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DC MLO practice questions

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Question 1Federal Mortgage-Related Laws and Regulations

Under the Home Mortgage Disclosure Act (HMDA) Regulation C, which loan is generally reportable by a covered institution?

  1. A personal unsecured line of credit used for home repairs
  2. A business-purpose loan secured by a commercial warehouse
  3. A closed-end consumer-purpose mortgage loan secured by a dwelling Correct answer.
  4. An agricultural loan secured by farmland only

Explanation

Regulation C requires covered institutions to report applications for closed-end mortgage loans secured by a dwelling when the loan is consumer purpose or meets other coverage criteria. Business-purpose loans are generally excluded unless they meet specific reporting conditions.

Question 2Federal Mortgage-Related Laws and Regulations

A lender subject to the Equal Credit Opportunity Act (ECOA) receives a completed application. When must the lender generally provide an adverse action notice if it denies the application?

  1. Within 60 days after receiving a completed application
  2. Within 30 days after receiving a completed application Correct answer.
  3. Within 90 days after receiving a completed application
  4. Within 10 days after receiving a completed application

Explanation

Regulation B, implementing ECOA, generally requires creditors to notify an applicant of adverse action within 30 days after receiving a completed application. The notice must include reasons for the action or a disclosure of the right to request them.

Question 3Federal Mortgage-Related Laws and Regulations

Which practice is prohibited by the Fair Housing Act in the sale or rental of a dwelling?

  1. Requesting proof of income from every applicant
  2. Advertising a home at its listed market price
  3. Requiring a written application from all prospective buyers
  4. Refusing to show a home because the buyer has children Correct answer.

Explanation

The Fair Housing Act prohibits discrimination based on familial status, which includes households with children under 18. Refusing to show a home because of children is a direct violation. Uniform application and income verification practices applied to all applicants are lawful.

Question 4Federal Mortgage-Related Laws and Regulations

Under the Real Estate Settlement Procedures Act (RESPA), which activity is generally prohibited in connection with a federally related mortgage loan?

  1. Providing a good-faith estimate of settlement costs to the borrower
  2. Paying a fee to a settlement service provider for the referral of business Correct answer.
  3. Charging a documented fee for services actually performed
  4. Holding borrower funds in a properly disclosed escrow account

Explanation

RESPA Section 8 prohibits giving or receiving anything of value in exchange for the referral of settlement service business. Fees must be for services actually performed and not tied to referrals.

Question 5Federal Mortgage-Related Laws and Regulations

Which law requires mortgage loan originators to be registered or licensed and to provide unique identifying information in the Nationwide Multistate Licensing System?

  1. The Fair Credit Reporting Act
  2. The Community Reinvestment Act
  3. The Homeowners Protection Act
  4. The Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act) Correct answer.

Explanation

The SAFE Act established national licensing and registration standards for mortgage loan originators and required unique identifiers through NMLS. It applies to both state-licensed and federally registered MLOs.

Question 6Federal Mortgage-Related Laws and Regulations

A borrower has a closed-end, higher-priced mortgage loan secured by a principal dwelling. Under Regulation Z, which escrow requirement generally applies?

  1. The creditor may waive escrow without any borrower disclosure
  2. The creditor is prohibited from escrowing for taxes
  3. The creditor must establish an escrow account for property taxes and insurance Correct answer.
  4. The creditor must place all closing costs into escrow

Explanation

Regulation Z generally requires creditors to establish escrow accounts for higher-priced mortgage loans secured by a principal dwelling, covering taxes and insurance. Limited exemptions exist, but the baseline rule mandates escrow.

Question 7Federal Mortgage-Related Laws and Regulations

Under the Fair Credit Reporting Act, what must a mortgage lender generally do before taking adverse action based in whole or part on a consumer report?

  1. Obtain the borrower's written consent to deny the loan
  2. Send the consumer report directly to the borrower
  3. Provide a notice of adverse action that includes the credit reporting agency's contact information Correct answer.
  4. Report the denial to the credit bureau as a dispute

Explanation

FCRA requires adverse action notices that identify the credit reporting agency used and state that the consumer may obtain a copy and dispute the report. The notice informs the consumer of the source of the information.

