Mortgage Loan Originator MLO 5 — Questions and Answers
Question 1: Under the FHA loan program, the maximum seller concession (seller-paid closing costs) is limited to what percentage of the lesser of the appraised value or sales price?
- 6% (Correct answer)
- 3%
- 4%
- 9%
Correct answer: 6%
FHA allows sellers to contribute up to 6% of the lesser of the appraised value or sales price toward the buyer's closing costs and prepaid items.
Question 2: An MLO discovers mid-process that a borrower has misrepresented their employment on the application. What is the MLO's proper course of action?
- Report the discrepancy to the underwriter and document it in the file; do not assist in covering it up (Correct answer)
- Complete the transaction since the misrepresentation was minor
- Advise the borrower to correct only the items the underwriter specifically asks about
- Ignore it if the borrower still qualifies under the corrected information
Correct answer: Report the discrepancy to the underwriter and document it in the file; do not assist in covering it up
MLOs have a duty to report material misrepresentations to underwriting regardless of whether the borrower still qualifies; covering up fraud exposes the MLO to criminal liability.
Question 3: The Loan Estimate (LE) must be delivered or placed in the mail to the borrower no later than how many business days after receipt of a complete application under TRID?
- 3 business days (Correct answer)
- 5 business days
- 7 business days
- 10 business days
Correct answer: 3 business days
Under TRID (TILA-RESPA Integrated Disclosure), lenders must deliver or place the Loan Estimate in the mail within 3 business days of receiving a complete application.
Question 4: Which of the following is considered a 'trigger term' under TILA that requires full disclosure of other credit terms in an advertisement?
- The amount of any down payment (Correct answer)
- The phrase 'low monthly payments'
- A statement that financing is available
- The name of the lender
Correct answer: The amount of any down payment
Under TILA, advertising a specific down payment amount is a trigger term that requires disclosure of the APR, loan term, total of payments, and other specific credit terms.
Question 5: A borrower defaults on a mortgage and the lender sells the collateral at foreclosure for less than the outstanding loan balance. If the lender pursues the borrower for the remaining balance, this is known as:
- A deficiency judgment (Correct answer)
- A short sale
- A deed in lieu of foreclosure
- A lien subordination
Correct answer: A deficiency judgment
A deficiency judgment is a court order requiring the borrower to pay the lender the difference between the foreclosure sale proceeds and the remaining loan balance.
Question 6: Under Fannie Mae guidelines, what is the standard maximum DTI ratio allowed for manually underwritten conventional loans?
- 36% with up to 45% permitted with compensating factors (Correct answer)
- 50% regardless of compensating factors
- 28% front-end and 43% back-end
- 55% if the borrower has excellent credit
Correct answer: 36% with up to 45% permitted with compensating factors
Fannie Mae's standard DTI limit for manually underwritten loans is 36%, with exceptions up to 45% when borrowers have strong compensating factors such as significant reserves or high credit scores.
Question 7: Which of the following scenarios would constitute illegal redlining under the Fair Housing Act?
- A lender systematically refusing to make loans in minority-concentrated neighborhoods regardless of borrower creditworthiness (Correct answer)
- A lender offering lower rates to borrowers with credit scores above 740
- A lender requiring a higher down payment for investment properties than primary residences
- A lender charging higher fees for jumbo loans than conforming loans
Correct answer: A lender systematically refusing to make loans in minority-concentrated neighborhoods regardless of borrower creditworthiness
Redlining is the illegal practice of denying credit or services to residents of certain areas based on the racial or ethnic composition of those neighborhoods, violating the Fair Housing Act.
Mortgage Loan Originator MLO 5
Under the FHA loan program, the maximum seller concession (seller-paid closing costs) is limited to what percentage of the lesser of the appraised value or sales price?