PA MLO common mistakes
PA MLO · Understand the traps and how to avoid them.
Counting business days for Loan Estimate and Closing Disclosure timing using the general definition - counting Saturdays, or assuming a disclosure mailed Friday is received Monday - instead of the calendar-day definition the disclosure rules use.
The exam uses two 'business day' definitions and the topics are studied back to back. The general one (a day the creditor's offices are open) covers most of Regulation Z; the disclosure-timing rules count every calendar day except Sundays and federal holidays, so a Saturday counts while a federal holiday does not. Candidates pick the familiar definition and get the deadline off by a day or two.
What to do instead
Build a two-column sheet and place each rule under its definition: LE delivery after application and most general notices on the 'open for business' side; revised-LE timing, the three-day CD waiting period, and the LE-to-CD waiting period on the calendar-day side. Then calculate one delivery date per column for a scenario that straddles a weekend and a holiday.
Reciting percentage triggers from memory without attaching them to the right rule - using HOEPA's points-and-fees trigger as the Qualified Mortgage cap, or swapping the first-lien APR/APOR spread with the subordinate-lien spread when deciding safe harbor versus rebuttable presumption.
HOEPA high-cost, QM points and fees, QM price-based, and state high-cost tests all apply a percentage to the same closing-cost base. The numbers blur because the rules were learned as a list of percentages rather than as trigger-threshold-consequence triples, and the exam deliberately offers the sibling number as a distractor.
What to do instead
Make a four-row matrix: rule, exact trigger, threshold (first lien versus subordinate lien), and consequence (additional disclosures and restrictions versus safe harbor versus rebuttable presumption). Redo one small sample loan per row and recite the consequence out loud, not just the percentage.
Treating the adverse action notice as a deadline only - issuing it with reasons but omitting the ECOA non-discrimination statement and the applicant's right to specific reasons - and failing to recognize when a counteroffer has been made.
Adverse action is usually memorized as '30 days,' so content requirements and the counteroffer rule get skimmed. The exam asks what the notice must contain, not when it is due, and the incomplete notice looks correct at a glance.
What to do instead
Memorize the notice as a four-item checklist: action taken; specific principal reasons or disclosure of the right to them; the ECOA statement naming the federal agency; and, if a counteroffer was made, notice that the applicant has 90 days to accept. Keep the separate 30-day written notice for an incomplete application distinct.
Estimating points and fees by totalling every fee on the Closing Disclosure rather than selecting only the includable finance charges - sweeping in escrow deposits, per-diem interest, or third-party charges that the rule excludes or tests differently.
The item supplies a realistic fee list and asks whether the loan fails a percentage test. Under time pressure candidates add everything that looks like a closing cost, and legitimate discount points or seller-paid items get counted the wrong way.
What to do instead
Practice a two-column sort - includable versus excluded - on at least twenty common fees, and check the loan-amount threshold before computing any percentage. Always ask whether the fee is paid to the creditor or affiliate, and whether it is a bona fide discount point.
Qualifying the borrower on principal and interest alone, or on the note rate for an adjustable-rate loan, while ignoring taxes, hazard insurance, HOA dues, subordinate-lien payments, and obligations that never appear on the credit report.
'Housing payment' feels like a known phrase, so candidates substitute the P&I figure shown in the scenario for the full qualifying payment. Obligations such as child support, alimony, or a loan the borrower co-signed but does not pay are easy to drop because the numbers look clean.
What to do instead
Before dividing, write the full obligation stack line by line: PITI, HOA or condo, all installment and revolving minimums, subordinate liens, support obligations - then use the fully indexed rate for ARMs. Recompute every scenario as total obligations divided by gross monthly income.
Treating a rate quote or a prequalification call as an application, or collecting an appraisal or processing fee before the borrower has expressed an intent to proceed.
In practice phone intake and online quoting blur the line, and the six-element definition of 'application' is memorized as a list rather than applied to the story. The intent-to-proceed rule is often misremembered as 'after the borrower signs the Loan Estimate.'
What to do instead
In every scenario, count the six application elements (borrower's name, income, Social Security number, property address, estimated value, loan amount) before starting the clock. Then ask two questions in order: was a Loan Estimate delivered within three business days, and did the consumer indicate intent to proceed before any fee was collected other than a bona fide credit report fee?
Agreeing in a scenario that the loan originator may cut their own commission to win the deal, or that compensation may shift with the rate or product, as long as the borrower is told about it.
Loan originator compensation is studied as a disclosure topic, when the core prohibition is that compensation cannot be based on terms other than the loan amount or a fixed percentage of it. Because the borrower in the scenario benefits and consents, the option reads as fair.
What to do instead
State the rule in one line: compensation may vary only with the loan amount or a percentage of it, and any reduction must come from the originator's own compensation, be documented in the file, and not be imposed by the creditor. Eliminate any answer where pay depends on rate, product, or APR, regardless of disclosure.
Declaring any referral payment illegal on a Section 8 item, or approving an affiliated business arrangement without checking the three safe-harbor conditions, because the borrower was not harmed and the fee seemed small.
Candidates memorize 'kickbacks are prohibited' and stop, so the enumerated exceptions and the affiliated business arrangement safe harbor never get learned. The exam rewards the distinction between a thing of value for a referral, which is prohibited, and reasonable payment for goods, services, or facilities actually furnished, which is not.
What to do instead
Learn the affiliated business test as three conditions: written disclosure of the affiliation, no requirement that the borrower use the affiliate, and only a reasonable return on goods, services, or facilities. Sort each scenario against those three conditions, and separately ask whether the payment was for a referral or for work performed.
Answering ethics items on instinct about whether anyone was harmed or whether the borrower benefited, rather than against the specific prohibition - for example, accepting that signing a borrower's name with verbal permission is acceptable.
Ethics scenarios are written so the tempting option helps the borrower or speeds the closing, and the compliant option costs time or money. Instinct rewards the helpful outcome, and the vague terms 'reasonable' or 'good faith' get used to excuse conduct the rules prohibit outright.
What to do instead
Before reading the choices, name the rule the scenario triggers: fraud or misrepresentation, fiduciary duty, fair lending, privacy, or a specific prohibition. Then eliminate any option requiring an unwitnessed signature, an unrecorded side agreement, a term not reflected in the file, or a document backdated to fit a deadline.
Studying only the federal domains and answering uniform state content items with the federal rule - guessing on Pennsylvania-specific continuing education hours, license term and renewal timing, record retention, and state advertising or high-cost definitions.
The state portion repeats familiar licensing, education, records, and reporting topics but with state-specific numbers that sit near the federal figures, so a well-prepared federal candidate feels confident and picks the near-miss. It is also the smallest domain, so it usually gets the least review time.
What to do instead
Build a one-page Pennsylvania sheet covering license term and renewal, CE hours and required subject categories, record retention period, branch licensing, and the state high-cost and advertising rules, with the actual number written next to each. Drill it in short separate blocks rather than folding it into federal review.