Question 8Federal Mortgage-Related Laws and Regulations

Under the Flood Disaster Protection Act, when is flood insurance generally required for a mortgage loan?

  1. When the property has a swimming pool
  2. When the loan exceeds the conforming loan limit
  3. When the improved real property securing the loan is in a special flood hazard area of a participating community Correct answer.
  4. When the borrower requests flood coverage voluntarily

Explanation

Flood insurance is required when the improved property securing a loan is located in a Special Flood Hazard Area in a community participating in the National Flood Insurance Program. The requirement applies to federally regulated lenders.

Question 9Federal Mortgage-Related Laws and Regulations

Under the Truth in Lending Act and Regulation Z, the finance charge on a closed-end consumer mortgage loan generally includes which of the following?

  1. Homeowners insurance premiums held in escrow
  2. Interest paid over the life of the loan Correct answer.
  3. Recording fees paid to a government agency
  4. Property taxes held in escrow

Explanation

The finance charge represents the cost of consumer credit, including interest and certain prepaid finance charges. Taxes, insurance premiums, and most government recording fees are excluded from the finance charge.

Question 10Federal Mortgage-Related Laws and Regulations

A creditor is evaluating whether a loan is a qualified mortgage under the General QM definition. Which factor is central to that determination?

  1. The borrower's credit score alone
  2. The lender's internal profitability target
  3. The loan's annual percentage rate compared with the average prime offer rate plus the applicable spread Correct answer.
  4. The property's appraised value alone

Explanation

The General QM definition relies on the loan's APR relative to the average prime offer rate plus a specified spread, along with other product-feature limits. Credit score and appraised value alone do not establish QM status.

Question 11Federal Mortgage-Related Laws and Regulations

An applicant receives a Loan Estimate. Under Regulation Z, when must the creditor generally provide the closing disclosure to the consumer?

  1. At least ten business days before consummation
  2. At least three business days before consummation Correct answer.
  3. At least one business day after consummation
  4. On the day of consummation

Explanation

Regulation Z requires the Closing Disclosure to be delivered at least three business days before consummation so the consumer can review final terms. Consummation may not occur until the waiting period has passed.

Question 12Federal Mortgage-Related Laws and Regulations

Under the Homeowners Protection Act, a borrower may request cancellation of private mortgage insurance on a residential mortgage when which condition is generally met?

  1. The loan reaches 80 percent of the original value based on the amortization schedule and the borrower is current Correct answer.
  2. The loan reaches 95 percent of the original value regardless of payment status
  3. The borrower has made three consecutive on-time payments
  4. The borrower refinances the loan with another lender

Explanation

The Homeowners Protection Act permits borrower-requested cancellation when the mortgage balance reaches 80 percent of the original property value based on the amortization schedule, provided the borrower is current. Automatic termination generally occurs at 78 percent.

Question 13Federal Mortgage-Related Laws and Regulations

A mortgage servicer receives a qualified written request from a borrower disputing an escrow error. Under RESPA, what is the servicer generally required to do?

  1. Foreclose on the property within 30 days
  2. Ignore the request unless it is notarized
  3. Forward the request to the credit bureau
  4. Acknowledge receipt within five business days and respond substantively within 30 business days Correct answer.

Explanation

RESPA requires servicers to acknowledge a qualified written request within five business days and provide a substantive response within 30 business days, subject to limited extensions. Foreclosure activity is restricted during the response period.

Question 14Federal Mortgage-Related Laws and Regulations

Under the Equal Credit Opportunity Act, which characteristic is a prohibited basis for discrimination in mortgage lending?

  1. Loan-to-value ratio
  2. Receipt of public assistance income Correct answer.
  3. Credit history
  4. Employment length

Explanation

ECOA prohibits discrimination on several bases, including receipt of income from public assistance programs. Creditors may consider credit history, loan-to-value, and employment length as neutral underwriting factors.

