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Massachusetts MLO study materials
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Massachusetts MLO practice questions

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Question 1Federal and state law and regulation

Under the federal SAFE Act licensing standards adopted in Massachusetts, an MLO license must be renewed annually. What is the standard renewal period for a Massachusetts mortgage loan originator license?

  1. Every four years, coinciding with federal registration renewal
  2. Every year, with the license expiring on December 31 Correct answer.
  3. Every three years, aligned with the NMLS call report cycle
  4. Every two years, on the anniversary of initial licensure

Explanation

Massachusetts MLO licenses follow the annual renewal cycle required by the SAFE Act and the Division of Banks, with the license term ending December 31 each year. Renewal must be completed through NMLS during the annual renewal window. A licensee who fails to renew timely cannot originate until reinstated.

Question 2Federal and state law and regulation

Massachusetts requires mortgage loan originators to complete pre-licensure education before being licensed. How many hours of NMLS-approved pre-licensure education must a new Massachusetts MLO complete?

  1. 40 hours
  2. 12 hours
  3. 20 hours Correct answer.
  4. 8 hours

Explanation

The SAFE Act sets a 20-hour minimum pre-licensure education requirement, and Massachusetts adopts that standard for new MLO applicants. The 20 hours must include federal law, ethics, and nontraditional mortgage products components. Completion must be reported through NMLS before the license is issued.

Question 3Federal and state law and regulation

A licensed Massachusetts MLO must complete annual continuing education. Which combination correctly states the required annual CE hours and the standing requirement included in them?

  1. 10 hours total, including 2 hours of Massachusetts law
  2. 8 hours total, including at least 1 hour of Massachusetts-specific law
  3. 12 hours total, including 4 hours of ethics
  4. 8 hours total, including at least 3 hours of federal law and 2 hours of ethics Correct answer.

Explanation

The SAFE Act requires 8 hours of annual continuing education, including at least 3 hours of federal law and regulation, 2 hours of ethics, and 2 hours of nontraditional mortgage lending, with the balance in electives. Massachusetts adds a state-specific component reported through NMLS. Completing fewer than the full 8 hours leaves the license ineligible for renewal.

Question 4Federal and state law and regulation

An MLO licensed in Massachusetts moves her residence to a new address in another state and continues to work for the same licensed Massachusetts mortgage broker. What must she do regarding her NMLS record?

  1. Nothing, because her employer's license covers the change
  2. Surrender the Massachusetts license and apply in the new state before continuing work
  3. Update her NMLS record and notify the Division of Banks within the required timeframe Correct answer.
  4. Wait until the next annual renewal to report the address change

Explanation

Licensees must keep their NMLS record current and report material changes such as a residence address to the Division of Banks within the timeframe set by regulation. Failing to report can result in disciplinary action. The employer's license does not substitute for the individual's reporting duty.

Question 5Federal and state law and regulation

Which federal statute is the primary basis for Massachusetts's licensing and registration system for mortgage loan originators?

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

Explanation

The SAFE Act, enacted in 2008, established the nationwide NMLS system and minimum licensing standards that Massachusetts implements through the Division of Banks. RESPA, HMDA, and FCRA govern other aspects of mortgage lending but do not create the MLO licensing framework.

Question 6Federal and state law and regulation

A mortgage loan originator's license lapses because she did not renew by December 31. She wants to originate loans again. What is the most accurate description of her position?

  1. She may continue originating while her reinstatement application is pending
  2. She may originate if her employer supervises her during the lapse
  3. She must stop originating until the license is reinstated or a new license is issued Correct answer.
  4. She may originate only loans she personally funds

Explanation

Originating without a valid license is an unlicensed activity prohibited by Massachusetts law and the SAFE Act. The MLO must cease origination until reinstated or newly licensed. Supervisory oversight by the employer does not cure the absence of a license.

Question 7Federal and state law and regulation

Under Massachusetts law, which individual is required to hold an MLO license?

