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AR MLO practice questions

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Question 1Federal Mortgage Laws and Regulations

Under the federal Real Estate Settlement Procedures Act (RESPA), which disclosure must a lender generally provide to a borrower within three business days of receiving a mortgage loan application?

  1. The Loan Estimate Correct answer.
  2. The Closing Disclosure
  3. The promissory note
  4. The title commitment

Explanation

RESPA and Regulation X require the Loan Estimate to be delivered or placed in the mail no later than the third business day after the lender receives the application. The Closing Disclosure comes later, at least three business days before consummation. The note and title commitment are not RESPA-required early disclosures.

Question 2Federal Mortgage Laws and Regulations

The Equal Credit Opportunity Act (ECOA) prohibits a creditor from discriminating against an applicant based on which of the following characteristics?

  1. Loan-to-value ratio
  2. Marital status Correct answer.
  3. Employment tenure
  4. Credit score

Explanation

ECOA prohibits discrimination on the basis of race, color, religion, national origin, sex, marital status, age, receipt of public assistance income, and good-faith exercise of rights under the Consumer Credit Protection Act. Marital status is a protected characteristic. Credit score, employment tenure, and LTV are underwriting factors, not protected classes.

Question 3Federal Mortgage Laws and Regulations

Which federal law requires mortgage loan originators to be registered or licensed and to obtain a unique identifier through the Nationwide Multistate Licensing System?

  1. Fair Credit Reporting Act
  2. Real Estate Settlement Procedures Act
  3. Secure and Fair Enforcement for Mortgage Licensing Act Correct answer.
  4. Home Mortgage Disclosure Act

Explanation

The SAFE Act, enacted in 2008, established national licensing and registration standards for mortgage loan originators and requires them to obtain a unique identifier through NMLS. HMDA governs data reporting, RESPA governs settlement disclosures, and FCRA governs consumer credit reporting.

Question 4Federal Mortgage Laws and Regulations

Under the Truth in Lending Act (TILA) and Regulation Z, a creditor must provide the Closing Disclosure no later than how many business days before loan consummation?

  1. Five business days
  2. Three business days Correct answer.
  3. One business day
  4. Seven business days

Explanation

Regulation Z requires the creditor to deliver the Closing Disclosure to the consumer no later than three business days before consummation. This waiting period allows the borrower to review final terms. Shorter periods do not satisfy the rule.

Question 5Federal Mortgage Laws and Regulations

The Fair Housing Act prohibits discrimination in the sale, rental, and financing of dwellings based on which set of protected classes?

  1. Race, color, age, marital status, and income source
  2. Sex, education level, veteran status, and familial status
  3. Race, color, religion, sex, national origin, familial status, and disability Correct answer.
  4. Religion, occupation, credit history, and national origin

Explanation

The Fair Housing Act protects against discrimination based on race, color, religion, sex, national origin, familial status, and disability. These seven classes form the federal fair housing protected categories. The other listed combinations include factors that are not federal Fair Housing Act classes.

Question 6Federal Mortgage Laws and Regulations

A mortgage lender subject to the Home Mortgage Disclosure Act (HMDA) is generally required to report covered loan data for a calendar year by which date of the following year?

  1. January 31
  2. June 30
  3. December 31
  4. March 1 Correct answer.

Explanation

Under Regulation C, HMDA data for a calendar year must be submitted by March 1 of the following year. The data are then made available to the public. January 31, June 30, and December 31 are not the HMDA submission deadline.

Question 7Federal Mortgage Laws and Regulations

Which federal statute requires that a borrower receive a good-faith estimate of settlement charges and prohibits certain kickbacks and referral fees in federally related mortgage loans?

  1. Fair Credit Reporting Act
  2. Truth in Lending Act
  3. Real Estate Settlement Procedures Act Correct answer.
  4. Equal Credit Opportunity Act

Explanation

RESPA governs settlement charges and expressly prohibits kickbacks and unearned fees in connection with federally related mortgage loans. TILA addresses cost-of-credit disclosures, ECOA addresses credit discrimination, and FCRA addresses consumer reporting.

Question 8Federal Mortgage Laws and Regulations

Under the Fair Credit Reporting Act, if a consumer disputes the accuracy of information in a credit file, the consumer reporting agency generally must complete its reinvestigation within what period?

