Mortgage Loan Origination Activities
This domain tests the origination workflow and the conduct rules that apply at each stage: taking an application, disclosing, processing, coordinating underwriting, and closing. Questions focus on what triggers a disclosure, what an MLO may be paid, and how to handle red flags.
Core rules
- Application: Under Reg Z, an application exists when a consumer submits six pieces of information: name, income, Social Security number, property address, estimated value, and loan amount sought.
- Loan originator compensation: Compensation may not be based on loan terms such as the interest rate or fees, and an MLO may not receive compensation from both the borrower and the creditor for the same transaction. Salary, hourly pay, and commissions based on loan amount are generally permitted.
- NMLS identifier: The MLO's unique identifier must appear on mortgage documents, including solicitations and advertisements.
- Closing and rescission: A refinance or home equity loan secured by the principal dwelling generally has a 3-business-day right of rescission. A purchase-money loan does not.
- Red flags: Inflated income, undisclosed debts, straw buyers, unusual source-of-funds patterns, occupancy misrepresentation, and pressure to skip verification.
- Fair lending: Apply consistent standards and document exceptions.
Worked example
A lender pays an MLO 1.5% of the loan amount, and the borrower also pays a $500 origination fee to the lender. This is generally permitted because the MLO's compensation is based on loan amount, not on terms, and the fee is paid to the lender, not dual compensation to the MLO. If the borrower paid the MLO $500 directly on top of the lender's commission, that would be prohibited dual compensation.
Traps
Do not call every inquiry an application; the six-item test controls. Do not apply rescission to purchases or investment properties. Do not let an unlicensed assistant negotiate terms.