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NE MLO practice questions

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Question 1Federal mortgage-related laws and regulations

A settlement service provider is reviewing its fee arrangements for federally related mortgage loans. Which arrangement is prohibited under Section 8 of RESPA?

  1. A lender pays a brokerage a per-loan referral fee when no settlement service is performed. Correct answer.
  2. A mortgage broker gives every prospective borrower a generic list of available loan programs.
  3. A title insurer charges the borrower a premium disclosed on the Closing Disclosure for title insurance actually issued.
  4. A loan servicer collects a monthly escrow payment and places it in the borrower's escrow account.

Explanation

RESPA Section 8 prohibits giving or receiving a thing of value under an agreement to refer settlement service business involving a federally related mortgage loan. It also prohibits splitting charges for services that were not actually performed. A fee must be reasonably related to goods or services actually furnished.

Question 2Federal mortgage-related laws and regulations

A borrower refinances the loan on her principal dwelling and grants the new lender a security interest in that home. The transaction is subject to TILA's rescission provisions. How long does the borrower generally have to rescind after consummation?

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

Explanation

TILA gives the borrower three business days to rescind certain credit transactions secured by the principal dwelling, including refinances and home equity loans. The right generally expires at midnight on the third business day after consummation or after delivery of required disclosures, whichever is later. Purchase-money mortgages and business-purpose loans are common exceptions.

Question 3Federal mortgage-related laws and regulations

A creditor denies a completed mortgage application. Under Regulation B, what is the general deadline for notifying the applicant of adverse action?

  1. Within 90 days after receiving the completed application
  2. Within 60 days after receiving the completed application
  3. Within 30 days after receiving the completed application Correct answer.
  4. Within 10 days after receiving the completed application

Explanation

Regulation B generally requires a creditor to notify an applicant of adverse action within 30 days after receiving a completed application. A counteroffer may satisfy the notice requirement in some circumstances. Different timing rules can apply when an application is incomplete.

Question 4Federal mortgage-related laws and regulations

Under the SAFE Act, how must a mortgage loan originator's unique identifier appear in the loan process?

  1. Only in advertisements that quote an interest rate
  2. On the loan application and other CFPB-required documents Correct answer.
  3. Only after the borrower submits a written request
  4. Only on the final Closing Disclosure at consummation

Explanation

The SAFE Act requires a mortgage loan originator's unique identifier to be shown on the loan application and on other documents required by the CFPB. The identifier allows consumers to track the originator through the NMLS. It is not limited to a single closing document or to advertising.

Question 5Federal mortgage-related laws and regulations

A mortgage broker receives a complete application for a closed-end consumer mortgage on Monday. Under the TRID rules in Regulation Z, by when must the Loan Estimate generally be delivered or placed in the mail?

  1. Within three business days after receiving the application Correct answer.
  2. Within seven business days after receiving the application
  3. Within ten business days after receiving the application
  4. By the end of the same business day

Explanation

Regulation Z requires the Loan Estimate to be delivered or placed in the mail no later than three business days after the creditor receives the application. The creditor also generally must deliver the Loan Estimate no later than seven business days before consummation. The seven-day period is a waiting requirement, not the deadline for delivering the initial estimate.

Question 6Federal mortgage-related laws and regulations

Under Regulation Z's ability-to-repay requirements, which item must a creditor consider when underwriting a closed-end consumer mortgage secured by a dwelling?

  1. The borrower's credit history Correct answer.
  2. The borrower's national origin
  3. The borrower's marital status
  4. The borrower's age

Explanation

The ability-to-repay rule requires creditors to consider eight underwriting factors, including income and assets, employment status, monthly payment, loan term, simultaneous loans, mortgage-related obligations, debts, and credit history. Marital status, age, and national origin are protected characteristics and are not permissible underwriting factors. Considering them can raise fair lending concerns.

Question 7Federal mortgage-related laws and regulations

A closed-end mortgage loan is being tested for high-cost mortgage status under HOEPA. Which threshold, if exceeded, can trigger that classification?

