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Kentucky MLO practice questions

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Question 1Federal Mortgage Laws and Regulations

Under the Truth in Lending Act, when must a mortgage loan originator provide the Loan Estimate to an applicant?

  1. At least seven business days before consummation
  2. Within one business day of the applicant's request
  3. No later than three business days after receiving the application Correct answer.
  4. Only after the appraisal has been completed

Explanation

Regulation Z requires the creditor to deliver or place in the mail the Loan Estimate no later than the third business day after it receives the application. The disclosure must also be received by the consumer no later than seven business days before consummation, but the initial trigger is the three-business-day rule.

Question 2Federal Mortgage Laws and Regulations

A borrower's loan is secured by a dwelling and the creditor fails to provide the required Loan Estimate. Under TILA, what is the maximum statutory civil liability for this disclosure violation in a closed-end consumer mortgage transaction?

  1. Actual damages plus statutory damages capped at $2,000
  2. The actual damages plus statutory damages capped at $4,000
  3. Only actual damages, with no statutory cap
  4. Twice the finance charge plus statutory damages capped at $4,000 Correct answer.

Explanation

For closed-end credit, TILA allows actual damages plus statutory damages and, in individual actions, twice the finance charge, with the statutory and finance-charge recovery capped. The cap for individual actions is $4,000, adjusted periodically for inflation. Class actions have a lower statutory cap but no finance-charge multiple.

Question 3Federal Mortgage Laws and Regulations

Which loan is covered by the Home Ownership and Equity Protection Act (HOEPA) high-cost mortgage rules?

  1. A reverse mortgage transaction
  2. A purchase-money loan on the borrower's primary residence
  3. An open-end home equity line of credit
  4. A refinance secured by the borrower's principal dwelling with points and fees above the HOEPA threshold Correct answer.

Explanation

HOEPA applies to closed-end refinances and home equity loans secured by a dwelling when points and fees, APR, or prepayment penalties exceed the statutory triggers. Purchase-money loans, reverse mortgages, and HELOCs are excluded from the high-cost mortgage definition.

Question 4Federal Mortgage Laws and Regulations

A mortgage broker receives compensation from the consumer and also from the lender on the same transaction. Which federal rule is violated?

  1. The anti-steering provision of Regulation Z
  2. The dual compensation prohibition for loan originators Correct answer.
  3. The ability-to-repay safe harbor requirement
  4. The escrow account aggregate accounting rule

Explanation

Regulation Z prohibits a loan originator from receiving compensation directly from the consumer and also from the creditor or another party in the same transaction. This dual compensation ban is designed to reduce incentives for steering. It applies to both brokers and lender-employed originators.

Question 5Federal Mortgage Laws and Regulations

Under the ability-to-repay rule, which factor must a creditor consider when underwriting a covered closed-end mortgage?

  1. The consumer's credit score alone
  2. The consumer's current or reasonably expected income or assets Correct answer.
  3. The loan originator's compensation structure
  4. The value of the lender's servicing portfolio

Explanation

Regulation Z lists eight underwriting factors, beginning with the consumer's current or reasonably expected income or assets other than the value of the dwelling. Creditors must also consider employment status, monthly payment, other loan obligations, and debt-to-income ratio. A credit score alone does not satisfy the rule.

Question 6Federal Mortgage Laws and Regulations

A creditor originates a qualified mortgage that meets the general (non-safe-harbor) QM definition. What legal protection does the creditor receive?

  1. A rebuttable presumption of compliance with the ability-to-repay rule Correct answer.
  2. No presumption, because only safe harbor QMs provide protection
  3. A conclusive presumption of compliance with the ability-to-repay rule
  4. An exemption from all TILA disclosure requirements

Explanation

A general QM that is not a higher-priced mortgage loan receives a rebuttable presumption of compliance with the ATR rule. A safe harbor QM, which is not higher-priced, receives a conclusive presumption. The distinction turns on whether the loan's APR exceeds the average prime offer rate by the specified margin.

Question 7Federal Mortgage Laws and Regulations

When is a lender required to provide a servicing transfer notice under RESPA?

  1. At least 15 days before the effective date of the transfer of servicing Correct answer.
  2. Only when the borrower requests information about the transfer
  3. At least 60 days before the transfer of servicing
  4. Within 15 days after the transfer of servicing

Explanation

Section 6 of RESPA requires the transferor servicer and the transferee servicer to notify the borrower of the transfer at least 15 days before the effective date. The notice must state the effective date and identify the new servicer and its contact information. A combined notice may be sent by the transferor.

