MLO Test Study Guide

What can you tell a borrower about a 7/1 ARM?

A 7/1 ARM allows for a fixed rate for 7 years and then an adjustable rate after that 7-year term.

Quincey is looking to do home improvements on his home, he does not particularly want to refinance his current mortgage and take cash out and he would like some flexibility on how much cash he gets. What is a good option for Quincey?

A HELOC or Home Equity Line of Credit is a loan that uses the equity in your home to borrow money and pay it back as you see fit and only pay interest on the amount you have drawn each month.

If an underwriter needs to verify a borrower's down payment, what might they request the processor order?

A VOD is a Verification of Deposit. It is used to verify if X amount of money is in a borrower's bank account.

Which of the following may engage in residential mortgage loan origination activities as a loan processor or underwriter without a state issued loan originator license?

An independent contractor underwriter or processor is required to be licensed, if they work for a lender or another licensee, they are exempt.

How much money is required for fire insurance on a refinance at settlement?

At closing the lender can require the borrower to pay the full amount of their fire insurance.

If a Mortgage Loan Originator (MLO) cannot close a loan, he/she can refer the loan to another MLO who can close the loan. Can the referring MLO receive a referral fee?

RESPA Section 8 prohibits kickbacks and referral fees. In this situation, the MLO cannot get paid because this is a referral.

RESPA applies to all:

RESPA does not cover vacant land, large Tracts of Land (25 acres or more - even if there is a dwelling on it), commercial or business loans, the government, its agencies or instrumentalities and temporary financing (bridge loans or swing loans).

A Mortgage Servicing Disclosure Statement is required by what law?

RESPA requires the Mortgage Servicing Disclosure Statement.

If two people are married, how do they likely hold title?

Tenancy by the Entirety is a form of co-ownership that involves only owners who are husband and wife, with each having an equal and undivided share of the property. This form of ownership includes the right to survivorship with the property automatically going to the surviving spouse.

If the borrowers wanted to be sure that the interest rate available at the time of their application would be the same when they closed on their home purchase, they should:

A borrower can lock or float their interest rate. Locking their rate makes it so the interest rate cannot go up while the loan is going through the underwriter process. If the borrower floats the rate it can fluctuate until the loan is locked or it closes.

Approval of a reverse mortgage application will be largely based on which of the following?

A reverse mortgage enables older homeowners to convert the equity they have in their homes into cash, using a variety of payment options to address their specific financial needs.

An MLO advertises a low interest rate for qualified applicants. A prospective borrower meeting the qualifications applies. The MLO moves the borrower into another loan which makes more profit to the lender. This is an example of:

Bait and switch occurs when a licensee advertising specific rates and terms to get a borrower in the door and then puts them in an entirely different product than they advertised. This is prohibited conduct.

Under RESPA what is the dollar fine that can be imposed for each instance of a referral fee kickback or unearned fee?

If someone violates Section 8 of RESPA, they are looking at a fine of up to $10,000, up to 1 year in prison or both. They also may be required to make payment to damaged parties up to 3 times the original fee that violated the section and if more than one individual is involved, then all parties are liable to the damaged borrower both jointly and separately.

If the APR on a fixed rate loan increases from the initially disclosed rate by more than what, an additional waiting period is triggered before the loan can close?

If the APR goes up by more than 1/8th of a percent (.125) there is a new waiting period triggered per TRID.

The right of rescission provided under Regulation Z is the right to:

If a borrower uses their right to rescind, the transaction is cancelled. The creditor is required to return any money or property or take any action that shows the transaction was canceled within twenty (20) calendar days after the borrower remits a rescission notice.

Relevant financial information about an applicant who applies for an FHA or conventional residential mortgage is entered on:

The 1003 is the loan application, all pertinent information about the loan and the borrower goes on the 1003.

Under Regulation Z which of the following advertisements would require full disclosure of the rate term payment and balance?