  1. A loan processor who only gathers documents and does not discuss loan terms with applicants
  2. A receptionist who transfers calls to licensed originators
  3. An employee of a licensed mortgage broker who takes residential mortgage loan applications and offers loan terms Correct answer.
  4. An attorney who prepares closing documents for a mortgage loan

Explanation

An MLO is an individual who takes a residential mortgage loan application and offers or negotiates terms of a loan for compensation. Processing and clerical functions that do not involve taking applications or negotiating terms are generally outside the definition. Attorneys performing legal services are also treated separately.

Question 8Federal and state law and regulation

Massachusetts MLO applicants must satisfy a character and fitness standard. Which of the following would most directly require disclosure and review as part of that standard?

  1. A high school disciplinary suspension
  2. A civil judgment for an unpaid utility bill
  3. A felony conviction involving fraud, subject to applicable review Correct answer.
  4. A speeding ticket resolved five years ago

Explanation

The SAFE Act and Massachusetts regulations require disclosure of certain criminal history, including felonies, and the Division of Banks evaluates character and fitness. Financial crimes such as fraud bear directly on fitness to originate loans. Minor traffic matters and unrelated civil debts are generally not disqualifying.

Question 9Federal and state law and regulation

Massachusetts MLOs must be covered by a surety bond or otherwise meet the SAFE Act financial responsibility requirement. Which statement best describes the bonding requirement for an MLO sponsored by a licensed mortgage broker?

  1. No bond is ever required for MLOs employed by a broker
  2. Each MLO must post an individual bond of $10,000 regardless of employer coverage
  3. The MLO must post a bond equal to the broker's net worth
  4. The MLO need not post a separate bond if the employing licensee maintains a bond covering its MLOs as permitted by regulation Correct answer.

Explanation

The SAFE Act allows MLOs to satisfy the surety bond requirement through coverage under the employing licensee's bond where the state permits it. Massachusetts regulations address bonding at the licensee level and coverage for sponsored originators. Individual bonds are not required in every case.

Question 10Federal and state law and regulation

An MLO licensed in Massachusetts is employed by a licensed mortgage lender. The MLO wants to begin working for a different licensed mortgage lender. What is required before the MLO may originate for the new employer?

  1. A new written examination
  2. A sponsorship transfer through NMLS reflecting the new employer, with required notifications Correct answer.
  3. A new pre-licensure education course
  4. Nothing, because the MLO's license is portable among employers

Explanation

MLO licenses are tied to the sponsoring licensee, so a change of employer requires updating the sponsorship in NMLS and any required notices to the Division of Banks. The license itself continues, but the relationship must be reflected. New education and testing are not required for a transfer.

Question 11Federal and state law and regulation

Which federal law requires that mortgage loan originators provide borrowers with specific disclosures about the costs of a residential mortgage loan and prohibits certain kickbacks?

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

Explanation

RESPA governs settlement cost disclosures and prohibits kickbacks and unearned fees in federally related mortgage loans. MLOs must comply with RESPA in addition to licensing rules. ECOA addresses discrimination in credit, and the BSA addresses anti-money-laundering reporting.

Question 12Federal and state law and regulation

An MLO is helping a borrower apply for a loan and notices the borrower is being charged a fee that is split with a real estate agent who provided no services. Under federal law, how should the MLO respond?

  1. Refuse to facilitate the fee because unearned fee splits violate RESPA Correct answer.
  2. Charge the fee but disclose it on the Loan Estimate
  3. Process the fee because the agent referred the borrower
  4. Reduce the fee by half and proceed

Explanation

RESPA section 8 prohibits giving or accepting fees for referrals of settlement service business and splitting charges for services not actually performed. An MLO should not facilitate an unearned fee split even if it is disclosed. Disclosure does not cure a prohibited kickback.

Question 13Federal and state law and regulation

Under the Equal Credit Opportunity Act and Regulation B, which practice by an MLO is prohibited?

  1. Asking about the borrower's income and employment
  2. Inquiring about the borrower's residency status for government monitoring purposes
  3. Requesting information about the borrower's existing debts
  4. Discouraging an applicant on the basis of the applicant's receipt of public assistance income Correct answer.