Question 15Federal Mortgage-Related Laws and Regulations

A lender discovers that an appraiser consistently undervalues homes in neighborhoods with predominantly minority residents. Which federal law most directly addresses this concern?

  1. The Homeowners Protection Act
  2. The Fair Housing Act Correct answer.
  3. The Secure and Fair Enforcement for Mortgage Licensing Act
  4. The Flood Disaster Protection Act

Explanation

The Fair Housing Act prohibits discrimination in housing-related services, including appraisal practices that treat neighborhoods differently based on protected characteristics. The other laws address insurance cancellation, licensing, and flood insurance, respectively.

Question 16Federal Mortgage-Related Laws and Regulations

Under Regulation Z's ability-to-repay rule, which practice is generally required before extending a covered closed-end mortgage loan?

  1. Relying solely on the property's projected appreciation
  2. Making a reasonable and good-faith determination that the consumer can repay the loan Correct answer.
  3. Approving the loan based only on a teaser interest rate
  4. Relying solely on the borrower's stated income without verification

Explanation

The ability-to-repay rule requires creditors to make a reasonable, good-faith determination of the consumer's ability to repay based on verified income, assets, and obligations. Relying on appreciation or unverified income is inconsistent with the rule.

Question 17Federal Mortgage-Related Laws and Regulations

Under the Fair Credit Reporting Act, a mortgage lender that takes adverse action based on a credit report must provide the consumer with which information?

  1. A statement that the credit reporting agency did not make the decision and the consumer's right to dispute Correct answer.
  2. The names of all other applicants who applied that day
  3. A copy of the lender's internal underwriting guidelines
  4. The full credit score algorithm used by the agency

Explanation

FCRA adverse action notices must state that the credit reporting agency did not make the credit decision and inform the consumer of the right to obtain a copy and dispute the report. Proprietary algorithms and internal guidelines are not disclosed.

Question 18Federal Mortgage-Related Laws and Regulations

A servicer is subject to Regulation X loss mitigation procedures. When a borrower submits a complete loss mitigation application, when must the servicer generally evaluate the borrower for all available options?

  1. Within 90 days of receiving the complete application
  2. Only after foreclosure is initiated
  3. Within 30 days of receiving the complete application Correct answer.
  4. Only after the borrower pays all arrears

Explanation

Regulation X generally requires servicers to evaluate a complete loss mitigation application for all available options within 30 days of receipt. The servicer must also provide the borrower a written notice of the options offered.

Question 19Federal Mortgage-Related Laws and Regulations

Under the Secure and Fair Enforcement for Mortgage Licensing Act, which individual must generally obtain an MLO license or registration?

  1. A loan processor who only performs clerical data entry
  2. A title company clerk who records documents
  3. An employee who takes a residential mortgage loan application and offers loan terms Correct answer.
  4. A real estate agent who shows homes

Explanation

The SAFE Act covers individuals who take residential mortgage loan applications and offer or negotiate loan terms for compensation. Purely clerical staff and unrelated professionals are generally excluded.

Question 20Federal Mortgage-Related Laws and Regulations

A creditor provides a Loan Estimate to a mortgage applicant. Under Regulation Z, when must the Loan Estimate generally be delivered?

  1. Only after underwriting approval
  2. No later than ten business days after receiving the application
  3. No later than three business days after receiving the application Correct answer.
  4. At consummation

Explanation

Regulation Z requires the Loan Estimate to be delivered or placed in the mail no later than three business days after the creditor receives the application. The disclosure must reflect the terms known at that time.

Question 21Federal Mortgage-Related Laws and Regulations

A borrower's mortgage is secured by a dwelling in a Special Flood Hazard Area, and the lender determines flood insurance is required. What is a permissible way to satisfy the requirement?

