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Question 1Federal Mortgage-Related Laws

Under the federal SAFE Act, which federal agency is responsible for registering mortgage loan originators who work for non-depository mortgage companies?

  1. The Consumer Financial Protection Bureau, through the Nationwide Multistate Licensing System and Registry Correct answer.
  2. The Federal Deposit Insurance Corporation, through its depository institution registration system
  3. The Federal Reserve Board, through its consumer compliance supervision program
  4. The Department of Housing and Urban Development, through its Federal Housing Administration roster

Explanation

The SAFE Act directs the CFPB to establish and maintain a nationwide registry for loan originators at non-depository institutions, and that registry is operated through NMLS. Depository institutions register their MLOs with their federal banking regulator instead. HUD's role is limited to its FHA programs and does not extend to general MLO registration.

Question 2Federal Mortgage-Related Laws

A mortgage loan originator has completed the required pre-licensing education and passed the national test. Under the SAFE Act, what additional annual requirement must the MLO satisfy to keep an active license?

  1. Submit a new credit report to the CFPB each quarter
  2. Renew the license only when changing employers
  3. Retake the full national test every two years
  4. Complete at least eight hours of NMLS-approved continuing education each year Correct answer.

Explanation

The SAFE Act requires licensed MLOs to complete at least eight hours of approved continuing education annually, including specific mandated topics such as federal law and ethics. The national test is passed once and is not retaken on a biennial cycle. Continuing education is an annual obligation independent of employment changes.

Question 3Federal Mortgage-Related Laws

Which law requires that a borrower receive a Loan Estimate within three business days after a mortgage lender receives an application?

  1. The Truth in Lending Act as amended by the Dodd-Frank Act and implemented by Regulation Z Correct answer.
  2. The Real Estate Settlement Procedures Act as implemented by Regulation X
  3. The Fair Credit Reporting Act as implemented by Regulation V
  4. The Home Mortgage Disclosure Act as implemented by Regulation C

Explanation

The integrated TILA-RESPA disclosure rules place the Loan Estimate obligation in Regulation Z, which implements the Truth in Lending Act. Regulation X carries the closing disclosure timing and settlement service rules under RESPA, but the Loan Estimate itself is a TILA disclosure. HMDA and FCRA govern data reporting and consumer reports, not the Loan Estimate.

Question 4Federal Mortgage-Related Laws

A loan originator is told by a real estate agent that the agent will steer buyers to the lender only if the originator pays the agent a fee per closed loan. Which federal law most directly prohibits this arrangement?

  1. The Equal Credit Opportunity Act
  2. The Servicemembers Civil Relief Act
  3. The Homeowners Protection Act
  4. The Real Estate Settlement Procedures Act Correct answer.

Explanation

RESPA Section 8 prohibits giving or accepting anything of value in exchange for the referral of settlement service business involving a federally related mortgage loan. Paying an agent per closed referral is a classic kickback violation. ECOA addresses credit discrimination, HPA governs mortgage insurance cancellation, and SCRA protects servicemembers.

Question 5Federal Mortgage-Related Laws

Under the Home Mortgage Disclosure Act, which mortgage lender is generally required to report loan application data?

  1. Any individual loan originator who closes more than one loan in a calendar year
  2. Only institutions that are federally chartered and insured by the FDIC
  3. Only institutions making FHA-insured loans
  4. A covered depository or non-depository institution that meets the applicable loan-volume thresholds and is in a metropolitan statistical area Correct answer.

Explanation

HMDA coverage turns on institution type, whether the institution has a home or branch office in an MSA, and whether it meets the volume thresholds set in Regulation C. Non-depository mortgage companies can be covered just as depository institutions can. Coverage is not limited to federally chartered banks or FHA lenders.

Question 6Federal Mortgage-Related Laws

Which federal statute gives a borrower the right to receive a copy of the appraisal used in connection with a mortgage application?

  1. The Fair Debt Collection Practices Act, through its validation notice rule
  2. The Equal Credit Opportunity Act, through its appraisal delivery rule in Regulation B Correct answer.
  3. The Bank Secrecy Act, through its customer identification program
  4. The Fair Housing Act, through its disparate impact standard

Explanation

Regulation B, which implements ECOA, requires creditors to promptly provide an applicant a copy of any appraisal or written valuation used in the credit decision, whether the loan is approved or denied. The other statutes address fair housing, debt collection, and anti-money-laundering compliance and do not create appraisal delivery rights.