Per TILA, if the rate is present in the advertisement, the APR must be disclosed. One way to remember is if an MLO lists any number in their advertisement, it will most likely "trigger" the requirement to disclose the APR. A trigger term is a phrase that represents the attractive features of the credit plan within the advertisement.

Trevor is looking to obtain an ARM loan, his MLO is required to disclose what within 3 days of application?

Per TILA, the Consumer Handbook on Adjustable Rate Mortgages must be disclosed within 3 business days of a application on all ARM transactions.

Holly is purchasing her very first home, what disclosure must the MLO ensure goes out within three days of application?

Per TRID, the Home Loan Toolkit must be disclosed on all purchased within 3 business days of application.

A lender who preys upon minority, elderly or recent immigrant borrowers in order to take their home's equity is engaging in:

Predatory lending is unscrupulous actions carried out by a lender to entice, induce or assist a borrower in taking a mortgage that carries high fees, a high-interest rate, strips the borrower of equity, or places the borrower in a lower credit-rated loan to the benefit of the lender.

Allison is being relocated for work and wants to purchase a new home in the area she's moving to, but she still owns her current home and cannot afford to buy a new home while she still owns her old home, what is a good option for Allison?

A bridge loan in temporary financing against the equity of the borrower's present home to make a downpayment on a new home or to start building a home.

Which of the following is NOT a finance charge in a residential mortgage loan?

A finance charge is a cost of credit. A good way to think about it is, would the borrower potentially pay this fee if they were paying cash for this home? If the answer is yes, then it's likely not a finance charge. In this situation - if the borrower is paying cash for the home, they will likely still have to pay for an appraisal, so an appraisal fee is not a finance charge. The other fees are all costs of obtaining a loan.

If original loan amounts, ending maturity dates and interest rates are the same for two loans. The first loan is an interest-only loan and the other loan is fully amortized. Knowing that, which of the following is true?

A fully amortizing loan will always have a higher payment than an interest-only loan because on the fully amortizing loan the borrower is paying towards principal and interest while on the interest-only loan the borrower is only paying the interest.

MLOs are required to be covered by a:

A surety bond is like malpractice insurance; it protects the consumers from any wrongdoing by a licensee. MLOs are generally covered by their sponsoring entities' surety bonds.

A mortgage company telemarketer has been accused of inappropriately calling two consumers on the National Do Not Call Registry. What is the maximum fine the company could face for this violation?

A telemarketer, which includes a mortgage loan originator calling leads, who disregards the National Do Not Call Registry, could be fined up to $43,280 for each call.

A fee charged to the borrower by lenders to cover such costs as preparation of documents and other services provided by the primary lender and computed as a percentage of the loan is known as:

An origination charge or fee is the fee paid to compensate the lender for originating the loan and covers the costs that the lender has in originating the loan.

When a self-employed borrower is a 25% owner of his business, which of the following documents is required?

Any borrower is going to have to provide 2 years of tax returns, that includes self-employed borrowers. The underwriter might also require 2 years of the business tax returns.

After the crisis of the Great Recession according to VA underwriting when can a borrower repurchase again after a Chapter 7 bankruptcy?

Borrowers who wish to obtain VA financing have to wait 2 years from any Chapter 7 bankruptcy.

After the crisis of the Great Recession according to FHA Standard underwriting when can a borrower repurchase again after a Chapter 13 bankruptcy?

Borrowers with a Chapter 13 bankruptcy only have to wait 1 year from the discharge date to apply for FHA financing.

Andrea is receiving two payments of child support for her two children, they are 14 and 12. For that income to be used as income, the child support must continue for:

Child support income must be believed to continue for 3 years or more to be used as income. In this situation, Andrea will be able to use her child support as income because most child support stops at age 18 and her children won't be 18 for over 3 years.

Which of the following is the best comparable to use for a loan?

Comparables must be within one (1) mile of the subject property and have been sold in the past six (6) months.

After the crisis of the Great Recession according to Conventional underwriting when can a borrower repurchase again after a foreclosure?