  1. The borrower obtains a flood insurance policy meeting the statutory coverage amount Correct answer.
  2. The lender relies on the borrower's verbal assurance of coverage
  3. The borrower signs a waiver acknowledging no flood risk
  4. The lender escrows funds but requires no policy

Explanation

The Flood Disaster Protection Act requires flood insurance coverage at least equal to the lesser of the outstanding principal balance or the maximum coverage available under the NFIP. A signed waiver does not satisfy the mandatory purchase requirement.

Question 22Federal Mortgage-Related Laws and Regulations

A lender's marketing materials advertise a mortgage product. Under Regulation Z, which disclosure is generally required when triggering terms such as a payment amount are used?

  1. The lender's internal rate sheet
  2. The names of the loan officers involved
  3. The annual percentage rate and other required disclosures Correct answer.
  4. The borrower's credit score

Explanation

When an advertisement contains a triggering term such as a payment amount or finance charge, Regulation Z requires additional disclosures, including the annual percentage rate. This ensures consumers receive balanced information.

Question 23Federal Mortgage-Related Laws and Regulations

A creditor denies a mortgage application and issues an adverse action notice. Under Regulation B, which approach satisfies the requirement to provide reasons for the denial?

  1. Disclosing the specific principal reasons for the adverse action or stating the applicant's right to request them Correct answer.
  2. Providing the credit score without any reasons
  3. Stating only that the decision was based on internal policy
  4. Telling the applicant verbally that the loan was denied

Explanation

Regulation B requires creditors to provide the specific principal reasons for adverse action or disclose the applicant's right to request those reasons within a set period. Generic statements or verbal notice alone do not satisfy the rule.

Question 24Federal Mortgage-Related Laws and Regulations

A servicer receives a borrower's complete loss mitigation application more than 37 days before a foreclosure sale. Under Regulation X, which protection generally applies?

  1. The servicer may proceed with the sale immediately without evaluation
  2. The servicer may not conduct a foreclosure sale until it has evaluated the application and met related requirements Correct answer.
  3. The servicer must forgive the entire loan balance
  4. The servicer must transfer the loan to another institution

Explanation

Regulation X imposes a pre-foreclosure review period when a complete loss mitigation application is received more than 37 days before a foreclosure sale. The servicer must evaluate the application and satisfy notice requirements before conducting a sale.

Question 25Federal Mortgage-Related Laws and Regulations

A creditor is determining whether a loan is a higher-priced mortgage loan under Regulation Z. Which comparison is used?

  1. The property value compared with the purchase price
  2. The loan's annual percentage rate compared with the average prime offer rate plus a specified threshold Correct answer.
  3. The loan amount compared with the conforming loan limit
  4. The borrower's debt-to-income ratio compared with 43 percent

Explanation

A higher-priced mortgage loan is identified by comparing the loan's APR to the average prime offer rate plus a regulatory threshold. Loan amount, debt-to-income ratio, and property value are not the defining comparison.

Question 26Federal Mortgage-Related Laws and Regulations

Under the Real Estate Settlement Procedures Act, which document must a mortgage servicer provide to a borrower at or before settlement that itemizes actual settlement charges paid by the borrower?

  1. The initial escrow account statement
  2. The promissory note
  3. The appraisal report
  4. The HUD-1 or Closing Disclosure settlement statement Correct answer.

Explanation

RESPA Section 4 requires that borrowers receive a settlement statement itemizing actual charges at or before settlement. Today this is delivered through the Closing Disclosure, which replaced the HUD-1 for most closed-end consumer mortgages. The other documents serve different purposes and do not itemize settlement charges.

Question 27Federal Mortgage-Related Laws and Regulations

A mortgage broker places a loan with a wholesale lender. Under Regulation Z, how is a mortgage broker generally treated for purposes of the origination-related rules?

  1. As a third-party service provider exempt from disclosures
  2. As a settlement agent
  3. As a creditor that funds the loan
  4. As a dealer arranging credit subject to the origination rules Correct answer.

