I85PREP
⌘ K
MI MLO study materials
MI MLO study resources

MI MLO practice questions

One question at a time. Build your MI MLO understanding.

First 50 of 200 questions. Each one lists the choices, the correct answer, and an explanation. The checker at the top of this page saves progress in this browser when it is available.

Continue in the practice tool above to load more questions, 50 at a time.

Question 1Federal Mortgage-Related Laws

Under the Real Estate Settlement Procedures Act (RESPA), which disclosure must a mortgage loan originator provide to a borrower at the time of application or with the initial loan estimate?

  1. The Affiliated Business Arrangement Disclosure
  2. The HUD-1 Settlement Statement
  3. The Loan Estimate Correct answer.
  4. The Closing Disclosure

Explanation

RESPA, as implemented by Regulation Z for closed-end consumer mortgages, requires the Loan Estimate to be delivered within three business days of application. The Closing Disclosure comes near consummation, and the HUD-1 is now used mainly for reverse mortgages and certain non-TILA loans. The AfBA disclosure is required only when a referral to an affiliated settlement provider occurs.

Question 2Federal Mortgage-Related Laws

A mortgage loan originator is licensed under the SAFE Act. Which federal requirement applies to the MLO's registration in the Nationwide Multistate Licensing System (NMLS)?

  1. The MLO must renew the license every three years with no education requirement
  2. The MLO must renew the license annually and complete continuing education Correct answer.
  3. The MLO must register only if the employer is a depository institution
  4. The MLO must obtain a separate federal license from the CFPB

Explanation

The SAFE Act requires MLOs to renew their license annually and complete at least eight hours of continuing education each year, including federal law and ethics components. There is no separate federal MLO license issued by the CFPB. Depository institution employees are registered rather than state-licensed, but annual renewal still applies.

Question 3Federal Mortgage-Related Laws

Which loan is covered by the Home Mortgage Disclosure Act (HMDA) reporting requirements?

  1. A business-purpose loan to a corporation secured by a commercial building
  2. An agricultural loan used to buy farm equipment
  3. A consumer-purpose closed-end mortgage secured by a dwelling Correct answer.
  4. A loan for the purchase of vacant land with no dwelling

Explanation

HMDA, implemented through Regulation C, covers consumer-purpose closed-end mortgage loans secured by a dwelling, including purchase, refinance, and home improvement loans. Business-purpose loans, vacant land loans without a dwelling, and agricultural equipment loans generally fall outside HMDA reporting.

Question 4Federal Mortgage-Related Laws

Under the Fair Credit Reporting Act (FCRA), what must a creditor do if it takes adverse action against an applicant based on information in a consumer report?

  1. Provide the applicant with a free copy of the report only if requested
  2. Notify the applicant of the adverse action and provide the credit reporting agency's contact information Correct answer.
  3. Report the denial to the credit bureau as a dispute
  4. Wait 30 days before sending the adverse action notice

Explanation

FCRA requires a user taking adverse action based on a consumer report to provide an adverse action notice identifying the credit reporting agency and stating that the agency did not make the decision. The notice must also inform the applicant of the right to obtain a free copy of the report and to dispute its accuracy. Silence or delay does not satisfy the requirement.

Question 5Federal Mortgage-Related Laws

Which practice is prohibited by the Equal Credit Opportunity Act (ECOA) when evaluating a mortgage application?

  1. Discounting income derived from part-time employment
  2. Evaluating the applicant's debt-to-income ratio
  3. Considering the applicant's credit history
  4. Requiring a spouse to be a joint obligor when the applicant qualifies independently Correct answer.

Explanation

Regulation B, which implements ECOA, prohibits requiring a spouse's signature when the applicant qualifies for the loan independently. Creditors may consider credit history, income stability, and debt-to-income ratio because those are neutral, creditworthy-related factors. Income from part-time work cannot be discounted solely because it is part-time if it is expected to continue.

Question 6Federal Mortgage-Related Laws

A lender is subject to the Homeowners Protection Act (HPA). When must the lender automatically terminate private mortgage insurance (PMI) on a residential mortgage?

