 days
- 15 days
- 45 days
Correct answer: 30 days
ECOA requires creditors to notify applicants of adverse action within 30 days of receiving a completed application.
Question 2: A loan officer steers a borrower who qualifies for a conventional loan into a higher-cost subprime product to earn a larger commission. This is an example of:
- Predatory lending (Correct answer)
- Yield spread premium abuse
- Redlining
- Churning
Correct answer: Predatory lending
Predatory lending involves placing borrowers in unsuitable loan products for the financial gain of the lender or originator.
Question 3: Which document provides the final, binding figures for a mortgage closing, including actual closing costs?
- Loan Estimate
- Closing Disclosure (Correct answer)
- HUD-1 Settlement Statement
- Truth-in-Lending Statement
Correct answer: Closing Disclosure
The Closing Disclosure replaced the HUD-1 under TRID and must be provided at least three business days before closing.
Question 4: Which of the following is NOT considered a prohibited basis for discrimination under the Fair Housing Act?
- Race
- National origin
- Occupation (Correct answer)
- Familial status
Correct answer: Occupation
Occupation is not a protected class under the Fair Housing Act; the seven protected classes include race, color, national origin, religion, sex, familial status, and disability.
Question 5: 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:
- A warning letter only
- Civil and criminal penalties (Correct answer)
- Automatic license reinstatement
- Temporary license extension by NMLS
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 6: When calculating qualifying income for a self-employed borrower using tax returns, which income figure is typically used?
- Gross receipts
- Net profit after adding back depreciation and depletion (Correct answer)
- W-2 wages reported
- Total business revenue
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 7: A borrower wants to use gift funds for their down payment on a conventional loan. Which of the following is required?
- A signed gift letter and evidence that the funds were transferred (Correct answer)
- The gift must be repaid within 12 months
- Only family members may provide gifts for FHA loans
- No documentation is needed if under $10,000
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.
Mortgage Loan Originator Assessment 3
Under ECOA, within how many days must a lender provide an adverse action notice after denying a credit application?