Question 8Federal Mortgage Laws and Regulations

A servicer receives a qualified written request from a borrower disputing an escrow charge. How must the servicer respond?

  1. Ignore the request if the borrower is current on payments
  2. Acknowledge receipt within five business days and respond substantively within 30 business days Correct answer.
  3. Acknowledge receipt within 30 days and respond within 60 days
  4. Respond only after the borrower pays the disputed amount

Explanation

Under RESPA, the servicer must acknowledge a qualified written request within five business days and make a substantive response within 30 business days, with a possible 15-day extension. The servicer may not impose fees on the borrower for the request. Payment status does not excuse the response.

Question 9Federal Mortgage Laws and Regulations

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

  1. Setting maximum occupancy limits based on square footage
  2. Refusing to rent to a person because of the person's religion Correct answer.
  3. Advertising a unit as available to all applicants
  4. Requiring a credit check of all applicants

Explanation

The Fair Housing Act prohibits discrimination in housing on the basis of race, color, religion, sex, national origin, familial status, or disability. Refusing to rent because of a protected characteristic is a direct violation. Neutral practices applied uniformly are generally permissible.

Question 10Federal Mortgage Laws and Regulations

A mortgage lender's advertising uses photos and text that would tend to discourage applicants of a particular national origin. Which law is most directly implicated?

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

Explanation

ECOA and Regulation B prohibit discrimination in credit advertising and applications on the basis of national origin and other protected characteristics. Discouraging applicants of a particular national origin from applying is a form of credit discrimination. RESPA, HMDA, and SAFE address disclosures, data reporting, and licensing rather than credit advertising discrimination.

Question 11Federal Mortgage Laws and Regulations

Under ECOA, a creditor must notify an applicant of adverse action within how many days after receiving a completed application?

  1. 10 days
  2. 30 days Correct answer.
  3. 60 days
  4. 20 days

Explanation

Regulation B requires notice of adverse action within 30 days after a creditor receives a completed application for credit. A counteroffer or other action may also trigger notice obligations. Incomplete applications require notice within 30 days of taking adverse action.

Question 12Federal Mortgage Laws and Regulations

Which characteristic is protected by ECOA but is not protected by the Fair Housing Act?

  1. Religion
  2. Marital status Correct answer.
  3. Race
  4. National origin

Explanation

ECOA prohibits discrimination based on marital status, age, receipt of public assistance income, and good-faith exercise of rights, in addition to the protected classes shared with the FHA. The Fair Housing Act covers race, color, religion, sex, national origin, familial status, and disability but does not list marital status. Knowing the difference helps originators identify which law applies.

Question 13Federal Mortgage Laws and Regulations

A loan originator takes an application for a loan secured by a dwelling. Under the SAFE Act, what is the originator required to do at the time of application?

  1. Collect a full appraisal fee
  2. Provide the borrower's credit report to the lender
  3. Submit the application to a state regulator
  4. Disclose the unique identifier assigned to the originator Correct answer.

Explanation

The SAFE Act requires loan originators to provide their unique identifier, obtained through NMLS registration or licensing, to the consumer at application and to include it on related documents. This allows consumers to verify the originator's license status. Providing the identifier is separate from any lender's disclosures.

Question 14Federal Mortgage Laws and Regulations

Which license status must a Kentucky loan originator generally hold to be authorized to originate mortgage loans in the state?

  1. A federal banking charter
  2. A real estate broker license
  3. A general business license from the county
  4. A valid state-issued loan originator license through NMLS Correct answer.

Explanation

The SAFE Act requires individual loan originators to be licensed by the state through NMLS, with licensing based on standards including education, testing, and background checks. Kentucky enforces these requirements through its mortgage licensing authority. A real estate, banking, or business license does not substitute for an MLO license.

Question 15Federal Mortgage Laws and Regulations

An originator is convicted of a felony involving financial services. How does this affect eligibility for an MLO license under the SAFE Act?