  1. When the borrower requests cancellation at 90 percent loan-to-value
  2. When the principal balance reaches 80 percent of the original value, based on the amortization schedule Correct answer.
  3. Only after the borrower has made 24 consecutive on-time payments
  4. At the midpoint of the loan term regardless of balance

Explanation

The HPA requires automatic termination of PMI when the loan reaches 78 percent loan-to-value based on the original value and the amortization schedule, and borrowers may request cancellation at 80 percent. The 78 percent automatic trigger is tied to the scheduled balance, not to the borrower's request. Final termination occurs at the midpoint of the amortization period.

Question 7Federal Mortgage-Related Laws

Which transaction is exempt from the integrated disclosure requirements of the TILA-RESPA Integrated Disclosure (TRID) rule?

  1. A closed-end consumer mortgage secured by a primary residence
  2. A home purchase loan made by a non-depository lender
  3. A reverse mortgage Correct answer.
  4. A refinance of a consumer's primary residence

Explanation

Reverse mortgages are exempt from the TRID integrated disclosures and instead use the HUD-1 and Truth in Lending disclosures. Closed-end consumer mortgages secured by a dwelling, including refinances and purchases by non-depository lenders, are generally covered. The exemption list also includes certain business-purpose and construction-only loans.

Question 8Federal Mortgage-Related Laws

Under the Fair Housing Act, which activity is prohibited in residential mortgage lending?

  1. Advertising mortgage products in a general-circulation newspaper
  2. Applying uniform credit standards to all applicants
  3. Steering applicants to different loan terms based on national origin Correct answer.
  4. Requiring documentation of income from all applicants

Explanation

The Fair Housing Act prohibits discrimination in the terms and conditions of residential real estate-related transactions, including mortgage lending, on the basis of race, color, religion, sex, national origin, familial status, or disability. Steering applicants to different terms based on national origin is a prohibited practice. Uniform credit standards and documentation requirements are lawful when applied consistently.

Question 9Federal Mortgage-Related Laws

A mortgage loan originator takes an application on Monday and mails the Loan Estimate on Wednesday. Under Regulation Z, when must the Loan Estimate be delivered or placed in the mail?

  1. No later than three business days after application Correct answer.
  2. No later than seven business days after application
  3. No later than ten business days before consummation
  4. On the same business day as application

Explanation

Regulation Z requires the creditor to deliver or place the Loan Estimate in the mail no later than three business days after receiving the application. The seven-business-day waiting period before consummation is a separate rule. Same-day delivery is permitted but not required.

Question 10Federal Mortgage-Related Laws

A borrower's loan is secured by a dwelling and the servicer receives a complete loss mitigation application 40 days before a foreclosure sale. Which requirement applies under Regulation X?

  1. The servicer must evaluate the borrower for all available loss mitigation options before proceeding Correct answer.
  2. The servicer may ignore the application because it was not submitted 90 days before sale
  3. The servicer may proceed with foreclosure because the sale is within 60 days
  4. The servicer must transfer the loan to another servicer

Explanation

Under Regulation X, a complete loss mitigation application received more than 37 days before a foreclosure sale triggers the full loss mitigation procedures, including evaluation for all available options and a dual-tracking prohibition. The servicer cannot proceed with foreclosure until the borrower is evaluated and any appeal period expires. The 90-day and transfer requirements described are not applicable.

Question 11Federal Mortgage-Related Laws

A lender charges a borrower a $500 fee for a settlement service and splits $250 with an affiliated title company that performed no actual work. Which federal law is most directly implicated?

  1. Section 8 of RESPA, which prohibits unearned fee splits Correct answer.
  2. The Home Mortgage Disclosure Act
  3. The Fair Credit Reporting Act
  4. The Homeowners Protection Act

Explanation

Section 8 of RESPA prohibits giving or receiving any fee, kickback, or thing of value for the referral of settlement service business and prohibits splitting charges for services not actually performed. Paying an affiliate for no work is an unearned fee split. HMDA, FCRA, and the HPA govern reporting, credit information, and PMI, respectively.

Question 12Federal Mortgage-Related Laws

An applicant receives a preapproval but is later denied because the lender discovers the applicant is receiving public assistance income. Under ECOA, which statement is correct?

  1. The lender may not discriminate based on receipt of public assistance income Correct answer.
  2. The lender must deny all applicants receiving public assistance
  3. The lender may deny only if the assistance is temporary
  4. The lender may deny because public assistance is not employment income

Explanation

ECOA and Regulation B prohibit discrimination on the basis of receipt of income from a public assistance program. The lender must evaluate that income under the same standards used for other income sources. Treating public assistance income as automatically disqualifying is unlawful.