Question 7Federal Mortgage-Related Laws

A lender's loan originator suggests that an applicant provide a larger down payment because the applicant's neighborhood is "unstable." Which federal law is most directly implicated?

  1. The Fair Housing Act Correct answer.
  2. The Homeowners Protection Act
  3. The Electronic Signatures in Global and National Commerce Act
  4. The Secure and Fair Enforcement for Mortgage Licensing Act

Explanation

The Fair Housing Act prohibits discrimination in the terms and conditions of residential mortgage lending based on protected characteristics, and neighborhood-based assumptions can reflect prohibited practices such as redlining. The other statutes address mortgage insurance cancellation, originator licensing, and electronic signatures.

Question 8Federal Mortgage-Related Laws

Which agency enforces the Real Estate Settlement Procedures Act with respect to non-depository mortgage lenders?

  1. The Consumer Financial Protection Bureau Correct answer.
  2. The Office of the Comptroller of the Currency
  3. The National Credit Union Administration
  4. The Securities and Exchange Commission

Explanation

The CFPB has primary federal enforcement authority over RESPA for non-depository mortgage lenders and also issues Regulation X. The OCC supervises national banks, the NCUA supervises federal credit unions, and the SEC regulates securities markets. None of those agencies has general RESPA authority over independent mortgage companies.

Question 9Federal Mortgage-Related Laws

A borrower's loan application is denied. Under Regulation B, when must the creditor provide the adverse action notice?

  1. Within 60 days after the closing date
  2. Within 30 days after receiving a completed application Correct answer.
  3. Within 3 business days after receiving the application
  4. Only after the borrower submits a written request

Explanation

Regulation B requires a creditor to notify an applicant of adverse action within 30 days after receiving a completed application, and the notice must include the reasons for the decision or a statement of the right to request them. Shorter Loan Estimate timing rules do not apply to adverse action notices, and the notice is not contingent on a borrower request.

Question 10Federal Mortgage-Related Laws

A mortgage broker receives compensation from both the borrower and the lender on the same transaction. Under Regulation Z, what does this create?

  1. A prohibited arrangement unless the broker is a depository institution
  2. A dual compensation arrangement that is permissible only if disclosed and not prohibited by the loan originator compensation rule Correct answer.
  3. A permissible arrangement only if the total compensation is under one percent of the loan amount
  4. An automatic RESPA Section 8 violation regardless of disclosure

Explanation

Regulation Z's loan originator compensation rules permit dual compensation when it is disclosed and the broker does not receive compensation based on the transaction's terms or conditions, and it is not otherwise prohibited. RESPA does not bar disclosed dual compensation paid by the parties for services performed. The rule is not a flat one-percent cap, nor is it limited to depository institutions.

Question 11Federal Mortgage-Related Laws

A servicer receives a qualified written request from a borrower disputing an escrow charge. Under RESPA and Regulation X, what is the servicer's general obligation?

  1. Take no action unless the borrower also sends a notice of error by certified mail
  2. Forward the request to the CFPB and wait for agency direction
  3. Respond only after the borrower has exhausted the servicer's internal appeal process
  4. Acknowledge the request within five business days and respond substantively within 30 business days, subject to a permissible extension Correct answer.

Explanation

Regulation X requires a servicer to acknowledge a qualified written request within five business days and provide a substantive response within 30 business days, with a possible 15-business-day extension if certain conditions are met. The borrower need not exhaust internal appeals or use certified mail, and the servicer does not wait for CFPB direction.

Question 12Federal Mortgage-Related Laws

A servicer offers a borrower a loan modification that constitutes a refinancing subject to TRID, satisfying and replacing the existing obligation with a new covered obligation. Which disclosure timing rule under Regulation Z generally applies?

  1. The servicer must provide a new Loan Estimate within three business days after the modification is signed
  2. The servicer may implement the change and disclose it on the next annual escrow statement
  3. The servicer must provide a new Loan Estimate and a Closing Disclosure reflecting the new terms before consummation Correct answer.
  4. The servicer is exempt from disclosure because modifications are not covered by Regulation Z

Explanation

A refinancing satisfies and replaces the existing obligation with a new obligation. When the new transaction is subject to TRID, it requires new Loan Estimate and Closing Disclosure forms within the applicable pre-consummation deadlines. Merely changing an existing loan's terms does not automatically trigger those disclosures.

