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TX MLO practice questions

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Question 1Mortgage Loan Origination Activities

A loan originator receives a completed mortgage loan application on Monday. Under the TILA-RESPA integrated disclosure rules, by when must the Loan Estimate be delivered or placed in the mail?

  1. No later than five business days after receipt of the application
  2. Within one business day of receipt of the application
  3. At least seven business days before consummation
  4. No later than three business days after receipt of the application Correct answer.

Explanation

The creditor must deliver or place in the mail the Loan Estimate no later than the third business day after receiving the consumer's application. The clock runs from receipt of the application, not from when processing or underwriting begins.

Question 2Mortgage Loan Origination Activities

For purposes of the waiting period before consummation, how does Regulation Z define a "business day"?

  1. All calendar days except Sundays and federal legal public holidays Correct answer.
  2. Monday through Friday, excluding state holidays
  3. Any day on which the U.S. Postal Service makes a delivery
  4. Any day the creditor's offices are open to the public for substantially all business functions

Explanation

For the Closing Disclosure three-day waiting period and the four-business-day revised Loan Estimate rule, business day means all calendar days except Sundays and federal legal public holidays. The narrower definition, based on the creditor's offices being open for substantially all business functions, applies to the three-day Loan Estimate delivery requirement.

Question 3Mortgage Loan Origination Activities

The Closing Disclosure must be received by the consumer no later than:

  1. Three business days before consummation Correct answer.
  2. Five business days before consummation
  3. Two business days before consummation
  4. One business day before consummation

Explanation

Regulation Z requires the consumer to receive the Closing Disclosure no later than three business days before consummation. If the disclosure is delivered in person, receipt is presumed on delivery; if mailed or sent electronically, the creditor must allow for delivery time.

Question 4Mortgage Loan Origination Activities

Before the consumer receives the Loan Estimate and indicates an intent to proceed, the only fee a creditor may collect is:

  1. An appraisal deposit
  2. A credit report fee Correct answer.
  3. A rate lock fee
  4. An underwriting fee

Explanation

A creditor may not impose any fee on the consumer before the consumer receives the Loan Estimate and indicates an intent to proceed, except a bona fide and reasonable fee for obtaining a credit report. All other fees must wait until intent to proceed is communicated.

Question 5Mortgage Loan Origination Activities

Which fee is subject to zero tolerance on the Loan Estimate?

  1. Prepaid interest
  2. Recording fees
  3. The fee for a title company the consumer selects from the written list
  4. The creditor's own origination charge Correct answer.

Explanation

Zero tolerance applies to the creditor's origination charges, fees paid to affiliates of the creditor, and fees for required services when the consumer is not permitted to shop. These amounts may not increase at closing unless a valid changed circumstance applies.

Question 6Mortgage Loan Origination Activities

Which fee falls within the 10 percent cumulative tolerance category?

  1. The creditor's origination fee
  2. Transfer taxes
  3. Recording fees Correct answer.
  4. Prepaid property insurance

Explanation

Recording fees and charges for third-party services the consumer selects from the creditor's written list are grouped under the 10 percent cumulative tolerance. The sum of these charges may not increase by more than 10 percent from the Loan Estimate to the Closing Disclosure.

Question 7Mortgage Loan Origination Activities

A revised Loan Estimate based on a valid changed circumstance must be delivered or placed in the mail no later than:

  1. Two business days after the change is discovered
  2. Seven business days after the change is discovered
  3. Three business days after the creditor receives information about the change Correct answer.
  4. One business day after the change is discovered

Explanation

When a valid changed circumstance affects settlement charges, the creditor must provide a revised Loan Estimate within three business days of receiving information sufficient to establish the change. The revised estimate resets tolerances only for the charges affected by that change.

Question 8Mortgage Loan Origination Activities

Which action by a loan originator is permitted under appraisal independence rules?

  1. Withholding payment until a target value is met
  2. Giving the appraiser a copy of the purchase contract Correct answer.
  3. Selecting an appraiser known to confirm a desired value
  4. Suggesting a minimum value the appraiser should reach

Explanation

Appraisal independence rules prohibit coercing or influencing an appraiser to hit a target value, including through payment conditions or appraiser selection based on expected outcomes. Providing factual documents such as the sales contract is permissible and does not improperly influence the appraiser.