  1. The borrower's credit score is below 620
  2. The loan's interest rate exactly equals the average prime offer rate
  3. Points and fees exceed 5 percent of the loan amount Correct answer.
  4. The loan amount exceeds the conforming loan limit

Explanation

HOEPA classifies a closed-end mortgage as high-cost when points and fees exceed 5 percent of the total loan amount, subject to a different threshold for smaller loans. Other triggers include an annual percentage rate that exceeds the average prime offer rate by a specified margin and certain prepayment penalty terms. A low credit score or a high loan amount alone does not create high-cost status.

Question 8Federal mortgage-related laws and regulations

A federally regulated lender makes a loan secured by a building located in a Special Flood Hazard Area. Under the Flood Disaster Protection Act, what must the lender generally obtain before closing?

  1. Earthquake insurance covering the building for an amount equal to the full loan amount
  2. A borrower's signed written waiver stating that federal flood insurance is not required
  3. Title insurance covering the lender's interest for the full loan amount at closing
  4. Flood insurance at least equal to the lesser of the loan balance or NFIP maximum Correct answer.

Explanation

The Flood Disaster Protection Act requires federally regulated lenders to ensure flood insurance is in place for improved property in a Special Flood Hazard Area before closing. The required amount is generally the lesser of the outstanding principal balance or the maximum NFIP coverage available for the property type, subject to the insurable value. A borrower cannot waive the mandatory purchase requirement for a regulated lender.

Question 9Federal mortgage-related laws and regulations

Under Regulation Z's loan originator compensation rule, which arrangement for a closed-end mortgage secured by a dwelling is prohibited?

  1. Paying the loan originator a fixed hourly wage
  2. Reimbursing the loan originator for documented business expenses
  3. Paying the loan originator a flat fee per application
  4. Paying a bonus based on the loan's interest rate Correct answer.

Explanation

The loan originator compensation rule prohibits compensation based on the terms of the transaction, including the loan's interest rate. It also restricts dual compensation and steering consumers to loans that benefit the originator. Fixed wages, flat fees, and documented expense reimbursements are generally permissible when they are not tied to transaction terms.

Question 10Federal mortgage-related laws and regulations

A borrower has a residential mortgage transaction with private mortgage insurance and a good payment history. Under the Homeowners Protection Act, when may the borrower request cancellation of the private mortgage insurance?

  1. When the principal balance reaches 80 percent of original value on the original schedule Correct answer.
  2. Only after the principal balance has reached 50 percent of the home's original value
  3. At any time after the borrower makes the first monthly payment
  4. Only when the borrower refinances the loan with a different lender

Explanation

The Homeowners Protection Act permits borrower-requested cancellation when the principal balance reaches 80 percent of the original value based on the original amortization schedule. The borrower generally must have a good payment history and submit a request. Automatic termination generally occurs at 78 percent of original value.

Question 11Federal mortgage-related laws and regulations

A servicer completes its annual escrow account analysis and determines that a borrower's escrow account has a surplus of $75. Under Regulation X, what must the servicer do with the surplus?

  1. Apply the surplus to principal.
  2. Credit the surplus to the borrower's next escrow payment.
  3. Retain the surplus as a cushion.
  4. Refund the surplus to the borrower within 30 days. Correct answer.

Explanation

Under Regulation X, when a servicer's annual escrow analysis shows a surplus of $50 or more, the servicer must refund the surplus to the borrower within 30 days. If the surplus is less than $50, the servicer may credit it to the next escrow payment.

Question 12Federal mortgage-related laws and regulations

A creditor receives a completed application for a first-lien mortgage loan secured by a dwelling. The creditor obtains an appraisal. Under Regulation B, when must the creditor provide the applicant with a copy of the appraisal?

  1. Only when the applicant requests a copy in writing before closing.
  2. At the same time the creditor delivers the Closing Disclosure to the applicant before consummation.
  3. Promptly upon completion, but no later than 3 business days before closing. Correct answer.
  4. Within 30 days after the creditor receives the completed application.

Explanation

Regulation B requires a creditor to provide a copy of the appraisal promptly upon completion, and no later than 3 business days before closing for a first-lien loan secured by a dwelling. The applicant does not need to request it.