Explanation

ECOA and Regulation B prohibit discrimination, including discouraging applicants because their income derives from public assistance. Collecting income, debt, and monitoring information is permitted and often required. Discouragement based on a protected characteristic or income source violates the law.

Question 14Federal and state law and regulation

An MLO in Massachusetts is subject to the federal prohibition on unfair, deceptive, or abusive acts or practices. Which MLO activity is most likely to be considered an abusive practice?

  1. Taking unreasonable advantage of a borrower's lack of understanding of loan costs to steer them into a high-cost product Correct answer.
  2. Requiring documentation of income before approval
  3. Declining a loan because the borrower's credit score is too low
  4. Explaining loan terms in plain language and providing estimates

Explanation

The abusive standard under the Dodd-Frank Act prohibits taking unreasonable advantage of consumers' lack of understanding of material loan terms. Steering borrowers into costly products they do not comprehend fits that standard. Clear disclosures, credit-based denials, and documentation requirements are legitimate practices.

Question 15Federal and state law and regulation

Massachusetts MLOs must comply with the state's mortgage loan originator statute administered by the Division of Banks. Which general obligation does the statute place on licensees?

  1. Originating only loans that the licensee personally funds
  2. Setting interest rates at a level fixed by the Division
  3. Guaranteeing loan approval for every applicant
  4. Maintaining records and cooperating with examinations and investigations by the Division of Banks Correct answer.

Explanation

Massachusetts licensing law requires licensees to keep records, respond to inquiries, and submit to examinations and investigations by the Division of Banks. The Division regulates conduct but does not fix rates or require personal funding of loans. Licensees are not obligated to approve every applicant.

Question 16Federal and state law and regulation

A Massachusetts MLO licensee is the subject of a consumer complaint alleging that she altered a borrower's income documentation. What is the most appropriate characterization of this conduct under licensing standards?

  1. A matter solely for the borrower's lender to resolve
  2. An administrative issue that requires only a corrected document
  3. A violation that may support disciplinary action, including license suspension or revocation Correct answer.
  4. A permissible correction if the borrower verbally agrees

Explanation

Falsifying or altering loan documentation is a serious violation of licensing standards and can result in discipline up to suspension or revocation, as well as civil or criminal consequences. Verbal consent does not permit alteration of source documents. The Division of Banks may investigate and act on such complaints.

Question 17Federal and state law and regulation

Which statement about the Nationwide Multistate Licensing System and Registry is correct for a Massachusetts MLO?

  1. NMLS is the system used to apply for, maintain, and renew licenses, while the Division of Banks makes the licensing decision Correct answer.
  2. NMLS replaces the need for state licensing
  3. NMLS is used only by federal depository institutions
  4. NMLS is a state agency that issues Massachusetts licenses directly

Explanation

NMLS is a multistate licensing system and registry operated to streamline licensing; the Massachusetts Division of Banks retains authority to grant or deny licenses. MLOs use NMLS for applications, education reporting, and renewals. NMLS does not itself issue state licenses.

Question 18Federal and state law and regulation

Massachusetts MLOs must complete continuing education each year. Which course topic is required as part of the 8-hour annual requirement?

  1. Securities licensing
  2. Property appraisal standards
  3. Commercial real estate valuation
  4. Nontraditional mortgage loan products Correct answer.

Explanation

The SAFE Act's 8-hour CE requirement includes 2 hours on nontraditional mortgage loan products in addition to federal law and ethics. This topic ensures originators understand products such as interest-only and payment-option loans. Commercial valuation, securities, and appraisal standards are not part of the MLO CE mandate.

Question 19Federal and state law and regulation

An MLO licensed in Massachusetts is asked by a borrower to recommend a loan product. The MLO has a financial interest in one of the products through a referral arrangement. What is the best practice under federal and state standards?

  1. Recommend the product without mentioning the arrangement
  2. Refer the borrower to an unlicensed friend
  3. Recommend the product only if it has the lowest rate
  4. Disclose the financial interest and ensure the recommendation is not based on an undisclosed conflict Correct answer.