  1. 30 days Correct answer.
  2. 45 days
  3. 10 days
  4. 60 days

Explanation

FCRA generally requires a consumer reporting agency to reinvestigate disputed information within 30 days of receiving the dispute. The period may be extended to 45 days only if the consumer provides additional information during the 30-day window. Ten and 60 days are not the standard periods.

Question 9Federal Mortgage Laws and Regulations

A loan originator is completing an application and the applicant mentions receiving public assistance income. Under ECOA, how should the originator treat this income?

  1. Consider it in the same manner as other income Correct answer.
  2. Discount it by fifty percent automatically
  3. Exclude it because it is not earned income
  4. Require a co-signer before counting it

Explanation

ECOA prohibits discrimination based on receipt of public assistance income, and creditors must consider such income in the same manner as other income. Excluding or discounting it solely because of its source violates ECOA. Requiring a co-signer for that reason is also prohibited.

Question 10Federal Mortgage Laws and Regulations

A lender receives a complete mortgage application on Monday. Assuming no business day exceptions apply, by which day must the Loan Estimate be delivered or placed in the mail?

  1. Friday
  2. Thursday Correct answer.
  3. Tuesday
  4. Wednesday

Explanation

Regulation X requires the Loan Estimate within three business days of application receipt. Counting Monday as day zero, the third business day is Thursday. Delivery on Tuesday or Wednesday would be earlier than required but Thursday is the outer limit.

Question 11Federal Mortgage Laws and Regulations

During a mortgage transaction, a settlement agent pays a fee to a real estate agent for referring a borrower to the lender. Under RESPA, this arrangement is:

  1. Allowed if the fee is below market rate
  2. Permissible when the borrower consents in writing
  3. Permissible if disclosed on the Closing Disclosure
  4. Prohibited as an illegal kickback Correct answer.

Explanation

Section 8 of RESPA prohibits giving or receiving anything of value in exchange for the referral of settlement service business involving a federally related mortgage loan. Disclosure, below-market pricing, or borrower consent does not cure the violation.

Question 12Federal Mortgage Laws and Regulations

An applicant's credit report shows a prior bankruptcy. Under ECOA, how may the lender treat this information?

  1. Ignore it entirely in all cases
  2. Automatically deny the application
  3. Require a higher interest rate regardless of other factors
  4. Consider it under consistently applied creditworthiness standards Correct answer.

Explanation

ECOA permits creditors to consider a bankruptcy history as part of creditworthiness, provided the standards are applied consistently and not used as a pretext for discrimination. Automatic denial or blanket rate increases are not permitted, and ignoring it entirely is not required.

Question 13Federal Mortgage Laws and Regulations

A lender denies a mortgage application. Under ECOA and Regulation B, what must the lender provide to the applicant?

  1. A refund of the application fee
  2. A notice of adverse action with specific reasons Correct answer.
  3. A new Loan Estimate
  4. A copy of the credit report

Explanation

Regulation B requires a creditor to provide a notice of adverse action that includes the specific reasons for the denial or a disclosure of the applicant's right to request them. Providing a credit report or refunding fees does not satisfy the adverse action notice requirement.

Question 14Federal Mortgage Laws and Regulations

Under TILA's right of rescission, which type of loan is generally subject to a three-day borrower cancellation right?

  1. A refinance of a primary residence secured by that home Correct answer.
  2. A construction loan for a new primary residence
  3. A business-purpose loan secured by commercial property
  4. A purchase-money mortgage on a primary residence

Explanation

TILA's right of rescission applies to certain non-purchase-money consumer credit transactions secured by the borrower's principal dwelling, such as a refinance or home equity loan. Purchase-money mortgages, business-purpose loans, and most construction loans are exempt.

Question 15Federal Mortgage Laws and Regulations

A mortgage broker advertises a loan with a low teaser rate but does not disclose that the rate increases substantially after the first year. Which federal law is most directly implicated?