Question 13Federal mortgage-related laws and regulations

A financial institution is subject to HMDA. Which transaction must the institution report?

  1. A business loan secured only by inventory and receivables.
  2. An unsecured home improvement loan to a consumer.
  3. A dwelling-secured home purchase loan. Correct answer.
  4. A consumer installment loan for an automobile purchase.

Explanation

HMDA requires reporting of applications and originations for dwelling-secured loans, including home purchase loans. Unsecured consumer loans and business loans not secured by a dwelling are not reportable under Regulation C.

Question 14Federal mortgage-related laws and regulations

A creditor originates a first-lien higher-priced mortgage loan secured by the borrower's principal dwelling. The creditor is not a small creditor and does not qualify for the rural or underserved exemption. What does Regulation Z generally require regarding an escrow account?

  1. The creditor must establish and maintain an escrow account for taxes and insurance for at least 5 years. Correct answer.
  2. The creditor must obtain the borrower's signed written waiver before it may establish an escrow account.
  3. The creditor may offer an escrow account but cannot require one.
  4. The creditor must establish an escrow account only when the loan-to-value ratio exceeds 90 percent at origination.

Explanation

Regulation Z generally requires creditors to establish and maintain an escrow account for taxes and insurance for first-lien HPMLs secured by a principal dwelling for at least 5 years. Exemptions exist for small creditors and certain rural or underserved loans.

Question 15Federal mortgage-related laws and regulations

A creditor services a closed-end mortgage loan secured by the borrower's principal dwelling. Under Regulation Z, which information must appear on the periodic statement provided to the borrower?

  1. The appraiser's name and license number.
  2. The loan originator's unique identifier and the date of the loan estimate.
  3. The principal balance, current interest rate, and payment due date. Correct answer.
  4. The borrower's credit score and the name of the credit reporting agency.

Explanation

Regulation Z requires periodic statements for closed-end mortgage loans secured by a principal dwelling to include the principal balance, current interest rate, payment due date, and other specified information. Appraiser and credit score details are not required.

Question 16Federal mortgage-related laws and regulations

A married applicant applies for an unsecured personal loan and qualifies on her own income and credit. The lender insists that her spouse cosign the loan. Under Regulation B, is the lender's requirement permissible?

  1. Yes, because all spouses must sign for any loan over $5,000.
  2. Yes, because the applicant is married and the spouse automatically has community property rights in all marital assets.
  3. No, unless the applicant and spouse are separated.
  4. No, because the applicant qualifies independently and no spousal-signature exception applies. Correct answer.

Explanation

Regulation B prohibits a creditor from requiring a spouse's signature on a loan when the applicant qualifies independently, unless the spouse has an ownership interest in the collateral or state law requires the signature. Community property status alone does not justify the requirement.

Question 17Federal mortgage-related laws and regulations

A servicer receives a complete loss mitigation application from a borrower 45 days before a scheduled foreclosure sale. Under Regulation X, what is the servicer's obligation regarding the scheduled foreclosure sale while the application is under review?

  1. Evaluate the borrower for all available loss mitigation options.
  2. Provide the borrower with a written notice that the application is incomplete.
  3. Refrain from holding the foreclosure sale absent an exception. Correct answer.
  4. Offer a short sale.

Explanation

If a complete loss mitigation application is received more than 37 days before a foreclosure sale, Regulation X prohibits the servicer from conducting the sale while the application is under review, subject to limited exceptions. The servicer must evaluate the borrower and follow the loss mitigation procedures.

Question 18Federal mortgage-related laws and regulations

A lender's loan production staff wants to select the appraiser for a mortgage loan to speed up closing. Under the appraisal independence requirements, which arrangement is permissible?

  1. The real estate agent orders the appraisal and provides comparables to support the sale price.
  2. The borrower selects any appraiser, and the loan officer instructs the appraiser on the minimum value needed.
  3. A loan officer selects an appraiser from a list maintained by the production department and communicates the desired value.
  4. The lender's compliance department, which is independent of loan production, selects the appraiser from a rotating panel. Correct answer.

Explanation

Appraisal independence rules prohibit loan production staff from selecting or influencing the appraiser. Selection by an independent compliance function using a rotating panel helps ensure the appraiser is not pressured by sales or production goals.

