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ID MLO practice questions

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Question 1Federal mortgage loan origination law and regulation

Under the federal licensing framework for mortgage loan originators, an individual must generally register or obtain a state license through which system before acting as an MLO?

  1. The Federal Housing Administration's Title II approval roster
  2. The Nationwide Multistate Licensing System and Registry (NMLS) Correct answer.
  3. The Government National Mortgage Association issuer list
  4. The Home Mortgage Disclosure Act reporting portal

Explanation

The SAFE Act requires MLOs to be registered or licensed through the Nationwide Multistate Licensing System and Registry, which maintains the central record of each originator's credentials. FHA, HMDA, and Ginnie Mae systems serve different functions and do not license individuals.

Question 2Federal mortgage loan origination law and regulation

Which statute is the primary federal law establishing minimum standards for the licensing and registration of mortgage loan originators?

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

Explanation

The SAFE Act, enacted in 2008 as part of the Housing and Economic Recovery Act, sets the minimum national standards for MLO licensing and registration. RESPA, HPA, and FCRA regulate settlement practices, mortgage insurance cancellation, and consumer reports respectively.

Question 3Federal mortgage loan origination law and regulation

A mortgage loan originator's temporary authority to originate loans while awaiting state license approval is provided under which federal provision?

  1. The Economic Growth, Regulatory Relief, and Consumer Protection Act's temporary authority Correct answer.
  2. The Dodd-Frank Act's orderly liquidation authority
  3. The SAFE Act's temporary authority for registered originators
  4. The Federal Reserve Act's discount window authority

Explanation

The Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 created a limited temporary authority allowing certain qualifying MLOs to originate while a state license application is pending. The other provisions address unrelated regulatory or monetary functions.

Question 4Federal mortgage loan origination law and regulation

Under Regulation Z's loan originator compensation rule, which arrangement is generally prohibited?

  1. Paying compensation based on the number of loans originated
  2. Paying a loan originator a fixed salary unrelated to loan terms
  3. Reimbursing a loan originator for documented business expenses
  4. Basing a loan originator's compensation on the interest rate of the transaction Correct answer.

Explanation

Regulation Z prohibits compensating loan originators based on transaction terms such as the interest rate, and also bars dual compensation from both consumer and creditor on the same transaction. Fixed salaries, volume-based pay, and documented expense reimbursement remain permissible.

Question 5Federal mortgage loan origination law and regulation

A loan originator receives compensation from the borrower through a broker fee and also receives compensation from the creditor on the same transaction. Under Regulation Z, this practice is:

  1. Permitted only for high-cost mortgage loans
  2. Permitted if the borrower provides written consent
  3. Prohibited as dual compensation Correct answer.
  4. Permitted if disclosed on the Loan Estimate

Explanation

Regulation Z bars a loan originator from receiving compensation from both the consumer and the creditor in the same transaction. Disclosure or borrower consent does not cure the prohibition, and the high-cost mortgage designation does not create an exception.

Question 6Federal mortgage loan origination law and regulation

Under the Ability-to-Repay rule, which loan feature is a defining characteristic of a qualified mortgage?

  1. Negative amortization
  2. Interest-only payments
  3. No negative amortization or interest-only features Correct answer.
  4. Balloon payments in all cases

Explanation

Qualified mortgages may not contain negative amortization, interest-only payments, or balloon payments except in limited balloon-payment QM categories for small creditors. These product-feature restrictions are core to QM status.

Question 7Federal mortgage loan origination law and regulation

Under the general Ability-to-Repay rule, a creditor must consider and verify which of the following before extending a covered mortgage loan?

  1. The consumer's income and employment status Correct answer.
  2. The consumer's membership in a credit union
  3. The consumer's marital status
  4. The consumer's credit score from at least three bureaus

Explanation

Regulation Z requires creditors to consider and verify eight underwriting factors, including income, employment status, assets, debts, and monthly payments. Marital status and credit union membership are not underwriting factors, and a specific three-bureau score requirement does not exist.