Question 9Mortgage Loan Origination Activities

Under Regulation B, a creditor must notify an applicant of adverse action within:

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

Explanation

Regulation B requires a creditor to provide notice of adverse action within 30 days after receiving a completed application for credit. A counteroffer also counts as adverse action if the applicant does not accept it within the notification period.

Question 10Mortgage Loan Origination Activities

When an application is incomplete, Regulation B requires the creditor to send a notice of incompleteness within:

  1. 60 days
  2. 30 days Correct answer.
  3. 15 days
  4. 45 days

Explanation

If a creditor needs additional information to complete an application, it must send a written notice of incompleteness within 30 days of receiving the application. The notice must identify the information needed and give the applicant a reasonable period to respond.

Question 11Mortgage Loan Origination Activities

Under HMDA, how is government monitoring information handled?

  1. For covered applications; the applicant may decline Correct answer.
  2. Only if the loan is secured by a first lien
  3. Only when the applicant volunteers the information
  4. Only after the loan has been approved

Explanation

HMDA requires creditors to collect government monitoring information for covered applications, and the applicant has the right to decline to provide it. If the applicant declines, the creditor must note that fact and may complete the information based on visual observation or surname where permitted.

Question 12Mortgage Loan Origination Activities

Under the SAFE Act, a state-licensed loan originator must complete how many hours of continuing education each year?

  1. Ten hours
  2. Eight hours Correct answer.
  3. Six hours
  4. Four hours

Explanation

The SAFE Act requires licensed loan originators to complete at least eight hours of continuing education annually. The annual hours must include instruction on federal law and regulations, ethics, and non-traditional mortgage lending.

Question 13Mortgage Loan Origination Activities

SAFE Act pre-licensing education requires at least:

  1. 12 hours
  2. 20 hours Correct answer.
  3. 8 hours
  4. 40 hours

Explanation

Before licensure, a loan originator must complete at least 20 hours of pre-licensing education approved by the NMLS. That total includes required hours in federal law and regulations, ethics, and non-traditional mortgage lending.

Question 14Mortgage Loan Origination Activities

A Texas home equity loan under Article XVI, Section 50(a)(6) may not close until:

  1. The day after the application
  2. Twelve days after the borrower submits the application Correct answer.
  3. Three days after the application
  4. Thirty days after the application

Explanation

The Texas Constitution prohibits closing a Section 50(a)(6) home equity loan until the 12th day after the borrower submits the application. The waiting period gives the homeowner time to reconsider before the loan is finalized.

Question 15Mortgage Loan Origination Activities

The maximum loan-to-value ratio for a Texas Section 50(a)(6) home equity loan, counting all liens on the homestead, is:

  1. 80% Correct answer.
  2. 70%
  3. 100%
  4. 90%

Explanation

Texas limits home equity lending to 80 percent of the homestead's fair market value when all liens against the property are combined. The limit is measured at the time the extension of credit is made.

Question 16Mortgage Loan Origination Activities

Under Texas home equity rules, fees charged to the borrower are generally capped at:

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

Explanation

The Texas Constitution limits fees on a Section 50(a)(6) home equity loan to 3 percent of the original principal amount. Interest, certain closing costs, and other items expressly excluded by the constitution are not counted toward the cap.

Question 17Mortgage Loan Origination Activities

A Texas Section 50(a)(6) home equity loan must be closed at:

  1. Any federally insured depository institution branch
  2. The county clerk's office where the homestead is located
  3. The borrower's principal residence
  4. An attorney's office, title company, or lender's office Correct answer.

Explanation

Texas requires that a home equity loan be closed at the office of an attorney at law, a title company, or a lender's office. Closing in one of these locations helps ensure the borrower receives proper legal and title review.

Question 18Mortgage Loan Origination Activities

Which feature may not be included in a Texas Section 50(a)(6) home equity loan?