Conventional underwriting is 7 years for foreclosure while FHA is 3 years.

Discount points would only be used if the interest rate offered to the borrower were which of the following?

Discount points are used to buydown the rate. If the borrower is receiving par rate the lender might offer discount points as an option to lower the borrower's interest rate.

ECOA requires the appraisal be given to borrowers:

ECOA requires that lenders provide an applicant a copy of all appraisals and other written valuations that were developed in connection with the application, promptly upon completion or at least three (3) business days before the consummation of the transaction, whichever is earlier.

What does the acronym ECOA stand for?

ECOA stands for Equal Credit Opportunity Act.

Surrender of an MLO license does not affect the MLO's:

Even if a licensee surrender's their license they are still civilly and criminally liable for their actions during the time they were licensed.

According to the Fair Credit Reporting Act if adverse action is taken against a prospective borrower because of information on a credit report, the lender who used that report is required to:

FCRA requires an adverse action disclosure be provided to the borrower if their credit is the reasoning for all or part of the decision to deny the loan application. The disclosure must include what credit reporting agency provided the credit information, disclose that the credit reporting agency is not responsible for the denial of the loan, disclose that the credit reporting agency will provide a free copy of the exact report used (you as an MLO cannot do this as you are not a credit reporting agency - MLOs can tell their borrower their scores), and this disclosure must be given within 30 days of a credit decision (remember - according to ECOA, a decision must be made on an application within 30 days of application).

What does FCRA stand for?

FCRA stands for The Fair Credit Reporting Act.

After the crisis of the Great Recession according to FHA underwriting when can a borrower repurchase again after a foreclosure?

FHA allows for a borrower to obtain an FHA mortgage 3 years after a foreclosure. Conventional underwriting is 7 years.

After the crisis of the Great Recession according to FHA underwriting when can a borrower repurchase again after a short sale?

FHA's three-year waiting period starts from: The date of the short sale, OR. If the prior mortgage was also an FHA-insured loan, from the date that FHA paid the claim on the short sale.

The most commonly used conventional underwriter guidelines are established by:

Fannie Mae and Freddie Mac are the government sponsored entities that buy almost all conventional loans. To that end, they set the guidelines and lenders follow them.

The borrower uses his home's equity for a mortgage loan for business purposes. The borrower will use $80,000 to buy restaurant equipment. This loan will be:

Generally, RESPA does not cover commercial or business loans but because the collateral in this situation is a home then it would be covered by RESPA.

Lenders submit Loan/Application Registers in order to comply with what law?

HMDA require the Loan Application Registers (LARS). The HMDA report is due to the respective regulating body by March 1st of every calendar year. The Financial Institution or lender must retain its full (unmodified) HMDA-LAR for at least three (3) years for examination purposes.

HMDA requires lenders to request what information from applicants in a face to face interview for home mortgage loans?

HMDA requires that financial institutions collect and report specific data. The data is collected and analyzed to prevent and detect discriminatory lending practices and to determine whether a financial institution is lending fairly in all areas they serve. The information includes race, ethnicity and sex.

What does the acronym HMDA stand for?

HMDA stands for Home Mortgage Disclosure Act.

HOEPA is an addendum of:

HOEPA (Homeownership and Equity Protection Act) is Section 32 of TILA (Truth in Lending Act, Regulation Z).

What is HOEPA also known as?

HOEPA (Homeownership and Equity Protection Act) is Section 32 of TILA (Truth in Lending Act, Regulation Z).

What are the terms of the "cooling off" period if a loan falls under HOEPA?

HOEPA includes a three-day "cooling off" period between the time the borrowers are furnished with disclosures and the time that they are obligated under the terms of the loan.

Josh, an MLO, is working with Javier. Josh knows that HOEPA requires a specific disclosure on all federally related transactions, what is not true about that disclosure?

HOEPA requires that all federally-related loan applicants receive a list of housing counselors. The list of housing counselors must be sent three (3) business days after receiving the application.