  1. Real Estate Settlement Procedures Act
  2. Fair Housing Act
  3. Truth in Lending Act Correct answer.
  4. Home Mortgage Disclosure Act

Explanation

TILA and Regulation Z regulate advertising of credit terms and require that advertised rates and terms not be misleading, including disclosure of rate changes for variable-rate products. HMDA concerns data reporting, the Fair Housing Act concerns discrimination, and RESPA concerns settlement practices.

Question 16Federal Mortgage Laws and Regulations

A servicer receives a qualified written request from a borrower disputing the account. Under RESPA, the servicer must acknowledge receipt within what period?

  1. Thirty business days
  2. Three business days
  3. Five business days Correct answer.
  4. Ten business days

Explanation

Under RESPA and Regulation X, a servicer must provide a written acknowledgment of a qualified written request within five business days of receipt. It must then respond substantively within the regulatory timeframe. Three, ten, and thirty days are not the acknowledgment period.

Question 17Federal Mortgage Laws and Regulations

An originator notices that a lender's underwriting guidelines set a minimum loan amount that effectively excludes applicants from a particular minority neighborhood. This practice most directly raises concerns under which law?

  1. Fair Credit Reporting Act
  2. Home Mortgage Disclosure Act
  3. Fair Housing Act Correct answer.
  4. SAFE Act

Explanation

The Fair Housing Act prohibits discriminatory lending practices, including policies with a disparate impact on protected classes in housing finance. FCRA concerns credit reporting, HMDA concerns data disclosure, and the SAFE Act concerns licensing.

Question 18Federal Mortgage Laws and Regulations

Under the Home Mortgage Disclosure Act, which of the following is a purpose of the required data collection?

  1. To guarantee mortgage loans against default
  2. To license mortgage loan originators
  3. To set maximum interest rates for mortgages
  4. To help determine whether lenders are serving housing needs in their communities Correct answer.

Explanation

HMDA requires lenders to collect and report data so regulators and the public can assess whether institutions are meeting housing needs and serving their communities fairly. It does not set rates, license originators, or insure loans.

Question 19Federal Mortgage Laws and Regulations

A creditor's rate sheet charges a higher interest rate to applicants who receive public assistance income, solely because of that income source. This practice violates:

  1. The Home Mortgage Disclosure Act
  2. The Real Estate Settlement Procedures Act
  3. The SAFE Act
  4. The Equal Credit Opportunity Act Correct answer.

Explanation

ECOA prohibits discrimination on the basis of receipt of public assistance income, so pricing a loan higher solely for that reason is unlawful. HMDA, RESPA, and the SAFE Act do not prohibit this type of credit discrimination.

Question 20Federal Mortgage Laws and Regulations

A creditor must provide a notice of adverse action when it denies an application. Which element is required in that notice?

  1. A list of competing lenders' rates
  2. The borrower's complete credit score history
  3. A statement of the specific reasons for the denial or the right to request them Correct answer.
  4. The name of the underwriter who made the decision

Explanation

Regulation B requires the adverse action notice to state the specific reasons for the denial or disclose the applicant's right to request them. Underwriter identity, full credit history, and competitor rates are not required elements.

Question 21Federal Mortgage Laws and Regulations

A lender delivers a Closing Disclosure on Monday for a loan scheduled to close on Wednesday of the same week. Under Regulation Z, what is the result?

  1. The lender may close if the borrower signs a waiver
  2. The closing may proceed as scheduled
  3. The closing must be delayed to satisfy the three-business-day review period Correct answer.
  4. The lender must issue a new Loan Estimate instead

Explanation

Regulation Z requires the Closing Disclosure three business days before consummation, so a Wednesday closing after Monday delivery does not provide the required period. The closing must be delayed unless a valid bona fide emergency waiver applies. A borrower waiver is not generally available to shorten the review period.

Question 22Federal Mortgage Laws and Regulations

A settlement service provider refers a borrower to a lender and, in exchange, receives a reduced rent payment from an affiliated title company. Under RESPA Section 8, this arrangement is best characterized as:

  1. An exempt transaction because title services are involved
  2. A permissible affiliated business arrangement if proper disclosure is given
  3. A thing of value given for a referral, which is prohibited Correct answer.
  4. A lawful discount because no cash changes hands

Explanation

RESPA Section 8 prohibits giving or receiving anything of value in exchange for referrals of settlement service business. A reduced rent payment is a thing of value, and the affiliated business arrangement safe harbor requires more than mere disclosure, such as actual provision of services and no referral-fee compensation.