  1. A fixed interest rate
  2. A prepayment penalty Correct answer.
  3. An adjustable interest rate
  4. An escrow account for taxes and insurance

Explanation

Texas law prohibits a prepayment penalty on a home equity loan made under Section 50(a)(6). The borrower may pay the loan off early without an additional charge.

Question 19Mortgage Loan Origination Activities

Under the Ability-to-Repay rule, which factor must a creditor consider?

  1. The loan originator's compensation
  2. The borrower's total monthly debt-to-income ratio Correct answer.
  3. The borrower's membership in a credit union
  4. The appraiser's opinion of market value

Explanation

The Ability-to-Repay rule requires creditors to consider and verify the borrower's income and assets, employment, mortgage-related obligations, current debts, alimony and child support, credit history, and the monthly debt-to-income ratio or residual income. These factors must be documented before credit is extended.

Question 20Mortgage Loan Origination Activities

A first-lien mortgage is a high-cost mortgage under HOEPA if its annual percentage rate exceeds the average prime offer rate by more than:

  1. 8 percentage points
  2. 6.5 percentage points Correct answer.
  3. 4 percentage points
  4. 2.5 percentage points

Explanation

For a first-lien loan, the HOEPA APR trigger is an APR that exceeds the average prime offer rate by more than 6.5 percentage points. Separate triggers apply to points and fees, and to prepayment penalties.

Question 21Mortgage Loan Origination Activities

Under the Homeowners Protection Act, a borrower may request cancellation of private mortgage insurance when the loan balance reaches:

  1. 85% of appraised value
  2. 78% of original value with automatic termination
  3. 80% of original value per the amortization schedule Correct answer.
  4. 75% of purchase price

Explanation

The Homeowners Protection Act lets a borrower request cancellation of private mortgage insurance once the principal balance reaches 80 percent of the home's original value, based on the original amortization schedule, if the loan is current. Automatic termination occurs at 78 percent.

Question 22Mortgage Loan Origination Activities

The maximum building coverage available under a standard NFIP residential flood insurance policy is:

  1. $100,000
  2. $250,000 Correct answer.
  3. $1,000,000
  4. $500,000

Explanation

The National Flood Insurance Program provides up to $250,000 in building coverage for a residential property and up to $100,000 in contents coverage. Lenders must require flood insurance when the property is in a special flood hazard area.

Question 23Mortgage Loan Origination Activities

Under RESPA, a lender's escrow account may hold a cushion of no more than:

  1. Three months of disbursements
  2. One month of disbursements
  3. One-half of the annual tax bill
  4. One-sixth of the total annual disbursements Correct answer.

Explanation

RESPA limits the escrow cushion to no more than one-sixth of the estimated total annual disbursements, which is roughly two months of payments. The cushion covers timing differences between collection and disbursement.

Question 24Mortgage Loan Origination Activities

Under Regulation Z's loan originator compensation rule, compensation may be based on:

  1. Whether the loan has a prepayment penalty
  2. The interest rate of the loan
  3. The loan's annual percentage rate
  4. A percentage of the loan amount Correct answer.

Explanation

Loan originator compensation may be based on the loan amount, but it may not be based on the loan's terms or conditions such as the interest rate, APR, or presence of a prepayment penalty. The rule prevents originators from steering borrowers toward higher-cost loans.

Question 25Mortgage Loan Origination Activities

The key difference between a prequalification and a preapproval is that a preapproval:

  1. Does not require a credit inquiry
  2. Involves verification of income, assets, and credit Correct answer.
  3. Is not permitted in Texas
  4. Is issued only after closing

Explanation

A preapproval is based on documented verification of income, assets, and credit, while a prequalification is generally an informal estimate based on information the borrower provides. A preapproval carries more weight because the lender has reviewed supporting documentation.

Question 26Mortgage Loan Origination Activities

Under the TRID rules, a creditor must deliver or place in the mail the initial Loan Estimate no later than:

  1. Three business days after receiving the application Correct answer.
  2. Five business days after receiving the application
  3. At least seven days before consummation
  4. On the date of consummation

Explanation

Regulation Z requires the creditor to deliver or mail the initial Loan Estimate no later than the third business day after it receives the consumer's application. The creditor may not impose most fees, other than a reasonable credit report fee, before the consumer indicates intent to proceed.