Question 19Federal mortgage-related laws and regulations

A servicer receives a borrower's complete loss mitigation application on the 40th day before a foreclosure sale. The servicer evaluates the borrower and denies all options. The borrower timely appeals. Under Regulation X, what must the servicer do before conducting a foreclosure sale?

  1. Provide a written appeal decision within 30 days and delay any foreclosure sale until the appeal is resolved. Correct answer.
  2. Require the borrower to submit a new application after the appeal denial.
  3. Conduct the sale as scheduled because an appeal does not stop foreclosure once the servicer has denied all options.
  4. Refer the matter to a credit counselor and postpone the sale for 90 days.

Explanation

When a complete loss mitigation application is received more than 37 days before a sale, the borrower has appeal rights if all options are denied. The servicer must decide the appeal within 30 days and must not conduct a foreclosure sale until the appeal is resolved.

Question 20Federal mortgage-related laws and regulations

A creditor plans to close a mortgage loan on Friday. On Monday of the same week, the creditor provides a revised Loan Estimate reflecting a changed circumstance. Under Regulation Z, what is the consequence?

  1. The revised Loan Estimate is timely, and the loan may close Friday.
  2. The revised Loan Estimate is untimely; the creditor must delay closing or rely on the original estimate. Correct answer.
  3. The revised Loan Estimate is timely only if the creditor also provides a new Closing Disclosure before closing.
  4. The revised Loan Estimate must be provided at least 7 business days before closing.

Explanation

A revised Loan Estimate generally must be received by the consumer no later than 4 business days before consummation. If it is provided later, the creditor cannot use the revised figures and must delay closing or rely on the original estimate.

Question 21Federal mortgage-related laws and regulations

A servicer plans to transfer the servicing of a borrower's federally related mortgage loan to a new servicer. Under RESPA, when must the transferring servicer notify the borrower of the transfer?

  1. Within 45 days after the transfer's effective date
  2. No later than the transfer's effective date
  3. At least 30 days before the transfer's effective date
  4. At least 15 days before the transfer's effective date Correct answer.

Explanation

RESPA requires the transferring servicer to notify the borrower at least 15 days before the effective date of a servicing transfer. The transferee servicer must also provide a notice, generally within 15 days after the transfer. A 30-day notice or a post-transfer notice does not satisfy the transferor's timing rule.

Question 22Federal mortgage-related laws and regulations

A creditor receives a completed application for a first-lien mortgage loan secured by a dwelling. Under Regulation B, when must the creditor provide the applicant with a copy of the appraisal or other written valuation?

  1. Only if the applicant requests it in writing
  2. No later than 3 business days before consummation Correct answer.
  3. Within 30 days after consummation
  4. At the same time the Closing Disclosure is delivered

Explanation

Regulation B requires a creditor to provide a copy of the appraisal or other written valuation promptly upon completion, but no later than 3 business days before consummation for a first-lien loan secured by a dwelling. The applicant does not have to request it. Delivery tied only to the Closing Disclosure does not necessarily satisfy the separate appraisal-copy rule.

Question 23Federal mortgage-related laws and regulations

Under the TRID rules in Regulation Z, a creditor must ensure the consumer receives the Closing Disclosure no later than how many business days before consummation of a closed-end mortgage loan?

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

Explanation

The Closing Disclosure must be delivered to the consumer at least 3 business days before consummation. The waiting period may restart if certain changed terms require a revised Closing Disclosure. A shorter period does not satisfy the rule.

Question 24Federal mortgage-related laws and regulations

A creditor is originating a closed-end mortgage that will be a high-cost mortgage under HOEPA. Which feature is prohibited in that loan?

  1. A late fee of 3 percent of the overdue payment
  2. An escrow account for taxes and insurance
  3. An adjustable interest rate
  4. A balloon payment Correct answer.

Explanation

HOEPA prohibits balloon payments in high-cost mortgages. Adjustable rates and escrow accounts are not categorically barred, and a late fee of 3 percent is within the 4 percent limit for high-cost mortgage late fees. The prohibited feature is the balloon payment.

