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NY MLO practice questions

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Question 1Federal Mortgage-Related Laws

Under the federal Real Estate Settlement Procedures Act (RESPA), which disclosure must a mortgage loan originator provide to a borrower at the time of application for most closed-end residential mortgage loans?

  1. The Closing Disclosure
  2. The Affiliated Business Arrangement Disclosure
  3. The Homeownership Counseling notice
  4. The Loan Estimate Correct answer.

Explanation

RESPA, as implemented by Regulation X, requires creditors and mortgage brokers to deliver the Loan Estimate within three business days of receiving an application. The Closing Disclosure is delivered later, at least three business days before consummation, and the other notices serve different purposes.

Question 2Federal Mortgage-Related Laws

A mortgage loan originator is completing a loan application for a borrower purchasing a primary residence. Under the Home Mortgage Disclosure Act (HMDA), which of the following is a required data point collected on the loan/application record?

  1. The borrower's ethnicity, race, and sex Correct answer.
  2. The borrower's marital status
  3. The borrower's credit score
  4. The borrower's religious affiliation

Explanation

HMDA, implemented through Regulation C, requires collection of demographic information including ethnicity, race, and sex, along with other loan-level data. Credit score, marital status, and religion are not HMDA demographic data points collected for this purpose.

Question 3Federal Mortgage-Related Laws

Which federal law requires that a borrower receive a good-faith estimate of closing costs and prohibits certain kickbacks and referral fees in residential real estate settlements?

  1. The Truth in Lending Act
  2. The Equal Credit Opportunity Act
  3. The Real Estate Settlement Procedures Act Correct answer.
  4. The Fair Credit Reporting Act

Explanation

RESPA governs settlement costs and, through Section 8, prohibits kickbacks and unearned fees for referrals of settlement services. The Truth in Lending Act addresses cost-of-credit disclosure, while the other statutes govern credit reporting and lending discrimination.

Question 4Federal Mortgage-Related Laws

Under the Truth in Lending Act and Regulation Z, the annual percentage rate (APR) is designed to help borrowers compare loans by reflecting which of the following?

  1. Only the nominal interest rate stated in the note
  2. The total dollar amount of all payments over the loan term
  3. The lender's internal profit margin on the loan
  4. The cost of credit expressed as a yearly rate, including certain finance charges Correct answer.

Explanation

The APR expresses the cost of credit as a yearly rate and incorporates certain finance charges beyond the note rate, allowing meaningful comparison among loan offers. It is not a dollar total or an internal profit measure.

Question 5Federal Mortgage-Related Laws

A loan originator takes an application for a loan that will be secured by the borrower's principal dwelling. Under Regulation Z, the borrower generally has a right to rescind the transaction until which point?

  1. Thirty days after the loan is sold to an investor
  2. Seven calendar days after the first payment due date
  3. Exactly at consummation with no later right
  4. Three business days after consummation, or three business days after receiving required disclosures, whichever is later Correct answer.

Explanation

For certain loans secured by a principal dwelling, Regulation Z gives the consumer a three-business-day right of rescission measured from consummation or delivery of the required rescission disclosures and material Truth in Lending disclosures, whichever occurs last. The right does not depend on the first payment or a secondary-market sale.

Question 6Federal Mortgage-Related Laws

A lender receives a complete written application from an applicant. Under the Equal Credit Opportunity Act and Regulation B, the lender generally must notify the applicant of action taken within what time frame?

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

Explanation

Regulation B generally requires creditors to notify applicants of action taken within 30 days after receiving a completed application. The notice may state approval, counteroffer, or adverse action, and the 10-, 60-, and 90-day periods do not match the rule.

Question 7Federal Mortgage-Related Laws

Under the Equal Credit Opportunity Act, which of the following is a prohibited basis for discriminating against a credit applicant?