Question 27Mortgage Loan Origination Activities

The Closing Disclosure must be received by the consumer no later than how many business days before consummation?

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

Explanation

The consumer must receive the Closing Disclosure at least three business days before consummation. The creditor must allow for delivery time, because receipt, not merely mailing, starts the waiting period.

Question 28Mortgage Loan Origination Activities

For a non-purchase-money refinance of a principal residence, the borrower's right to rescind expires at midnight of the:

  1. Seventh business day following consummation
  2. Third business day following consummation Correct answer.
  3. Second business day following consummation
  4. First business day following consummation

Explanation

TILA gives the consumer three business days after consummation to rescind a covered refinance or home equity loan on a principal residence. The rescission period runs until midnight of the third business day.

Question 29Mortgage Loan Origination Activities

Which charge is subject to zero tolerance, meaning it may not increase from the Loan Estimate to the Closing Disclosure absent a valid changed circumstance?

  1. Title insurance premiums paid to a company on the written list
  2. Charges paid to an affiliate of the creditor
  3. Recording fees charged by the county clerk
  4. The creditor's own origination charge Correct answer.

Explanation

Fees paid to the creditor or an affiliate, along with transfer taxes and fees for services the consumer cannot shop for, carry zero tolerance. Recording fees and shoppable third-party charges fall into the 10 percent cumulative category.

Question 30Mortgage Loan Origination Activities

How may a consumer express intent to proceed with a loan application under the TRID rules?

  1. Only by signing and returning the Loan Estimate
  2. Only in a writing signed by each borrower
  3. By any clear indication, oral or written Correct answer.
  4. Only by paying the credit report fee

Explanation

The creditor must obtain a clear indication that the consumer wants to proceed, but the regulations do not prescribe a specific form. An oral statement or a signed document both satisfy the requirement.

Question 31Mortgage Loan Origination Activities

Under Section 8 of RESPA, which practice is prohibited?

  1. Paying a title company for services actually performed
  2. Sharing a fee with a provider that performed the work
  3. Charging a borrower a fee disclosed on the Closing Disclosure
  4. Paying for the referral of settlement business Correct answer.

Explanation

RESPA Section 8 bars giving or accepting a thing of value in exchange for referrals of settlement service business. Payments for services actually rendered and disclosed charges are permissible.

Question 32Mortgage Loan Origination Activities

Under the SAFE Act, the loan originator's unique identifier must appear on:

  1. The NMLS Consumer Access website only
  2. The note and the security instrument Correct answer.
  3. The Loan Estimate only
  4. The Closing Disclosure only

Explanation

The SAFE Act requires the originator's unique identifier to be shown on the loan documents, including the note and the mortgage or deed of trust. This allows consumers to look up the originator's licensing record.

Question 33Mortgage Loan Origination Activities

Before originating residential mortgage loans in Texas for a licensed mortgage entity, an individual must:

  1. Be employed by the borrower
  2. Hold a Texas real estate broker license
  3. Hold a state MLO license and a sponsor Correct answer.
  4. Register with NMLS without a state license

Explanation

Texas requires an individual to be licensed as a mortgage loan originator through NMLS and to be sponsored by a licensed mortgage company, banker, or credit union. A real estate license does not authorize mortgage origination.

Question 34Mortgage Loan Origination Activities

A creditor learns after issuing the Loan Estimate that the title company raised its fee because of a previously unknown lien, pushing 10 percent category charges over tolerance. Which statement is correct?

  1. The increase may be passed on because the title company is a third party
  2. A revised Loan Estimate must be issued within three business days Correct answer.
  3. The creditor may issue the revised Loan Estimate after consummation
  4. No revised Loan Estimate is required because the increase is under 10 percent

Explanation

A changed circumstance permits a revised Loan Estimate, but the creditor must provide it within three business days of receiving information about the change and before the Closing Disclosure is issued. Untimely revisions do not reset the good-faith baseline.