Question 13Federal Mortgage-Related Laws

A lender collects a $500 fee from an appraiser in exchange for placement on the lender's approved appraiser panel. Under RESPA, how is this arrangement best characterized?

  1. A permissible arrangement because the appraiser is not a federally related mortgage loan participant
  2. A prohibited thing of value given in exchange for the referral of settlement service business Correct answer.
  3. A permissible administrative fee because appraisers are not settlement service providers
  4. A permissible arrangement if the fee is disclosed on the Closing Disclosure

Explanation

RESPA Section 8 prohibits giving or accepting anything of value in exchange for referrals of settlement service business, and appraisers are settlement service providers. Disclosure does not cure a kickback, and the arrangement is not exempt because of the appraiser's role.

Question 14Federal Mortgage-Related Laws

Under the SAFE Act, which of the following would disqualify an individual from obtaining a mortgage loan originator license?

  1. A misdemeanor traffic citation from ten years ago
  2. A prior bankruptcy discharged more than five years ago
  3. A felony conviction involving fraud or dishonesty within the past seven years Correct answer.
  4. A lapse in continuing education that was later cured

Explanation

The SAFE Act sets minimum standards that include character and fitness requirements, and a recent felony conviction involving fraud or dishonesty is a disqualifying event. Old minor traffic citations, discharged bankruptcies, and cured education lapses generally do not by themselves bar licensure.

Question 15Federal Mortgage-Related Laws

A mortgage lender is subject to the Homeowners Protection Act. When may a borrower request cancellation of private mortgage insurance based on the original value of the home?

  1. When the loan reaches 80 percent of the original property value, upon the borrower's written request and satisfaction of the servicer's conditions Correct answer.
  2. Automatically at 78 percent of original value without any borrower action
  3. Only when the loan is fully paid off
  4. Only when the home is sold

Explanation

The HPA permits a borrower to request PMI cancellation when the loan-to-value ratio reaches 80 percent of the original value, provided the borrower is current and meets other conditions. Automatic termination occurs at 78 percent of original value based on the amortization schedule, and payoff or sale are separate events.

Question 16Federal Mortgage-Related Laws

Which statement correctly describes the Fair Credit Reporting Act's role in mortgage lending?

  1. It prohibits lenders from obtaining a credit report without a court order
  2. It requires lenders to report all mortgage applications to HMDA
  3. It requires lenders to provide a Loan Estimate within three business days of application
  4. It entitles an applicant to a notice when a lender takes adverse action based in whole or in part on a consumer report Correct answer.

Explanation

The FCRA requires an adverse action notice when credit is denied or terms are worsened based on information in a consumer report, and it also gives consumers rights to dispute and obtain their reports. The Loan Estimate rule comes from TILA, credit reports do not require a court order, and HMDA reporting is separate.

Question 17Federal Mortgage-Related Laws

A loan originator at a state-licensed mortgage company is also registered in NMLS. Which identifier must appear on the originator's business cards and loan documents under the SAFE Act?

  1. The originator's state driver's license number
  2. The unique identifier assigned through NMLS Correct answer.
  3. The lender's federal tax identification number
  4. The originator's Social Security number

Explanation

The SAFE Act requires the unique identifier assigned to the MLO through NMLS to be shown on business cards, websites, and loan documents so consumers can look up the originator. Social Security numbers, tax IDs, and driver's license numbers are not the required public identifier and raise privacy concerns.

Question 18Federal Mortgage-Related Laws

A lender's pricing policy charges a higher interest rate to applicants whose income comes primarily from public assistance. Which federal law does this most directly violate?

  1. The Home Mortgage Disclosure Act
  2. The Homeowners Protection Act
  3. The Real Estate Settlement Procedures Act
  4. The Equal Credit Opportunity Act Correct answer.

Explanation

ECOA prohibits discrimination in credit transactions based on income derived from public assistance, and Regulation B implements that prohibition. RESPA governs settlement practices, HMDA governs data reporting, and HPA governs mortgage insurance, so none of those directly addresses discriminatory pricing.

Question 19Federal Mortgage-Related Laws

Under Regulation Z's ability-to-repay rule, which loan feature is generally prohibited for most closed-end consumer mortgages?

