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

Under TILA-RESPA Integrated Disclosure (TRID) Rule, fees paid to affiliates of the lender (e.g., title companies, appraisers) must remain the same on the Loan Estimate (LE) unless there is a valid changed circumstance (such as a significant change in the loan terms or property value). These fees fall under the zero-tolerance category, meaning they cannot increase from the amount disclosed on the LE unless a change in circumstance justifies the increase.

Other costs like per diem interest (A), homeowner's insurance (B), and owner's title insurance premiums (C) can change, as they are not subject to the same zero-tolerance rules.

References:

TILA-RESPA Integrated Disclosure Rule (TRID), 12 CFR §1026.19

CFPB TRID Guidelines on fee tolerance

An easement is a legal right granted to one party to cross or use another party's land for a specific purpose, such as for utility lines, access roads, or water drainage. Easements are commonly granted in property transactions and are recorded in the public records.

Easements are unrelated to mortgage modifications (A) or payment reductions (D).

References:

Real Estate Law on property easements

HUD Guidelines on easements in property transactions

For rental properties, an appraiser will typically use the Income Approach to estimate the property's value. This method is based on the income-generating potential of the property, which is most relevant for investment properties, including rentals.

The Income Approach assesses the property's ability to generate future cash flow by evaluating the income that can be derived from renting it. The formula often involves determining the net operating income (NOI) and applying a capitalization rate (cap rate) to estimate value.

This method is most appropriate for rental properties because their value is inherently tied to their profitability.

Other methods:

Cost approach: More suited for unique properties or new construction.

Sales comparison approach: Often used for owner-occupied properties, comparing recent sales of similar properties.

References:

Uniform Standards of Professional Appraisal Practice (USPAP)

Fannie Mae's Appraisal Guidelines for Rental Properties

An individual who had their MLO license application denied, or had a license revoked or suspended in any governmental jurisdiction, is not eligible for temporary authority to act as a mortgage loan originator (MLO) under the SAFE Act. Temporary authority allows registered MLOs who move to a state-licensed mortgage company to act as MLOs while their application for a state license is being processed. However, individuals with disqualifying events, such as prior license denial or revocation, lose this privilege.

Other options:

Court orders for child support (B) and being a witness in a trial (A) do not disqualify individuals from obtaining temporary authority.

References:

SAFE Act, 12 USC §5101

NMLS Temporary Authority to Operate Guidelines

In a debt-to-income (DTI) analysis, the borrower’s total monthly housing-related payments (including principal, interest, taxes, insurance, and any homeowner association fees) are assessed as a percentage of their gross monthly income. Lenders use the gross income, which is the borrower’s income before taxes and deductions, to determine affordability and creditworthiness.

Net monthly income (A) and taxable income (C) are not used in standard DTI calculations.

The loan amount (D) is unrelated to the DTI calculation.

References:

Fannie Mae and Freddie Mac Guidelines on DTI ratios

CFPB Guidelines on Ability-to-Repay and DTI

A purchase money second mortgage allows a borrower to avoid paying private mortgage insurance (PMI) by using a second loan to cover part of the down payment. This structure, often referred to as a "piggyback loan", is commonly used when a borrower does not have a 20% down payment but wants to avoid PMI, which is typically required for loans with less than 20% down.

The borrower makes payments on both the primary mortgage and the second mortgage, but by keeping the loan-to-value (LTV) on the first mortgage below 80%, they can avoid PMI.

References:

Fannie Mae Selling Guide on purchase money mortgages

Freddie Mac Guidelines on private mortgage insurance

For an FHA loan, the loan-to-value (LTV) ratio is calculated by dividing the loan amount by the lesser of the purchase price or appraised value of the property. This ensures that the loan amount is based on the lower of the two figures, protecting the lender from over-lending on a property that may not appraise at the agreed purchase price.

This method is consistent with FHA guidelines, ensuring that the loan is adequately secured by the property’s value.

References:

FHA Single Family Housing Policy Handbook

HUD Guidelines for FHA LTV calculations

The Real Estate Settlement Procedures Act (RESPA) prohibits payment of fees or kickbacks to any party unless that party performs actual, legitimate services related to the origination or processing of a loan. In this case, the MLO did not perform any actual origination services for the borrower, so the fee paid by Bank XYZ to the MLO is not permitted.

RESPA Section 8 prohibits referral fees or any unearned fees. The MLO did not originate the loan or perform any substantive services related to the HELOC, which makes the payment illegal.

References:

RESPA (Real Estate Settlement Procedures Act), Section 8

CFPB RESPA Guidelines on fee splitting and kickbacks

The Home Ownership and Equity Protection Act (HOEPA) applies to certain types of high-cost loans, particularly refinance and home equity loans, that meet specific APR and fee thresholds. HOEPA was enacted to protect consumers from predatory lending practices in loans that carry excessive fees, high interest rates, or abusive terms.