Question 35Mortgage Loan Origination Activities

If actual charges exceed a tolerance category at consummation, how must the creditor cure the violation?

  1. By obtaining a second appraisal before closing
  2. By refunding the excess within 60 days of consummation Correct answer.
  3. By amending the Loan Estimate within three business days
  4. By disclosing the overage at the next escrow analysis

Explanation

The creditor cures a tolerance violation by refunding the excess amount to the consumer and delivering a corrected Closing Disclosure. The refund must be made no later than 60 days after consummation.

Question 36Mortgage Loan Origination Activities

Under Regulation B, for a first-lien application secured by a dwelling, the creditor must provide copies of the appraisal and other written valuations:

  1. Within 30 days after the loan is transferred to a servicer
  2. At consummation, together with the Closing Disclosure
  3. No later than three business days before consummation Correct answer.
  4. Only after the consumer submits a written request

Explanation

Regulation B requires the creditor to provide copies of appraisals and other written valuations promptly upon completion, and in any event no later than three business days before consummation for first-lien, dwelling-secured loans.

Question 37Mortgage Loan Origination Activities

For purposes of the three-business-day Closing Disclosure waiting period, a "business day" is:

  1. All days except Sundays and federal holidays Correct answer.
  2. Any day on which the U.S. mail is delivered
  3. Monday through Friday, excluding bank holidays
  4. Any day the creditor is open to the public for business

Explanation

The precise definition used for the Closing Disclosure waiting period is every calendar day except Sundays and the federal legal public holidays. The more general definition based on the creditor's hours applies to other TRID timing rules.

Question 38Mortgage Loan Origination Activities

Under the RESPA escrow rules, if a surplus of $50 or more remains in the borrower's escrow account at the end of the computation year, the servicer must:

  1. Retain the surplus as part of the allowed cushion
  2. Apply the surplus to the next escrow computation year
  3. Refund the surplus within 12 months
  4. Refund the surplus to the borrower within 30 days Correct answer.

Explanation

When the escrow analysis shows a surplus of $50 or more, the servicer must refund that amount to the borrower within 30 days of the analysis. Surpluses under $50 may be carried forward or credited.

Question 39Mortgage Loan Origination Activities

When a lender determines that a dwelling securing a loan is located in a special flood hazard area, the lender must:

  1. Require flood insurance only after default
  2. Notify FEMA within three business days of closing
  3. Notify the borrower a reasonable time before closing Correct answer.
  4. Rely on the seller's flood determination

Explanation

The flood regulations require the lender to give the borrower written notice a reasonable time before completion of the transaction and to require flood insurance where mandated. The notice must state whether federal disaster relief may be available.

Question 40Mortgage Loan Origination Activities

For a mortgage that is a high-cost mortgage under HOEPA, the creditor must provide the required disclosures:

  1. At consummation
  2. Within three business days after consummation
  3. At least three business days before consummation Correct answer.
  4. With the initial Loan Estimate only

Explanation

HOEPA requires the creditor to give the borrower the high-cost mortgage disclosures at least three business days before consummation. The borrower may not waive this waiting period.

Question 41Mortgage Loan Origination Activities

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

  1. 2 percent
  2. 5 percent
  3. 3 percent Correct answer.
  4. 10 percent

Explanation

The general QM points-and-fees cap is 3 percent of the total loan amount for loans of $100,000 or more. Higher percentage limits apply only to smaller loans.

Question 42Mortgage Loan Origination Activities

Which loan generally requires the creditor to establish an escrowed account for taxes and insurance?

  1. A first-lien higher-priced mortgage loan Correct answer.
  2. A reverse mortgage loan
  3. A home equity line of credit
  4. An open-end construction loan

Explanation

Regulation Z requires escrow accounts for first-lien higher-priced mortgage loans secured by a principal dwelling. Certain loan types and small creditors qualify for exemptions.