  1. The applicant's income level
  2. The applicant's employment history
  3. The applicant's receipt of public assistance income Correct answer.
  4. The applicant's debt-to-income ratio

Explanation

ECOA prohibits discrimination on prohibited bases that include race, color, religion, national origin, sex, marital status, age, and receipt of income from public assistance programs. Income level, employment history, and debt-to-income ratio are legitimate underwriting factors rather than protected characteristics.

Question 8Federal Mortgage-Related Laws

A mortgage loan originator is reviewing a borrower's credit report. Under the Fair Credit Reporting Act, which statement best describes the borrower's right regarding inaccurate information?

  1. The borrower may only dispute information directly with the original creditor
  2. The borrower may request deletion of accurate negative information at any time
  3. The borrower may dispute inaccurate information, and the consumer reporting agency must investigate, generally within 30 days Correct answer.
  4. The borrower must accept the report as final once it is issued

Explanation

The FCRA gives consumers the right to dispute inaccurate or incomplete information, and the consumer reporting agency must conduct a reinvestigation, generally within 30 days. Consumers are not limited to disputing with creditors, and accurate negative information cannot simply be deleted on request.

Question 9Federal Mortgage-Related Laws

A mortgage lender is subject to the Home Mortgage Disclosure Act. Which of the following best describes HMDA's primary statutory purpose?

  1. To guarantee mortgage loans against borrower default
  2. To mandate escrow accounts for all residential loans
  3. To require certain financial institutions to collect and report loan data so the public and regulators can identify possible discriminatory lending patterns Correct answer.
  4. To set maximum interest rates for mortgage loans

Explanation

HMDA requires covered institutions to collect, report, and disclose mortgage lending data, helping regulators and the public detect potential discrimination and understand lending patterns. It does not set rates, insure loans, or require escrow accounts.

Question 10Federal Mortgage-Related Laws

Under the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act), a state-licensed mortgage loan originator must meet which requirement?

  1. Register with the Nationwide Mortgage Licensing System and Registry and maintain a unique identifier Correct answer.
  2. Post a surety bond equal to the loan amount
  3. Obtain a real estate broker license in every state
  4. Register only with the state, with no federal registry involvement

Explanation

The SAFE Act requires state-licensed MLOs to register with the NMLS Registry and obtain a unique identifier, along with pre-licensing education, testing, and background checks. A real estate broker license and a bond equal to the loan amount are not SAFE Act requirements.

Question 11Federal Mortgage-Related Laws

A creditor is preparing an adverse action notice after denying a mortgage application. Under Regulation B, which element must the notice contain?

  1. The lender's net worth statement
  2. The name of the loan originator's supervisor
  3. A copy of the applicant's full credit report
  4. A statement of the specific reasons for the denial or a disclosure of the right to request them Correct answer.

Explanation

Regulation B requires adverse action notices to state the action taken, the specific reasons or the right to request them, and the ECOA anti-discrimination notice. A full credit report, supervisor name, and lender net worth statement are not required contents.

Question 12Federal Mortgage-Related Laws

A loan originator is discussing compensation with a borrower. Under Regulation Z's loan originator compensation rule, which practice is generally prohibited?

  1. Paying a loan originator a commission based on a percentage of the loan amount
  2. Paying a loan originator a fixed salary
  3. Basing a loan originator's compensation on the terms of the transaction, such as the interest rate Correct answer.
  4. Paying a loan originator a flat fee per loan

Explanation

Regulation Z prohibits basing loan originator compensation on the terms or conditions of the transaction, such as the interest rate or the presence of a prepayment penalty, to reduce incentives for steering. Salary, percentage-of-loan-amount commissions, and flat fees are permissible if not tied to transaction terms.

Question 13Federal Mortgage-Related Laws

A borrower's loan is secured by a dwelling and the servicer receives a qualified written request. Under RESPA, the servicer must generally acknowledge receipt within what period?

  1. 20 business days
  2. 30 business days
  3. 5 business days Correct answer.
  4. 10 business days

Explanation

Under RESPA and Regulation X, a servicer must provide a written acknowledgment of a qualified written request, commonly called a notice of error or information request, within five business days of receipt. The substantive response is generally due within 30 business days, subject to extensions.