HOEPA mainly covers:

Refinance loans

Home equity loans

Closed-end home equity loans

Certain purchase-money mortgages under specific conditions

Loans like construction loans (B), reverse mortgages (C), and USDA Rural Development loans (D) are generally excluded from HOEPA coverage.

References:

Home Ownership and Equity Protection Act (HOEPA), 15 U.S.C. § 1639

CFPB HOEPA Guidelines

An origination fee is considered a finance charge under TILA because it represents the cost of obtaining credit. A finance charge includes all fees that a borrower must pay as a condition of securing a loan, excluding certain exempt fees like notary or appraisal fees.

Notary fees (A) and appraisal fees (C) are typically excluded from the finance charge calculation.

Late payment fees (D) are not considered finance charges; they are penalties for delinquent payments.

References:

Truth in Lending Act (TILA), 12 CFR §1026.4 (Regulation Z)

CFPB Finance Charge Definitions

Consumer complaints and their analysis are critical for identifying weaknesses in a company's compliance management system (CMS) and internal controls. The CFPB (Consumer Financial Protection Bureau) emphasizes that analyzing complaints helps companies spot patterns of non-compliance, risks, or failures in managing regulatory requirements. By reviewing consumer feedback, businesses can identify gaps in their compliance practices, including weaknesses in training programs and internal systems, that may lead to violations of laws like RESPA, TILA, and ECOA.

Complaints may reveal issues with loan disclosures, error resolution, unfair lending practices, or lack of training in regulatory updates.

Regular analysis helps reinforce internal controls and improve compliance processes.

References:

CFPB Compliance Management Review Guidelines

TILA and RESPA regulations on consumer protection

The minimum amount of flood insurance required by lenders for a residential building located in a Special Flood Hazard Area (SFHA) is the lesser of:

100% of the replacement cost of the structure, or

The maximum available under the National Flood Insurance Program (NFIP), which is $250,000 for residential property structures.

This requirement ensures that the property is adequately covered in case of flood damage.

References:

National Flood Insurance Program (NFIP) Guidelines

Flood Disaster Protection Act (FDPA)

Flood insurance coverage is required to cover the lesser of:

The outstanding principal balance of the loan, or

The maximum coverage limit available under the National Flood Insurance Program (NFIP), which is $250,000 for residential properties.

The purpose of flood insurance is to protect the lender's interest in the property, ensuring that the loan amount is covered in the event of a flood.

The appraised value of the home (A) and the property value on file with the county (D) are irrelevant in determining flood insurance requirements.

References:

National Flood Insurance Program (NFIP)

FEMA Flood Insurance Guidelines

The maximum available flood insurance structure coverage for a residential property under the National Flood Insurance Program (NFIP) is £250,000. The NFIP is a federal program that provides flood insurance to property owners in participating communities.

The £250,000 limit applies specifically to residential property structures. For contents coverage, the maximum is $100,000.

Higher coverage limits, such as $500,000 or $1,000,000, may be available through private insurers, but the NFIP itself caps coverage at $250,000 for structures.

References:

National Flood Insurance Program (NFIP)

FEMA Flood Insurance Manual

Under the Ability-to-Repay (ATR) Rule and Qualified Mortgage (QM) standards, mortgages with adjustable rates can be considered qualified mortgages if they meet certain criteria, such as having fully amortizing payments and adhering to limits on points and fees. Adjustable-rate mortgages (ARMs) are qualified as long as the borrower’s ability to repay is assessed using the maximum rate that could apply in the first five years.

Loans like interest-only mortgages (A), balloon payment loans (B), and negative amortization loans (C) are not typically considered qualified mortgages because they carry higher risks of default.

References:

CFPB Ability-to-Repay and Qualified Mortgage Rule

Dodd-Frank Act standards for Qualified Mortgages

The TILA-RESPA Integrated Disclosure (TRID) rule applies to most closed-end consumer credit transactions secured by real property, including the refinance of a condominium property. TRID mandates specific disclosures, like the Loan Estimate (LE) and Closing Disclosure (CD), to ensure transparency in the loan process.

TRID does not apply to reverse mortgages (A) or home equity lines of credit (HELOCs) (B), which are covered by other regulations.

Loans secured by a mobile home on a leased lot (D) are also generally excluded from TRID.

References:

TILA-RESPA Integrated Disclosure Rule (TRID)

CFPB Guidelines on TRID applicability

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.