Question 23Federal Mortgage Laws and Regulations

A mortgage servicer receives a borrower's qualified written request disputing an escrow account. Which statement best describes the servicer's obligations under RESPA?

  1. The servicer must transfer the loan to another servicer
  2. The servicer may ignore the request because escrow disputes are exempt
  3. The servicer must immediately foreclose to preserve its interest
  4. The servicer must acknowledge the request and provide a substantive response within regulatory timeframes Correct answer.

Explanation

A qualified written request triggers servicer obligations under RESPA and Regulation X, including timely acknowledgment and a substantive response addressing the dispute. Escrow disputes are not exempt, and foreclosure or transfer is not the required response.

Question 24Federal Mortgage Laws and Regulations

A lender's policy denies mortgage loans to any applicant whose income includes disability benefits, without individual consideration. This policy is most clearly prohibited by which federal law?

  1. The Home Mortgage Disclosure Act
  2. The SAFE Act
  3. The Real Estate Settlement Procedures Act
  4. The Equal Credit Opportunity Act Correct answer.

Explanation

ECOA prohibits discrimination based on receipt of public assistance income, and disability benefits fall within that protection. A blanket policy of denial without individual consideration violates ECOA. HMDA, RESPA, and the SAFE Act do not address this credit discrimination.

Question 25Federal Mortgage Laws and Regulations

An advertiser promotes a mortgage in a general-circulation newspaper using the phrase 'low monthly payments' without stating any other credit terms. Under Regulation Z, this advertisement is:

  1. Prohibited unless the borrower applies in person
  2. Prohibited because it triggers disclosure of additional required terms Correct answer.
  3. Permissible only if the lender is a bank
  4. Permissible because no specific rate or term is stated

Explanation

Regulation Z requires that if an advertisement states a triggering term such as a payment amount, it must also disclose required accompanying information such as the annual percentage rate and terms of repayment. Advertising 'low monthly payments' without the required disclosures violates these rules.

Question 26Federal Mortgage Laws and Regulations

Which federal law is the primary statute governing the disclosure of credit costs and the borrower's right to cancel certain mortgage transactions?

  1. The Real Estate Settlement Procedures Act (RESPA)
  2. The Home Mortgage Disclosure Act (HMDA)
  3. The Truth in Lending Act (TILA) Correct answer.
  4. The Fair Housing Act (FHA)

Explanation

TILA, implemented by Regulation Z, requires disclosure of credit terms and cost and grants a right of rescission for certain non-purchase-money loans secured by a principal dwelling. RESPA focuses on settlement costs and servicing, while HMDA and the Fair Housing Act address data reporting and discrimination.

Question 27Federal Mortgage Laws and Regulations

Under the Fair Housing Act, which of the following is a protected class in housing-related transactions?

  1. Credit score
  2. Immigration status
  3. Source of income
  4. Familial status Correct answer.

Explanation

The federal Fair Housing Act prohibits discrimination based on race, color, religion, sex, national origin, familial status, and disability. Source of income and credit score are not federal protected classes, though some state or local laws add source of income.

Question 28Federal Mortgage Laws and Regulations

A loan originator is paid by the lender based on the interest rate of the loan placed. Which federal regulation addresses this form of compensation?

  1. Regulation X
  2. Regulation Z Correct answer.
  3. Regulation C
  4. Regulation B

Explanation

Regulation Z, which implements TILA, restricts loan originator compensation that varies with the loan's terms or conditions, including interest rate. Regulation B implements ECOA, Regulation C implements HMDA, and Regulation X implements RESPA.

Question 29Federal Mortgage Laws and Regulations

Which federal statute is designed to protect consumers from inaccurate or unfair credit reporting and to give them access to their credit information?

  1. The Fair Credit Reporting Act (FCRA) Correct answer.
  2. The Homeowners Protection Act (HPA)
  3. The Flood Disaster Protection Act (FDPA)
  4. The Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act)

Explanation

The FCRA, implemented by Regulation V, governs consumer reporting agencies and users of consumer reports, giving consumers rights to access, dispute, and correct information. The HPA addresses private mortgage insurance cancellation, the SAFE Act addresses licensing, and the FDPA addresses flood insurance requirements.