Question 14Federal Mortgage-Related Laws

A mortgage loan originator is advertising a loan product. Under Regulation Z, which advertisement would trigger additional disclosure requirements?

  1. A sign displaying only the company logo
  2. A generic statement that the company offers mortgage loans
  3. An advertisement stating a specific down payment percentage Correct answer.
  4. A business card listing only the originator's name and license number

Explanation

Regulation Z triggers additional disclosures when an advertisement contains specific triggering terms such as a down payment percentage, a payment amount, a finance charge, or a specific APR. Generic statements, business cards with only identifying information, and logo signs do not trigger those requirements.

Question 15Federal Mortgage-Related Laws

A borrower is applying for a loan that will be a high-cost mortgage under Regulation Z. Which requirement applies to high-cost mortgages?

  1. The lender is exempt from escrow requirements
  2. The lender may finance points and fees without limit
  3. The lender must complete a pre-loan counseling certification before consummation Correct answer.
  4. The lender may impose a prepayment penalty in all cases

Explanation

Regulation Z requires that a consumer receive homeownership counseling before consummating a high-cost mortgage, evidenced by a certification. High-cost mortgages also face restrictions on prepayment penalties, late fees, and points and fees, and are not exempt from escrow requirements.

Question 16Federal Mortgage-Related Laws

Under the Fair Housing Act, which of the following is a protected class in mortgage lending?

  1. The applicant's familial status Correct answer.
  2. The applicant's credit score
  3. The applicant's loan-to-value ratio
  4. The applicant's occupation

Explanation

The Fair Housing Act prohibits discrimination in housing-related transactions, including mortgage lending, based on protected classes that include race, color, religion, sex, national origin, familial status, and disability. Credit score, loan-to-value ratio, and occupation are not protected classes.

Question 17Federal Mortgage-Related Laws

A loan originator learns that an applicant receives Social Security disability income. Under ECOA, how should the lender treat this income when evaluating the application?

  1. Discount it by 50 percent automatically
  2. Consider it on the same basis as other income, provided it is likely to continue Correct answer.
  3. Exclude it because it is not earned income
  4. Require a co-signer regardless of creditworthiness

Explanation

ECOA and Regulation B prohibit discrimination based on receipt of public assistance or disability income, and creditors must consider such income in the same manner as other income if it is likely to continue. Automatic exclusion, mandatory co-signers, and arbitrary discounts are improper.

Question 18Federal Mortgage-Related Laws

Under the Truth in Lending Act, when may a lender impose a prepayment penalty on a residential mortgage loan that is not a high-cost mortgage?

  1. At any time during the loan term without restriction
  2. Only during the first three years after consummation, subject to Regulation Z limits Correct answer.
  3. Never, because prepayment penalties are banned for all residential mortgages
  4. Only after the borrower has made 24 consecutive payments

Explanation

Regulation Z generally restricts prepayment penalties to the first three years after consummation and imposes limits based on the loan amount and whether the loan is a qualified mortgage. Prepayment penalties are not banned outright for all residential mortgages, but they cannot be imposed at any time.

Question 19Federal Mortgage-Related Laws

Under the Homeowners Protection Act, when does the borrower's private mortgage insurance (PMI) generally terminate automatically on a residential mortgage loan?

  1. On the date the principal balance is first scheduled to reach 78 percent of the original value, based on the amortization schedule Correct answer.
  2. Only after the loan is fully repaid
  3. Immediately when the borrower requests cancellation at any time
  4. When the loan is sold to another servicer

Explanation

The Homeowners Protection Act provides for automatic termination of PMI on the date the principal balance is first scheduled to reach 78 percent of the original value of the property, based on the amortization schedule and the borrower's payment history. Cancellation at the borrower's request is a separate right with its own conditions.

Question 20Federal Mortgage-Related Laws

A mortgage broker refers a borrower to a title company owned by the broker's business partner. Under RESPA, what must the broker provide?