Explanation

Regulation Z treats mortgage brokers as dealers who regularly arrange credit, so the origination rules apply to their conduct. The funding lender remains the creditor, but the broker's activities are still covered. Settlement agents perform title and closing functions rather than arranging credit.

Question 28Federal Mortgage-Related Laws and Regulations

A credit union employee takes residential mortgage applications and negotiates loan terms with members. Under SAFE Act regulations, which requirement applies to this employee?

  1. Registration with the Nationwide Mortgage Licensing System and Registry through the employing institution Correct answer.
  2. No registration because credit union employees are excluded
  3. State MLO licensing as an individual loan originator
  4. Registration only if the employee is compensated by commission

Explanation

Employees of federally insured depository institutions and credit unions who originate residential mortgage loans must be registered with the NMLSR through their employer rather than state-licensed. Registration is required regardless of compensation structure. The depository-institution registration path is distinct from individual state licensing.

Question 29Federal Mortgage-Related Laws and Regulations

A servicer of a federally related mortgage loan receives a borrower's request for information about the servicing of the loan. Under Regulation X, what timeframe generally applies to the servicer's response?

  1. Five calendar days for both acknowledgment and response
  2. Sixty business days with a single combined response
  3. Forty-five calendar days with no acknowledgment required
  4. Ten business days for acknowledgment and thirty business days for a substantive response, subject to extensions Correct answer.

Explanation

Regulation X requires a servicer to acknowledge a request for information within a short period and provide a substantive response within thirty business days, with a possible extension. The rule allows a limited additional period when the servicer needs more time and notifies the borrower. Shorter or longer single deadlines do not match the regulation.

Question 30Federal Mortgage-Related Laws and Regulations

A lender's loan originator compensation plan pays a bonus tied to the interest rate on each closed loan. Under Regulation Z loan originator compensation rules, how is this arrangement treated?

  1. Prohibited because compensation may not be based on transaction terms Correct answer.
  2. Prohibited only when the loan is a high-cost mortgage
  3. Permitted for bank employees only
  4. Permitted if disclosed on the Loan Estimate

Explanation

Regulation Z prohibits compensating loan originators based on the terms of a transaction, including the interest rate. The concern is that such incentives encourage steering borrowers into costlier loans. Disclosure does not cure the prohibition, and it is not limited to high-cost mortgages.

Question 31Federal Mortgage-Related Laws and Regulations

A borrower's loan is secured by a dwelling and the servicer wants to force-place hazard insurance after the borrower's policy lapses. Under Regulation X, when may the servicer generally charge the borrower for force-placed insurance?

  1. Immediately upon learning of the lapse
  2. After sending a notice, waiting for the response period, and sending a second reminder notice Correct answer.
  3. Only after foreclosure proceedings begin
  4. After a single phone call to the borrower

Explanation

Regulation X requires a servicer to send a written notice at least forty-five days before charging for force-placed insurance, then a second reminder notice if the borrower does not respond. The servicer may charge only after the response period expires. Immediate charging or a single phone call does not satisfy the notice requirements.

Question 32Federal Mortgage-Related Laws and Regulations

Under the Home Mortgage Disclosure Act and Regulation C, which lender is generally required to collect and report covered mortgage loan data?

  1. A lender that originated no dwelling-secured loans but made unsecured personal loans
  2. A lender that only purchases mortgage loans from other institutions
  3. An insured depository institution or non-depository lender meeting the applicable loan-volume thresholds Correct answer.
  4. A small lender that made five closed-end mortgage loans in each of the prior two years

Explanation

Regulation C requires covered depository and non-depository institutions that meet the loan-volume thresholds to collect and report HMDA data. The thresholds were revised in recent years, so the exact number matters, but the framework is volume-based coverage. Very small lenders and purely unsecured lenders fall outside the rule.

Question 33Federal Mortgage-Related Laws and Regulations

A creditor is subject to Regulation B and wants to collect monitoring information on a mortgage application. Which approach is consistent with Regulation B?