Question 8Federal mortgage loan origination law and regulation

A lender extends a mortgage to a consumer without regard to the consumer's ability to repay. Under federal law, what consequence may the lender face?

  1. The loan is automatically voided by operation of law
  2. The consumer may assert a defense to foreclosure and seek statutory damages Correct answer.
  3. The lender is permanently barred from the mortgage business
  4. The loan converts into a qualified mortgage

Explanation

The ATR rule allows consumers to raise violations as a defense to foreclosure and provides for actual and statutory damages, costs, and attorney fees. The rule does not automatically void loans, permanently bar lenders, or convert noncompliant loans into QMs.

Question 9Federal mortgage loan origination law and regulation

A lender is required to provide the Loan Estimate to a consumer applying for a closed-end mortgage. Within how many business days of receiving the application must the Loan Estimate generally be delivered or placed in the mail?

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

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 rule uses a defined business day and does not permit a longer window.

Question 10Federal mortgage loan origination law and regulation

Under the TILA-RESPA integrated disclosure rules, when must the Closing Disclosure generally be provided to the consumer before consummation?

  1. Within three business days after consummation
  2. At the closing table
  3. At least three business days before consummation Correct answer.
  4. At least one business day before consummation

Explanation

The Closing Disclosure must generally be received by the consumer at least three business days before consummation, allowing time to review final terms. The rule also specifies when a revised disclosure restarts the three-business-day period.

Question 11Federal mortgage loan origination law and regulation

A creditor changes the loan's annual percentage rate beyond the tolerance threshold after the Loan Estimate was issued. What must the creditor generally do?

  1. Nothing, because the Loan Estimate is only an estimate
  2. Provide a revised Closing Disclosure only
  3. Cancel the loan and require a new application
  4. Provide a revised Loan Estimate within three business days of learning of the change Correct answer.

Explanation

When a valid changed circumstance triggers a revised disclosure, the creditor must provide a revised Loan Estimate within three business days of receiving information sufficient to establish the change. This preserves the consumer's ability to compare terms.

Question 12Federal mortgage loan origination law and regulation

Under RESPA, which practice involving settlement service providers is prohibited?

  1. Disclosing affiliated business arrangements on the required form
  2. Charging a reasonable fee for a required service
  3. Giving a thing of value in exchange for the referral of settlement service business Correct answer.
  4. Paying a fee for services actually performed

Explanation

Section 8 of RESPA prohibits giving or receiving anything of value in exchange for the referral of settlement service business. Payments for services actually performed, proper affiliated business disclosures, and reasonable fees remain lawful.

Question 13Federal mortgage loan origination law and regulation

A lender's affiliate provides title services and the lender refers borrowers to that affiliate. Under RESPA, which condition must be satisfied for the arrangement to be lawful?

  1. The affiliate must charge below-market rates
  2. The borrower must waive the disclosure
  3. The affiliate must be a separate legal entity only
  4. The lender must disclose the affiliation and the estimated charges on the required disclosure Correct answer.

Explanation

An affiliated business arrangement is lawful only if the affiliate is a bona fide provider, the consumer receives the required written disclosure of the affiliation and charges, and the consumer is not required to use the affiliate. Separate entity status alone is insufficient.

Question 14Federal mortgage loan origination law and regulation

Under the Home Mortgage Disclosure Act, which institution is generally required to report mortgage lending data?

  1. A credit counseling nonprofit
  2. An individual mortgage loan originator
  3. A covered depository institution meeting asset and lending thresholds Correct answer.
  4. A real estate brokerage with no lending activity

Explanation

HMDA applies to covered depository and nondepository institutions that meet specific asset, location, and lending-volume thresholds. Individual originators, brokerages without lending activity, and counseling nonprofits are not reporting institutions.

Question 15Federal mortgage loan origination law and regulation

Under HMDA, which data point must a covered institution collect about an applicant?

