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MLO Practice Questions

Question # 1
During the closing the borrower notices that the interest rate increased from 3.250% to 3.875%. The lender must:
A. tell the borrower to close the loan.
B. close the loan, then re-disclose after the loan funds.
C. postpone the closing, re-disclose and wait three days.
D. postpone the closing, re-disclose and wait three business days.


D. postpone the closing, re-disclose and wait three business days.

Explanation:

Under the TILA-RESPA Integrated Disclosure (TRID) rules, any significant change to the Annual Percentage Rate (APR) beyond the allowed tolerance before closing requires the lender to provide a revised Closing Disclosure (CD). If the APR increases by more than 0.125% for fixed-rate loans, the lender must re-disclose the CD and provide the borrower with at least three business days to review the updated terms before consummation (closing).

In this case, the interest rate increase from 3.250% to 3.875% is a significant change that impacts the APR, triggering the need for re-disclosure and the mandatory three-business-day waiting period.

The lender must postpone the closing until the new three-day waiting period passes to ensure compliance with TRID regulations.

References:

TILA-RESPA Integrated Disclosure Rule (TRID), 12 CFR §1026.19(f)

CFPB TRID Guidelines


Question # 2
Which of the following loans is subject to the Real Estate Settlement Procedures Act (RESPA)?
A. Federally related mortgage loan
B. Standard county related mortgage loan
C. State registration related mortgage loan
D. Unified commerce related mortgage loan


A. Federally related mortgage loan

Explanation:

The Real Estate Settlement Procedures Act (RESPA) applies to federally related mortgage loans, which include:

Loans made by lenders insured by a federal agency (such as FHA or VA loans)

Loans intended for sale to Fannie Mae or Freddie Mac

Loans from lenders that are federally regulated or insured

RESPA's goal is to protect consumers by requiring disclosures related to the costs of real estate transactions, preventing kickbacks, and ensuring transparency in the settlement process. It applies to most residential mortgage loans.

Other options:

County-related mortgage loans (B), state registration loans (C), and unified commerce loans (D) are not standard terms under RESPA.

References:

Real Estate Settlement Procedures Act (RESPA)

12 CFR Part 1024, Regulation X


Question # 3
Which of the following types of income are considered as qualifying when applying for a mortgage loan?
A. Reimbursed expenses
B. Net rental income
C. Family gifts
D. Federal tax refund


B. Net rental income

Explanation:

Net rental income is considered qualifying income when applying for a mortgage, as it represents income generated from rental properties. Lenders typically calculate net rental income by subtracting property expenses from the total rental income, and they require documentation such as tax returns or lease agreements to verify this income.

Reimbursed expenses (A), family gifts (C), and federal tax refunds (D) are generally not considered qualifying income, as they are one-time or non-recurring sources of funds.

References:

Fannie Mae Selling Guide on qualifying income

Freddie Mac Guidelines for rental income


Question # 4
When obtaining a mortgage loan, title insurance is required to protect the:
A. settlement agent.
B. seller of the property.
C. mortgage loan officer.
D. lender providing the financing.


D. lender providing the financing.

Explanation:

When obtaining a mortgage loan, title insurance is typically required to protect the lender. The lender’s title insurance policy ensures that the lender has a valid lien on the property and protects against potential claims on the title, such as unpaid property taxes, liens, or ownership disputes.

While owner's title insurance protects the buyer, the lender’s title insurance is required to protect the financial interest of the lender.

References:

TILA-RESPA Integrated Disclosure (TRID) Rule

ALTA Title Insurance Guidelines


Question # 5
Illegal fee splitting occurs when:
A. two service providers split a fee.
B. wages are split by two employees.
C. fees are split between lender and broker.
D. three companies split a fee but one did no work.


D. three companies split a fee but one did no work.

Explanation:

Illegal fee splitting occurs when a fee is divided among multiple parties and at least one party does not perform any actual work or service to earn the fee. Under RESPA (Real Estate Settlement Procedures Act), Section 8 prohibits fee splitting, kickbacks, and unearned fees in any federally related mortgage loan transaction. If three companies split a fee, but one company did no work, this would constitute an illegal fee split.

Fee splitting (A, C) can be legal if all parties involved provide legitimate services.

References:

RESPA Section 8 - Prohibition on fee splitting and unearned fees

CFPB RESPA Guidelines


Question # 6
Which of the following fees is a finance charge?
A. A notary fee
B. An origination fee
C. An appraisal fee
D. A late payment fee


B. An origination fee

Explanation:

An origination fee is considered a finance charge under TILA because it represents the cost of obtaining credit. A finance charge includes all fees that a borrower must pay as a condition of securing a loan, excluding certain exempt fees like notary or appraisal fees.

Notary fees (A) and appraisal fees (C) are typically excluded from the finance charge calculation.

Late payment fees (D) are not considered finance charges; they are penalties for delinquent payments.

References:

Truth in Lending Act (TILA), 12 CFR §1026.4 (Regulation Z)

CFPB Finance Charge Definitions


Question # 7
According to the Equal Credit Opportunity Act (ECOA), which of the following terms is defined as a refusal to grant credit based on the requested loan terms, an unfavorable change in loan terms, or a termination of an account/application?
A. Adverse action
B. Account closure
C. Credit closure
D. Denial of credit


A. Adverse action

Explanation:

Under the Equal Credit Opportunity Act (ECOA), the term adverse action is defined as a refusal to grant credit based on the requested loan terms, an unfavorable change in loan terms, or a termination of an account/application. This can include:

Denying a credit application.

Offering credit on terms different from those requested.

Closing an existing credit account.

Lenders must provide a formal notice of adverse action, explaining the reasons for the denial or change in terms, to comply with ECOA’s requirements for transparency and fairness.

Other options:

Account closure (B) and credit closure (C) are not specific ECOA terms.

Denial of credit (D) is a form of adverse action but does not cover all situations like a change in loan terms.

References:

Equal Credit Opportunity Act (ECOA), 15 U.S.C. §1691(d)

Regulation B (12 CFR Part 1002)


Question # 8
A borrower's monthly debt-to-income ratio is calculated by taking the:
A. borrower's gross monthly housing expense divided by the principal, interest, and appraised value.
B. eligible total monthly debt obligations, including the monthly housing expense, divided by the borrower's gross monthly income.
C. eligible total monthly debt obligations for trade lines greater than 12 months multiplied by the borrower's net monthly income.
D. D eligible total monthly debt obligations excluding the monthly housing expense divided by the borrower's net monthly income


B. eligible total monthly debt obligations, including the monthly housing expense, divided by the borrower's gross monthly income.

Explanation:

The debt-to-income (DTI) ratio is a key metric used by lenders to assess a borrower’s ability to manage monthly payments and repay a mortgage. It is calculated by dividing the borrower’s total monthly debt obligations, including:

Monthly housing expenses (principal, interest, taxes, and insurance, also known as PITI).

Any other recurring debt obligations (car loans, student loans, credit card payments, etc.).

This total is divided by the borrower’s gross monthly income (before taxes and deductions). This calculation helps determine whether the borrower meets lending standards, with most lenders preferring a DTI ratio below 43% for qualified mortgages.

References:

Fannie Mae and Freddie Mac guidelines on debt-to-income ratio

CFPB Qualified Mortgage Rules


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NMLS MLO Exam Dumps

Exam Name: Mortgage Loan Origination (SAFE MLO)
Certification Name: SAFE MLO

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