  1. It disqualifies the applicant unless the conviction is expunged or the applicant receives a waiver Correct answer.
  2. It requires only additional continuing education
  3. It is reviewed only at the annual renewal
  4. It has no effect if the conviction is more than five years old

Explanation

SAFE licensing standards include a criminal background check, and a felony conviction in the past seven years generally disqualifies an applicant unless the state's licensing authority grants a waiver or the conviction is expunged. The background check is part of initial and renewal licensing. A conviction is considered regardless of its age if within the lookback.

Question 16Federal Mortgage Laws and Regulations

Under HMDA, which lender is required to report mortgage loan data?

  1. Only lenders that originate FHA loans
  2. Only lenders with a federal charter
  3. Lenders that meet the asset and loan-volume thresholds in Regulation C Correct answer.
  4. Only lenders located in Kentucky

Explanation

HMDA and Regulation C require covered financial institutions to collect and report data on mortgage applications and originations. Coverage is based on asset size, loan volume, and geographic factors, not on charter type or loan program. HMDA reporting supports fair lending analysis.

Question 17Federal Mortgage Laws and Regulations

A lender's loan originator tells an applicant that the loan is approved but withholds the actual interest rate until the day of closing. Which disclosure rule is most directly implicated?

  1. The Loan Estimate and Closing Disclosure timing rules under Regulation Z Correct answer.
  2. The SAFE Act licensing rules
  3. The HMDA data reporting rules
  4. The escrow account rules under RESPA

Explanation

Regulation Z requires the creditor to provide a Loan Estimate with the loan terms, including the interest rate and projected payments, and a Closing Disclosure at least three business days before consummation. Withholding the rate until closing undermines these disclosure requirements. Escrow, licensing, and HMDA rules do not govern the timing of rate disclosure.

Question 18Federal Mortgage Laws and Regulations

Which transaction is exempt from the Real Estate Settlement Procedures Act's Section 8 anti-kickback prohibition?

  1. A payment for a referral of settlement business
  2. A bona fide payment for services actually performed Correct answer.
  3. A payment to a title agent for steering business
  4. A fee split with an unlicensed referral source

Explanation

RESPA Section 8 prohibits fees for referrals of settlement service business but permits payments for goods or services actually furnished or for services actually performed. The payment must be reasonable and not a disguised referral fee. Payments to unlicensed referral sources for steering are prohibited.

Question 19Federal Mortgage Laws and Regulations

An originator is asked to complete an application for a borrower and omits the borrower's overtime income to help the borrower qualify. Which federal concern is most directly raised?

  1. Violation of the ability-to-repay underwriting standards Correct answer.
  2. Violation of the escrow aggregate accounting rule
  3. Violation of the SAFE Act continuing education requirement
  4. Violation of the HMDA reporting threshold

Explanation

The ability-to-repay rule requires creditors to verify and consider the consumer's income and debts. Omitting income to help the borrower qualify violates the verification and underwriting requirements and may also constitute fraud. HMDA, SAFE education, and escrow rules do not address underwriting accuracy.

Question 20Federal Mortgage Laws and Regulations

Under the Fair Housing Act, which action constitutes a prohibited discriminatory practice in mortgage lending?

  1. Requiring documentation of income for all applicants
  2. Redlining a neighborhood based on its racial composition Correct answer.
  3. Applying the same credit standards to all applicants
  4. Using a uniform appraisal form for all properties

Explanation

Redlining, the practice of denying or limiting services in neighborhoods based on race or national origin, is a prohibited practice under the Fair Housing Act and ECOA. Uniform credit standards and documentation requirements applied to all applicants are lawful. Discriminatory treatment in lending is a fair housing violation.

Question 21Federal Mortgage Laws and Regulations

Which statement about the Closing Disclosure under Regulation Z is correct?

  1. It must be provided at least three business days before consummation Correct answer.
  2. It is required only for FHA loans
  3. It may be provided at closing with no advance delivery
  4. It replaces the Loan Estimate entirely

Explanation

Regulation Z requires the creditor to deliver the Closing Disclosure to the consumer at least three business days before consummation. The waiting period allows the borrower to review final terms. The Closing Disclosure does not replace the Loan Estimate; both are required.

Question 22Federal Mortgage Laws and Regulations

A servicer places a borrower's mortgage payment in a suspense account instead of applying it to the loan balance. Under RESPA, when must the servicer apply the funds?