  1. Nothing, because the referral is to a business partner
  2. A new Loan Estimate
  3. An Affiliated Business Arrangement Disclosure statement Correct answer.
  4. A Closing Disclosure

Explanation

RESPA Section 8 requires an Affiliated Business Arrangement Disclosure when a settlement service provider refers a consumer to an affiliated business, and the charge must be bona fide. The disclosure does not replace the Loan Estimate or Closing Disclosure, and nothing is excused merely because the affiliate is a business partner.

Question 21Federal Mortgage-Related Laws

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

  1. The loan originator's compensation agreement
  2. A copy of the lender's internal underwriting guidelines
  3. A guarantee that the credit report will be deleted
  4. Notice of adverse action that includes the consumer reporting agency's contact information and a statement of the right to dispute Correct answer.

Explanation

The FCRA requires an adverse action notice that identifies the consumer reporting agency used, states that the agency did not make the decision, and informs the consumer of the right to obtain a free report and dispute inaccurate information. Internal guidelines, compensation agreements, and deletion guarantees are not required.

Question 22Federal Mortgage-Related Laws

A state-licensed mortgage loan originator is renewing a license under the SAFE Act. Which annual requirement is typically part of maintaining the license?

  1. Passing the full pre-licensing examination every year
  2. Obtaining a new unique identifier each year
  3. Completing continuing education, including required hours on federal law and ethics Correct answer.
  4. Closing at least 50 loans annually

Explanation

The SAFE Act and state implementations generally require annual continuing education, including specified hours on federal law and ethics, along with renewal through NMLS. Retaking the full exam, obtaining a new identifier, and meeting a production quota are not annual licensing requirements.

Question 23Federal Mortgage-Related Laws

A creditor is evaluating an applicant who is on maternity leave. Under ECOA and Regulation B, how should the creditor treat the applicant's leave status?

  1. Evaluate the applicant's income consistent with its written policies, without discriminating based on sex or marital status Correct answer.
  2. Postpone the application until the leave ends
  3. Require the applicant's spouse to co-sign in all cases
  4. Automatically deny the application because income is uncertain

Explanation

Regulation B prohibits discrimination based on sex or marital status and requires creditors to evaluate income consistently with their policies rather than assuming a leave status makes income unreliable. Automatic denial, mandatory spousal co-signing, and indefinite postponement would violate ECOA.

Question 24Federal Mortgage-Related Laws

Under Regulation Z, which loans are generally covered by the ability-to-repay rule requiring creditors to make a reasonable and good-faith determination of the consumer's ability to repay?

  1. Only loans secured by commercial property
  2. Only reverse mortgages
  3. Only home equity lines of credit
  4. Most closed-end consumer credit transactions secured by a dwelling Correct answer.

Explanation

The ability-to-repay rule under Regulation Z applies to most closed-end consumer credit transactions secured by a dwelling, with certain exemptions such as reverse mortgages and some others. It is not limited to HELOCs or commercial property loans.

Question 25Federal Mortgage-Related Laws

A loan originator is comparing two loans for a borrower. Loan A has a lower note rate but higher origination fees, while Loan B has a higher note rate and lower fees. Which disclosure is most useful for comparing the total cost of credit between the two offers?

  1. The appraisal report
  2. The title insurance commitment
  3. The annual percentage rate on the Loan Estimate Correct answer.
  4. The promissory note

Explanation

The APR reflects both the interest rate and certain finance charges, making it the appropriate disclosed figure for comparing the overall cost of credit across loan offers. The note, appraisal, and title commitment do not provide a comparable cost-of-credit measure.

Question 26Federal Mortgage-Related Laws

A mortgage loan originator is explaining the difference between a lender's disclosure obligations under the Truth in Lending Act and the settlement cost disclosures under RESPA. Which statement correctly describes the primary purpose of the TILA disclosure for a closed-end residential mortgage?

  1. It itemizes the specific settlement services the borrower will pay for at closing.
  2. It discloses the annual percentage rate and total finance charge so borrowers can compare credit costs. Correct answer.
  3. It identifies the title insurance agent selected by the lender for the transaction.
  4. It records the escrow account balance the servicer will hold after closing.

