SAFE - Certified Secure and Fair Enforcement Mortgage Loan Originator Loan Origination Activities Questions and Answers 1 — Questions and Answers
Question 1: An MLO is working with a borrower on a refinance. During the application process, the borrower asks if they can waive the three-day right to rescind after closing because they need the funds immediately to pay for a medical emergency. What is the MLO's proper course of action?
- Advise the borrower that the right to rescind cannot be waived under any circumstances.
- Inform the borrower they can waive the right by providing a written statement detailing the bona fide personal financial emergency. (Correct answer)
- Tell the borrower to sign a pre-printed waiver form at closing.
- Instruct the borrower that only the lender, not the borrower, can initiate a waiver of the rescission period.
Correct answer: Inform the borrower they can waive the right by providing a written statement detailing the bona fide personal financial emergency.
Under the Truth in Lending Act (TILA), the right to rescind on a primary residence refinance can be waived if the borrower has a bona fide personal financial emergency. The borrower must provide a dated written statement that describes the emergency and specifically waives the right to rescind. Pre-printed forms are not permitted for this purpose.
Question 2: According to the SAFE Act, which of the following activities is NOT considered part of 'taking a residential mortgage loan application'?
- Receiving the borrower's information in any form, electronic or written, for the purpose of deciding on a loan.
- Assisting a borrower in completing an application form.
- Inputting borrower information into an online application or database.
- Responding to a consumer's general question about interest rates without collecting any borrower-specific information. (Correct answer)
Correct answer: Responding to a consumer's general question about interest rates without collecting any borrower-specific information.
The SAFE Act defines 'taking an application' broadly to include receiving information to be used in a credit decision. However, simply responding to a consumer's request for information with a general quote or information, without collecting details for the purpose of extending credit, does not constitute taking an application.
Question 3: A loan originator is pre-qualifying a self-employed borrower who has been in business for 18 months. The borrower's income has been increasing steadily. Which of the following is the most appropriate action for the MLO to take when analyzing the borrower's income?
- Use the most recent month's income and project it for the next 12 months.
- Average the income over the 18 months the business has been operating. (Correct answer)
- Use the income from the most recent tax return only.
- Decline the application immediately as the borrower does not have a two-year history of self-employment.
Correct answer: Average the income over the 18 months the business has been operating.
For self-employed borrowers with less than a two-year history, underwriting guidelines typically require the MLO to average the income over the period of self-employment (in this case, 18 months) to accurately assess the borrower's ability to repay. While a two-year history is standard, less than two years can be acceptable if other compensating factors exist and the income is stable or increasing.
Question 4: During the loan origination process, a mortgage loan originator is responsible for all the following activities EXCEPT:
- Providing the borrower with a Loan Estimate within three business days of application.
- Ensuring the borrower's application is complete and accurate.
- Making the final credit decision to approve or deny the loan. (Correct answer)
- Assisting the borrower in selecting an appropriate loan product.
Correct answer: Making the final credit decision to approve or deny the loan.
While a mortgage loan originator (MLO) collects and analyzes a borrower's financial information to pre-qualify them and helps them through the application process, the final decision to approve or deny the loan is made by the lender's underwriter. The MLO's role is to originate the loan, not to underwrite or approve it.
Question 5: A prospective borrower calls an MLO to inquire about a mortgage. The MLO gathers the borrower's name, Social Security Number, gross monthly income, the property address, an estimate of the property's value, and the desired loan amount. At this point, what is the MLO required to do?
- Order a full property appraisal.
- Provide a Closing Disclosure.
- Issue a pre-approval letter.
- Provide a Loan Estimate within three business days. (Correct answer)
Correct answer: Provide a Loan Estimate within three business days.
Once an MLO has received the six key pieces of information that constitute a loan application under the TILA-RESPA Integrated Disclosure (TRID) rule (Name, SSN, Income, Property Address, Estimated Value, Loan Amount), they are required to provide the borrower with a Loan Estimate within three business days.
Question 6: Which of the following best describes a loan originator's responsibility regarding the analysis of a borrower's credit report?
- To ignore any disputes on the credit report as they are not relevant to the credit decision.
- To obtain a letter of explanation from the borrower for any significant derogatory credit items.
- To make the final determination of the borrower's creditworthiness based solely on the credit score. (Correct answer)
- To independently verify every single tradeline listed on the credit report with the original creditor.
Correct answer: To make the final determination of the borrower's creditworthiness based solely on the credit score.
A key part of a loan originator's due diligence is to analyze the borrower's credit report for red flags. This includes identifying and obtaining written explanations for significant derogatory items, such as late payments, collections, or judgments, to understand the circumstances and assess the borrower's overall credit risk. The credit score is just one component of the overall credit profile.
SAFE - Certified Secure and Fair Enforcement Mortgage Loan Originator Loan Origination Activities Questions and Answers 1
An MLO is working with a borrower on a refinance.
During the application process, the borrower asks if they can waive the three-day right to rescind after closing because they need the funds immediately to pay for a medical emergency.
What is the MLO's proper course of action?