Question 25Federal mortgage-related laws and regulations

A creditor uses a consumer report to set the interest rate on a mortgage loan. The applicant is approved but receives a higher rate than the creditor's most favorable terms. Under the Fair Credit Reporting Act, what notice is the creditor generally required to provide?

  1. An adverse action notice
  2. A HMDA data disclosure
  3. A right of rescission notice
  4. A risk-based pricing notice Correct answer.

Explanation

FCRA requires a risk-based pricing notice when a creditor uses a consumer report and grants credit on terms that are materially less favorable than the most favorable terms available to a substantial proportion of consumers. An adverse action notice applies when credit is denied or another adverse action is taken, not when the loan is approved at a higher price.

Question 26Federal mortgage-related laws and regulations

A creditor is preparing the Loan Estimate and Closing Disclosure for a closed-end mortgage loan. Which charge is subject to a zero-percent tolerance?

  1. A title insurance premium for a provider the consumer selected from the creditor's written list
  2. A transfer tax Correct answer.
  3. A recording fee
  4. A homeowner's insurance premium for coverage the borrower selects

Explanation

Transfer taxes are subject to zero tolerance, meaning the charge may not increase at consummation. Recording fees and shoppable title services are generally subject to the 10 percent cumulative tolerance. A homeowner's insurance premium for coverage the borrower selects is not treated the same way for tolerance purposes.

Question 27Federal mortgage-related laws and regulations

A servicer maintains an escrow account for a borrower's mortgage loan. Under RESPA, what is the maximum cushion the servicer may require in the escrow account?

  1. One-half of the estimated total annual disbursements
  2. One-twelfth of the estimated total annual disbursements
  3. One-sixth of the estimated total annual disbursements
  4. One-fourth of the estimated total annual disbursements Correct answer.

Explanation

RESPA limits the escrow cushion to no more than one-sixth of the estimated total annual disbursements. A servicer may require monthly escrow payments that include that cushion, but it cannot use a larger cushion to cover future increases. The other fractions exceed the regulatory maximum.

Question 28Federal mortgage-related laws and regulations

A servicer plans to charge a borrower for force-placed insurance on a residential mortgage loan. Under Regulation X, when must the servicer send the first force-placed insurance notice?

  1. Within 30 days after charging the borrower
  2. Only after the borrower's hazard insurance has lapsed for 90 days
  3. At least 15 days before charging the borrower
  4. At least 45 days before charging the borrower Correct answer.

Explanation

Regulation X requires the servicer to send the first force-placed insurance notice at least 45 days before charging the borrower. If the borrower does not respond, a second notice must be sent at least 15 days before the charge. A post-charge notice or a 90-day lapse rule does not satisfy the first-notice requirement.

Question 29Federal mortgage-related laws and regulations

A servicemember obtained a mortgage before entering active duty and later defaults while on active duty. Under the Servicemembers Civil Relief Act, what protection generally applies before the lender forecloses?

  1. A 30-day notice to the servicemember's commanding officer before any foreclosure sale
  2. A foreclosure completed only after the servicemember's active duty ends, with no court order required
  3. A power-of-sale foreclosure without any court review, provided the lender sends a default notice
  4. A court order obtained during service or within one year after Correct answer.

Explanation

The SCRA generally requires a court order before a mortgage foreclosure on a loan that originated before the servicemember entered active duty. This protection applies during active duty and for one year afterward, unless the servicemember waives it. A servicer cannot rely on a power-of-sale clause alone.

Question 30Federal mortgage-related laws and regulations

A closed-end mortgage loan has a feature that permits negative amortization. How does that feature affect the loan's status as a Qualified Mortgage under Regulation Z?

  1. It cannot be a Qualified Mortgage Correct answer.
  2. It qualifies if the loan is insured by a federal agency
  3. It qualifies only if the borrower is a high-net-worth individual
  4. It qualifies if the creditor also escrows taxes and insurance

Explanation

A loan with negative amortization cannot be a Qualified Mortgage under Regulation Z. The QM rules exclude negative-amortization, interest-only, and balloon-payment features, so the loan loses QM status and its associated protections. Escrows, borrower wealth, or federal insurance do not cure the prohibited feature.