Explanation

TILA's core disclosure function is to express the cost of credit as an annual percentage rate and finance charge, allowing meaningful comparison among loan offers. Settlement-service itemization and escrow details belong to RESPA-related disclosures rather than TILA's credit-cost disclosure.

Question 27Federal Mortgage-Related Laws

A mortgage loan originator is reviewing the federal law that requires lenders to provide borrowers with a good-faith estimate of settlement costs and to use a standard settlement statement at closing. Which statute establishes these requirements?

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

Explanation

RESPA governs settlement costs for federally related mortgage loans, requiring good-faith estimates and a standard closing statement. The other statutes address mortgage insurance cancellation, billing error disputes, and data reporting respectively.

Question 28Federal Mortgage-Related Laws

A lender is evaluating whether a dwelling-secured loan is subject to the ability-to-repay requirements of Regulation Z. Which loan type is generally exempt from those requirements?

  1. A closed-end loan secured by a first lien on a primary residence
  2. A reverse mortgage transaction Correct answer.
  3. A home equity line of credit subject to the open-end credit rules
  4. A refinance of an investment property secured by a mortgage

Explanation

Reverse mortgages are expressly excluded from the ability-to-repay requirements, which apply to most closed-end consumer credit secured by a dwelling. HELOCs are likewise excluded because they are open-end credit, but the question asks for a generally exempt category and a reverse mortgage is the clearest statutory exclusion among the listed choices.

Question 29Federal Mortgage-Related Laws

A mortgage loan originator is preparing a loan estimate for a borrower. Under Regulation Z, which cost must be included in the finance charge calculation?

  1. Points paid by the borrower to reduce the interest rate Correct answer.
  2. A charge for a credit report obtained by the lender
  3. A fee paid to a third-party appraiser for an appraisal required by the lender
  4. Recording fees paid to the county clerk

Explanation

Points are a finance charge because they are a cost of obtaining credit paid by the borrower, and they are included in the finance charge and APR calculations. Appraisal and credit report fees are excluded when they are bona fide and not imposed by the creditor as a condition of credit, and recording fees are likewise excluded.

Question 30Federal Mortgage-Related Laws

A loan originator at a mortgage brokerage is reviewing the compensation arrangement for a loan officer who closes a loan funded by a wholesale lender. Under the loan originator compensation rule, which practice is prohibited?

  1. Paying the loan originator a fixed percentage of the loan amount regardless of the interest rate
  2. Paying the loan originator a flat fee per closed loan
  3. Paying the loan originator more when the borrower accepts a higher interest rate Correct answer.
  4. Paying the loan originator a salary plus a fixed per-loan bonus

Explanation

The rule bars compensation that varies with the terms of the transaction, including paying more for a higher interest rate. Fixed percentages of loan amount, flat fees, and salary-based structures are permissible because they do not depend on the loan's terms.

Question 31Federal Mortgage-Related Laws

A mortgage servicer receives a borrower's qualified written request concerning the servicing of a federally related mortgage loan. Under RESPA, what must the servicer do?

  1. Assess a fee for responding and provide the information within sixty days
  2. Treat the request as a new loan application and order a new appraisal
  3. Forward the request to the lender and take no further action
  4. Acknowledge receipt within five business days and respond substantively within thirty business days, subject to a limited extension Correct answer.

Explanation

RESPA requires a servicer to acknowledge a qualified written request within five business days and to provide a substantive response within thirty business days, with a possible fifteen-day extension for specified reasons. The servicer may not charge a fee for responding to a valid request.

Question 32Federal Mortgage-Related Laws

A mortgage loan originator is reviewing the Homeowners Protection Act with a borrower who has a loan with private mortgage insurance. Under the Act, when must the servicer terminate PMI at the borrower's request?