  1. The applicant's religion
  2. The applicant's medical history
  3. The applicant's political affiliation
  4. The applicant's race, ethnicity, and sex Correct answer.

Explanation

HMDA requires collection of race, ethnicity, and sex information, along with other loan and applicant data. Religion, political affiliation, and medical history are not HMDA data points and are not collected for this purpose.

Question 16Federal mortgage loan origination law and regulation

Under the Equal Credit Opportunity Act, which characteristic is a prohibited basis for credit decisions?

  1. Debt-to-income ratio
  2. Receipt of public assistance income Correct answer.
  3. Credit history
  4. Income level

Explanation

ECOA prohibits discrimination on bases including race, color, religion, national origin, sex, marital status, age, and receipt of public assistance income. Credit history, income, and debt-to-income ratio are legitimate underwriting factors.

Question 17Federal mortgage loan origination law and regulation

An applicant is denied a mortgage. Under ECOA and Regulation B, what must the creditor generally provide?

  1. A notice of action taken with the specific reasons for denial or a disclosure of the right to request them Correct answer.
  2. A copy of the appraiser's license
  3. A written promise to reconsider within one year
  4. A new Loan Estimate

Explanation

Regulation B requires creditors to notify applicants of action taken and, for adverse actions, to provide the specific reasons for the denial or disclose the applicant's right to request them. Appraiser licenses, new Loan Estimates, and reconsideration promises are not required.

Question 18Federal mortgage loan origination law and regulation

Under Regulation B, a creditor may generally ask an applicant about marital status in which situation?

  1. Never under any circumstances
  2. When the applicant applies for joint credit or the applicant resides in a community property state Correct answer.
  3. Only when the loan is a refinance
  4. Only when the applicant is over 62

Explanation

Regulation B permits inquiries about marital status when the applicant applies for joint credit or resides in a community property state, because marital status affects the creditor's rights. It does not permit the inquiry for the other listed reasons.

Question 19Federal mortgage loan origination law and regulation

Under the Fair Credit Reporting Act, what must a user of a consumer report generally have before obtaining the report?

  1. The consumer's employer's consent
  2. A court order
  3. A notarized authorization
  4. A permissible purpose Correct answer.

Explanation

The FCRA permits a consumer reporting agency to furnish reports only for permissible purposes, and users must certify those purposes. Employer consent, court orders, and notarized authorizations are not general prerequisites.

Question 20Federal mortgage loan origination law and regulation

A creditor obtains a consumer report and takes adverse action based in part on its contents. Under the FCRA, what must the creditor provide to the consumer?

  1. A copy of the entire consumer report
  2. The credit reporting agency's internal scoring model
  3. A notice of adverse action including the credit reporting agency's contact information and the consumer's right to dispute Correct answer.
  4. The name of the individual who made the decision

Explanation

FCRA adverse action notices must inform the consumer that a consumer reporting agency was used, identify the agency and its contact information, and explain the right to obtain and dispute the report. The full report, proprietary model, and decision-maker identity are not required.

Question 21Federal mortgage loan origination law and regulation

Under the Flood Disaster Protection Act, when must a lender require flood insurance on a property securing a loan?

  1. Only when the borrower requests it
  2. When the property is a condominium
  3. When the property is in a special flood hazard area and the loan is from a federally regulated lender Correct answer.
  4. When the loan-to-value ratio exceeds 80 percent

Explanation

The FDPA requires federally regulated lenders to require flood insurance for improved property located in a special flood hazard area in a participating community. Borrower request, LTV ratio, and property type are not the statutory triggers.

Question 22Federal mortgage loan origination law and regulation

A lender determines that a borrower's flood insurance policy provides less coverage than the required amount. What must the lender generally do?

  1. Cancel the loan immediately
  2. Waive the flood insurance requirement
  3. Accept the policy as written
  4. Require the borrower to obtain additional flood insurance coverage Correct answer.