Question 31Federal mortgage-related laws and regulations

A state-licensed mortgage loan originator is completing her annual continuing education for the year. What is the minimum number of continuing education hours she must complete?

  1. 8 hours Correct answer.
  2. 10 hours
  3. 6 hours
  4. 20 hours

Explanation

The SAFE Act requires state-licensed mortgage loan originators to complete at least 8 hours of continuing education each year. The annual requirement includes 3 hours of federal law, 2 hours of ethics, 2 hours of nontraditional mortgage lending, and 1 hour of elective education.

Question 32Federal mortgage-related laws and regulations

A title agency offers a mortgage loan originator a $100 gift card for each mortgage loan referral. Under RESPA Section 8, how should this arrangement be treated?

  1. The payment is permitted if it is a nominal gift under $100.
  2. The payment is permitted if it is disclosed on the Closing Disclosure.
  3. The payment is permitted if the borrower consents in writing.
  4. The payment is prohibited because referrals of settlement service business may not be compensated. Correct answer.

Explanation

RESPA Section 8 prohibits giving or accepting anything of value in exchange for referrals of settlement service business. A gift card tied to loan referrals is a thing of value, so the arrangement is not cured by disclosure or borrower consent.

Question 33Federal mortgage-related laws and regulations

A mortgage advertisement contains the phrase “3% down payment.” Under Regulation Z, what is the effect of including that phrase?

  1. Fixed-rate financing
  2. Licensed mortgage banker
  3. 3% down payment Correct answer.
  4. FHA-approved lender

Explanation

Regulation Z requires additional disclosures when an advertisement states a triggering term such as a down payment, payment amount, number of payments, finance charge, or annual percentage rate. Stating “3% down payment” therefore triggers the additional advertising disclosures.

Question 34Federal mortgage-related laws and regulations

A lender makes a loan secured by an improved building located in a special flood hazard area. What minimum amount of flood insurance must the lender require?

  1. The lesser of the outstanding principal balance or the maximum NFIP coverage available. Correct answer.
  2. The outstanding principal balance of the loan, even if it exceeds the maximum NFIP limit.
  3. The full replacement cost of the building, regardless of the loan balance.
  4. The appraised value of the building, even if it exceeds the loan balance.

Explanation

For a loan secured by an improved building in a special flood hazard area, the lender must require flood insurance in at least the lesser of the outstanding principal balance of the loan or the maximum NFIP coverage available for the property type. Replacement cost and appraised value are not the regulatory minimum.

Question 35Federal mortgage-related laws and regulations

Under the general ability-to-repay rule in Regulation Z, which item must a creditor consider when underwriting a covered mortgage loan?

  1. The appraised value of the property alone.
  2. The consumer's credit score alone.
  3. The title insurance premium.
  4. The consumer's monthly debt-to-income ratio or residual income. Correct answer.

Explanation

The general ability-to-repay rule requires the creditor to consider eight underwriting factors, including the consumer's monthly debt-to-income ratio or residual income. A credit score may inform credit history, but it is not a substitute for the required factors.

Question 36Federal mortgage-related laws and regulations

An applicant applies for a first-lien closed-end mortgage loan. The appraisal is completed well before closing. Under Regulation B, when must the lender provide the applicant with a copy of the appraisal?

  1. Promptly upon completion, and in any event no later than three business days before consummation. Correct answer.
  2. Only at consummation, because the borrower must receive the appraisal with the closing documents.
  3. Within 30 days after consummation, because the appraisal is for the lender's file.
  4. Only if the borrower asks for a copy before closing.

Explanation

For a first-lien closed-end mortgage, Regulation B requires the creditor to provide a copy of the appraisal promptly upon completion and no later than three business days before consummation. If the appraisal is completed well before closing, the creditor cannot wait until the three-day outer limit.

Question 37Federal mortgage-related laws and regulations

A creditor pays a loan originator a commission on each closed mortgage loan. Which compensation method is permissible under Regulation Z?