Question 13Federal Mortgage-Related Laws

A creditor uses a credit score in underwriting and the applicant is denied. Under Regulation B, what must the creditor provide in the adverse action notice?

  1. The name of the loan officer who made the decision
  2. A copy of the full credit report
  3. Only a statement that credit was insufficient
  4. The actual credit score and the key factors that adversely affected it Correct answer.

Explanation

When a creditor uses a credit score in connection with an application and takes adverse action, Regulation B requires disclosure of the numerical score, the range of scores, the key factors adversely affecting the score, and the source of the score. A vague statement about insufficient credit does not satisfy the requirement. The full report and the loan officer's identity are not required.

Question 14Federal Mortgage-Related Laws

A loan originator advertises a mortgage rate but does not disclose the APR. Which federal requirement is triggered under Regulation Z?

  1. The advertisement must be limited to 30 words
  2. The advertisement must include the loan originator's home address
  3. The advertisement must disclose the APR clearly and conspicuously Correct answer.
  4. The advertisement must be approved by the CFPB before publication

Explanation

Regulation Z requires that when an advertisement states a rate or payment, it also disclose the annual percentage rate clearly and conspicuously. There is no CFPB preapproval process for advertisements. Address and word-count rules are not part of the trigger requirement.

Question 15Federal Mortgage-Related Laws

A servicer receives a qualified written request (QWR) from a borrower disputing the account. Under RESPA, what is the servicer's obligation?

  1. Forward the request to the credit bureaus within 10 days
  2. Acknowledge receipt within five business days and respond substantively within 30 business days Correct answer.
  3. Ignore the request unless it is notarized
  4. Respond only if the borrower also calls the servicer

Explanation

Under RESPA, a servicer must acknowledge a qualified written request within five business days and provide a substantive response within 30 business days, subject to a possible 15-business-day extension. The response must address the dispute and correct any errors. Notarization and telephone contact are not prerequisites.

Question 16Federal Mortgage-Related Laws

A borrower with a federally related mortgage loan requests cancellation of PMI when the loan reaches 80 percent loan-to-value based on the original value. What must the servicer do?

  1. Cancel the PMI only at the 78 percent automatic termination point
  2. Cancel the PMI if the borrower has a good payment history and satisfies other HPA conditions Correct answer.
  3. Refuse cancellation until the loan is fully amortized
  4. Require a new appraisal at the borrower's expense in all cases

Explanation

Under the Homeowners Protection Act, a borrower may request cancellation at 80 percent LTV based on the original value if the borrower has a good payment history and meets any servicer-required conditions, such as evidence of value. The servicer cannot defer cancellation to the 78 percent automatic point. A new appraisal is not universally required.

Question 17Federal Mortgage-Related Laws

A mortgage lender is subject to HMDA and makes a loan secured by a dwelling. Which data point must the lender collect and report under Regulation C?

  1. The loan officer's NMLS identification number
  2. The borrower's marital status
  3. The borrower's ethnicity, race, and sex Correct answer.
  4. The borrower's credit score

Explanation

Regulation C requires collection and reporting of demographic information, including ethnicity, race, and sex, for covered dwelling-secured applications. Credit scores, NMLS identifiers, and marital status are not HMDA data points. This demographic collection supports fair lending monitoring.

Question 18Federal Mortgage-Related Laws

A loan originator recommends a higher-cost loan to an applicant who qualifies for a lower-cost loan, and the recommendation benefits the originator financially. Which TILA standard is most directly implicated?

  1. The loan originator compensation rule and the prohibition on steering to higher-cost loans Correct answer.
  2. The Homeowners Protection Act's PMI termination rules
  3. The ability-to-repay rule's safe harbor
  4. The FCRA's dispute resolution procedures

Explanation

Regulation Z, implementing TILA, restricts loan originator compensation and prohibits steering a consumer to a transaction that is not in the consumer's interest in order to increase compensation. The ability-to-repay rule addresses repayment capacity, not product steering. PMI and FCRA rules are unrelated to loan steering.

Question 19Federal Mortgage-Related Laws

A lender receives an application for a mortgage on a property located in a flood zone. Under the Flood Disaster Protection Act, what must the lender do before making the loan?