  1. No later than the next scheduled payment date
  2. Within 30 days of receipt
  3. Within five business days of receipt Correct answer.
  4. Only after the borrower pays the full amount due

Explanation

RESPA requires servicers to credit a borrower's account as of the date of receipt and to apply partial payments within five business days. Holding funds in suspense without applying them can violate these servicing rules. The requirement protects borrowers from late fees caused by servicer delays.

Question 23Federal Mortgage Laws and Regulations

Which law requires lenders to provide a good-faith estimate of settlement costs and a settlement statement at closing?

  1. The Gramm-Leach-Bliley Act
  2. The Truth in Lending Act
  3. The Real Estate Settlement Procedures Act Correct answer.
  4. The Fair Credit Reporting Act

Explanation

RESPA governs settlement service disclosures, requiring a good-faith estimate of costs and a settlement statement at closing. TILA governs credit disclosures such as the APR and finance charge. FCRA addresses consumer reports, and GLBA addresses privacy of financial information.

Question 24Federal Mortgage Laws and Regulations

An originator offers a borrower a lower rate in exchange for a higher origination fee. Which disclosure must reflect this trade-off?

  1. The adverse action notice
  2. The Loan Estimate, which must show the interest rate and the origination charges Correct answer.
  3. The HMDA loan application register
  4. The servicing transfer notice

Explanation

Regulation Z requires the Loan Estimate to disclose the interest rate, origination charges, and other loan costs so the borrower can compare the trade-off between rate and points. The adverse action notice applies only when credit is denied. Servicing transfer notices and HMDA registers do not disclose loan pricing to borrowers.

Question 25Federal Mortgage Laws and Regulations

A creditor denies a mortgage application based on a credit report. What must the creditor include in the adverse action notice under ECOA and FCRA?

  1. Only the applicant's credit score
  2. The specific reasons for the denial and a notice of the right to obtain the credit report Correct answer.
  3. The name of the loan originator's employer
  4. A copy of the Loan Estimate

Explanation

Regulation B requires adverse action notices to state the specific reasons for denial or disclose the right to request them. FCRA separately requires notice when a credit report was used, including the right to obtain a free copy and to dispute inaccurate information. The notice must be specific enough to help the applicant understand the decision.

Question 26Federal Mortgage Laws and Regulations

Under the Truth in Lending Act, when must a creditor provide the initial Loan Estimate to a mortgage applicant?

  1. At least seven business days before consummation
  2. Within three business days after the loan is consummated
  3. No later than three business days after receiving the application Correct answer.
  4. Only after the applicant pays the appraisal fee

Explanation

Regulation Z requires the creditor to deliver or place in the mail the Loan Estimate within three business days after receipt of the application. The disclosure may not be provided later than seven business days before consummation. Delivery timing is tied to the application date, not to fee payment or closing.

Question 27Federal Mortgage Laws and Regulations

A creditor must provide a revised Loan Estimate when which event occurs?

  1. The creditor's internal underwriter reviews the file
  2. The borrower asks a question about the escrow account
  3. The borrower mails back a signed intent to proceed
  4. The borrower requests a change that causes the loan terms to change Correct answer.

Explanation

A revised Loan Estimate is required when changed circumstances affect the settlement charges or terms the consumer receives, such as a borrower-requested change. Routine internal review or borrower questions do not create a revision obligation. The intent to proceed is a separate document and does not itself trigger a revised estimate.

Question 28Federal Mortgage Laws and Regulations

Under Regulation Z, what is the minimum waiting period between delivery of the Closing Disclosure and consummation of a residential mortgage loan?

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

Explanation

The consumer must receive the Closing Disclosure at least three business days before consummation. This waiting period gives the borrower time to review final terms and costs. If certain changes occur after delivery, a revised disclosure restarts the three-day period.

Question 29Federal Mortgage Laws and Regulations

A lender's loan originator receives a fee from a title company for referring a borrower who closes a refinance. Under RESPA Section 8, this payment is:

  1. Permitted because the title company set the amount
  2. Prohibited because it is a fee for the referral of settlement service business Correct answer.
  3. Prohibited only if the fee exceeds $500
  4. Permitted if the borrower consents in writing

Explanation

RESPA Section 8 bars giving or receiving anything of value in exchange for referrals of settlement service business involving a federally related mortgage loan. The amount and borrower consent do not cure a referral-fee violation. There is no dollar threshold below which the prohibition disappears.

Question 30Federal Mortgage Laws and Regulations

Which arrangement is permissible under RESPA's anti-kickback provisions?

