MLO Exam Dumps - Mortgage Loan Origination (SAFE MLO) Exam

To qualify as a Safe Harbor Qualified Mortgage (QM), the APR must be less than 1.5% above the Average Prime Offer Rate (APOR) for first-lien loans. This threshold is set by the Qualified Mortgage Rule under the Dodd-Frank Act to ensure that Safe Harbor QMs offer fair and affordable loan terms, protecting borrowers from predatory lending practices.

Safe Harbor QMs are considered the most consumer-friendly loans and are protected from liability under the Ability-to-Repay Rule (ATR).

If a mortgage loan includes a prepayment penalty, it must be disclosed on both the Loan Estimate (LE) and the Closing Disclosure (CD). These disclosures, mandated under the TILA-RESPA Integrated Disclosure (TRID) rule, ensure that borrowers are aware of any penalties they may face for paying off the loan early. The prepayment penalty must be clearly stated to comply with TILA (Truth in Lending Act) requirements.

The Loan Estimate provides an early overview of loan terms, and the Closing Disclosure finalizes those terms.

Under RESPA (Real Estate Settlement Procedures Act), it is illegal to charge a fee for a settlement service if no services or only nominal services are performed. This is true regardless of who pays the fee, whether it’s the borrower, seller, real estate agent, or any other party. RESPA prohibits unearned fees, kickbacks, or payments for referrals in federally related mortgage transactions.

Even if someone other than the borrower pays, the charge is still illegal if it is not justified by actual services performed.

When there is no tax return history for a rental property, FHA guidelines require lenders to reduce the gross rental income by 25% to account for vacancies and maintenance.

“If there is no history of rental income on the borrower’s tax returns, the lender must reduce the market rent by 25% before considering it as effective income.”

— HUD 4000.1 FHA Single Family Housing Policy Handbook

If the mortgage loan originator (MLO) becomes aware of a potential change in the borrower’s employment status, such as the company closing and the borrower being laid off, the MLO must notify the underwriter. The borrower's ability to repay the loan could be impacted by the job loss, and failing to update the underwriter would be a violation of proper lending practices.

Ignoring the information or withholding it (Options A and B) could lead to loan default and is unethical.

Homeownership counseling (C) is beneficial but not relevant to the immediate concern of loan approval and repayment ability.

Under Truth in Lending Act (TILA) Regulation Z, a finance charge is defined as the cost of consumer credit as a dollar amount, including any charges payable directly or indirectly by the consumer and imposed as a condition of or an incident to the extension of credit. Discount points are a form of prepaid interest paid at closing to lower the interest rate, and are always considered a finance charge.

“Finance charges include interest, points, and other costs payable by the consumer at closing, such as loan fees and certain mortgage broker fees. Charges such as appraisal fees, title insurance, and pest inspection fees are typically not finance charges if not required by the creditor.”

— 12 CFR § 1026.4(a); TILA/Regulation Z Commentary

Under the Equal Credit Opportunity Act (ECOA), the term adverse action is defined as a refusal to grant credit based on the requested loan terms, an unfavorable change in loan terms, or a termination of an account/application. This can include:

Denying a credit application.

Offering credit on terms different from those requested.

Closing an existing credit account.

Lenders must provide a formal notice of adverse action, explaining the reasons for the denial or change in terms, to comply with ECOA’s requirements for transparency and fairness.

Other options:

Account closure (B) and credit closure (C) are not specific ECOA terms.

Denial of credit (D) is a form of adverse action but does not cover all situations like a change in loan terms.

The Real Estate Settlement Procedures Act (RESPA) prohibits kickbacks, referral fees, and unearned fees in any transaction involving a federally related mortgage loan. If a real estate broker offers the MLO $500 to obtain a purchase-money mortgage for the broker's client, the MLO must decline the money. Accepting payment for a referral is illegal under Section 8 of RESPA.

Options such as applying the money toward the down payment (B) or including it on the Closing Disclosure (C)** do not make the payment legal, as it would still violate RESPA.