  1. When the loan balance reaches 80 percent of the original value and the borrower has a satisfactory payment history Correct answer.
  2. When the borrower has made twelve consecutive on-time payments
  3. When the loan balance reaches 78 percent of the original value regardless of payment history
  4. When the property is reappraised at the borrower's expense

Explanation

The Homeowners Protection Act allows a borrower to request cancellation once the loan balance reaches 80 percent of the original value, provided the payment history is satisfactory and other conditions are met. Automatic termination at 78 percent occurs without a borrower request and is a separate trigger.

Question 33Federal Mortgage-Related Laws

A mortgage loan originator is discussing a high-cost mortgage with a borrower. Which feature is prohibited for a high-cost mortgage under Regulation Z?

  1. A prepayment penalty after the third year of the loan
  2. A prepayment penalty during the first three years of the loan Correct answer.
  3. A late fee assessed after fifteen days of delinquency
  4. A balloon payment scheduled more than ten years after closing

Explanation

High-cost mortgages may not include prepayment penalties during the first three years, and the penalty after that period is subject to limits. Balloon payments and late fees are permitted only within the constraints Regulation Z places on them.

Question 34Federal Mortgage-Related Laws

A loan originator is reviewing the anti-discrimination requirements that apply to a mortgage lender. Under the Equal Credit Opportunity Act, which characteristic is a protected basis for credit decisions?

  1. The applicant's loan-to-value ratio
  2. The applicant's credit score
  3. The applicant's marital status Correct answer.
  4. The applicant's employment tenure

Explanation

ECOA prohibits discrimination on specified bases including marital status, and a creditor may not vary terms or deny credit based on that status. Credit score, loan-to-value ratio, and employment tenure are legitimate underwriting factors rather than protected characteristics.

Question 35Federal Mortgage-Related Laws

A mortgage lender is subject to the Home Mortgage Disclosure Act. Which activity does HMDA require the lender to report?

  1. The names of individual loan originators and their compensation
  2. The appraised value of every property securing a loan
  3. The credit scores of all applicants who were denied
  4. The number of loan applications received, originations, and denials by loan type and applicant characteristics Correct answer.

Explanation

HMDA requires covered institutions to collect and report data on applications, originations, and denials, broken down by loan type and protected characteristics. Individual originator names, credit scores, and appraised values are not part of the required HMDA data set.

Question 36Federal Mortgage-Related Laws

A mortgage loan originator is discussing a borrower's credit report with the borrower. Under the Fair Credit Reporting Act, which statement best describes the borrower's right regarding the report?

  1. The borrower may not dispute information in the report once it has been verified.
  2. The borrower may obtain a free copy of the report at any time without any conditions.
  3. The borrower may demand deletion of accurate negative information after one year.
  4. The borrower is entitled to a free disclosure of the file when adverse action is taken based on the report. Correct answer.

Explanation

FCRA entitles a consumer to a free file disclosure when adverse action is taken based on a consumer report. Accurate information cannot be deleted on demand, and consumers retain the right to dispute items that they believe are inaccurate.

Question 37Federal Mortgage-Related Laws

A mortgage loan originator is reviewing the SAFE Act requirements with a newly hired state-licensed originator. Which obligation applies to the originator's license?

  1. Completing only a one-time background check at hire
  2. Passing a national and state competency test and completing annual continuing education Correct answer.
  3. Registering only with the nationwide database and not with the state
  4. Renewing the license every five years with no continuing education

Explanation

The SAFE Act requires state-licensed mortgage loan originators to pass a national and state competency test, submit fingerprints for a background check, and complete annual continuing education. Licensing occurs through the state and registration in the nationwide database is required as part of that process.

Question 38Federal Mortgage-Related Laws

A mortgage loan originator is reviewing a loan file for a borrower who received a loan estimate. Under the TILA-RESPA integrated disclosure rules, when must the creditor provide the loan estimate?

  1. Within thirty days after the loan is funded
  2. On the day the borrower signs the promissory note
  3. At least seven business days before closing
  4. Within three business days after receiving the application Correct answer.