Explanation

Undisclosed conflicts of interest can constitute deceptive or unfair conduct and may violate RESPA if compensation is tied to referrals. The MLO should disclose the arrangement and ensure recommendations serve the borrower. Recommending solely by rate or referring to an unlicensed person does not resolve the conflict.

Question 20Federal and state law and regulation

Which federal disclosure must be provided to a mortgage applicant within three business days of receiving the application under the TILA-RESPA integrated disclosure rules?

  1. The Loan Estimate Correct answer.
  2. The Annual Percentage Rate notice only
  3. The Closing Disclosure
  4. The HUD-1 Settlement Statement

Explanation

The TILA-RESPA integrated disclosure rule requires creditors to deliver the Loan Estimate within three business days after receiving an application. The Closing Disclosure is provided before consummation, and the HUD-1 has been replaced for most closed-end residential loans. The Loan Estimate summarizes the loan terms and costs.

Question 21Federal and state law and regulation

A Massachusetts MLO learns that a borrower's stated income appears inflated relative to documented sources. The MLO is tempted to submit the application as stated to expedite approval. Under federal and state standards, what should the MLO do?

  1. Advise the borrower to inflate other figures to match
  2. Submit the application and note the concern only if the lender asks
  3. Submit the application as stated because the borrower is responsible for the information
  4. Resolve the discrepancy before submission and document the accurate information Correct answer.

Explanation

MLOs must not submit information they know or suspect to be inaccurate; doing so can constitute fraud and violates licensing conduct standards. Discrepancies should be resolved and documented before submission. Advising inflation would compound the violation.

Question 22Federal and state law and regulation

Massachusetts law prohibits certain practices in mortgage lending. Which practice is most clearly prohibited for a licensed MLO?

  1. Charging fees that are disclosed and earned for services actually performed
  2. Providing a borrower with a copy of the Loan Estimate
  3. Engaging in a pattern of unfair or deceptive practices in loan origination Correct answer.
  4. Documenting a borrower's stated income with supporting records

Explanation

Massachusetts consumer protection law and federal UDAAP standards prohibit unfair or deceptive acts and practices in mortgage origination. Disclosed, earned fees and proper disclosures are lawful. A pattern of deceptive conduct can lead to enforcement action and license discipline.

Question 23Federal and state law and regulation

An MLO licensed in Massachusetts has a criminal history that includes a misdemeanor conviction several years ago. The MLO failed to disclose it on the license application. What is the most likely regulatory consequence?

  1. No consequence because misdemeanors need not be disclosed
  2. Automatic permanent revocation with no right to respond
  3. Disciplinary action for the omission, even if the conviction itself would not have been disqualifying Correct answer.
  4. A fine limited to the cost of the application

Explanation

License applications require truthful disclosure of criminal history, and omitting a required disclosure is itself a violation regardless of whether the underlying conviction would have barred licensure. The Division of Banks may impose discipline for the misrepresentation. Permanent revocation without process is not automatic.

Question 24Federal and state law and regulation

Which statement best describes the relationship between federal registration for depository institution employees and Massachusetts MLO licensing?

  1. All employees of depository institutions must obtain a Massachusetts MLO license
  2. State-licensed MLOs are exempt from all federal law
  3. Federal registration is unavailable in Massachusetts
  4. Employees of certain federally regulated depository institutions register through the federal registry rather than obtaining a state MLO license Correct answer.

Explanation

The SAFE Act distinguishes between state-licensed MLOs and federally registered MLOs who are employees of insured depository institutions and certain other regulated entities. Federally registered originators are registered through the federal registry rather than state-licensed. State-licensed MLOs remain subject to federal law.

Question 25Federal and state law and regulation

Massachusetts MLOs are required to report certain events to the Division of Banks and NMLS. Which event most clearly triggers a reporting obligation?

  1. A routine increase in the MLO's marketing budget
  2. A change in the MLO's preferred office supply vendor
  3. An administrative action taken against the MLO by a government agency Correct answer.
  4. A change in the MLO's personal email password

Explanation

Licensees must report regulatory and administrative actions taken against them, as well as certain criminal and financial events, through NMLS. These disclosures allow regulators to assess ongoing fitness. Routine business or personal administrative changes are not reportable.