  1. Require flood insurance only if the borrower volunteers to buy it
  2. Report the property to FEMA before closing
  3. Notify the borrower and require flood insurance as a condition of the loan Correct answer.
  4. Rely on the seller's existing insurance policy

Explanation

The Flood Disaster Protection Act requires regulated lenders to notify borrowers that the property is in a special flood hazard area and to require flood insurance as a condition of the loan when the loan is secured by improved real property. Borrower choice and seller policies do not satisfy the requirement. The lender does not report individual properties to FEMA.

Question 20Federal Mortgage-Related Laws

A creditor denies a mortgage application and, in the adverse action notice, states only that the applicant 'did not meet credit standards.' Which ECOA concern arises?

  1. The notice is insufficient because it does not give specific reasons for the denial Correct answer.
  2. The notice violates HMDA reporting requirements
  3. The notice is sufficient because it states a reason
  4. The notice is sufficient if the applicant is told verbally

Explanation

Regulation B requires an adverse action notice to include specific reasons for the denial or a disclosure of the right to request the reasons. A conclusory statement that the applicant did not meet credit standards does not identify the specific factors. Verbal notice does not cure a deficient written notice.

Question 21Federal Mortgage-Related Laws

A mortgage servicer receives a borrower's complete loss mitigation application 20 days before a scheduled foreclosure sale. Under Regulation X, which statement best describes the servicer's obligations?

  1. The servicer must evaluate the borrower for all options and may not conduct a foreclosure sale until the evaluation is complete Correct answer.
  2. The servicer must cancel the foreclosure permanently
  3. The servicer must transfer the loan to a housing counselor
  4. The servicer may proceed with the sale because the application was received within 37 days of sale

Explanation

Even when a complete application arrives within 37 days of a foreclosure sale, Regulation X requires the servicer to evaluate the borrower for all loss mitigation options and prohibits a foreclosure sale until the evaluation is complete and any appeal period has run. The servicer cannot simply proceed because the application was late in the process. Permanent cancellation and mandatory transfer are not required.

Question 22Federal Mortgage-Related Laws

A lender makes a higher-priced mortgage loan secured by a dwelling. Under Regulation Z, which appraisal requirement applies?

  1. The lender must use an appraiser selected by the borrower
  2. The lender may rely on an automated valuation model without a physical inspection in all cases
  3. The lender may waive the appraisal if the borrower has good credit
  4. The lender must obtain a written appraisal by a certified or licensed appraiser based on a physical visit of the interior Correct answer.

Explanation

Regulation Z requires creditors making higher-priced mortgage loans to obtain a written appraisal performed by a certified or licensed appraiser who conducts a physical visit of the interior of the property. Automated models and borrower-selected appraisers do not satisfy this requirement. Credit quality does not create a waiver.

Question 23Federal Mortgage-Related Laws

An MLO employed by a non-depository lender moves to a new state and wishes to originate loans secured by dwellings in that state. Which statement is correct under the SAFE Act?

  1. The MLO may originate immediately because the NMLS license is national
  2. The MLO may originate for 90 days while the license application is pending
  3. The MLO must obtain a license in the new state unless a valid license is transferred under state law Correct answer.
  4. The MLO must obtain a federal charter from the CFPB

Explanation

The SAFE Act establishes a state-based licensing system, so an MLO generally must hold a valid license in each state where the MLO originates loans. Some states allow license transfer or temporary authority under limited conditions, but there is no automatic national license. The CFPB does not charter individual MLOs.

Question 24Federal Mortgage-Related Laws

A creditor is evaluating a borrower's ability to repay a closed-end consumer mortgage under the ATR rule. Which factor is required to be considered?

  1. The borrower's current employment title
  2. The color of the property
  3. The borrower's membership in a credit union
  4. The borrower's income, debts, and debt-to-income ratio Correct answer.

Explanation

Regulation Z's ability-to-repay rule requires creditors to consider eight underwriting factors, including income, debts, debt-to-income ratio, credit history, and residual income. Employment title, property color, and credit union membership are not required factors. Considering the required factors helps establish compliance and possible safe harbor protection.

Question 25Federal Mortgage-Related Laws

A lender's loan officer tells a borrower that the loan will have a fixed rate, but the Closing Disclosure shows an adjustable rate. Which statement best describes the legal issue?