  1. Collecting race, ethnicity, and sex information for applications taken in person or by mail, and noting when the applicant declines Correct answer.
  2. Refusing to collect any monitoring information to avoid liability
  3. Collecting only the applicant's religion to assess community fit
  4. Collecting information about the applicant's childbearing plans

Explanation

Regulation B permits and generally requires creditors to request monitoring information such as race, ethnicity, and sex for mortgage applications, with a notation when the applicant declines. This data supports fair lending monitoring. Religion and family plans are not permissible bases for inquiry in this context.

Question 34Federal Mortgage-Related Laws and Regulations

Under the Fair Housing Act, which practice by a mortgage lender is prohibited?

  1. Steering applicants of a particular national origin toward higher-cost loan products Correct answer.
  2. Requiring documentation of income for all applicants
  3. Applying consistently published credit score minimums to all applicants
  4. Declining a loan because of a documented, nondiscriminatory credit history

Explanation

The Fair Housing Act prohibits discrimination in residential real estate-related transactions, including steering borrowers toward different loan terms because of national origin. Neutral, consistently applied underwriting criteria such as credit scores and income documentation are permissible. The prohibition targets differential treatment based on protected characteristics.

Question 35Federal Mortgage-Related Laws and Regulations

A creditor takes adverse action on a mortgage application. Under Regulation B, how long must the creditor generally retain the adverse action notice and related records?

  1. Twelve months
  2. Twenty-five months Correct answer.
  3. Five years
  4. Six months

Explanation

Regulation B generally requires creditors to retain records related to credit applications, including adverse action notices, for twenty-five months. The retention period supports examination and enforcement of fair lending requirements. Shorter periods do not satisfy the rule for consumer credit records.

Question 36Federal Mortgage-Related Laws and Regulations

Under the Secure and Fair Enforcement for Mortgage Licensing Act, which information is included in the NMLSR record for a licensed mortgage loan originator?

  1. The originator's fingerprints and personal history profile, subject to privacy safeguards Correct answer.
  2. The originator's home address and family details
  3. The originator's tax returns for the past decade
  4. The originator's customer list and loan pricing sheets

Explanation

The SAFE Act requires the NMLSR to maintain fingerprints and a personal history profile for licensed originators, with public access limited to certain fields. The system is designed to track an originator's identity and regulatory history across states. Confidential customer and pricing data are not part of the registry record.

Question 37Federal Mortgage-Related Laws and Regulations

A mortgage loan originator's license lapses while the originator continues to take applications for a non-depository lender. Under the SAFE Act, what is the consequence?

  1. The originator is engaging in unlicensed activity subject to enforcement and the loans may be subject to regulatory scrutiny Correct answer.
  2. The lapse is automatically cured by the next renewal cycle
  3. The originator may continue working under the lender's license
  4. The applications remain valid because the lender is licensed

Explanation

The SAFE Act requires individual licensing for originators employed by non-depository lenders, and acting after a license lapses is unlicensed activity. Regulators may impose penalties and the loans may face supervisory consequences. The employer's license does not substitute for the individual's license.

Question 38Federal Mortgage-Related Laws and Regulations

Under the Truth in Lending Act, which remedy is generally available to a borrower when a creditor fails to comply with a requirement for a closed-end consumer mortgage loan?

  1. Automatic rescission of every noncompliant loan
  2. Treble damages with no limitations
  3. Actual damages, statutory damages in certain cases, and attorney's fees, plus special rescission rights for refinances and home equity loans Correct answer.
  4. Criminal prosecution of the loan officer by the borrower

Explanation

TILA provides for actual damages, statutory damages in specified circumstances, costs and attorney's fees, and extended rescission for certain refinances and home equity loans secured by a principal dwelling. The remedy structure is not unlimited. Automatic rescission of all loans and private criminal prosecution are not available.

Question 39Federal Mortgage-Related Laws and Regulations

A creditor is preparing disclosures for a high-cost mortgage under Regulation Z. Which threshold is used to determine whether a loan is high-cost based on points and fees?