Question 26Federal and state law and regulation

Under the Massachusetts mortgage loan originator statute, which entity administers the MLO licensing program and receives license applications through NMLS?

  1. The Division of Banks within the Office of Consumer Affairs and Business Regulation Correct answer.
  2. The federal Consumer Financial Protection Bureau directly
  3. The Massachusetts Securities Division of the Secretary of State
  4. The Massachusetts Attorney General's Consumer Protection Division

Explanation

Massachusetts licenses mortgage loan originators through the Division of Banks, which sits within the Office of Consumer Affairs and Business Regulation and uses the NMLS as its licensing system of record. The Attorney General enforces consumer protection law but does not issue MLO licenses, and the CFPB does not license state MLOs.

Question 27Federal and state law and regulation

A Massachusetts MLO is completing the annual continuing education requirement. What is the total number of CE hours required each year, and how many must cover state-specific law?

  1. 10 total hours, of which 2 must be Massachusetts-specific
  2. 12 total hours, of which 4 must be Massachusetts-specific
  3. 8 total hours, of which 3 must be Massachusetts-specific
  4. 8 total hours, of which 1 must be Massachusetts-specific Correct answer.

Explanation

Massachusetts follows the SAFE Act standard of 8 hours of annual continuing education, with at least 1 hour devoted to Massachusetts-specific law and regulation. The remaining hours cover federal law, ethics, and general mortgage topics.

Question 28Federal and state law and regulation

A Massachusetts MLO is preparing a loan estimate for a borrower. Which federal regulation implements the integrated disclosure rules for mortgage transactions?

  1. Regulation O, which governs insider lending limits
  2. Regulation C, which implements the Home Mortgage Disclosure Act
  3. Regulation B, which implements the Equal Credit Opportunity Act
  4. Regulation Z, which implements the Truth in Lending Act and the Real Estate Settlement Procedures Act disclosures Correct answer.

Explanation

The integrated Loan Estimate and Closing Disclosure come from the TILA-RESPA Integrated Disclosure rule, codified in Regulation Z. Regulation Z implements both the Truth in Lending Act and, for these disclosures, the Real Estate Settlement Procedures Act.

Question 29Federal and state law and regulation

A Massachusetts MLO takes a loan application from a borrower whose primary language is not English. Under the Equal Credit Opportunity Act, which practice is prohibited?

  1. Requiring documentation of income
  2. Discouraging the applicant because of the applicant's national origin Correct answer.
  3. Requesting the applicant's immigration status when required by law
  4. Charging a fee for a translated application

Explanation

ECOA and Regulation B prohibit discrimination on the basis of national origin, which includes discouraging a prospective applicant from applying. Fees, documentation requirements, and lawful status inquiries are not themselves prohibited discrimination.

Question 30Federal and state law and regulation

A Massachusetts MLO is reviewing a settlement statement and sees a fee that is split with a real estate broker who referred the borrower. What is the MLO's best compliance conclusion?

  1. The split is permitted as long as it is disclosed on the Loan Estimate
  2. The split is permitted if the borrower consents in writing
  3. The split is permitted because the broker is a licensed professional
  4. The unearned fee split may violate RESPA's anti-kickback provision and should be escalated Correct answer.

Explanation

Section 8 of RESPA prohibits giving or receiving anything of value for the referral of settlement service business, and splitting a fee with a party that performed no services is a classic kickback pattern. Disclosure or borrower consent does not cure the violation.

Question 31Federal and state law and regulation

Which federal statute requires mortgage loan originators to be registered or licensed through the Nationwide Multistate Licensing System and Registry?

  1. The Home Mortgage Disclosure Act
  2. The Homeowners Protection Act
  3. The SAFE Act, enacted as part of the Housing and Economic Recovery Act of 2008 Correct answer.
  4. The Fair Credit Reporting Act

Explanation

The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 created the NMLS registration and licensing framework for MLOs and set minimum standards adopted by states such as Massachusetts. The other statutes regulate data reporting, credit reporting, and private mortgage insurance cancellation.