  1. A prepayment penalty that exceeds the limits set for qualified mortgages Correct answer.
  2. A fixed interest rate for the full loan term
  3. A fully amortizing repayment schedule
  4. An escrow account for taxes and insurance

Explanation

The ability-to-repay rule and qualified mortgage standards restrict prepayment penalties, and for many QMs they are prohibited or capped. Fixed rates, full amortization, and escrow accounts are ordinary features and are not prohibited by the rule.

Question 20Federal Mortgage-Related Laws

A servicer receives a notice of error from a borrower regarding a payment that was misapplied. Under Regulation X, what must the servicer do?

  1. Require the borrower to pay a fee before investigating
  2. Refer the matter to the lender's investor without responding to the borrower
  3. Ignore the notice because payment disputes must be raised in court
  4. Acknowledge the notice within five business days and complete its investigation and response within specified timeframes, generally 30 business days with a possible extension Correct answer.

Explanation

Regulation X requires servicers to acknowledge a notice of error within five business days and to investigate and respond within the regulatory timeframes, generally 30 business days with a permissible extension. Servicers may not ignore the notice, charge a fee for investigating, or simply defer to the investor without responding.

Question 21Federal Mortgage-Related Laws

A loan originator recommends a higher-cost loan to an applicant who qualifies for a lower-cost loan, increasing the originator's compensation. Which standard is most relevant to evaluating this conduct?

  1. The HPA automatic termination schedule
  2. The duty of care and the prohibition on steering under the loan originator compensation and ability-to-repay rules Correct answer.
  3. The FCRA permissible purpose standard
  4. The HMDA reporting threshold for the lender

Explanation

Regulation Z's loan originator compensation rules and the ability-to-repay framework address steering consumers to transactions that are not in their interest in order to increase compensation. HMDA thresholds, HPA termination schedules, and FCRA permissible purpose rules address different obligations and do not govern steering.

Question 22Federal Mortgage-Related Laws

A lender's loan originator compensation plan pays a bonus that increases as the borrower's interest rate increases. Under Regulation Z, how is this plan treated?

  1. It is prohibited because compensation varies based on the transaction's terms or conditions Correct answer.
  2. It is permitted only for loans secured by investment properties
  3. It is permitted if the originator is a depository institution employee
  4. It is permitted if the bonus is disclosed on the Loan Estimate

Explanation

Regulation Z prohibits loan originator compensation that is based on the terms or conditions of the transaction, such as the interest rate, because it creates a steering incentive. Disclosure does not cure the prohibition, and the rule applies regardless of property type or employer type.

Question 23Federal Mortgage-Related Laws

A mortgage lender is evaluating whether a fee paid to a third party is a Section 8 violation under RESPA. Which factor is most important in determining whether the payment is permissible?

  1. Whether the payment is for services actually performed and is not a duplicative charge or a referral fee Correct answer.
  2. Whether the payment is disclosed on the Closing Disclosure
  3. Whether the borrower consented to the fee in writing
  4. Whether the third party is an affiliate of the lender

Explanation

RESPA Section 8 permits payments for goods or services actually furnished or performed, but prohibits charges that are duplicative or that compensate merely for a referral. Disclosure, affiliation, and borrower consent do not convert a referral fee into a permissible payment.

Question 24Federal Mortgage-Related Laws

A servicer must determine whether a borrower's loss mitigation application is complete. Under Regulation X, when must the servicer evaluate the borrower for all available options?

  1. Only after a foreclosure judgment has been entered
  2. Only after the borrower has missed three consecutive payments
  3. When the servicer receives a complete loss mitigation application more than 37 days before a foreclosure sale Correct answer.
  4. Only when the borrower has applied for bankruptcy protection

Explanation

Regulation X requires a servicer to evaluate a borrower for all loss mitigation options after receiving a complete application, provided it is received more than 37 days before a foreclosure sale. The obligation is not tied to a specific number of missed payments, a foreclosure judgment, or a bankruptcy filing.

Question 25Federal Mortgage-Related Laws

A lender's marketing materials advertise a mortgage product without disclosing the APR. Under Regulation Z, what is the primary consequence?