Explanation

The creditor must deliver or place the loan estimate in the mail no later than three business days after receiving the application. The closing disclosure has its own timing rule, generally at least three business days before consummation.

Question 39Federal Mortgage-Related Laws

A mortgage loan originator is reviewing a settlement services arrangement in which the lender refers a borrower to an affiliated title company. Under RESPA Section 8, which arrangement is permissible?

  1. The lender requires the borrower to use the affiliated company and splits the fee with the broker.
  2. The lender pays the real estate agent a fee for referring the borrower.
  3. The lender receives a fee for each referral to the affiliated title company.
  4. The lender discloses the affiliation and charges the borrower the fair market value of services actually performed. Correct answer.

Explanation

RESPA Section 8 prohibits fees for referrals, but a provider may charge fair market value for services actually performed if the affiliation is disclosed. Splitting fees for referrals or paying agents for referrals is prohibited regardless of disclosure.

Question 40Federal Mortgage-Related Laws

A mortgage lender denies an application and must provide an adverse action notice. Under the Equal Credit Opportunity Act, which statement about the notice is correct?

  1. The notice must be provided within thirty days after receiving a complete application. Correct answer.
  2. The notice must include the credit score used in the decision in all cases.
  3. The notice may be delivered orally if the borrower agrees.
  4. The notice must be provided only if the borrower requests a written explanation.

Explanation

ECOA requires a creditor to notify the applicant of adverse action within thirty days after receiving a complete application. The notice must be in writing and must state the reasons for the action or disclose the right to request them.

Question 41Federal Mortgage-Related Laws

A loan originator is reviewing a loan file in which the borrower's income includes part-time earnings and overtime. Under Regulation Z's ability-to-repay rule, how should the creditor treat that income?

  1. Verify it using reasonably reliable third-party records and consider its stability. Correct answer.
  2. Include it at the borrower's stated amount without verification.
  3. Include it only if the borrower has received it for at least five years.
  4. Exclude it because it is not guaranteed.

Explanation

The ability-to-repay rule requires the creditor to verify income using reasonably reliable third-party records and to consider the stability of that income. Part-time and overtime earnings may be included when properly verified, and no fixed five-year requirement applies.

Question 42Federal Mortgage-Related Laws

A mortgage loan originator is reviewing the advertising rules that apply to a lender's loan advertisements. Under Regulation Z, which advertisement triggers additional disclosures?

  1. An advertisement that lists the lender's office hours
  2. An advertisement that states only the lender's name and phone number
  3. An advertisement that describes the lender's years in business
  4. An advertisement that states a specific down payment amount Correct answer.

Explanation

Triggering terms such as a specific down payment, a payment amount, or an interest rate require additional disclosures about APR and terms. Advertisements that contain only the lender's name, contact information, or general business facts do not trigger those disclosures.

Question 43Federal Mortgage-Related Laws

A mortgage loan originator is reviewing the Fair Housing Act's application to mortgage lending. Which practice violates the Act?

  1. Requiring documentation of income from all applicants
  2. Steering applicants to neighborhoods based on their race Correct answer.
  3. Applying the same credit standards to all applicants regardless of national origin
  4. Refusing to consider income from public assistance when underwriting a loan

Explanation

The Fair Housing Act prohibits steering applicants toward or away from neighborhoods based on protected characteristics such as race. Uniform credit standards and documentation requirements are permissible, and income from public assistance must be considered under fair lending rules.

Question 44Federal Mortgage-Related Laws

A mortgage loan originator is reviewing a loan file in which the borrower's credit report shows a disputed collection account. Under the Fair Credit Reporting Act, what must the lender do when the borrower disputes the item?

  1. Reinvestigate the dispute if the consumer reports it directly to the lender. Correct answer.
  2. Delete the item immediately upon receiving the dispute.
  3. Ignore the dispute because the lender did not furnish the data.
  4. Report the borrower to the credit bureau as a high-risk applicant.