Question 32Federal and state law and regulation

A Massachusetts MLO is told to sign a borrower's name on a disclosure acknowledgment the borrower never signed. What should the MLO do?

  1. Sign and note it as an administrative correction
  2. Sign only if the disclosure was actually delivered
  3. Refuse, because falsifying a borrower's acknowledgment is prohibited conduct Correct answer.
  4. Sign only if the borrower later confirms by phone

Explanation

Signing a borrower's name or creating a false acknowledgment is a deceptive practice and a violation of state and federal law, regardless of whether the disclosure was delivered. The MLO should refuse and escalate the request.

Question 33Federal and state law and regulation

A Massachusetts MLO is paid by the lender. Which compensation practice is prohibited under the loan originator compensation rule?

  1. Basing the MLO's pay on the interest rate of the loan Correct answer.
  2. Paying a flat fee per closed loan
  3. Paying a salary plus a fixed hourly amount
  4. Paying a percentage of the loan amount with no rate variation

Explanation

The loan originator compensation rule under Regulation Z bars compensating an originator based on the loan's terms, including the interest rate. Salary, hourly pay, loan-amount percentages, and flat fees that do not vary with terms are permissible.

Question 34Federal and state law and regulation

A Massachusetts MLO is reviewing a borrower's file and sees a notice stating the borrower's right to receive a copy of any appraisal. Under federal law, when must the borrower generally receive the appraisal?

  1. At the time of loan application
  2. No later than three business days before closing Correct answer.
  3. Only after closing when the loan funds
  4. Within thirty days after the loan closes

Explanation

The ECOA appraisal rule in Regulation B requires the creditor to provide a copy of the appraisal promptly upon completion or at least three business days before closing, whichever is earlier, for first-lien loans secured by a dwelling.

Question 35Federal and state law and regulation

A Massachusetts MLO is helping a borrower who is receiving public assistance income that will continue. How should the MLO treat this income under ECOA?

  1. The income may be excluded because it comes from a public source
  2. The income may be counted only at fifty percent of its value
  3. The income must be considered under the same standards used for other continuing income Correct answer.
  4. The income may be counted only if the borrower is over sixty-five

Explanation

Regulation B prohibits discrimination based on receipt of public assistance, so a creditor must evaluate that income using the same standards applied to other income. Excluding or discounting it solely because of its source is prohibited.

Question 36Federal and state law and regulation

A Massachusetts MLO is told by a supervisor to steer minority applicants toward higher-cost loans. What is the most accurate characterization of this instruction?

  1. It is lawful if the applicants ultimately accept the loan terms
  2. It is unlawful steering that may violate ECOA, the Fair Housing Act, and state law Correct answer.
  3. It is lawful if the lender's investors permit it
  4. It is lawful if the loans are disclosed as higher cost

Explanation

Steering applicants to less favorable products because of race or national origin violates the Equal Credit Opportunity Act, the Fair Housing Act, and Massachusetts consumer protection law. Borrower acceptance or disclosure does not make discriminatory steering lawful.

Question 37Federal and state law and regulation

A Massachusetts MLO is reviewing a borrower's file that shows a prior bankruptcy. Under ECOA, how may the MLO treat the bankruptcy?

  1. The MLO may deny if the bankruptcy was a Chapter 7
  2. The MLO may not automatically deny the loan solely because of the bankruptcy Correct answer.
  3. The MLO may deny if the borrower did not reaffirm the debt
  4. The MLO must deny any application with a bankruptcy in the last ten years

Explanation

Regulation B prohibits a creditor from automatically denying credit because the applicant has been through bankruptcy. The creditor must evaluate the underlying facts and the borrower's current creditworthiness.

Question 38Federal and state law and regulation

A Massachusetts MLO is preparing to take a loan application secured by a dwelling. Under the Home Mortgage Disclosure Act, which information about the applicant must generally be collected?