  1. Ten percent of the loan amount for all loans
  2. The greater of the loan amount or the property value
  3. One percent of the loan amount for all loans
  4. Five percent of the total loan amount for most loans, with a higher threshold for smaller loans Correct answer.

Explanation

Regulation Z defines high-cost mortgages using several tests, including points and fees exceeding five percent of the total loan amount for most loans, with a higher threshold for loans below a specified amount. The other thresholds do not match the rule. High-cost status triggers additional protections such as escrow and disclosure requirements.

Question 40Federal Mortgage-Related Laws and Regulations

A mortgage servicer is subject to the escrow account provisions of Regulation X. Which requirement applies to the servicer's handling of a borrower's escrow account?

  1. The servicer may not require any cushion under any circumstances
  2. The servicer must maintain a cushion of at least three months of payments
  3. The servicer may set the cushion at its discretion without limit
  4. The servicer may require a cushion of up to one-sixth of the estimated total annual payments Correct answer.

Explanation

Regulation X permits a servicer to require an escrow cushion of no more than one-sixth of the estimated total annual escrow payments. The cushion is a limited buffer against disbursement timing, not an open-ended reserve. A minimum cushion and unlimited discretion are both inconsistent with the rule.

Question 41Federal Mortgage-Related Laws and Regulations

A lender uses a consumer report in connection with a mortgage application. Under the Fair Credit Reporting Act, which obligation applies to the lender as a user of consumer reports?

  1. The lender must report the inquiry to the nationwide consumer reporting agencies
  2. The lender must obtain the consumer's written consent for every report
  3. The lender must certify the permissible purpose for obtaining the report Correct answer.
  4. The lender must provide the consumer with a free copy of the report before pulling it

Explanation

FCRA requires users of consumer reports to have a permissible purpose and, when obtaining reports from consumer reporting agencies, to certify that purpose. A mortgage application provides a permissible purpose without separate written consent in every case. Providing a free report in advance is not a general requirement.

Question 42Federal Mortgage-Related Laws and Regulations

A mortgage lender must provide a notice under the Fair Credit Reporting Act when it furnishes negative information about a borrower to a consumer reporting agency. What does FCRA require in this situation?

  1. A notice to the borrower that negative information may be reported, provided before or no later than thirty days after furnishing Correct answer.
  2. A notice only after the borrower disputes the information
  3. A notice to the consumer reporting agency listing the borrower's account balance
  4. A notice only if the borrower requests it

Explanation

FCRA requires furnishers to provide borrowers with a notice that negative information may be reported to consumer reporting agencies. The notice must be given before furnishing or no later than thirty days after. It is not triggered only by a dispute or a borrower request.

Question 43Federal Mortgage-Related Laws and Regulations

A borrower applies for a mortgage secured by a dwelling. Under the Equal Credit Opportunity Act, which action by the lender is permissible?

  1. Asking whether the applicant plans to have children
  2. Requiring a spousal co-signer regardless of the applicant's creditworthiness
  3. Discouraging an applicant based on the applicant's receipt of public assistance income
  4. Asking whether the applicant receives public assistance income, because the lender may consider reliable income sources Correct answer.

Explanation

Regulation B permits creditors to inquire about and consider public assistance income because it is a permissible income source when reliable and likely to continue. Creditors may not ask about childbearing plans or require a spousal co-signer when the applicant independently qualifies. Discouraging applicants based on public assistance receipt is prohibited.

Question 44Federal Mortgage-Related Laws and Regulations

A servicer receives a borrower's complete loss mitigation application more than 37 days before a foreclosure sale. Under Regulation X, which requirement applies?

  1. The servicer must offer a loan modification to every borrower
  2. The servicer may proceed to foreclosure immediately without evaluation
  3. The servicer must transfer the loan to another servicer
  4. The servicer must evaluate the borrower for all available loss mitigation options and may not proceed to foreclosure until certain conditions are met Correct answer.