  1. The lender must refund all closing costs to the borrower
  2. The advertisement is automatically void and the loan is unenforceable
  3. The advertisement may violate the triggering-term and disclosure rules, exposing the lender to regulatory and civil liability Correct answer.
  4. The advertisement is permitted because APR disclosure is only required at application

Explanation

Regulation Z requires that advertisements using triggering terms disclose additional information, including the APR, and violations can result in regulatory action and civil liability. The loan itself is not automatically void, closing costs are not automatically refunded, and APR disclosure is not limited to the application stage.

Question 26Federal Mortgage-Related Laws

Under the Home Mortgage Disclosure Act and Regulation C, which loans must a covered financial institution report?

  1. All applications for, and originations of, closed-end mortgage loans secured by a dwelling, plus covered open-end lines of credit Correct answer.
  2. Only loans sold into the secondary market to Fannie Mae or Freddie Mac
  3. Only loans that are ultimately approved and funded during the reporting year
  4. Only loans secured by a first lien on a single-family principal residence

Explanation

Regulation C requires covered institutions to report applications, not just originations, and the rule reaches both closed-end dwelling-secured loans and covered open-end lines of credit once the applicable volume thresholds are met. Reporting is not limited to approvals, first liens, or loans later sold.

Question 27Federal Mortgage-Related Laws

A credit union originates mortgage loans and meets HMDA's coverage thresholds. Which regulation implements its HMDA data collection and reporting duties?

  1. Regulation Z
  2. Regulation X
  3. Regulation B
  4. Regulation C Correct answer.

Explanation

HMDA is implemented by Regulation C, which is issued by the Consumer Financial Protection Bureau and sets out the loan/application register, data points, and submission rules. The other regulations address different statutes.

Question 28Federal Mortgage-Related Laws

Under the Fair Housing Act, which of the following is an example of a prohibited practice in mortgage lending?

  1. Declining a loan because the applicant's verified debt-to-income ratio exceeds the investor's published limit
  2. Requiring a property appraisal before approving a loan secured by that property
  3. Steering an applicant toward a higher-cost loan product because of the applicant's national origin Correct answer.
  4. Charging a documented origination fee that is disclosed on the Loan Estimate

Explanation

The Fair Housing Act prohibits discrimination in the terms and conditions of residential real estate-related transactions, including mortgage loans, on protected bases such as national origin. Steering applicants to costlier products because of a protected characteristic is a classic fair lending violation.

Question 29Federal Mortgage-Related Laws

Which statute requires creditors to provide applicants with a notice of the right to receive a copy of any appraisal developed in connection with a first-lien loan secured by a dwelling?

  1. Real Estate Settlement Procedures Act
  2. Equal Credit Opportunity Act Correct answer.
  3. Truth in Lending Act
  4. Home Mortgage Disclosure Act

Explanation

The Equal Credit Opportunity Act, through Regulation B, requires creditors to notify applicants of the right to receive a copy of appraisals and other written valuations used in connection with an application for credit secured by a first lien on a dwelling.

Question 30Federal Mortgage-Related Laws

Under the Secure and Fair Enforcement for Mortgage Licensing Act, mortgage loan originator licensing is administered primarily through which system?

  1. The Federal Housing Administration's Connection system
  2. The Home Mortgage Disclosure Act loan/application register
  3. The Consumer Financial Protection Bureau's public complaint database
  4. The Nationwide Multistate Licensing System and Registry Correct answer.

Explanation

The SAFE Act directs states to license and register loan originators through the Nationwide Multistate Licensing System and Registry, which maintains the unique identifier and employment and disciplinary history for each MLO.

Question 31Federal Mortgage-Related Laws

A lender's loan originator is not an employee of a depository institution and is licensed by the state. What unique identifier must the originator provide to the borrower?

  1. The originator's NMLS unique identifier Correct answer.
  2. The originator's state driver's license number
  3. The loan's HMDA universal loan identifier
  4. The lender's federal tax identification number

Explanation

SAFE Act rules require licensed and registered loan originators to provide their NMLS unique identifier to consumers, and it must appear on certain loan documents. The identifier is tied to the individual originator's registry record.

Question 32Federal Mortgage-Related Laws

Under the Flood Disaster Protection Act, when is flood insurance required for a loan secured by improved real property?