Question 30Federal Mortgage Laws and Regulations

Under the SAFE Act, a mortgage loan originator must be licensed or registered through which system?

  1. The Consumer Financial Protection Bureau's complaint database
  2. The Department of Housing and Urban Development's lender list
  3. The Nationwide Mortgage Licensing System and Registry Correct answer.
  4. The Federal Housing Administration's lender portal

Explanation

The SAFE Act requires mortgage loan originators to be licensed or registered through the Nationwide Mortgage Licensing System and Registry (NMLS). This provides a unified system for tracking originator licensing and identifying information.

Question 31Federal Mortgage Laws and Regulations

Which federal law requires certain lenders to collect and report data about mortgage applications and originations to help identify discriminatory lending patterns?

  1. The Home Mortgage Disclosure Act (HMDA) Correct answer.
  2. The Real Estate Settlement Procedures Act (RESPA)
  3. The Fair Credit Reporting Act (FCRA)
  4. The Truth in Lending Act (TILA)

Explanation

HMDA, implemented by Regulation C, requires covered financial institutions to collect, record, and report data on mortgage applications and originations. The purpose is to help regulators and the public identify possible discriminatory lending practices and to inform public investment decisions.

Question 32Federal Mortgage Laws and Regulations

Under the Flood Disaster Protection Act, what must a lender generally require when making a loan secured by a building in a special flood hazard area?

  1. A title search performed by the lender
  2. A borrower credit score above 700
  3. A home inspection report
  4. Flood insurance coverage for the life of the loan Correct answer.

Explanation

The FDPA requires lenders to require and maintain flood insurance for the term of the loan when the property securing the loan is in a special flood hazard area. The coverage must be maintained for the life of the loan.

Question 33Federal Mortgage Laws and Regulations

Which federal law requires lenders to provide borrowers with a statement of the total interest and other charges they will pay over the life of certain high-cost mortgages?

  1. The Home Ownership and Equity Protection Act (HOEPA) Correct answer.
  2. The Fair Housing Act
  3. The Fair Debt Collection Practices Act
  4. The Homeowners Protection Act

Explanation

HOEPA, enacted as part of TILA, imposes additional disclosure and protection requirements on high-cost mortgages. Among other things, it requires specific disclosures about the loan's costs and prohibits certain practices for these loans.

Question 34Federal Mortgage Laws and Regulations

A lender subject to Regulation B receives an application and, after review, approves it on terms different from those requested. Under ECOA, what must the lender do?

  1. Delay closing until the applicant obtains credit counseling
  2. Provide a notice of action taken explaining the counteroffer Correct answer.
  3. Report the counteroffer to the credit reporting agencies
  4. Rescind the application and require a new one

Explanation

Under Regulation B, a counteroffer is a form of action taken, and the creditor must notify the applicant of the action taken. The notice should explain the terms of the counteroffer and the applicant's right to accept or reject it.

Question 35Federal Mortgage Laws and Regulations

A mortgage lender's advertisement states a specific down payment amount. Under Regulation Z, what additional information must the advertisement include?

  1. The names of the loan originators
  2. The property's appraised value
  3. The annual percentage rate and terms of repayment Correct answer.
  4. The lender's license number

Explanation

When a Regulation Z advertisement states a triggering term such as a down payment amount, it must also disclose the annual percentage rate and the terms of repayment, among other required information. These requirements prevent misleading advertising of credit terms.

Question 36Federal Mortgage Laws and Regulations

A servicer receives a notice of error from a borrower regarding a mortgage payment that was misapplied. Under Regulation X, what must the servicer generally do?

  1. Forward the notice to the borrower's real estate agent
  2. Immediately foreclose on the property
  3. Report the borrower to a credit bureau as delinquent
  4. Acknowledge the notice and investigate, then respond in writing Correct answer.

Explanation

Regulation X requires servicers to acknowledge receipt of a notice of error, conduct a reasonable investigation, and respond in writing with the results. The servicer may not simply forward the notice or take adverse action based on the disputed item without following the error resolution procedures.