Which of the following situations is not a red flag that illegal flipping may be taking place?

Illegal property flipping occurs when the property is purchased and resold quickly at an artificially inflated price by utilizing fraudulently inflated appraisals. Illegal property flips typically have not been improved or renovated since the purchase and are quickly resold at a much higher price. Sometimes the property is only owned for twenty-four (24) hours before it is resold.

What is the guideline regarding length of history for a second job to be included as qualifying income?

Income can only be used if there is a two-year history of it, if a borrower has a second job that income can only be used if they've worked that job for 2 or more years.

An MLO is working on disclosing a borrower's Loan Estimate, which of the following is true:

Lenders are not allowed to impose any fee to the borrower for a mortgage transaction until the borrower has received the LE, and they have indicated an intent to proceed with the transaction. The only exception to the rule is for a bona-fide and reasonable fee for obtaining a consumer's credit report.

Out of the following who does need to be licensed in the mortgage industry?

MLOs are required to be licensed. An MLO is an individual who takes a loan application or offers or negotiates the terms of a residential mortgage loan.

Which of the following would be considered a red flag in an owner-occupied refinance loan?

Most borrowers are not going to buy a new home in the same neighborhood as their current home. This could be a red flag for occupancy fraud - they're trying to purchase the home as primary residence when it'll actually be an investment property. This could also be a red flag of a buy and bail scheme.

Is a referral fee ever allowed?

No. Section 8 of RESPA prohibits referral fees.

An applicant who has had a loan originator license revoked previously is eligible for a license as long as:

Once you've had a license revoked in another state, there is no getting licensed again anywhere in the United States.

An affiliated business arrangement must be given if there is what percent of an ownership interest?

RESPA says an AfBA exists if a person who may refer business to a settlement service for a federally related mortgage loan and has either an affiliate relationship with or a direct beneficial ownership interest of more than 1 percent in the provider of the settlement service and the person directly or indirectly refers business to that provider or influences the selection of that provider.

Regulation Z applies to all:

Reg. Z does not apply to loans made for business, commercial, or agriculture purposes and only applies to 1-4-unit properties.

Regulation X is also known as what law?

Regulation X is also known as RESPA.

S.A.F.E. Act is the acronym for:

SAFE stands for Secure and Fair Enforcement for Mortgage Licensing Act.

Section 32 which covers high cost loans is part of which federal law?

Section 32 is the Homeownership and Equity Protection Act (HOEPA) and is under TILA.

Where, in the TILA, is the explanation for higher-priced loans located?

Section 35 of TILA deals with higher-priced mortgage loans.

Which is considered an illegal referral fee?

Section 8 of RESPA prohibits referral fees. A lead generating company receiving a higher fee because the leads loan closed would be paying them for the referral so it would be illegal.

Which of the following fraud situations does not involve a straw buyer?

Straw buyers are individuals used by fraudsters to obtain mortgages. The straw buyer's personal information is used to obtain a mortgage loan fraudulently. The fraudster compensates the straw buyer for the use of their information.

An alternative documentation loan is a type of:

Subprime or Alt-A loans are loans designed for borrowers with less than perfect qualifications. Subprime loans generally lack verification and are marketed as alternative documentation, or no documentation required.

According to RESPA, when must an Affiliated Business Arrangement (AfBA) disclosure be provided?

The AfBA disclosure must be delivered to the borrower at the time of the referral. An example of an AfBA is a mortgage lender's CEO has an ownership interest in a title insurance company, if the mortgage lender's MLOs want to refer their borrowers to use that title insurance company then the relationship must be disclosed between the CEO of the mortgage lender and the title insurance company at the time the MLO refers them.

Regulation B is also known as:

The Equal Credit Opportunity Act or ECOA is implemented by Regulation B.