Explanation

Where the flood insurance in force is insufficient, the lender must notify the borrower and require additional coverage to meet the statutory minimum. Accepting inadequate coverage, cancelling the loan, or waiving the requirement would violate the FDPA.

Question 23Federal mortgage loan origination law and regulation

Under the Real Estate Settlement Procedures Act, when must the servicing transfer disclosure be provided to the borrower?

  1. At the time of loan application
  2. At least 30 days after the transfer
  3. Only when the borrower requests it
  4. At least 15 days before the effective date of the transfer Correct answer.

Explanation

RESPA requires notice of a servicing transfer at least 15 days before the effective date of the transfer, and the new servicer must provide a notice within 15 days after the transfer. The other timing options do not match the regulation.

Question 24Federal mortgage loan origination law and regulation

Under the Homeowners Protection Act, when may a borrower generally request cancellation of private mortgage insurance based on the original value of the property?

  1. At any time without conditions
  2. Only when the loan is fully repaid
  3. When the principal balance reaches 95 percent of the original value
  4. When the principal balance reaches 80 percent of the original value and the borrower is current Correct answer.

Explanation

The HPA allows a borrower to request PMI cancellation when the mortgage balance reaches 80 percent of the original property value, provided the borrower is current and meets other conditions. Final termination generally occurs at 78 percent of original value.

Question 25Federal mortgage loan origination law and regulation

A loan originator employed by a state-licensed nonbank lender moves to a new state-licensed lender. Under the SAFE Act framework, what is generally required regarding the originator's license record?

  1. The originator's record must be updated through the NMLS to reflect the new sponsorship Correct answer.
  2. The originator must obtain a new license in every state
  3. The originator's license is automatically revoked
  4. The originator may continue originating without any update

Explanation

The SAFE Act and NMLS framework require the originator's record to be updated to reflect a change in sponsoring employer, and the new employer must confirm the sponsorship. A new license in every state or automatic revocation is not the general rule.

Question 26Federal mortgage loan origination law and regulation

Under the SAFE Act, a mortgage loan originator's license or registration may be revoked or refused if the originator fails to complete continuing education. What is the minimum annual continuing education requirement for a state-licensed MLO?

  1. 10 hours of education, half of which must be state-specific law
  2. 8 hours of NMLS-approved education, including at least 3 hours of federal law, 2 hours of ethics, and 2 hours of non-traditional mortgage lending Correct answer.
  3. 6 hours of NMLS-approved education, all of which may be elective topics
  4. 12 hours of NMLS-approved education, including at least 4 hours of federal law and 4 hours of ethics

Explanation

The SAFE Act requires state-licensed MLOs to complete at least 8 hours of NMLS-approved continuing education each year, with mandated categories for federal law, ethics, and non-traditional mortgage lending. The remaining hours may cover electives. Registration-only MLOs employed by depository institutions follow a separate federal registration regime.

Question 27Federal mortgage loan origination law and regulation

A mortgage broker takes a residential mortgage loan application and offers or negotiates terms of the loan for compensation. Under the SAFE Act, this individual is best described as which of the following?

  1. A servicer
  2. A depository institution
  3. A settlement service provider
  4. A mortgage loan originator Correct answer.

Explanation

The SAFE Act defines a mortgage loan originator as an individual who takes a residential mortgage loan application and offers or negotiates terms of a residential mortgage loan for compensation or gain. Licensing and registration attach to the individual, not merely to the company. Settlement services and servicing are separate concepts under RESPA.

Question 28Federal mortgage loan origination law and regulation

A creditor is subject to Regulation Z and makes high-cost mortgages. Which point-and-fee trigger generally causes a loan to be classified as a high-cost mortgage under HOEPA?

  1. The loan includes a prepayment penalty of any amount
  2. The annual percentage rate exceeds the average prime offer rate by 1 percentage point
  3. Total points and fees exceed 3 percent of the total loan amount for any loan size
  4. Total points and fees exceed 5 percent of the total loan amount for a loan of $20,000 or more Correct answer.