Question 37Federal Mortgage Laws and Regulations

A creditor uses a credit scoring system that considers the applicant's age. Under ECOA, when may age be used in a credit scoring system?

  1. Never, under any circumstances
  2. Whenever the creditor believes age predicts repayment
  3. When the system is empirically derived and demonstrably statistically sound Correct answer.
  4. Only if the applicant is over 62

Explanation

Regulation B permits the use of age in an empirically derived, demonstrably and statistically sound credit scoring system, provided the treatment is favorable to older applicants. Age may not be used arbitrarily or in a system that is not statistically sound.

Question 38Federal Mortgage Laws and Regulations

A loan originator learns that an applicant receives Social Security disability income. Under ECOA and Regulation B, how may the creditor consider this income?

  1. It may be considered only at a reduced percentage
  2. It must be excluded from underwriting entirely
  3. It may be considered only if the applicant is over 65
  4. It may be considered only if the creditor treats it consistently with other income sources Correct answer.

Explanation

Regulation B prohibits discrimination on the basis of a public assistance program or because income is derived from a protected source. Disability income may be considered if the creditor applies the same standards used for other income sources.

Question 39Federal Mortgage Laws and Regulations

A creditor denies a mortgage application based on information in a consumer report. Under the FCRA, what must the creditor provide to the applicant?

  1. A written apology from the creditor
  2. A notice of adverse action that includes the credit reporting agency's contact information Correct answer.
  3. The name of the loan underwriter
  4. A copy of the applicant's entire credit file

Explanation

When a creditor takes adverse action based on a consumer report, the FCRA requires a notice that includes the name, address, and telephone number of the consumer reporting agency, along with a statement that the agency did not make the decision. The applicant also has the right to dispute the information.

Question 40Federal Mortgage Laws and Regulations

A lender is considering an application from a borrower whose only income is a pension. Under ECOA, which statement is correct?

  1. The lender may consider the pension income using the same standards applied to other income Correct answer.
  2. The lender must automatically deny the application
  3. The lender may consider the pension only at 50 percent of its value
  4. The lender must require a co-signer

Explanation

ECOA and Regulation B prohibit discrimination based on the receipt of income from a public assistance program or other protected source. A creditor may consider pension income if it applies the same standards used for other income.

Question 41Federal Mortgage Laws and Regulations

A mortgage broker is compensated by the lender based on the loan's interest rate. Which statement best describes the Regulation Z treatment of this arrangement?

  1. It is generally prohibited because compensation may not vary with the loan terms Correct answer.
  2. It is permitted only for loans over $500,000
  3. It is permitted if the borrower signs a waiver
  4. It is permitted if disclosed on the Loan Estimate

Explanation

Regulation Z prohibits loan originator compensation that is based on the terms or conditions of the transaction, such as the interest rate. This rule is intended to reduce incentives to steer borrowers into higher-cost loans.

Question 42Federal Mortgage Laws and Regulations

A servicer receives a borrower's request for information about the ownership of the loan. Under RESPA and Regulation X, what is the servicer generally required to do?

  1. Respond to the request within the applicable time period Correct answer.
  2. Forward the request to the borrower's attorney
  3. Charge a fee before responding
  4. Ignore the request unless it is notarized

Explanation

Regulation X requires servicers to respond to certain information requests from borrowers within specified timeframes. The servicer must provide a written response and, in some cases, contact the borrower to clarify the request.

Question 43Federal Mortgage Laws and Regulations

A lender's marketing materials use the phrase 'low monthly payments' in a general-circulation newspaper without stating any other terms. Under Regulation Z, which statement is correct?

  1. The phrase is prohibited in all mortgage advertising
  2. The phrase is permissible if no specific credit terms are stated Correct answer.
  3. The phrase requires disclosure of the APR regardless of context
  4. The phrase requires disclosure of the lender's license number

Explanation

Regulation Z advertising rules are triggered when an advertisement states specific credit terms such as a payment amount, down payment, or interest rate. General phrases that do not state specific terms do not by themselves trigger the full disclosure requirements.

Question 44Federal Mortgage Laws and Regulations

A lender's underwriting policy applies different credit standards to applicants based on their receipt of housing assistance. Under ECOA, which statement best describes this policy?