References:

RESPA Section 8 – Prohibition on kickbacks and referral fees

CFPB Guidelines on RESPA compliance

Under the Equal Credit Opportunity Act (ECOA), lenders can deny a loan based on immigration status, as it directly relates to the borrower’s ability to legally reside and work in the country. Lenders must ensure that the borrower has the legal capacity to enter into a binding contract and that they are authorized to work in the U.S. for the loan’s duration.

Receipt of child support (A), marital status (C), and country of birth (D) are protected characteristics under ECOA, meaning a lender cannot deny credit based on these factors.

References:

Equal Credit Opportunity Act (ECOA), 15 U.S.C. §1691

CFPB Regulation B

According to ECOA (Equal Credit Opportunity Act) and Regulation B, if a borrower waives the right to receive their appraisal three business days before consummation, and the transaction does not close, the creditor must still provide a copy of the appraisal within 30 days of determining that the loan will not consummate.

This ensures that borrowers still receive essential documentation, even if the loan fails to close.

References:

ECOA (Equal Credit Opportunity Act), 12 CFR §1002.14(a)(1)

CFPB Guidelines on appraisal delivery timelines

A balloon mortgage is a type of loan where a large portion of the principal is repaid in a lump sum at the end of the loan term. This structure often features smaller, periodic payments during the life of the loan, with the remaining balance (the balloon payment) due at the end of the loan period. Balloon mortgages are typically shorter-term loans, such as 5 or 7 years.

This differs from other loan types:

FHA mortgages (A) are fully amortized loans backed by the government.

Qualified mortgages (C) meet specific ability-to-repay standards and are fully amortized.

Deferred-payment mortgages (D) often refer to reverse mortgages or loans with delayed payment schedules, which are not the same as balloon loans.

References:

Fannie Mae and Freddie Mac Mortgage Guidelines on balloon loans

Truth in Lending Act (TILA) definitions of mortgage types

A rate lock agreement is the document that specifies the time period during which a mortgage lender agrees to hold the interest rate at a certain percentage for the borrower. It guarantees that the rate will not change, even if market interest rates fluctuate, as long as the loan closes within the agreed-upon timeframe.

The loan application (A) initiates the mortgage process, but it does not secure the interest rate.

A preapproval letter (B) gives a preliminary loan approval but does not lock the rate.

The Closing Disclosure (C) provides final loan terms but does not set the rate lock.

References:

Fannie Mae and Freddie Mac rate lock policies

CFPB Guidelines on rate lock agreements

A Suspicious Activity Report (SAR) is filed by financial institutions to report known or suspected violations of law or suspicious financial activities. The requirement to file SARs falls under the Bank Secrecy Act (BSA), which is designed to prevent money laundering, fraud, and other financial crimes. SARs must be filed with FinCEN (Financial Crimes Enforcement Network) whenever suspicious transactions are detected.

TILA (B), Gramm-Leach-Bliley Act (C), and RESPA (D) do not govern the filing of SARs.

References:

Bank Secrecy Act (BSA), 31 USC §5311

FinCEN Guidelines on SAR filing

Under Regulation Z (TILA), when mortgage loan originators (MLOs) advertise mortgage services, including payment amounts, they must disclose the Annual Percentage Rate (APR). The APR reflects the total cost of the loan, including interest and certain fees, and provides a clear picture of the loan's true cost over time.

Failure to include the APR in an advertisement that mentions payment amounts, interest rates, or other specific loan terms is considered a violation of TILA’s advertising requirements.

Other details (B, C, D), such as the MLO's website or the number of days the rate is available, are not mandatory in all advertisements, but the APR is required.

References:

Truth in Lending Act (TILA), 12 CFR Part 1026 (Regulation Z)

CFPB Advertising Rules for Mortgage Services

Prepaid charges refer to certain upfront costs paid at closing. These include:

Per diem interest (D), which covers the interest from the closing date to the end of the month.

Other items like origination fees (A), credit report fees (B), and conveyance taxes (C) are not considered prepaid charges; they are typically categorized as closing costs or settlement fees.

References:

Real Estate Settlement Procedures Act (RESPA)

TILA-RESPA Integrated Disclosures (TRID)

To prove that an account listed on a credit report has been paid off, the borrower must provide an updated statement showing a zero balance. This is the most direct and verifiable method for a lender to confirm the account has been settled.

Oral confirmation (A) or a letter from the borrower (C) are not acceptable documentation, as they lack third-party verification.

No further documentation would be required if the credit report already reflects the zero balance, but until then, updated documentation is necessary.

References:

Fair Credit Reporting Act (FCRA)

Standard mortgage underwriting documentation guidelines

The SAFE Act (Secure and Fair Enforcement for Mortgage Licensing Act) establishes federal and state licensing standards for mortgage loan originators (MLOs) and mandates that each state creates a licensing and regulatory agency to oversee mortgage companies. This agency is responsible for investigating, examining, and enforcing compliance with mortgage regulations. The act aims to ensure that mortgage companies and MLOs operate with transparency, competency, and accountability.