  1. The issue is governed solely by HMDA reporting rules
  2. The inconsistency may violate TILA disclosure accuracy requirements and trigger rescission or remediation obligations Correct answer.
  3. The lender may correct the error after consummation without any obligation
  4. There is no issue if the borrower signed the note

Explanation

TILA requires accurate disclosure of the loan's terms, including whether the rate is fixed or adjustable, and material inaccuracies can trigger rescission rights or remediation obligations. Signing the note does not cure a disclosure violation. HMDA reporting is unrelated to the accuracy of the disclosed terms.

Question 26Federal Mortgage-Related Laws

Under the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act), which element is required for an individual to obtain a state-issued mortgage loan originator license?

  1. A federal charter issued by the Consumer Financial Protection Bureau authorizing nationwide origination
  2. A surety bond posted personally by the originator for each state in which loans are originated
  3. Registration with the Nationwide Mortgage Licensing System and Registry without any pre-licensing coursework
  4. A passing score on an approved qualified written test and completion of pre-licensing education Correct answer.

Explanation

The SAFE Act sets minimum standards for state licensure, including pre-licensing education, a qualified written test, a criminal background check, and credit review. The originator's record is maintained in the NMLS Registry. Federal registration applies only to institutionally employed originators at insured depositories and certain regulated entities.

Question 27Federal Mortgage-Related Laws

A mortgage loan originator employed by a state-licensed nonbank lender is completing an application. Under the SAFE Act, the originator must provide which disclosure at the time of application?

  1. The lender's federal tax identification number and warehouse line amount
  2. The originator's unique identifier together with the Nationwide Mortgage Licensing System and Registry information Correct answer.
  3. The projected secondary-market investor for the loan
  4. The originator's personal credit score and background check results

Explanation

The SAFE Act requires originators to disclose their unique identifier and direct the consumer to the NMLS Registry for complaints and licensing information. This disclosure appears on the loan documents and the originator's business materials. Personal credit and background data are confidential and not consumer disclosures.

Question 28Federal Mortgage-Related Laws

A mortgage servicer receives a borrower's escrow account statement. Under RESPA Section 10 and Regulation X, the servicer must provide the annual escrow account statement how often?

  1. At least once each 12-month computation year Correct answer.
  2. Monthly, with each payment coupon
  3. Every three years unless the borrower requests otherwise
  4. Only when the escrow account balance falls below the cushion

Explanation

RESPA requires servicers to provide an annual escrow account statement at least once for each 12-month computation year. The statement summarizes activity, projected payments, and any surplus or shortage. It is not tied to monthly coupons or triggered only by a low balance.

Question 29Federal Mortgage-Related Laws

Under the Real Estate Settlement Procedures Act, which practice is prohibited when a lender refers a borrower to a settlement service provider?

  1. Requiring the borrower to shop for title insurance
  2. Referring the borrower to a provider that charges below-market fees
  3. Paying a fee for the referral of settlement service business Correct answer.
  4. Providing a written list of providers the borrower may choose

Explanation

Section 8 of RESPA prohibits giving or receiving anything of value in exchange for the referral of settlement service business involving a federally related mortgage loan. Fee-splitting for referrals and unearned fees are likewise barred. Providing a list of providers or permitting shopping is generally allowed.

Question 30Federal Mortgage-Related Laws

A mortgage lender is evaluating a loan for coverage under the Home Mortgage Disclosure Act. Which test determines whether the institution is a covered depository?

  1. The number of MLOs licensed in each state
  2. The lender's FHA approval status
  3. The lender's total assets and whether it originated at least one home purchase loan in the prior year Correct answer.
  4. The lender's net worth compared with the conforming loan limit

Explanation

HMDA coverage for depository institutions depends on asset size thresholds and whether the institution originated any home purchase loans in the preceding calendar year. Non-depository coverage depends on loan volume and other criteria. Net worth, licensing counts, and FHA status do not determine coverage.

Question 31Federal Mortgage-Related Laws

Under the Fair Credit Reporting Act, a mortgage lender that takes adverse action based in whole or in part on a consumer report must provide which notice?

  1. A notice of adverse action identifying the consumer reporting agency and stating the consumer's right to dispute Correct answer.
  2. A notice that the loan has been submitted to an automated underwriting system
  3. A notice of the right to a free copy of the appraisal
  4. A notice of the lender's right to resell the loan

Explanation

FCRA requires an adverse action notice that identifies the consumer reporting agency used, states that the agency did not make the decision, and explains the consumer's right to obtain a free report and dispute inaccurate information. This is separate from the appraisal copy rule and from any investor sale notice.