  1. A bonus paid when the originator steers the loan to an affiliated title company.
  2. A commission that increases when the borrower accepts a higher interest rate.
  3. An extra fee paid when the borrower agrees to a prepayment penalty.
  4. A fixed percentage of the loan amount that does not vary with rate or fees. Correct answer.

Explanation

Regulation Z permits loan originator compensation to be based on the amount of credit extended, such as a fixed percentage of the loan amount. Compensation may not vary with the interest rate, fees, or other transaction terms, and steering bonuses are prohibited.

Question 38Federal mortgage-related laws and regulations

A mortgage lender becomes subject to the GLBA privacy rule. When must the lender generally provide its initial privacy notice to a new customer?

  1. At the establishment of the customer relationship. Correct answer.
  2. Annually only, with no initial notice required.
  3. Within 30 days after the loan closes.
  4. Only when the customer requests a copy of the notice.

Explanation

GLBA's privacy rule generally requires a financial institution to give an initial privacy notice to a customer at the time the customer relationship is established. Annual notices and opt-out rights can also apply, but an initial notice is not delayed until closing or provided only on request.

Question 39Federal mortgage-related laws and regulations

A consumer refinances her principal dwelling and receives the required TILA disclosures at consummation on Friday. Assuming no federal holiday intervenes, through what point may she exercise her right of rescission?

  1. At midnight at the end of Thursday.
  2. At midnight at the end of Wednesday.
  3. At midnight at the end of Monday.
  4. At midnight at the end of Tuesday. Correct answer.

Explanation

For TILA rescission, a business day is every calendar day except Sundays and federal holidays. Counting Saturday, Monday, and Tuesday after a Friday consummation, the right expires at midnight at the end of Tuesday when no federal holiday intervenes.

Question 40Federal mortgage-related laws and regulations

An individual works part-time for a mortgage broker, takes residential mortgage applications, quotes rates, and negotiates terms with applicants. She is paid by an affiliated real estate agency rather than by the broker. Under the SAFE Act, what is her licensing status?

  1. She is exempt because she works part-time.
  2. She is exempt because her compensation comes from the affiliate.
  3. She must be licensed only if she closes more than five loans per year.
  4. She must be licensed or registered as a mortgage loan originator. Correct answer.

Explanation

The SAFE Act defines a mortgage loan originator by activities: taking residential mortgage applications and offering or negotiating loan terms. Part-time status and the source of compensation do not create an exemption, so the individual must be licensed or registered.

Question 41General mortgage knowledge

A Nebraska-licensed MLO refers a borrower to a title company and receives a $250 payment from the title company for the referral. Under RESPA Section 8, this payment is:

  1. a prohibited kickback because it is a thing of value for the referral of settlement service business Correct answer.
  2. permitted if the amount is reasonable and disclosed on the Loan Estimate
  3. prohibited only if the borrower pays the $250 indirectly
  4. permitted because title insurance is not a settlement service under RESPA

Explanation

RESPA Section 8 prohibits giving or receiving any thing of value pursuant to an agreement to refer settlement service business. A referral fee is not cured by disclosure, reasonableness, or the borrower paying indirectly. Title insurance is a settlement service, so the payment is a prohibited kickback.

Question 42General mortgage knowledge

Under the SAFE Act, a state-licensed MLO must complete at least how many hours of continuing education each year, including required federal law, ethics, and non-traditional mortgage topics?

  1. 6 hours
  2. 12 hours
  3. 10 hours
  4. 8 hours Correct answer.

Explanation

The SAFE Act requires at least 8 hours of continuing education annually for state-licensed MLOs. Those hours must include 3 hours of federal law, 2 hours of ethics, 2 hours of non-traditional mortgage lending, and 1 hour of elective coursework.

Question 43General mortgage knowledge

For a residential property located in a Special Flood Hazard Area, a federally regulated lender must require flood insurance in an amount at least equal to:

  1. the lesser of the outstanding principal balance, the maximum NFIP coverage available, or the insurable value of the property Correct answer.
  2. the full replacement cost of the dwelling
  3. the appraised value of the property
  4. the borrower's original down payment plus closing costs

Explanation

The mandatory purchase requirement sets the minimum flood insurance amount at the lesser of the outstanding principal balance, the maximum coverage available under the National Flood Insurance Program, or the property's insurable value. Lenders may require more, but this is the regulatory floor.