Explanation

HOEPA's points-and-fees trigger compares total points and fees to the total loan amount, using a 5 percent threshold for loans of $20,000 or more (with a different dollar-based test for smaller loans). The APR trigger and prepayment penalty rules are separate high-cost tests. Points and fees include items such as origination charges and certain loan originator compensation.

Question 29Federal mortgage loan origination law and regulation

A lender is preparing disclosures for a closed-end, higher-priced mortgage loan secured by a dwelling. Under Regulation Z, when must the creditor generally obtain a written appraisal performed by a certified or licensed appraiser?

  1. Before the loan is consummated, with a copy provided to the consumer no later than three business days before consummation Correct answer.
  2. At any time before the first payment is due, with a copy provided within 30 days of closing
  3. Only if the consumer requests an appraisal in writing
  4. After consummation, as part of the servicing file

Explanation

Regulation Z requires a written appraisal for higher-priced mortgage loans and generally requires the creditor to provide the consumer a copy no later than three business days before consummation. The appraisal must be performed by a certified or licensed appraiser with knowledge of the market. Timing after closing would defeat the consumer's opportunity to review it.

Question 30Federal mortgage loan origination law and regulation

A creditor is evaluating whether a loan is a higher-priced mortgage loan under Regulation Z. Which benchmark does the creditor compare the loan's annual percentage rate against?

  1. The creditor's own lowest advertised APR for any mortgage product
  2. The Federal Reserve discount rate published weekly
  3. The Wall Street Journal prime rate on the date of consummation
  4. The average prime offer rate for a comparable transaction Correct answer.

Explanation

The higher-priced mortgage loan threshold is measured by comparing the loan's APR to the average prime offer rate for a comparable transaction, plus a specified margin. The average prime offer rate is published by the Bureau based on survey data. Using an internal advertised rate or an unrelated index would not match the regulatory benchmark.

Question 31Federal mortgage loan origination law and regulation

A consumer applies for a reverse mortgage. Under Regulation Z, which requirement applies to the creditor before the loan may be consummated?

  1. The creditor must verify that the consumer has at least 20 percent equity
  2. The creditor must receive a certificate confirming the consumer obtained independent counseling from a qualified counselor Correct answer.
  3. The consumer must sign a waiver of the right to rescind the transaction
  4. The creditor must obtain a second appraisal signed by two licensed appraisers

Explanation

Regulation Z requires a reverse mortgage applicant to receive independent counseling from a qualified, HUD-approved counselor before the creditor may proceed to closing, and the creditor must obtain a certificate of counseling. This protects older borrowers who may not fully understand the product. The other listed conditions are not general federal reverse mortgage prerequisites.

Question 32Federal mortgage loan origination law and regulation

A loan originator is compensated by a creditor for originating a loan. Under the loan originator compensation rule in Regulation Z, which practice is generally prohibited?

  1. Paying the originator a fixed salary that does not vary by loan
  2. Basing the originator's compensation on the terms of the transaction, such as the interest rate Correct answer.
  3. Paying a higher salary to originators with more years of experience
  4. Paying compensation based on the total number of loans originated

Explanation

Regulation Z prohibits compensating a loan originator based on the terms or conditions of the transaction, such as the interest rate or the presence of a prepayment penalty. This rule targets steering incentives. Compensation may vary with loan volume or be a fixed salary, provided it is not tied to transaction terms.

Question 33Federal mortgage loan origination law and regulation

A creditor is evaluating whether a loan is a qualified mortgage under the General QM definition. Which characteristic must the loan satisfy?

  1. The loan must have a term of no more than 15 years
  2. The loan must include a prepayment penalty to offset risk
  3. The loan must be secured by a first lien on a single-family residence only
  4. The loan's APR must not exceed the average prime offer rate by a specified threshold based on loan size Correct answer.