  1. A lender paying a bona fide salary to its own employee for origination work Correct answer.
  2. A lender splitting a referral fee with a real estate agent
  3. A settlement provider giving a borrower cash for choosing it
  4. A title company paying an originator per loan referred

Explanation

Payments to a provider's own bona fide employees for work actually performed are not referral fees and are permissible. Splitting fees with outside referral sources, paying per-referral compensation, and giving cash inducements to borrowers are prohibited. The key distinction is compensation for services rendered versus payment for the referral itself.

Question 31Federal Mortgage Laws and Regulations

A servicer receives a borrower's qualified written request disputing an escrow charge. Under RESPA, the servicer must acknowledge receipt within:

  1. Ten calendar days
  2. Forty-five days
  3. Thirty days
  4. Five business days, excluding legal public holidays, Saturdays, and Sundays Correct answer.

Explanation

RESPA requires the servicer to acknowledge a qualified written request within five business days, a term that excludes legal public holidays, Saturdays, and Sundays. The substantive response and correction period is longer. The acknowledgment deadline is distinct from the investigation deadline.

Question 32Federal Mortgage Laws and Regulations

Which borrower is protected by the Servicemembers Civil Relief Act in connection with a mortgage obligation?

  1. A reservist who has never been called to active duty
  2. A veteran whose loan was originated after discharge
  3. An active-duty service member who obtained the mortgage before entering active duty Correct answer.
  4. A civilian spouse of a retired service member

Explanation

The SCRA interest-rate cap and certain foreclosure protections apply to obligations incurred before the servicemember entered active duty. Veterans whose loans postdate service, never-activated reservists, and civilian spouses do not fit that predicate. The protection hinges on the timing of the obligation relative to active-duty status.

Question 33Federal Mortgage Laws and Regulations

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

  1. A mortgage broker that only takes applications
  2. A depository institution that meets the applicable asset and loan-volume thresholds Correct answer.
  3. A private investor who buys a single mortgage loan
  4. Any individual loan originator licensed in one state

Explanation

HMDA reporting obligations fall on depository and non-depository institutions that meet the regulation's coverage thresholds, including asset-size and loan-volume tests. Individual originators, passive investors, and brokers acting only as intermediaries are not the reporting institutions. The obligation rests with the covered financial institution.

Question 34Federal Mortgage Laws and Regulations

A creditor takes adverse action on a mortgage application. Under ECOA, the adverse action notice must be provided within how many days after receiving a completed application?

  1. Thirty days Correct answer.
  2. Sixty days
  3. Ninety days
  4. Ten days

Explanation

Regulation B requires notification of adverse action within thirty days after receiving a completed application. The notice must state the action taken and the reasons or the right to request them. Longer periods apply only in specific circumstances such as counteroffers.

Question 35Federal Mortgage Laws and Regulations

A creditor denies a mortgage application based in part on a credit report. What must the adverse action notice include under ECOA and the FCRA?

  1. Only the credit score used, with no reasons
  2. A promise to reconsider if the borrower reapplies
  3. A statement of the specific reasons for denial or the borrower's right to request them, plus the credit reporting agency's contact information Correct answer.
  4. A copy of the underwriter's full worksheet

Explanation

The adverse action notice must disclose the specific reasons for the denial or the borrower's right to obtain them, and the FCRA requires notice of the credit reporting agency used along with its contact details. Providing only a score or internal worksheets does not satisfy the disclosure. A promise to reconsider is not a required element.

Question 36Federal Mortgage Laws and Regulations

Under ECOA, which characteristic is a protected basis for credit decisions?

  1. Length of current residence
  2. Credit score band
  3. Receipt of public assistance income Correct answer.
  4. Employment in a particular industry

Explanation

ECOA prohibits discrimination on the basis of sex, marital status, race, color, religion, national origin, age, and receipt of public assistance income, among others. Industry of employment, credit score band, and residence tenure are not protected characteristics. Creditors may consider legitimate credit factors but not protected status.

Question 37Federal Mortgage Laws and Regulations

A lender's loan originator steers a borrower toward a higher-cost loan with less favorable terms than the borrower qualifies for, based on the borrower's national origin. This conduct violates:

  1. No federal law if the borrower signed the documents
  2. Only state licensing rules
  3. The Truth in Lending Act's disclosure timing rules
  4. The Fair Housing Act's prohibition on discriminatory terms and conditions Correct answer.