Explanation

Under FCRA, when a consumer disputes information directly with a furnisher, the furnisher must conduct a reasonable investigation and correct or delete inaccurate information. A lender that furnishes data cannot ignore the dispute, and it may not delete accurate information without investigation.

Question 45Federal Mortgage-Related Laws

A mortgage loan originator is reviewing the requirements for a loan that will be a higher-priced mortgage loan under Regulation Z. Which requirement applies to such a loan?

  1. The lender must establish an escrow account for certain higher-priced mortgage loans unless an exemption applies. Correct answer.
  2. The lender may rely solely on the borrower's stated income.
  3. The lender may waive the appraisal requirement for all such loans.
  4. The lender may impose a prepayment penalty at any time.

Explanation

Regulation Z requires escrow accounts for certain higher-priced mortgage loans unless an exemption applies, and it also imposes appraisal and ability-to-repay requirements. Prepayment penalties are restricted and stated-income underwriting does not satisfy the ability-to-repay rule.

Question 46Federal Mortgage-Related Laws

A mortgage loan originator is reviewing the disclosure requirements for a loan secured by a dwelling. Under the Truth in Lending Act, which statement about the right of rescission is correct?

  1. It applies to a purchase-money mortgage on a primary residence.
  2. It applies to a loan secured by an investment property.
  3. It applies only to open-end credit and never to closed-end loans.
  4. It applies to a refinance of a primary residence and gives the borrower three business days to cancel. Correct answer.

Explanation

TILA's right of rescission applies to certain closed-end loans secured by the borrower's principal dwelling, including refinances, and gives the borrower three business days to cancel. It does not apply to purchase-money mortgages or to investment properties.

Question 47Federal Mortgage-Related Laws

A mortgage loan originator is reviewing a loan file in which the borrower receives disability income. Under the Equal Credit Opportunity Act, how may the lender treat that income?

  1. Consider it on the same basis as other verified income. Correct answer.
  2. Count it only if the borrower is over age 65.
  3. Exclude it because it is not earned income.
  4. Require a physician's statement before counting it.

Explanation

ECOA and Regulation B prohibit discrimination based on receipt of public assistance or disability income, and creditors must consider such income on the same basis as other verified income. Requiring extra documentation solely because of the income source is a prohibited practice.

Question 48Federal Mortgage-Related Laws

A mortgage loan originator is reviewing the requirements that apply to a loan originator's advertising and the nationwide database. Under the SAFE Act, which identifier must appear on certain loan originator materials?

  1. The originator's Social Security number
  2. The borrower's loan number
  3. The lender's federal tax identification number
  4. The originator's unique identifier issued through the nationwide database Correct answer.

Explanation

The SAFE Act requires loan originators to be registered in the nationwide database and to display their unique identifier on certain materials. Social Security numbers, tax identification numbers, and borrower loan numbers are not the required identifier.

Question 49General Mortgage Knowledge

Under New York's mortgage loan originator licensing rules, which entity issues the MLO license that a loan originator must hold to take residential mortgage applications in the state?

  1. The federal Consumer Financial Protection Bureau
  2. The New York State Banking Board
  3. The New York State Department of Financial Services Correct answer.
  4. The Nationwide Multistate Licensing System

Explanation

New York licenses mortgage loan originators through the Department of Financial Services (DFS), which administers the licensing statute for mortgage bankers, brokers, and originators. NMLS is only the technology system used to process and maintain the license record; it is not the licensing authority. The CFPB and the former Banking Board do not issue individual New York MLO licenses.

Question 50General Mortgage Knowledge

A borrower's $400,000 loan has a 6% annual interest rate. Using a 30-year term with monthly payments, which component of the first scheduled payment represents interest?

  1. $1,500
  2. $2,000 Correct answer.
  3. $2,398
  4. $2,400

Explanation

Monthly interest is the outstanding principal times the annual rate divided by twelve: $400,000 × 0.06 ÷ 12 = $2,000. The remaining portion of the first payment reduces principal. The $2,400 figure would be a full year of interest rather than one month, and $2,398 approximates the total monthly payment, not the interest component.