  1. It is permitted if the lender discloses the policy
  2. It is permitted if the applicant consents
  3. It is prohibited because it discriminates based on receipt of public assistance Correct answer.
  4. It is permitted for loans under $200,000

Explanation

ECOA and Regulation B prohibit discrimination against an applicant because all or part of the applicant's income is derived from a public assistance program. Applying different credit standards based on receipt of housing assistance violates this prohibition.

Question 45Federal Mortgage Laws and Regulations

A lender is evaluating whether a loan is subject to HOEPA's high-cost mortgage protections. Which factor is relevant to that determination?

  1. The loan has a fixed interest rate
  2. The property is a condominium
  3. The loan's points and fees exceed the applicable threshold Correct answer.
  4. The borrower's credit score is below 620

Explanation

HOEPA coverage depends on whether the loan's points and fees, APR, or prepayment penalties exceed specified thresholds. Credit score, property type, and rate structure are not the HOEPA coverage tests.

Question 46Federal Mortgage Laws and Regulations

A lender is reviewing its practices for compliance with the Homeowners Protection Act. Which action is consistent with the HPA?

  1. Requiring private mortgage insurance for the entire loan term regardless of loan-to-value
  2. Charging a penalty for requesting cancellation
  3. Canceling private mortgage insurance at the borrower's request when the loan balance reaches 80 percent of the original value, subject to the statutory conditions Correct answer.
  4. Canceling private mortgage insurance only after foreclosure

Explanation

The HPA gives borrowers the right to request cancellation of private mortgage insurance when the loan balance reaches 80 percent of the original value, provided the borrower is current and other conditions are met. The Act also provides for automatic termination at 78 percent.

Question 47Federal Mortgage Laws and Regulations

A creditor uses a statistically derived credit scoring system that includes age as a factor. Which condition must be met for the use of age to be permissible under Regulation B?

  1. The system must be approved by the loan originator
  2. The system must be empirically derived and demonstrably statistically sound, and age must be treated favorably for older applicants Correct answer.
  3. The system must be reviewed by the borrower before use
  4. The system must exclude all other protected characteristics

Explanation

Regulation B permits age to be used in an empirically derived, demonstrably and statistically sound credit scoring system, and the treatment of age must be favorable to older applicants. A system that does not meet these conditions may not use age.

Question 48Federal Mortgage Laws and Regulations

A servicer receives a borrower's qualified written request that disputes the amount owed. Which statement best describes the servicer's obligations under RESPA?

  1. The servicer must acknowledge and respond within the regulatory timeframes and may not report the disputed amount as delinquent during the response period Correct answer.
  2. The servicer may immediately refer the account to foreclosure
  3. The servicer may ignore the request if the borrower is current
  4. The servicer must provide a new loan

Explanation

RESPA and Regulation X impose specific acknowledgment and response deadlines for qualified written requests and prohibit certain adverse actions, such as reporting a disputed amount as delinquent, during the response period. The servicer must investigate and respond in writing.

Question 49Federal Mortgage Laws and Regulations

A lender's policy denies mortgage loans to any applicant whose income includes disability benefits unless the applicant provides a co-signer. Which statement best describes this policy under ECOA?

  1. It is permitted because disability income is uncertain
  2. It is permitted for loans secured by investment property
  3. It is permitted if disclosed in the loan file
  4. It is likely prohibited because it imposes different standards based on a protected income source Correct answer.

Explanation

ECOA and Regulation B prohibit discrimination based on receipt of income from a public assistance program or because income is derived from a protected source. Imposing a co-signer requirement solely because of disability income applies a different standard and is likely discriminatory.

Question 50Federal Mortgage Laws and Regulations

A loan originator is employed by a lender and is compensated partly through a bonus tied to the average interest rate of the loans she originates. Which statement best describes this arrangement under Regulation Z?

  1. It is generally prohibited because compensation may not be based on transaction terms such as the interest rate Correct answer.
  2. It is permitted if the borrower is informed at closing
  3. It is permitted if the bonus is paid annually
  4. It is permitted because the originator is an employee

Explanation

Regulation Z restricts loan originator compensation that varies with the terms or conditions of the transaction, including the interest rate. This applies regardless of whether the originator is an employee and regardless of the timing of the payment.