  1. Only when the loan amount exceeds the maximum FHA loan limit
  2. When the property is in a special flood hazard area of a participating community and the loan is made, increased, extended, or renewed Correct answer.
  3. Only when the borrower voluntarily elects coverage at closing
  4. Only when the property is located in a community that does not participate in the National Flood Insurance Program

Explanation

The Flood Disaster Protection Act requires regulated lenders to obtain flood insurance before making, increasing, extending, or renewing a loan secured by improved real property located in a special flood hazard area of a participating community. Coverage is mandatory, not elective.

Question 33Federal Mortgage-Related Laws

Which law primarily governs the disclosure of the annual percentage rate and other cost-of-credit terms for consumer mortgage loans?

  1. Fair Credit Reporting Act
  2. Homeowners Protection Act
  3. Servicemembers Civil Relief Act
  4. Truth in Lending Act Correct answer.

Explanation

The Truth in Lending Act, implemented by Regulation Z, requires disclosure of the APR, finance charge, and other credit terms so consumers can compare the cost of credit. The other statutes address credit reporting, mortgage insurance cancellation, and servicemember protections.

Question 34Federal Mortgage-Related Laws

A mortgage broker is not an employee of the lender and closes a loan in the lender's name. Under Regulation Z, how is the broker's compensation from the borrower generally treated for points-and-fees purposes?

  1. It is included only if the broker is also a licensed real estate agent
  2. It is included in the points and fees calculation as loan originator compensation Correct answer.
  3. It is excluded because broker fees are always treated as third-party title charges
  4. It is excluded because the broker is not a creditor

Explanation

Regulation Z's points-and-fees calculation includes compensation paid to loan originators, including mortgage brokers, whether paid by the borrower or the creditor. The broker's non-employee status does not remove the compensation from the calculation.

Question 35Federal Mortgage-Related Laws

A creditor receives a completed mortgage application on March 1 and does not approve or deny it. Under Regulation B, when must the creditor notify the applicant of the action taken?

  1. Within 60 days after receiving the completed application
  2. Only after the applicant submits a written request for a status update
  3. Within 30 days after receiving the completed application Correct answer.
  4. Within 90 days after receiving the completed application

Explanation

Regulation B generally requires a creditor to notify an applicant of action taken within 30 days after receiving a completed application. If the creditor needs more time, it must send a notice of incompleteness or an adverse action notice within that period.

Question 36Federal Mortgage-Related Laws

A lender's loan originator receives a fee from a title company for each loan the originator refers to that company, and the fee is not for goods or services actually performed. Under Section 8 of RESPA, this arrangement is best characterized as:

  1. A permissible marketing fee because the title company is a settlement service provider
  2. A permissible fee because the borrower did not pay it directly
  3. A permissible fee because it is disclosed on the Closing Disclosure
  4. A prohibited kickback because it is a thing of value given in exchange for a referral of settlement service business Correct answer.

Explanation

RESPA Section 8 prohibits giving or accepting a thing of value in exchange for the referral of settlement service business involving a federally related mortgage loan. Fees for referrals, as opposed to reasonable compensation for goods or services actually furnished, are unlawful even if disclosed.

Question 37Federal Mortgage-Related Laws

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

  1. The servicer may proceed with the sale if the borrower has missed two payments
  2. The servicer must complete all loss mitigation evaluation and appeal processes and meet the applicable waiting periods Correct answer.
  3. The servicer must wait 10 days after receiving the application and then may proceed
  4. The servicer may proceed if it sends a notice of intent to foreclose

Explanation

Under Regulation X, if a complete loss mitigation application is received more than 37 days before a foreclosure sale, the servicer must not conduct the sale until it has completed evaluation and any appeal, and the borrower has been given the applicable time to respond. Dual tracking is restricted.

Question 38Federal Mortgage-Related Laws

A servicer must provide an annual escrow account statement to a borrower. Under RESPA and Regulation X, what must the statement include?

  1. Only the borrower's current principal balance
  2. The account balance, the amount of the borrower's current monthly escrow payment, and a projection of activity for the coming year Correct answer.
  3. Only the servicer's contact information and complaint address
  4. Only the total amount of escrow disbursements made in the prior year

Explanation

Regulation X requires an annual escrow account statement that shows the prior year's activity, the current monthly escrow payment, the account balance, and a projection of disbursements and deposits for the next computation year, along with any surplus, shortage, or deficiency.