Explanation

Under the General QM definition, the loan's APR must fall within a price-based threshold measured against the average prime offer rate, with the margin varying by loan amount. The loan must also meet product-feature limits and underwriting standards. A 15-year term cap and a mandatory prepayment penalty are not General QM requirements.

Question 34Federal mortgage loan origination law and regulation

A creditor is determining whether a loan is a small creditor qualified mortgage under the balloon-payment provisions. Which condition must generally be met?

  1. The creditor must originate at least 1,000 covered transactions in the preceding year
  2. The creditor must be a depository institution insured by the FDIC
  3. The creditor must have total assets below a specified threshold and originate most of its covered loans in rural or underserved areas Correct answer.
  4. The loan must be a high-cost mortgage

Explanation

The small creditor balloon-payment QM category is available to creditors with assets below a regulatory threshold that extend most of their covered loans in rural or underserved areas. It permits certain balloon-payment loans to receive QM status when sold to specified holders. Being an insured depository or a high-cost loan is not a condition of this category.

Question 35Federal mortgage loan origination law and regulation

Under the Home Mortgage Disclosure Act and Regulation C, an institution reports the rate spread for a covered loan. What does the rate spread generally represent?

  1. The difference between the loan's APR and the discount rate
  2. The difference between the note rate and the creditor's cost of funds
  3. The difference between the loan's annual percentage rate and the average prime offer rate for a comparable transaction Correct answer.
  4. The difference between the loan amount and the appraised value

Explanation

Regulation C requires reporting of the rate spread, which is the difference between the loan's APR and the average prime offer rate for a comparable transaction as of the rate-set date. It is a measure of pricing and is used to identify higher-priced lending. It is not a loan-to-value or cost-of-funds measure.

Question 36Federal mortgage loan origination law and regulation

A covered institution reports a loan under HMDA. Which data point must the institution report about the property securing the loan?

  1. The appraised value of the property
  2. The name of the seller of the property
  3. The census tract of the property Correct answer.
  4. The borrower's credit score

Explanation

Regulation C requires reporting of property location information, including the census tract, which supports analysis of lending patterns by geography. Credit score, appraised value, and seller identity are not HMDA data points. The census tract is derived from the property address.

Question 37Federal mortgage loan origination law and regulation

A mortgage lender advertises a credit product in a newspaper. Under Regulation B, which practice is permissible in the advertisement?

  1. Using the phrase 'no credit history required' to describe the product
  2. Discouraging applicants on a prohibited basis from applying
  3. Using the phrase 'bad credit applicants welcome' without stating additional conditions Correct answer.
  4. Requiring a specific credit score without disclosing the requirement

Explanation

Regulation B prohibits advertisements that discourage applicants on a prohibited basis, but it does not bar general statements inviting applicants with imperfect credit when the statement is accurate. Discouraging applicants on a prohibited basis and using deceptive claims violate the rule. Advertised credit criteria should be stated accurately.

Question 38Federal mortgage loan origination law and regulation

Under the Equal Credit Opportunity Act, a creditor must retain records relating to a mortgage application for how long after the creditor notifies the applicant of action taken?

  1. 6 months
  2. 12 months
  3. 25 months Correct answer.
  4. 36 months

Explanation

Regulation B requires creditors to retain application records for 25 months after notifying the applicant of action taken on a mortgage application. For business credit, the retention period is generally 12 months. The 25-month period supports examination and enforcement of fair lending requirements.

Question 39Federal mortgage loan origination law and regulation

A creditor receives a completed mortgage application and takes adverse action. Under Regulation B, the creditor must generally notify the applicant within how many days after receiving the completed application?

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

Explanation

Regulation B requires a creditor to notify an applicant of action taken within 30 days after receiving a completed application. The notice must include the specific reasons for adverse action or a disclosure of the right to request them. An incomplete application triggers different timing once it is completed.