Question 43Mortgage Loan Origination Activities

Under the Homeowners Protection Act, automatic termination of private mortgage insurance generally occurs when the principal balance reaches:

  1. 80 percent of the original value
  2. 85 percent of the original value
  3. 75 percent of the original value
  4. 78 percent of the original value Correct answer.

Explanation

Automatic termination occurs when the principal balance is first scheduled to reach 78 percent of the original property value, provided the borrower is current. The 80 percent figure applies to borrower-requested cancellation.

Question 44Mortgage Loan Origination Activities

When a consumer selects a settlement service provider from the creditor's written list and the provider is not an affiliate, the charge:

  1. Is subject to zero tolerance
  2. Is subject to an unlimited tolerance
  3. Stays in the 10 percent cumulative tolerance Correct answer.
  4. Is excluded from any good-faith comparison analysis

Explanation

Charges for providers the consumer selects from the written list remain in the 10 percent cumulative tolerance category when the provider is unaffiliated. Zero tolerance applies when the consumer is not permitted to shop or the provider is an affiliate.

Question 45Mortgage Loan Origination Activities

Under Regulation Z, how long must a creditor retain records of the Closing Disclosure after consummation?

  1. Two years after consummation
  2. One year after consummation
  3. Three years after consummation
  4. Five years after consummation Correct answer.

Explanation

Records evidencing delivery of the Closing Disclosure must be kept for five years after consummation. Loan Estimate records carry a shorter three-year retention period.

Question 46Mortgage Loan Origination Activities

A creditor underestimated a settlement fee on the initial Loan Estimate after relying on a stale quote without verifying it; the fee later exceeds the 10 percent tolerance. The creditor:

  1. May issue a revised Loan Estimate at closing to reset the baseline
  2. Owes a cure refund to the consumer Correct answer.
  3. May pass the increase through because the provider is not an affiliate
  4. May offset the increase against the seller's closing costs

Explanation

An estimate made without reasonable diligence cannot be revised later for good-faith purposes. The original estimate stays the baseline, and any excess in the tolerance category must be refunded to the consumer.

Question 47Mortgage Loan Origination Activities

Which item is included in the points and fees calculation for HOEPA and qualified mortgage purposes?

  1. Charges for required federal and state documentary taxes
  2. Premiums for required flood insurance coverage
  3. Bona fide discount points paid by the borrower
  4. Compensation paid to an affiliated loan originator Correct answer.

Explanation

Points and fees include compensation paid directly or indirectly to loan originators, including compensation routed through an affiliate. Taxes, required insurance premiums, and bona fide discount points within regulatory limits are excluded.

Question 48Mortgage Loan Origination Activities

Under Texas Section 50(a)(6), the lender must give the borrower a copy of the appraisal:

  1. Within 30 days after the loan is funded
  2. Only if the borrower requests a copy after closing
  3. Three days before closing and at closing Correct answer.
  4. Only if the loan is sold on the secondary market

Explanation

Texas home equity rules require the lender to deliver a copy of the appraisal to the borrower no later than three days before closing and to provide a copy at closing if one was not previously furnished. Delivery and mailing presumptions determine when the borrower is deemed to have received it.

Question 49Mortgage Loan Origination Activities

Under TILA, a consumer's right to rescind a refinance may be waived only when:

  1. The consumer owns the property as a second home rather than a principal residence
  2. The consumer signs a waiver form when applying for the loan
  3. A documented bona fide personal financial emergency exists Correct answer.
  4. The lender offers a lower interest rate in exchange for the waiver

Explanation

A consumer may waive rescission only after receiving the material disclosures and only when a bona fide personal financial emergency requires immediate action. The consumer must provide a dated written statement describing the emergency.

Question 50Mortgage Loan Origination Activities

When a higher-priced mortgage loan will be secured by a property the seller acquired within the preceding 90 days at a lower price, the creditor must:

  1. Require the seller to provide a prior settlement statement
  2. Decline the loan application
  3. Waive the appraisal requirement
  4. Obtain a second appraisal Correct answer.

Explanation

For higher-priced mortgage loans on properties resold within 90 days at a higher price, the creditor must obtain a second independent appraisal unless an exemption applies. The rule targets property-flipping risk.