Question 32Federal Mortgage-Related Laws

A mortgage broker collects a borrower's Social Security number and income documents. Under the Gramm-Leach-Bliley Act, the broker must take which step regarding the borrower's nonpublic personal information?

  1. Sell the information to marketing partners unless the borrower objects within 30 days
  2. Retain the information for at least 25 years regardless of the transaction
  3. Publish the information in the loan file for investor review without restriction
  4. Provide a privacy notice and safeguard the information against unauthorized access Correct answer.

Explanation

GLBA requires financial institutions, including mortgage brokers and lenders, to give customers privacy notices and to maintain safeguards protecting nonpublic personal information. Sharing with nonaffiliated third parties generally requires opt-out rights and disclosure. Unrestricted publication and mandatory sale of data are not permitted.

Question 33Federal Mortgage-Related Laws

A servicer is subject to Regulation X loss mitigation procedures. The borrower submits a complete loss mitigation application more than 37 days before a foreclosure sale. Within how many days must the servicer evaluate the borrower and provide a notice of the determination?

  1. 14 days after receipt of the complete application
  2. 30 days after receipt of the complete application Correct answer.
  3. 60 days after receipt of the complete application
  4. 45 days after receipt of the complete application

Explanation

When a complete loss mitigation application is received more than 37 days before a foreclosure sale, the servicer must evaluate it and provide the borrower a determination notice within 30 days of receipt. Shorter timelines apply when the application arrives closer to the sale date.

Question 34Federal Mortgage-Related Laws

A creditor receives a mortgage application and must provide the Loan Estimate. Under Regulation Z, the creditor must deliver or place the Loan Estimate in the mail no later than which point?

  1. Ten business days after receipt of the application
  2. Three business days after receipt of the application Correct answer.
  3. Five calendar days after receipt of the application
  4. Seven business days after receipt of the application

Explanation

Regulation Z requires the Loan Estimate to be delivered or mailed within three business days after the creditor receives the application. The three-business-day period runs from the business day the application is received. Later delivery risks timing violations and affects the good-faith comparison to the Closing Disclosure.

Question 35Federal Mortgage-Related Laws

A borrower's escrow account has a surplus of $600 following the annual escrow analysis. Under Regulation X, how must the servicer handle the surplus?

  1. Refund the surplus only if the borrower submits a written request
  2. Refund the entire surplus within 30 days if the surplus is at least $50 Correct answer.
  3. Apply the entire surplus to the next year's escrow payments
  4. Retain the surplus until the loan is paid off

Explanation

Regulation X requires a servicer to refund any escrow surplus of $50 or more within 30 days of the analysis, unless the borrower requests that it be applied to future payments. Surpluses below $50 may be credited to the account. The servicer cannot simply retain the funds.

Question 36Federal Mortgage-Related Laws

A mortgage loan originator is employed by a state-licensed mortgage company. A borrower asks how to verify the originator's license and file a complaint. Under the SAFE Act, the originator should direct the borrower to which resource?

  1. The Nationwide Mortgage Licensing System and Registry Correct answer.
  2. The Federal Reserve consumer complaint database
  3. The state attorney general's office only
  4. The lender's internal human resources department

Explanation

The SAFE Act requires originators to direct consumers to the NMLS Registry, where licensing status and complaint information are maintained. The unique identifier links the originator to that record. Other complaint channels exist but the Act specifically references the Registry.

Question 37Federal Mortgage-Related Laws

A mortgage lender's loan officer tells an applicant that a loan has no prepayment penalty. The note actually contains a prepayment penalty. Which federal law is most directly implicated by this misrepresentation in the origination of a dwelling-secured loan?

  1. The Consumer Financial Protection Act's prohibition on deceptive acts or practices Correct answer.
  2. The Fair Debt Collection Practices Act
  3. The Servicemembers Civil Relief Act
  4. The Homeowners Protection Act

Explanation

The Consumer Financial Protection Act prohibits unfair, deceptive, or abusive acts or practices in consumer financial products, including mortgage origination. Misrepresenting a material loan term such as a prepayment penalty is a deceptive practice. The other statutes address PMI cancellation, debt collection, or servicemember protections.