Question 44General mortgage knowledge

An MLO takes a borrower's application on Monday and the creditor issues the Loan Estimate. Under TRID, the creditor must deliver or place the Loan Estimate in the mail no later than:

  1. one business day after application and at least three business days before consummation
  2. seven business days after application and at least three business days before consummation
  3. five business days after application and at least ten business days before consummation
  4. three business days after application and at least seven business days before consummation Correct answer.

Explanation

TRID requires the creditor to deliver or mail the Loan Estimate no later than 3 business days after receiving the application. The consumer must also receive the Loan Estimate at least 7 business days before consummation. These two timing rules work together.

Question 45General mortgage knowledge

An applicant submits a complete mortgage application to a creditor. Under Regulation B, if the creditor denies the application, the adverse action notice must generally be provided within:

  1. 30 days after receiving the completed application Correct answer.
  2. 15 days after receiving the completed application
  3. 60 days after receiving the completed application
  4. 45 days after receiving the completed application

Explanation

Regulation B generally requires a creditor to notify an applicant of adverse action within 30 days after receiving a completed application. The notice must include the reasons for the denial or a statement of the applicant's right to request them.

Question 46General mortgage knowledge

For a general qualified mortgage with a loan amount of $200,000, the points and fees must not exceed:

  1. 4 percent of the total loan amount
  2. 3 percent of the total loan amount Correct answer.
  3. 5 percent of the total loan amount
  4. 2 percent of the total loan amount

Explanation

For a general qualified mortgage with a loan amount of $100,000 or more, points and fees may not exceed 3 percent of the total loan amount. Smaller loan amounts use higher percentage tiers, but a $200,000 loan falls in the 3 percent tier.

Question 47General mortgage knowledge

For most FHA single-family forward mortgages, the upfront mortgage insurance premium is:

  1. 1.75 percent of the base loan amount Correct answer.
  2. 1.00 percent of the base loan amount
  3. 0.55 percent of the base loan amount
  4. 2.25 percent of the base loan amount

Explanation

FHA generally charges an upfront mortgage insurance premium equal to 1.75 percent of the base loan amount. Borrowers also pay an annual mortgage insurance premium, which is paid monthly. The upfront premium is usually financed into the loan.

Question 48General mortgage knowledge

A veteran using a VA home loan for the first time with a zero-down payment and no funding-fee exemption must pay a funding fee equal to what percentage of the loan amount?

  1. 1.25 percent
  2. 2.15 percent Correct answer.
  3. 3.30 percent
  4. 1.50 percent

Explanation

For a first-time VA loan use with no down payment and no exemption, the funding fee is 2.15 percent of the loan amount. The fee is typically financed into the loan. Subsequent use with zero down generally carries a higher percentage.

Question 49General mortgage knowledge

Which condition makes a first-lien mortgage a high-cost mortgage under HOEPA?

  1. The APR exceeds the average prime offer rate by more than 6.5 percentage points Correct answer.
  2. The APR exceeds the average prime offer rate by more than 3.5 percentage points
  3. The loan includes an escrow account for taxes and insurance
  4. The loan has a debt-to-income ratio above 43 percent

Explanation

HOEPA's first-lien APR trigger is exceeded when the APR is more than 6.5 percentage points above the average prime offer rate for a comparable transaction. HOEPA also has points-and-fees and prepayment-penalty triggers. An escrow account or a debt-to-income ratio alone does not create high-cost status.

Question 50General mortgage knowledge

At an annual escrow account analysis, a servicer determines that the borrower has a surplus of $75. Under Regulation X, the servicer must:

  1. refund the surplus to the borrower within 30 days Correct answer.
  2. retain the surplus until the loan is paid off
  3. apply the surplus to the principal balance
  4. credit the surplus to the next 12 monthly escrow payments

Explanation

Under Regulation X, if an escrow analysis shows a surplus of $50 or more, the servicer must refund the surplus to the borrower within 30 days. If the surplus is less than $50, the servicer may credit it to the next escrow payment instead. A $75 surplus therefore must be refunded.