Question 39Federal Mortgage-Related Laws

A mortgage lender's loan originator tells an applicant that the applicant's loan was denied because of the applicant's age, although the applicant is 62 and otherwise creditworthy. Under ECOA, which statement is correct?

  1. Age may be used freely because older applicants are a protected class
  2. Denying this applicant solely because of age is prohibited, and credit scoring may not assign a negative age factor to applicants aged 62 or older Correct answer.
  3. Age is never a permissible factor in any credit decision
  4. Age may be used if the applicant signs a waiver at application

Explanation

ECOA and Regulation B permit limited consideration of age in defined circumstances, but they do not permit denying this otherwise creditworthy applicant solely for being 62. An empirically derived, demonstrably and statistically sound credit-scoring system may consider age, but may not assign elderly applicants a negative age factor or value.

Question 40Federal Mortgage-Related Laws

A lender's loan originator is paid a commission that increases when the borrower accepts a higher interest rate, and the lender does not offer the borrower a no-cost alternative. Under Regulation Z's loan originator compensation rule, this arrangement is:

  1. Prohibited only if the borrower is a first-time homebuyer
  2. Permitted because the borrower agreed to the higher rate
  3. Permitted because the commission is disclosed on the Loan Estimate
  4. Prohibited because loan originator compensation may not be based on the terms or conditions of the transaction Correct answer.

Explanation

Regulation Z prohibits compensating loan originators based on the terms or conditions of the transaction, such as the interest rate, because it creates an incentive to steer borrowers into costlier loans. Borrower agreement and disclosure do not cure the prohibition.

Question 41Federal Mortgage-Related Laws

A creditor takes adverse action on a mortgage application. Under the Fair Credit Reporting Act, what must the creditor disclose to the applicant?

  1. That the decision was based in whole or in part on information in a consumer report, and the reporting agency's identity Correct answer.
  2. The names of all employees who reviewed the application
  3. The applicant's complete credit score calculation and the underlying model
  4. The identity of the creditor's regulator and its examination schedule

Explanation

When adverse action is based in whole or in part on a consumer report, the FCRA requires the creditor to notify the applicant, identify the consumer reporting agency, and state that the applicant may obtain a copy and dispute the information. The applicant also receives an ECOA adverse action notice.

Question 42Federal Mortgage-Related Laws

A servicer receives a notice of error from a borrower within the Regulation X response window. The servicer investigates and concludes no error occurred. What must the servicer do?

  1. Immediately transfer servicing to another institution
  2. Refer the matter to the borrower's credit reporting agency
  3. Send a written response explaining the investigation, the findings, and the reasons for the determination, and provide contact information for further questions Correct answer.
  4. Take no action because the servicer concluded no error occurred

Explanation

Regulation X requires a servicer to respond in writing to a timely notice of error, describing the investigation and the reasons for its determination and providing the servicer's contact information. Even a no-error finding requires a substantive written response.

Question 43Federal Mortgage-Related Laws

A borrower has a federally related mortgage loan and requests a payoff statement. Under RESPA and Regulation X, how must the servicer respond?

  1. Provide the payoff statement within the applicable timeframe and ensure it is accurate as of the stated date Correct answer.
  2. Provide the payoff statement orally, with no written confirmation required
  3. Provide the payoff statement only after the borrower signs a release of claims
  4. Provide the payoff statement only if the borrower is current on payments

Explanation

Regulation X requires a servicer to provide an accurate payoff statement within a specified period after a borrower's request. The statement must reflect the payoff amount as of the date stated, and the servicer may not condition the response on a release or on payment status.

Question 44Federal Mortgage-Related Laws

A lender's appraisal management company is affiliated with the lender. Under the Truth in Lending Act and Regulation Z, how must the affiliation be disclosed to the applicant?

  1. The affiliation must be disclosed only in the servicing transfer notice
  2. The lender must disclose the affiliation in a clear and conspicuous manner on the Loan Estimate and Closing Disclosure Correct answer.
  3. The affiliation need not be disclosed because appraisal fees are third-party charges
  4. The affiliation must be disclosed only if the borrower asks about it

Explanation

Regulation Z requires disclosure of affiliated business arrangements in connection with settlement services, including on the Loan Estimate and Closing Disclosure, so the borrower can see the relationship and the charge. Third-party status does not eliminate the disclosure obligation.