Question 38Federal Mortgage-Related Laws

A creditor's written policy states that applicants receiving public assistance income will be denied mortgage credit. Under the Equal Credit Opportunity Act, this policy is:

  1. Permissible if the lender discloses the policy in its rate sheet
  2. Prohibited because income from public assistance must be treated the same as other income Correct answer.
  3. Prohibited only if the applicant is over age 62
  4. Permissible because public assistance is not employment income

Explanation

ECOA and Regulation B prohibit discrimination on the basis of receipt of public assistance income. A creditor may consider the likelihood of continued receipt but cannot automatically discount or deny based on that source. A blanket denial policy is unlawful regardless of disclosure.

Question 39Federal Mortgage-Related Laws

A lender is preparing to close a loan subject to the TILA-RESPA Integrated Disclosure rules. If the creditor must provide a revised Closing Disclosure because the APR increases beyond the tolerance, how long must the borrower wait before consummation?

  1. No wait is required if the change is explained orally
  2. One business day after the revised Closing Disclosure is delivered or placed in the mail
  3. Five business days after the revised Closing Disclosure is received
  4. Three business days after the revised Closing Disclosure is received Correct answer.

Explanation

When a revised Closing Disclosure is required for certain changed circumstances, including an APR increase beyond tolerance, the borrower must receive it no later than three business days before consummation. The waiting period protects the borrower's opportunity to review final terms. Oral explanation does not replace the written disclosure and waiting period.

Question 40Federal Mortgage-Related Laws

A mortgage servicer receives a notice of error from a borrower regarding a payment that was misapplied. Under Regulation X, the servicer must generally respond by taking which action?

  1. Acknowledge receipt within five days and complete the investigation and response within 30 business days, with a possible 15-business-day extension Correct answer.
  2. Respond within 60 calendar days without any acknowledgment
  3. Ignore the notice unless the borrower also sends a qualified written request
  4. Refer the matter to the original creditor and close the file

Explanation

Regulation X requires a servicer to acknowledge a notice of error within five days and to investigate and respond within 30 business days, with a possible extension of 15 business days if additional information is needed. The response must state the outcome and any corrections. A qualified written request is a related but distinct concept.

Question 41Federal Mortgage-Related Laws

A lender is subject to the Flood Disaster Protection Act. The lender determines that a dwelling securing a loan is in a special flood hazard area and flood insurance is required. What must the lender verify before closing?

  1. That the borrower has purchased earthquake coverage as a substitute
  2. That the property has been appraised within the last 30 days
  3. That the borrower has waived flood insurance in writing
  4. That the borrower has obtained flood insurance in at least the lesser of the outstanding principal balance or the maximum coverage available under the program Correct answer.

Explanation

The Flood Disaster Protection Act requires flood insurance for improved real property in a special flood hazard area in an amount at least equal to the lesser of the outstanding principal balance or the maximum coverage available under the National Flood Insurance Program. A borrower cannot waive the requirement for a covered loan.

Question 42Federal Mortgage-Related Laws

A mortgage lender is a creditor under Regulation Z. The lender advertises a closed-end mortgage with a low monthly payment but does not disclose the annual percentage rate. Under Regulation Z advertising rules, which statement is accurate?

  1. The advertisement is permissible because the APR is disclosed at application
  2. The advertisement violates Regulation Z only if the rate is variable
  3. The advertisement violates Regulation Z because a triggering term requires disclosure of the APR Correct answer.
  4. The advertisement is permissible because monthly payment is not a triggering term

Explanation

Regulation Z requires that if an advertisement states a triggering term such as a monthly payment or finance charge, the advertisement must also disclose the APR and other required terms clearly and conspicuously. Disclosure later at application does not cure the advertisement. The rule applies to fixed and variable-rate loans alike.

Question 43Federal Mortgage-Related Laws

A creditor uses a credit score in connection with a mortgage application and denies the request. Under Regulation B, what must the creditor disclose to the applicant?

  1. A promise to reconsider if the score improves
  2. The credit score itself and the key factors that adversely affected it Correct answer.
  3. Only the name of the credit bureau
  4. The underwriting model's proprietary formula

Explanation

Regulation B requires a creditor that uses a credit score to provide the score and the key factors adversely affecting it, along with the source of the score. This is in addition to the adverse action notice. The proprietary formula is not disclosed.

Question 44Federal Mortgage-Related Laws

A loan originator is comparing two loan options for a borrower. Option A has a lower rate but a large prepayment penalty; Option B has a slightly higher rate with no prepayment penalty. The borrower plans to sell in two years. Under Regulation Z's loan originator compensation rules, which consideration is most relevant to whether the originator may steer the borrower?