Question 40Federal mortgage loan origination law and regulation

A creditor denies a mortgage application based on information in a consumer report. Under the Fair Credit Reporting Act, what must the adverse action notice include?

  1. An offer to sell the consumer credit monitoring services
  2. A copy of the entire consumer report attached to the notice
  3. The name of the individual who reviewed the report
  4. A statement that the consumer reporting agency did not make the decision and the consumer's right to obtain a free copy and dispute the report Correct answer.

Explanation

When adverse action is based on a consumer report, the FCRA requires the notice to identify the agency, state that the agency did not make the decision, and inform the consumer of the right to obtain a free copy and dispute the accuracy of the report. The creditor need not attach the full report. These disclosures help consumers correct inaccurate information.

Question 41Federal mortgage loan origination law and regulation

A lender obtains a consumer report for a permissible purpose. Under the FCRA, which statement best describes the lender's ongoing obligation regarding that report?

  1. The lender may use the report only for the permissible purpose for which it was obtained Correct answer.
  2. The lender may share the report with any third party who requests it
  3. The lender must destroy the report within 24 hours of receipt
  4. The lender may resell the report to any affiliated company

Explanation

The FCRA limits use of consumer reports to permissible purposes, and a user that obtains a report for a permissible purpose may not repurpose it freely. Sharing reports with parties lacking a permissible purpose can violate the statute. Retention and disposal are governed by separate rules, not a 24-hour destruction mandate.

Question 42Federal mortgage loan origination law and regulation

A property securing a mortgage is located in a special flood hazard area, and the community participates in the National Flood Insurance Program. Under the Flood Disaster Protection Act, what must the lender generally do before closing?

  1. Require coverage equal to the full replacement cost of the structure regardless of the NFIP maximum
  2. Require the borrower to obtain flood insurance in an amount at least equal to the lesser of the outstanding principal balance or the maximum coverage available under the NFIP Correct answer.
  3. Rely on the borrower's representation that the property is not in a flood zone
  4. Require flood insurance only if the borrower requests it

Explanation

The Flood Disaster Protection Act requires flood insurance on improved structures in special flood hazard areas in participating communities, in an amount at least equal to the lesser of the outstanding principal balance of the loan or the maximum coverage available under the NFIP. The lender must also document flood zone determination and provide notice. Coverage cannot be left to the borrower's discretion.

Question 43Federal mortgage loan origination law and regulation

A lender determines that flood insurance on a covered loan has lapsed. Under the Flood Disaster Protection Act, what must the lender do?

  1. Take no action as long as the property is not currently flooded
  2. Immediately accelerate the loan and foreclose
  3. Cancel the remaining loan balance
  4. Purchase flood insurance on the borrower's behalf and may charge the borrower for the premium Correct answer.

Explanation

When flood insurance lapses on a covered loan, the lender must force-place coverage and may charge the borrower for the cost. The lender must also notify the borrower. Inaction leaves the lender exposed to regulatory penalties and the collateral unprotected.

Question 44Federal mortgage loan origination law and regulation

A borrower submits a complete loss mitigation application for a mortgage loan. Under Regulation X, when must the servicer generally provide a notice acknowledging receipt of the application?

  1. Within 45 days of receipt
  2. Within 30 days of receipt
  3. Within 10 days of receipt
  4. Within 5 business days of receipt Correct answer.

Explanation

Regulation X requires a servicer to provide a notice acknowledging receipt of a complete loss mitigation application within 5 business days. The notice informs the borrower of the review process and applicable timelines. The servicer must then evaluate the borrower for available options.

Question 45Federal mortgage loan origination law and regulation

A servicer receives a qualified written request from a borrower concerning the servicing of a federally related mortgage loan. Under RESPA, by when must the servicer generally acknowledge receipt?