Explanation

The Fair Housing Act prohibits discrimination in the terms and conditions of a residential mortgage loan, including steering borrowers to less favorable products because of a protected characteristic. Signing the documents does not waive the protection. Disclosure timing rules and licensing rules address different obligations.

Question 38Federal Mortgage Laws and Regulations

A mortgage loan originator's advertisement states that applicants of a particular religion are welcome but implies others are not. Under the Fair Housing Act, this advertisement is:

  1. Prohibited only if a complaint is filed
  2. Permitted if the lender has a religious charter
  3. Permitted because it is only an advertisement
  4. Prohibited because it indicates a discriminatory preference in housing-related lending Correct answer.

Explanation

The Fair Housing Act makes it unlawful to make, print, or publish any notice or statement with respect to the sale or rental of a dwelling that indicates a preference, limitation, or discrimination based on a protected class. Discriminatory mortgage advertising falls within this prohibition. A religious charter does not authorize discriminatory lending advertisements.

Question 39Federal Mortgage Laws and Regulations

Under the SAFE Act, a registered or licensed mortgage loan originator must do which of the following?

  1. Obtain a real estate broker license in every state
  2. Post a surety bond equal to the loan amount
  3. Complete a new licensing exam for each borrower
  4. Register with the Nationwide Mortgage Licensing System and Registry and maintain a unique identifier Correct answer.

Explanation

The SAFE Act requires MLOs to register with the NMLS Registry, obtain a unique identifier, and meet pre-licensing education and testing requirements. A real estate broker license, loan-amount surety bond, and per-borrower exams are not SAFE Act requirements. The unique identifier must appear on certain loan documents.

Question 40Federal Mortgage Laws and Regulations

An MLO's license lapses while the originator continues to take residential mortgage applications. What is the consequence under state licensing law and the SAFE Act framework?

  1. The originator is engaging in unlicensed activity subject to civil and criminal penalties Correct answer.
  2. The lapse is automatically cured by the next renewal cycle
  3. The originator may continue for up to ninety days
  4. The applications remain valid because the lender is licensed

Explanation

Originating without a valid license is unlicensed activity that exposes the originator to civil and criminal penalties and can jeopardize the loans involved. A licensed lender does not cure an unlicensed individual's conduct. There is no automatic grace period for taking applications after a lapse.

Question 41Federal Mortgage Laws and Regulations

A loan originator is convicted of a misdemeanor involving fraud. Under SAFE Act standards, how does this affect the originator's licensing eligibility?

  1. It may disqualify the originator because a felony or misdemeanor involving fraud or dishonesty is a disqualifying event Correct answer.
  2. It permits continued origination if the lender approves
  3. It has no effect because only felonies matter
  4. It is automatically expunged from the NMLS record

Explanation

SAFE Act standards treat a conviction of a felony or a misdemeanor involving fraud, dishonesty, breach of trust, or money laundering as a potentially disqualifying event. The licensing authority reviews such convictions during the character and fitness determination. Lender approval cannot override a licensing disqualification.

Question 42Federal Mortgage Laws and Regulations

A servicer receives a borrower's payment that is less than the full amount due and places it in a suspense account. Under RESPA, the servicer must:

  1. Apply the partial payment only to late charges
  2. Apply the partial payment to the loan balance or hold it in a suspense account and apply it once the full payment is received Correct answer.
  3. Report the borrower to a credit bureau
  4. Return the payment immediately and assess a late fee

Explanation

RESPA permits a servicer to hold a partial payment in a suspense account, but the funds must be applied to the loan balance once the amount needed for a full payment is received. The servicer may not simply retain the funds indefinitely or divert them to fees. The rule protects borrowers from losing credit for partial payments.

Question 43Federal Mortgage Laws and Regulations

Which federal law requires a good-faith estimate of settlement costs and a settlement statement at closing?

  1. The Homeowners Protection Act
  2. The Real Estate Settlement Procedures Act Correct answer.
  3. The Equal Credit Opportunity Act
  4. The Fair Credit Reporting Act

Explanation

RESPA requires disclosure of settlement costs, historically through the Good Faith Estimate and HUD-1 settlement statement, now integrated with the Loan Estimate and Closing Disclosure under Regulation Z. The FCRA governs credit reporting, ECOA governs credit discrimination, and the Homeowners Protection Act governs private mortgage insurance cancellation.