Question 45Federal Mortgage-Related Laws

A state-licensed mortgage company wants to sponsor a new loan originator. Under the SAFE Act, which requirement applies before the originator may originate loans?

  1. The originator must obtain and maintain a state license through NMLS, meeting pre-licensing education, testing, and background requirements Correct answer.
  2. The originator must complete only the company's internal onboarding paperwork
  3. The originator must register as an investment adviser
  4. The originator must obtain a federal charter from the Office of the Comptroller of the Currency

Explanation

SAFE Act licensing requires state-licensed MLOs to meet pre-licensing education, written test, criminal background, credit, and surety bond requirements, and to maintain their license through NMLS. Internal onboarding alone does not satisfy the statutory requirements.

Question 46Federal Mortgage-Related Laws

An applicant receives a Loan Estimate for a mortgage loan. Which statement correctly describes the general rule on revised Loan Estimates?

  1. A revised Loan Estimate may be issued at any time before closing for any reason
  2. A revised Loan Estimate is never permitted once the original is delivered
  3. A revised Loan Estimate may be provided only when a valid changed circumstance or other permitted trigger applies, within the applicable timing limits Correct answer.
  4. A revised Loan Estimate may be issued only after closing

Explanation

Regulation Z permits revised Loan Estimates only in specified circumstances, such as a changed circumstance affecting settlement charges or eligibility, and requires the revision to be delivered within three business days of receiving the information and no later than four business days before consummation. Revisions for arbitrary reasons are not allowed.

Question 47Federal Mortgage-Related Laws

A borrower's loan is secured by a dwelling and the creditor fails to provide the required high-cost mortgage disclosures. What is the primary consequence under the Home Ownership and Equity Protection Act?

  1. The creditor may cure the violation by refunding the appraisal fee
  2. The borrower must refinance within 30 days
  3. The loan automatically converts to a fixed-rate loan
  4. The borrower may rescind the transaction within three years and the creditor may face enhanced liability Correct answer.

Explanation

HOEPA provides enhanced remedies for violations involving high-cost mortgages, including an extended right of rescission of up to three years and statutory damages and fee liability. The loan does not automatically change form, and a small refund does not cure the violation.

Question 48Federal Mortgage-Related Laws

A servicer evaluates a borrower for loss mitigation. Under Regulation X, which statement best describes the servicer's obligation when a borrower submits an incomplete application?

  1. The servicer may discard the application without notice
  2. The servicer must refer the borrower to a housing counselor before taking any action
  3. The servicer must deny the application immediately
  4. The servicer must exercise reasonable diligence and send a written notice identifying the missing information within the applicable timeframe Correct answer.

Explanation

Regulation X requires a servicer receiving an incomplete loss mitigation application to exercise reasonable diligence in obtaining the missing documents and to send a written notice describing what is needed and the applicable deadline. Simply discarding or denying the application is not permitted.

Question 49Federal Mortgage-Related Laws

A creditor's mortgage lending policy applies stricter credit standards to applicants receiving Section 8 housing assistance. Under ECOA and Regulation B, this policy is:

  1. Permitted if the creditor discloses the policy on the Loan Estimate
  2. Permitted if the creditor applies the policy uniformly to all applicants
  3. Permitted because public assistance income is inherently less stable
  4. Prohibited because income from public assistance must be treated the same as other income in credit decisions Correct answer.

Explanation

ECOA prohibits discrimination against applicants because all or part of their income derives from a public assistance program. A creditor may not discount or treat such income differently from other income, and uniform application of a discriminatory policy does not cure the violation.

Question 50Federal Mortgage-Related Laws

A lender's loan originator recommends a loan with a prepayment penalty to a borrower who is unlikely to be able to refinance and who was eligible for a loan without a penalty. Under Regulation Z, this conduct is most likely analyzed as:

  1. A RESPA Section 8 violation regardless of any referral payment
  2. A fair housing violation only if the borrower belongs to a protected class
  3. A steering concern under the ability-to-repay and loan originator rules because the originator presented a less advantageous transaction without a legitimate reason Correct answer.
  4. A permissible sales practice because the borrower signed the disclosures

Explanation

Regulation Z addresses steering of consumers to transactions that are not in their interest, and the ability-to-repay framework considers loan features such as prepayment penalties. Presenting a less advantageous loan without a legitimate reason supports a steering analysis; borrower signatures and disclosures do not automatically validate the conduct.