  1. Race, ethnicity, and sex Correct answer.
  2. Credit score and net worth
  3. Political affiliation and religion
  4. Marital status and number of dependents

Explanation

HMDA, implemented through Regulation C, requires covered institutions to collect and report applicant race, ethnicity, and sex, along with other data such as loan purpose and amount. Religion, political affiliation, credit score, and net worth are not HMDA data fields.

Question 39Federal and state law and regulation

A Massachusetts MLO is working with a borrower who has a limited English proficiency and asks for an interpreter. What does fair lending guidance suggest the MLO should do?

  1. Provide meaningful access to the loan process, such as using qualified interpretation services Correct answer.
  2. Require the borrower to bring a family member to interpret
  3. Decline the application until the borrower learns English
  4. Proceed without interpretation and rely on signatures

Explanation

Fair lending principles and ECOA's prohibition on national origin discrimination support providing meaningful access to credit for limited-English-proficiency borrowers, typically through qualified interpretation or translated materials. Requiring a family member or refusing to proceed can create discrimination risk.

Question 40Federal and state law and regulation

A Massachusetts MLO is reviewing a loan file and finds that the borrower was charged a fee that was not disclosed on the Loan Estimate and increased at closing without a valid changed circumstance. What is the likely consequence?

  1. A permissible change because the borrower signed
  2. No issue because the fee is a third-party fee
  3. A permitted increase because the closing occurred
  4. A tolerance violation requiring a refund or cure Correct answer.

Explanation

Regulation Z sets tolerance limits for certain closing costs, and an increase beyond those limits without a valid changed circumstance is a tolerance violation. The creditor generally must refund the excess or cure the violation.

Question 41Federal and state law and regulation

A Massachusetts MLO is helping a borrower refinance a high-cost mortgage. Which practice is prohibited under the Home Ownership and Equity Protection Act?

  1. Extending credit without regard to the borrower's ability to repay Correct answer.
  2. Providing required disclosures three days before closing
  3. Verifying the borrower's income and debts
  4. Offering a fixed-rate loan

Explanation

HOEPA, implemented in Regulation Z, prohibits high-cost mortgages from being extended without regard to the consumer's ability to repay, among other restrictions. Verifying income, providing disclosures, and offering fixed-rate products are permissible.

Question 42Federal and state law and regulation

A Massachusetts MLO is reviewing a borrower's credit report and finds an error. Under the Fair Credit Reporting Act, what is the MLO's role?

  1. The MLO must deny the loan until the error is fixed
  2. The MLO must personally correct the credit report entry
  3. The MLO should direct the borrower to dispute the error with the credit reporting agency or furnisher Correct answer.
  4. The MLO may ignore the error if the score is acceptable

Explanation

The FCRA gives consumers the right to dispute inaccurate information directly with the credit reporting agency or the furnisher, and the MLO should explain that process. The MLO does not have authority to alter credit report data and should not ignore known inaccuracies.

Question 43Federal and state law and regulation

A Massachusetts MLO is working with a borrower who is 70 years old. Which practice would violate the ECOA?

  1. Discounting the borrower's retirement income solely because of age Correct answer.
  2. Verifying the borrower's Social Security income
  3. Requiring the borrower to provide tax returns
  4. Asking the borrower about the expected duration of retirement income

Explanation

ECOA prohibits discrimination on the basis of age, and Regulation B bars discounting retirement or other income because of the applicant's age. Verifying income sources and asking about expected duration are permissible underwriting steps.

Question 44Federal and state law and regulation

A Massachusetts MLO is reviewing a loan file and sees that the lender failed to provide the Closing Disclosure at least three business days before consummation. What is the likely compliance issue?

  1. A TRID timing violation requiring a corrected disclosure and a new waiting period Correct answer.
  2. No issue because the lender is a state-chartered bank
  3. No issue because the borrower signed at closing
  4. No issue because the loan amount is small

Explanation

Regulation Z requires the Closing Disclosure to be delivered at least three business days before consummation, and a late delivery requires a corrected disclosure and a new waiting period. Borrower signature at closing does not cure the timing failure, and charter type does not exempt the lender.