One purpose of the Fair and Accurate Credit Transaction Act (FACTA) is to prevent:

The Fair and Accurate Credit Transaction Act or FACTA is an amendment to FCRA and adds provisions to improve the accuracy of consumers' credit-related records. This law specifically aims to prevent identity theft through allowing a consumer access to their credit information.

How many days prior to consummation or closing is the final Loan Estimate required to be provided to the borrower?

The Final LE must be received no later than four (4) business days before closing.

HMDA is implemented as what Regulation?

The Home Mortgage Disclosures Act or HMDA is implemented by Regulation C.

A loan's APR must be disclosed to the consumer on the:

The Loan Estimate includes the borrower's APR on the last page.

The purpose of a Market Conditions Addendum is to:

The Market Conditions Addendum (Form 1004MC) is designed to enhance the transparency of the market trends and conditions conclusions made by the appraiser.

In lieu of your social security number, what number assigned by the NMLS will the state use to identify you as an MLO?

The NMLS assigns each MLO a unique identifier, the unique identifier is like the MLO's social security number it is unique to them and no one else will ever have that number. It is an easy way to identify the individual MLO.

In order to meet the pre-licensing education requirement, a person shall complete at least 20 hours of approved education. Which of the following is NOT included in the minimum educational requirements?

The SAFE Act requires 20 hours of pre-licensing education including 3 hours of federal law, 3 hours on ethics and 2 hours on nontraditional mortgage products. The remaining hours are elective hours.

Which of the following statements best describes Form 1008?

The Uniform Underwriting and Transmittal Summary Form 1008 summarizes key data from the loan application package. Lenders use this information in reaching the underwriting decision. Form 1008 (or a similar document) must be retained in the mortgage file for manually underwritten mortgage loans. Lenders may, but are not required to, retain Form 1008 for loans underwritten with DU.

All fees on the Loan Estimate fall into three (3) categories, these are?

There are three fee tolerance, zero, 10% cumulative and no-tolerance.

A loan officer creates a marketing plan to make between 2k and 4k per loan. His cousin calls, he agrees to do the 300k loan for .75% commission. This is:

This situation is legal and ethical. He is working within his normal marketing plan.

Land is given as a separate value in which of the following appraisal methods?

The cost approach is a way to discover the value by determining the value of the land plus how much it would cost to build this house again.

The FACTA allows a consumer to dispute inaccurate credit information. How many days are allowed for an incorrect item to be investigated?

The dispute must be resolved within thirty (30) days after the dispute was received.

On Form 1003 Section X: Information for Government Monitoring Purposes is used in order to comply with which federal law?

The final section of the 1003 is the information for government monitoring purposes. This section includes a statement that the borrower should read, and requests that the borrower furnish information regarding their ethnicity, race, and sex. MLOs obtain this information to ensure they comply with the Home Mortgage Disclosure Act (HMDA, Regulation C). If the borrower does not volunteer the information, you have to do the best you can to determine the information.

On an interest-only loan of $216,000, 30 years, at 7.25% interest, how much interest would be paid in nine months?

The first step is finding the yearly interest paid on the loan. To determine that take $216,000 x 7.25% =$15,660 paid in a year. Divide that by 12 to determine monthly interest only payment, $1,305. Multiple $1,305 by 9 = $11,745.

The estimate of closing costs on the mortgage loan disclosed on the Loan Estimate are good for:

The initial Loan Estimate expires 10 business days from the date the creditor provided the LE to the consumer if the consumer does not expressly provide their Intent to Proceed.

As the lender looks over the borrower's loan application and is deciding whether or not to make the loan, the lender may consider the:

The lender can only take into consideration the borrower's financial situation and qualifications when making a loan decision.

Which of the following is NOT a minimum standard for licensing as a state-licensed loan originator?

The licensing process does include a review of the applicant's credit report but it does not include a review of the applicant's credit scores.

The NMLS will not charge fees for which of the following?

The primary fees charged by the NMLS are a processing fee, the state required renewal or application fee, and a fee for criminal background checks and credit reports.