  1. Whether the title company is affiliated with the lender
  2. Whether the originator's compensation varies based on the terms of the transaction Correct answer.
  3. Whether the borrower has a prior relationship with the lender
  4. Whether the lender sells loans to a government-sponsored enterprise

Explanation

Regulation Z prohibits loan originator compensation that varies with the terms of the transaction and prohibits steering consumers to loans that are not in their interest to increase compensation. The analysis turns on how the originator is paid and whether the recommended loan is beneficial. Prior relationships, investor sales, and title affiliation do not control the steering analysis.

Question 45Federal Mortgage-Related Laws

A mortgage servicer is evaluating a loss mitigation application received 20 days before a scheduled foreclosure sale. Under Regulation X, which statement best describes the servicer's obligations?

  1. The servicer must refer the borrower to the original creditor for evaluation
  2. The servicer must delay the sale for 90 days to allow a full review
  3. The servicer may proceed to sale without any review because the application is late
  4. The servicer must evaluate the application and provide a determination notice before the sale if the application is complete Correct answer.

Explanation

When a complete loss mitigation application is received more than 37 days before a sale, the servicer has 30 days to evaluate. When it is received 37 days or less before sale, the servicer must still evaluate and provide a determination before the sale if practicable. The servicer cannot simply ignore a complete application.

Question 46Federal Mortgage-Related Laws

A creditor is considering whether a loan is a qualified mortgage under the general ability-to-repay definition. Which feature would prevent the loan from meeting the general qualified mortgage criteria?

  1. A loan term of 30 years
  2. A debt-to-income ratio above 43 percent Correct answer.
  3. A fully amortizing repayment schedule
  4. A fixed interest rate for the full term

Explanation

The general qualified mortgage definition generally requires a debt-to-income ratio of 43 percent or less, along with limits on points and fees and restrictions on certain loan features. A fully amortizing, fixed-rate 30-year loan can qualify if the other criteria are met. Exceeding the DTI threshold disqualifies the loan under the general definition.

Question 47Federal Mortgage-Related Laws

A mortgage lender is subject to the Homeowners Protection Act. The borrower's loan is secured by a dwelling and the loan-to-value ratio reaches 78 percent based on the original value and scheduled amortization. What is the lender's obligation?

  1. Automatically terminate private mortgage insurance on the first day of the month after the borrower reaches 78 percent Correct answer.
  2. Wait for the borrower to request cancellation in writing
  3. Terminate PMI only if the property is reappraised
  4. Continue PMI until the loan is paid in full

Explanation

The Homeowners Protection Act requires automatic termination of private mortgage insurance when the loan reaches 78 percent of the original value based on scheduled amortization, on the first day of the month after that point. Borrower-requested cancellation at 80 percent is a separate right. A reappraisal is not required for automatic termination.

Question 48Federal Mortgage-Related Laws

A mortgage lender's loan officer accepts a fee from a title company for each loan referred to that company, and the fee is not disclosed on the Closing Disclosure. Which federal law is most directly violated?

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

Explanation

RESPA Section 8 prohibits giving or receiving fees or things of value for the referral of settlement service business involving a federally related mortgage loan. Undisclosed referral fees to a title company are a classic Section 8 violation. The other statutes govern credit reporting, mortgage insurance, and servicemember protections.

Question 49General Mortgage Knowledge

Under RESPA, which document must a mortgage lender provide to a borrower within three business days of receiving a complete loan application?

  1. Closing Disclosure
  2. Loan Estimate Correct answer.
  3. Appraisal report
  4. Promissory note

Explanation

RESPA and Regulation X require the Loan Estimate to be delivered or placed in the mail within three business days after the lender receives a complete application. It summarizes the loan terms, projected payments, and closing costs so the borrower can shop before committing.

Question 50General Mortgage Knowledge

A borrower's monthly gross income is $6,000 and total monthly housing expense is $1,680. What is the front-end housing ratio?

  1. 36%
  2. 24%
  3. 31%
  4. 28% Correct answer.

Explanation

The front-end ratio divides housing expense by gross monthly income: 1,680 ÷ 6,000 = 0.28, or 28%. Conventional guidelines commonly cap this figure near 28% to 36% depending on automated underwriting findings.