Question 45Federal and state law and regulation

A Massachusetts MLO is reviewing a loan file and sees that the lender charged a prepayment penalty on a high-cost mortgage. What is the correct compliance conclusion?

  1. Prepayment penalties are prohibited on high-cost mortgages under HOEPA Correct answer.
  2. Prepayment penalties are permitted if disclosed
  3. Prepayment penalties are permitted if the borrower agrees in writing
  4. Prepayment penalties are permitted within the first year

Explanation

HOEPA prohibits prepayment penalties on high-cost mortgages, regardless of disclosure or borrower agreement. The prohibition is one of several restrictions that apply once a loan meets the high-cost coverage tests.

Question 46Federal and state law and regulation

A Massachusetts MLO is reviewing a loan file and finds that the lender used a borrower's race as a factor in pricing the loan. Which federal law is most directly implicated?

  1. The Equal Credit Opportunity Act and the Fair Housing Act Correct answer.
  2. The Flood Disaster Protection Act
  3. The Home Mortgage Disclosure Act
  4. The Real Estate Settlement Procedures Act

Explanation

Using race in pricing credit is discrimination prohibited by the Equal Credit Opportunity Act and the Fair Housing Act. HMDA requires data reporting, RESPA governs settlement practices, and the Flood Disaster Protection Act governs flood insurance requirements.

Question 47Federal and state law and regulation

A Massachusetts MLO is reviewing a loan file and finds that the lender failed to provide the borrower with a notice of the right to receive a copy of the appraisal before closing. Which regulation is most directly implicated?

  1. Regulation C, which implements HMDA
  2. Regulation DD, which implements the Truth in Savings Act
  3. Regulation Z, which implements the Truth in Lending Act
  4. Regulation B, which implements the ECOA appraisal rule Correct answer.

Explanation

The ECOA appraisal rule in Regulation B requires creditors to notify applicants of the right to receive a copy of the appraisal and to provide it timely. Regulation Z covers TILA disclosures, Regulation C covers HMDA, and Regulation DD covers deposit accounts.

Question 48Federal and state law and regulation

A Massachusetts MLO is reviewing a loan file and finds that the lender failed to provide a borrower with an adverse action notice after denying the application. Which law is most directly implicated?

  1. The Real Estate Settlement Procedures Act and Regulation X
  2. The Fair Credit Reporting Act and Regulation V
  3. The Equal Credit Opportunity Act and Regulation B Correct answer.
  4. The Home Mortgage Disclosure Act and Regulation C

Explanation

ECOA and Regulation B require creditors to provide adverse action notices to applicants whose credit is denied. Regulation C covers HMDA data, Regulation X covers RESPA, and Regulation V implements the FCRA.

Question 49Federal and state law and regulation

A Massachusetts MLO is reviewing a loan file and finds that the lender failed to provide the borrower with a copy of the appraisal before closing. What is the most likely consequence under Regulation B?

  1. No issue because the loan was sold to an investor
  2. A compliance violation that may require remediation and could expose the lender to liability Correct answer.
  3. No issue because the borrower can request the appraisal later
  4. No issue because the appraisal was obtained by the lender

Explanation

Regulation B requires the creditor to provide a copy of the appraisal promptly upon completion or at least three business days before closing, and a failure is a compliance violation that may require remediation and create liability. Later requests, lender ownership of the appraisal, and loan sales do not cure the timing failure.

Question 50Federal and state law and regulation

A Massachusetts MLO is reviewing a loan file and finds that the lender failed to provide the borrower with a copy of the appraisal before closing. Which statement best describes the MLO's responsibility?

  1. The MLO should tell the borrower to request the appraisal from the appraiser
  2. The MLO should escalate the issue to compliance and ensure the borrower receives the appraisal Correct answer.
  3. The MLO should proceed to closing and address the issue afterward
  4. The MLO should ignore the issue because the lender is responsible

Explanation

The MLO is not the creditor but has a duty to follow applicable law and escalate compliance failures to the lender's compliance function so the borrower receives the required appraisal copy. Ignoring the issue, directing the borrower to the appraiser, or proceeding to closing without correction does not satisfy that duty.