The SAFE Act gives regulatory bodies the authority to conduct background checks, examinations, and audits of licensed mortgage companies.

Other Acts:

TILA and RESPA focus on disclosure requirements and fair lending practices but do not specifically regulate state licensing and examinations.

HOEPA regulates high-cost loans and predatory lending practices, not licensing.

References:

SAFE Act, 12 USC §5101

NMLS Licensing and Registration Requirements

The MLO must advise the borrower that if they plan to purchase a new home shortly after refinancing, they must disclose this information upfront. Since the terms of the refinance loan require that the borrower occupy the property for 12 months, the MLO should suggest refinancing the current property as a non-owner-occupied loan if the borrower does not intend to stay in the home. This approach ensures compliance with the loan terms and avoids potential mortgage fraud.

Other options (A, B, C) involve potential conflicts of interest or violations of the loan terms.

References:

Fannie Mae Guidelines on occupancy requirements

CFPB Guidelines on owner-occupied versus non-owner-occupied loans

Under the Truth in Lending Act (TILA), for adjustable-rate mortgages (ARMs) like a 5/1 ARM, the MLO must calculate the borrower's monthly payment amount based on the fully indexed rate, not the introductory rate. The fully indexed rate is the sum of the index and the margin at the time of origination, reflecting the potential payment increases after the introductory period ends.

This requirement ensures borrowers understand what their payments could be after the rate adjusts, helping them evaluate the true affordability of the loan.

References:

Truth in Lending Act (TILA), 12 CFR Part 1026 (Regulation Z)

CFPB ARM Guidelines

One of the requirements for obtaining an MLO (Mortgage Loan Originator) license under the SAFE Act is that the MLO must be covered by a net worth requirement, surety bond, or must pay into a state fund. This requirement ensures that MLOs have adequate financial backing to protect consumers and the public in the event of legal or financial disputes.

A (10 hours of pre-licensing education) is incorrect because the requirement is at least 20 hours of pre-licensing education.

B (license revoked) and C (conviction) are not fully accurate as they do not align with the exact licensing rules under the SAFE Act.

References:

SAFE Act, 12 USC §5101

NMLS Licensing Guidelines

For an Adjustable-Rate Mortgage (ARM), specific disclosures must be provided to the borrower within three business days of receiving a completed loan application. These disclosures are required under TILA (Truth in Lending Act) and include detailed information about the loan’s terms, how the interest rate can change, and what potential payment increases might occur over time.

The Loan Estimate (LE), which includes ARM-specific information, must be provided within this timeframe to ensure the borrower understands the adjustable nature of the loan before proceeding further in the process.

Other options like at closing or when a loan is locked in are incorrect, as disclosures must be provided much earlier in the process.

References:

Truth in Lending Act (TILA), 12 CFR Part 1026 (Regulation Z)

TILA-RESPA Integrated Disclosure Rule (TRID)

Real estate brokerage activities are not a primary function of a mortgage loan originator (MLO). The MLO’s primary role is to assist consumers in taking an application (A), offering or negotiating credit terms (B), and helping consumers apply for credit (C).

Real estate brokerage activities, such as negotiating real estate transactions, are separate from the loan origination process and require different licensing and qualifications.

References:

SAFE Act, 12 USC §5101

NMLS MLO Licensing Guidelines

Redlining is a discriminatory practice in mortgage lending where certain neighborhoods, often those predominantly inhabited by minority groups, are systematically denied access to mortgages, insurance, or other financial services. Lenders would use literal red lines on maps to designate these areas as high-risk or undesirable, refusing to offer loans or offering them at inflated interest rates.

Redlining is a violation of fair lending laws such as the Fair Housing Act (FHA) and Equal Credit Opportunity Act (ECOA). Both of these federal laws prohibit discrimination based on race, color, national origin, religion, sex, family status, or disability in housing and credit transactions.

This practice has historically contributed to racial segregation and economic inequality in the U.S., as minority groups were systematically excluded from access to homeownership and wealth-building opportunities.

References:

Home Mortgage Disclosure Act (HMDA)

Fair Housing Act (FHA)

Equal Credit Opportunity Act (ECOA)

When obtaining a mortgage loan, title insurance is typically required to protect the lender. The lender’s title insurance policy ensures that the lender has a valid lien on the property and protects against potential claims on the title, such as unpaid property taxes, liens, or ownership disputes.

While owner's title insurance protects the buyer, the lender’s title insurance is required to protect the financial interest of the lender.

References:

TILA-RESPA Integrated Disclosure (TRID) Rule

ALTA Title Insurance Guidelines