Question 44Federal Mortgage Laws and Regulations

A loan originator offers a borrower a lower interest rate in exchange for a higher origination fee. This arrangement is:

  1. Prohibited as a steering violation in all cases
  2. Permitted only if disclosed orally at application
  3. A permissible rate-fee tradeoff that must be reflected in the Loan Estimate and Closing Disclosure Correct answer.
  4. Permitted only for refinance transactions

Explanation

Borrowers may choose to pay more upfront in exchange for a lower rate, a common buydown structure. The tradeoff must be accurately disclosed in the Loan Estimate and Closing Disclosure so the borrower can compare options. It is not categorically prohibited, nor is oral disclosure sufficient.

Question 45Federal Mortgage Laws and Regulations

Under the Fair Credit Reporting Act, a mortgage lender that uses a consumer report for a credit decision must:

  1. Destroy the report within thirty days
  2. Provide a notice of adverse action containing the credit reporting agency's name and contact information when credit is denied or terms are unfavorable Correct answer.
  3. Provide the consumer with a free copy of the full report in all cases
  4. Obtain the consumer's written consent for every credit pull

Explanation

When a lender takes adverse action based on a consumer report, the FCRA requires notice identifying the reporting agency and stating that the consumer may obtain a copy and dispute inaccurate information. Written consent is not required for every permissible-purpose pull, and providing the full report is not mandatory. Retention rules do not require destruction within thirty days.

Question 46Federal Mortgage Laws and Regulations

A creditor's loan originator learns that an applicant receives Social Security disability income. Under ECOA, the creditor may:

  1. Automatically exclude the income from underwriting
  2. Consider the income if it is likely to continue, applying the same standards used for other income Correct answer.
  3. Deny the loan solely because the income is from public assistance
  4. Require a co-signer solely because of the income source

Explanation

ECOA prohibits discrimination based on receipt of public assistance income, but creditors may consider whether the income is likely to continue and apply consistent underwriting standards. Automatically excluding the income or denying the loan solely because of its source is prohibited. Requiring a co-signer solely due to the income source is also discriminatory.

Question 47Federal Mortgage Laws and Regulations

A lender's loan originator tells an applicant the loan is approved but withholds the actual interest rate until closing. Under TILA, this practice is:

  1. Permitted if the rate is disclosed orally
  2. Prohibited because the lender must disclose the annual percentage rate and other material terms before consummation Correct answer.
  3. Prohibited only if the rate exceeds the market average
  4. Permitted because the borrower signed an intent to proceed

Explanation

TILA and Regulation Z require disclosure of the annual percentage rate and other material loan terms before consummation so the borrower can make an informed decision. Withholding the rate until closing defeats that purpose and violates the disclosure requirements. Oral disclosure or an intent to proceed does not cure the violation.

Question 48Federal Mortgage Laws and Regulations

Under HMDA, which information about a covered mortgage application must a reporting institution collect?

  1. The applicant's race, ethnicity, sex, and income, among other data points Correct answer.
  2. The applicant's medical history
  3. The applicant's political affiliation
  4. The applicant's religious beliefs

Explanation

HMDA requires covered institutions to collect and report data including race, ethnicity, sex, age, income, and loan characteristics. Political affiliation, medical history, and religious beliefs are not HMDA data points. Collecting such sensitive information would raise separate legal concerns.

Question 49General Mortgage Knowledge

Under RESPA, a mortgage loan originator must provide a Loan Estimate to an applicant within how many business days after receiving the application?

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

Explanation

Regulation Z requires delivery of the Loan Estimate within three business days after the creditor receives the consumer's application. The estimate may be delivered in person or placed in the mail within that window. Missing the deadline triggers tolerance and disclosure concerns.

Question 50General Mortgage Knowledge

Which charge is classified as a zero-tolerance fee on the Loan Estimate for a typical closed-end consumer mortgage?

  1. Recording fee charged by the county
  2. Fee paid to the creditor for the loan origination Correct answer.
  3. Transfer tax imposed by the state
  4. Fee for a third-party appraisal the consumer selects

Explanation

Origination charges paid to the creditor are zero-tolerance items, meaning they cannot increase at consummation unless a valid changed-circumstance exception applies. Recording fees and transfer taxes are generally in the ten-percent tolerance category.