Explanation

When a complete loss mitigation application arrives more than 37 days before a foreclosure sale, Regulation X requires the servicer to evaluate the borrower for all available options and observe restrictions on proceeding to foreclosure. The servicer must also provide the borrower with appeal rights in certain circumstances. Immediate foreclosure and a blanket modification offer are not required by the rule.

Question 45Federal Mortgage-Related Laws and Regulations

Under Regulation Z, which loan feature is generally prohibited for a high-cost mortgage?

  1. Negative amortization Correct answer.
  2. A balloon payment in certain circumstances
  3. A prepayment penalty after the first three years
  4. An adjustable interest rate

Explanation

High-cost mortgages may not include negative amortization, which allows the loan balance to grow because payments do not cover interest. Regulation Z also restricts prepayment penalties and balloon payments, but those restrictions are narrower than a blanket ban. Adjustable rates are not categorically prohibited.

Question 46Federal Mortgage-Related Laws and Regulations

A loan originator employed by a non-depository mortgage lender is paid a flat salary plus a per-loan bonus that does not vary with loan terms. Under Regulation Z, how is this compensation structure treated?

  1. Prohibited unless the loan is a qualified mortgage
  2. Prohibited because all per-loan bonuses are unlawful
  3. Permitted only if the borrower consents in writing
  4. Permitted because the bonus does not depend on transaction terms Correct answer.

Explanation

Regulation Z prohibits compensation based on transaction terms, not fixed per-loan amounts. A bonus that is the same regardless of rate, fees, or other terms does not create the steering incentive the rule targets. Written borrower consent and qualified mortgage status are not the operative tests.

Question 47Federal Mortgage-Related Laws and Regulations

Under the Flood Disaster Protection Act, a lender determines that a dwelling securing a loan is in a Special Flood Hazard Area and flood insurance is required. Which requirement applies to the lender?

  1. The lender must require coverage in an amount equal to the property's market value
  2. The lender may waive flood insurance if the borrower signs a waiver
  3. The lender must verify that flood insurance is maintained for the life of the loan and may force-place coverage if the borrower fails to maintain it Correct answer.
  4. The lender must purchase flood insurance only at origination

Explanation

The Flood Disaster Protection Act requires lenders to ensure flood insurance is maintained for the life of the loan and to force-place coverage if the borrower lets it lapse. Coverage must be maintained, not merely purchased at origination, and waivers are not permitted where coverage is required. The required amount is generally the lesser of the outstanding principal balance or the maximum available under the program.

Question 48Federal Mortgage-Related Laws and Regulations

A servicer is subject to Regulation X and is preparing an annual escrow account statement for a borrower. Which information must the statement generally include?

  1. The servicer's profit margin on the loan
  2. The amount of the borrower's escrow account and the projected activity for the coming year Correct answer.
  3. The appraised value of the property
  4. The borrower's credit score and payment history

Explanation

Regulation X requires the annual escrow account statement to show the account balance and projected escrow activity, including anticipated disbursements and payments. This allows the borrower to understand how the escrow payment was calculated. Credit scores, servicer profit, and appraised value are not part of the statement.

Question 49General Mortgage Knowledge

On a standard amortizing mortgage, which portion of the monthly payment increases over time while the total payment stays level?

  1. The interest portion
  2. The mortgage insurance portion
  3. The principal portion Correct answer.
  4. The escrow portion

Explanation

On a level-payment amortizing loan, interest is charged on the declining balance, so interest falls each month and principal rises. The total P&I payment remains constant. Escrow and mortgage insurance are separate from the amortization schedule.

Question 50General Mortgage Knowledge

A borrower wants the lowest possible monthly payment on a fixed-rate loan and is not concerned with total interest paid. Which term should the loan officer quote?

  1. 20-year fixed
  2. 10-year fixed
  3. 30-year fixed Correct answer.
  4. 15-year fixed

Explanation

Longer amortization spreads principal over more payments, so the monthly principal-and-interest payment is lower even at a similar or slightly higher rate. The 30-year term therefore produces the smallest required monthly payment among these choices. The tradeoff is substantially more total interest.