In the testing of loan originators, you must take a qualified test that measures knowledge and comprehension in which areas?

The qualified written exam includes federal and state law and regulation, instruction on fraud, consumer protection, the nontraditional mortgage marketplace, fair lending and general mortgage industry knowledge.

Which of the following is true about asking a borrower questions about divorce?

There are situations where a divorce affects the title of a property or the continuance of types of income (assuming the borrower wants to use and discloses that income on their own), if there is a reason that the divorce is pertinent to the transaction then questions are acceptable.

A borrower is looking to obtain conventional financing for a refinance, the appraisal comes in lower than expected and the borrower no longer qualifies for conventional financing. They want to go ahead and proceed with FHA financing; the lender would have to what:

This situation would be an acceptable changed circumstance because information specific to the transaction that the lender relied upon when providing disclosure is inaccurate or changed after the disclosures were provided. The lender would have to re-disclose the Loan Estimate within 3 days of the changed circumstance.

An MLO referred his pre-approved borrower to a real estate company that both he and his partner own. According to RESPA the MLO must:

This would be considered an AfBA and must be disclosed per RESPA at the time of referral.

The borrowers are purchasing a house with a sales price of $300,000 they put 30% as a down payment. If they paid $3,150 in points, how many points does that represent?

To determine discount points we first need to discover the loan amount, 30% of $300,000 is $90,000. $300,000 - $90,000 gives us a loan amount of $210,000. Discount points are generally 1% of the loan amount. 1% of $210,000 is $2,100 would get us 1 point. If the borrower paid $3,150, they paid for 1.5 points.

In qualifying the income of a sole proprietor borrower, the originator should consider which of the following to be most important?

Usually when determining sole proprietor income, you're going to use the net income to add things back in like depletion and depreciation and subtract meals and entertainment.

A lender has how many business days to notify the borrower of an underwriting decision?

Under ECOA, it is the lender's responsibility to notify an applicant of any action taken on the applicant's request for credit, whether favorable or adverse, within thirty (30) days of receiving the completed application.

When is a Notice of Adverse action required when the borrower applies for a loan?

Under ECOA, it is the lender's responsibility to notify an applicant of any action taken on the applicant's request for credit, whether favorable or adverse, within thirty (30) days of receiving the completed application. FCRA requires an adverse action disclosure be provided to the borrower if their credit is the reasoning for all or part of the decision to deny the loan application. This disclosure must be given within 30 days of a credit decision.

The adverse action notice must be in writing and contain the specific reasons for why the action was taken or:

Under ECOA, the adverse action notice must either disclose the reasons for the denial or allow the borrower 60 days to request that information.

Which of the following is not true about HOEPA?

Under HOEPA, late fees cannot exceed 4% of the past due payment and it prohibits the pyramiding of late fees.

When a trust deed (or deed of trust) is recorded, which of the following is true?

Voluntary liens are placed against property with the consent of the owner. A mortgage or deed of trust is a written instrument that uses a specific real property to secure payment of a debt. When the trust deed or mortgage is recorded it creates the lien.

If a lender transfers the servicing of a mortgage, it must inform the borrower at least how many days in advance of the effective date of transfer?

When a mortgage loan is assigned, sold or transferred, the former servicer must provide a disclosure at least fifteen (15) days before the effective date of the transfer. This letter is referred to as the Goodbye Letter.

When a lender learns that a property is in a flood zone, the lender must do which of the following?

When a property is in a flood zone, most lenders are going to require that that borrower obtain flood insurance. Every loan application is going to be required to have a flood hazard determination form. This form will notify the borrower if their property is or is not in a flood zone. If it is in a flood zone, the form will indicate that flood insurance is required.

A yield spread premium occurs when:

YSPs are paid to the broker for giving a borrower a higher interest rate on a loan in exchange for lower up-front costs generally paid in origination fees, broker fees or discount points.

Underwriters calculate overtime income for a loan by:

You can only use income if there is a two-year history of it, that includes overtime income.