  1. Within 5 business days Correct answer.
  2. Within 20 business days
  3. Within 30 business days
  4. Within 60 business days

Explanation

RESPA requires a servicer to acknowledge receipt of a qualified written request within 5 business days, unless it takes the substantive action requested within that period. The servicer must then respond substantively within the regulatory timeframe. These rules give borrowers a documented channel to dispute servicing errors.

Question 46Federal mortgage loan origination law and regulation

A servicer of a federally related mortgage loan is transferring servicing to another servicer. Under RESPA, when must the transferor servicer provide the servicing transfer notice to the borrower?

  1. Not less than 3 days before the effective date of the transfer
  2. Within 30 days after the transfer takes effect
  3. Not less than 15 days before the effective date of the transfer Correct answer.
  4. At the same time as the first payment to the new servicer

Explanation

RESPA requires the transferor servicer to notify the borrower at least 15 days before the effective date of a servicing transfer, and the transferee servicer must provide a notice within 15 days after the transfer. The notice identifies the new servicer and explains payment and dispute procedures. Advance notice prevents misdirected payments.

Question 47Federal mortgage loan origination law and regulation

A borrower's mortgage is secured by a dwelling the borrower occupies. Under the Truth in Lending Act, when does the borrower's right of rescission generally expire?

  1. At midnight of the third business day after the first payment is due
  2. Thirty days after consummation in all cases
  3. At midnight of the third business day after consummation or after delivery of the required rescission disclosures and notice of the right to rescind, whichever is later Correct answer.
  4. Immediately upon signing the promissory note

Explanation

For covered dwelling-secured loans, TILA gives the borrower three business days to rescind, measured from the later of consummation or delivery of the required disclosures and notice of the right to rescind. If required disclosures are never delivered, the right can be extended. The right does not run from the first payment date.

Question 48Federal mortgage loan origination law and regulation

A creditor is subject to the Ability-to-Repay rule and is evaluating a consumer's income. Which approach is consistent with the general ATR requirements?

  1. Use a stated income figure adjusted upward by the loan originator
  2. Rely solely on the consumer's stated income without verification
  3. Verify income using reasonably reliable third-party records such as tax transcripts or payroll statements Correct answer.
  4. Verify income only when the loan amount exceeds the conforming loan limit

Explanation

The general Ability-to-Repay rule requires creditors to consider and verify income and other underwriting factors using reasonably reliable third-party records. Stated income without verification does not satisfy the rule. Verification is required regardless of loan size.

Question 49Federal mortgage loan origination law and regulation

A creditor is considering a loan with a prepayment penalty. Under the Ability-to-Repay rule, which statement describes the treatment of prepayment penalties for a qualified mortgage?

  1. A qualified mortgage may include an unlimited prepayment penalty if disclosed
  2. A qualified mortgage may include a prepayment penalty only if it is limited in amount and duration and certain conditions are met Correct answer.
  3. A qualified mortgage may never include a prepayment penalty under any circumstances
  4. Prepayment penalties are permitted only on high-cost mortgages

Explanation

The ATR rule permits prepayment penalties on qualified mortgages only within limits on amount and duration and only when other conditions, such as offering a no-penalty alternative, are satisfied. An unlimited penalty is inconsistent with QM status. High-cost mortgages face stricter restrictions on prepayment penalties.

Question 50Federal mortgage loan origination law and regulation

A creditor must provide a Loan Estimate for a closed-end mortgage. Which statement best describes the general timing rule for delivering the Loan Estimate?

  1. The creditor must deliver or place it in the mail no later than the third business day after receiving the application Correct answer.
  2. The creditor must deliver it only after the appraisal is completed
  3. The creditor must deliver it at least seven business days before consummation
  4. The creditor must deliver it within 30 days of receiving the application

Explanation

Under the TILA-RESPA integrated disclosure rules, the creditor must provide the Loan Estimate no later than the third business day after receiving the consumer's application. The consumer must also receive it at least seven business days before consummation, but that is a separate waiting-period rule. The estimate reflects the terms known at the time.