SAFE Origination Activities 3 — Questions and Answers
Question 1: Which federal law requires MLOs to provide the Loan Estimate within 3 business days of receiving a complete loan application?
- RESPA
- TILA
- TRID (combining TILA and RESPA) (Correct answer)
- ECOA
Correct answer: TRID (combining TILA and RESPA)
TRID (the TILA-RESPA Integrated Disclosure rule) requires delivery of the Loan Estimate within 3 business days of application.
Question 2: A borrower is refinancing their primary residence. Under TILA's right of rescission, how long does the borrower have to cancel the transaction after closing?
- 24 hours
- 3 business days (Correct answer)
- 5 business days
- 7 calendar days
Correct answer: 3 business days
TILA grants borrowers a 3-business-day right of rescission for refinances and second mortgages on their primary residence.
Question 3: What is the maximum number of points and fees allowed under the CFPB's Qualified Mortgage (QM) rule for a loan of $100,000 or more?
- 2%
- 3% (Correct answer)
- 4%
- 5%
Correct answer: 3%
Under the CFPB's QM rule, total points and fees cannot exceed 3% of the total loan amount for loans of $100,000 or more.
Question 4: An MLO advises a senior borrower with a paid-off home to take out a cash-out refinance every two years to generate commission income. This practice is called:
- Equity stripping
- Loan flipping (Correct answer)
- Churning
- Predatory steering
Correct answer: Loan flipping
Loan flipping is the repeated refinancing of a loan primarily to generate fees and commissions, with little benefit to the borrower.
Question 5: Which of the following best describes the concept of 'steering' in mortgage lending?
- Directing borrowers to the loan product that best fits their needs
- Directing borrowers to loan products that benefit the MLO at the borrower's expense (Correct answer)
- Helping borrowers choose between fixed and adjustable rates
- Recommending a borrower seek credit counseling
Correct answer: Directing borrowers to loan products that benefit the MLO at the borrower's expense
Steering involves directing borrowers to unsuitable or higher-cost products — particularly products that pay the MLO more — rather than the best product for the borrower.
Question 6: A borrower receives a Loan Estimate showing a 6% interest rate. At closing, the lender wants to charge 6.5%. Under TRID, which category does interest rate fall into regarding tolerance?
- Zero tolerance — cannot increase (Correct answer)
- 10% tolerance — can increase by 10%
- Unlimited tolerance — can change freely
- 5% tolerance — can increase by 5%
Correct answer: Zero tolerance — cannot increase
Under TRID, the interest rate disclosed on the Loan Estimate is a zero-tolerance item and cannot increase at closing unless a valid changed circumstance exists.
Question 7: What is the primary purpose of the NMLS (Nationwide Multistate Licensing System)?
- To set interest rate caps for mortgage loans
- To provide a uniform licensing and registration system for MLOs across states (Correct answer)
- To approve or deny individual mortgage applications
- To regulate appraisal standards nationally
Correct answer: To provide a uniform licensing and registration system for MLOs across states
The NMLS was created under the S.A.F.E. Act to provide a single, centralized system for licensing and registering mortgage loan originators across states.
SAFE Origination Activities 3
Which federal law requires MLOs to provide the Loan Estimate within 3 business days of receiving a complete loan application?