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MLO Practice Questions

Question # 1
A second (subordinate) mortgage loan includes:

A. government home purchase loan.
B. conventional home purchase loan.
C. home equity conversion mortgage.
D. home equity lines of credit (HELOCs;


D. home equity lines of credit (HELOCs;

Explanation:

A second (subordinate) mortgage loan refers to a mortgage taken out after the primary mortgage and is subordinate to the first in priority of claims on the property in case of default or foreclosure. One of the most common types of subordinate mortgages is a home equity line of credit (HELOC).

HELOC allows homeowners to borrow against the equity in their home, typically after the first mortgage, making it a subordinate loan.

Other options:

Government home purchase loans (A) and conventional home purchase loans (B) are typically first mortgages.

A home equity conversion mortgage (C) is a type of reverse mortgage, which is also typically a primary loan, not a subordinate one.

References:

Fannie Mae Selling Guide on subordinate financing

HELOC regulations under Regulation Z


Question # 2
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 # 3
The SAFE Act prohibits individuals from engaging in the business of a residential mortgage loan originator without first obtaining a:
A. unique identifier
B. compliance plan.
C. high school diploma.
D. originator counseling certificate.


A. unique identifier

Explanation:

The SAFE Act (Secure and Fair Enforcement for Mortgage Licensing Act) requires all mortgage loan originators (MLOs) to obtain a unique identifier through the Nationwide Multistate Licensing System (NMLS) before engaging in the business of residential mortgage loan origination. This identifier is used to track MLOs across state lines and ensure accountability and transparency in the mortgage industry.

A compliance plan (B) or other qualifications like a high school diploma (C) or counseling certificate (D) are not specific SAFE Act requirements for engaging in mortgage origination.

References:

SAFE Act, 12 USC §5101

NMLS Licensing Requirements


Question # 4
The debt-to-income analysis should assess a borrower's total monthly housing related payments as a percentage of the:
A. net monthly income
B. gross monthly income.
C. taxable income.
D. loan amount.


B. gross monthly income.

Explanation:

In a debt-to-income (DTI) analysis, the borrower’s total monthly housing-related payments (including principal, interest, taxes, insurance, and any homeowner association fees) are assessed as a percentage of their gross monthly income. Lenders use the gross income, which is the borrower’s income before taxes and deductions, to determine affordability and creditworthiness.

Net monthly income (A) and taxable income (C) are not used in standard DTI calculations.

The loan amount (D) is unrelated to the DTI calculation.

References:

Fannie Mae and Freddie Mac Guidelines on DTI ratios

CFPB Guidelines on Ability-to-Repay and DTI


Question # 5
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 # 6
A borrower has told the mortgage loan originator that they had recently paid off an account that was listed on their credit report. Which of the following information will they need to provide the lender to prove the account has been paid off?
A. Oral confirmation from the borrower
B. An updated statement showing a zero balance
C. A letter from the borrower explaining that they paid it off
D. No additional information required


B. An updated statement showing a zero balance

Explanation:

To prove that an account listed on a credit report has been paid off, the borrower must provide an updated statement showing a zero balance. This is the most direct and verifiable method for a lender to confirm the account has been settled.

Oral confirmation (A) or a letter from the borrower (C) are not acceptable documentation, as they lack third-party verification.

No further documentation would be required if the credit report already reflects the zero balance, but until then, updated documentation is necessary.

References:

Fair Credit Reporting Act (FCRA)

Standard mortgage underwriting documentation guidelines


Question # 7
Upon becoming employed by a state-licensed mortgage company, an individual who works for a depository institution as a mortgage loan originator (MLO) shall not be deemed to have temporary authority to act as an MLO in an application state if which of the following events has occurred?
A. The individual has been a witness in a trial at which the defendant was convicted of felony fraud.
B. The individual has been subject to a court order for payment of child support.
C. The individual had an application for an MLO license denied or an MLO license revoked or suspended in any Governmental jurisdiction.
D. The individual has submitted an application to be a state-licensed MLO in the application state and was registered in the NMLS as an MLO by the prior employer.


C. The individual had an application for an MLO license denied or an MLO license revoked or suspended in any Governmental jurisdiction.

Explanation:

An individual who had their MLO license application denied, or had a license revoked or suspended in any governmental jurisdiction, is not eligible for temporary authority to act as a mortgage loan originator (MLO) under the SAFE Act. Temporary authority allows registered MLOs who move to a state-licensed mortgage company to act as MLOs while their application for a state license is being processed. However, individuals with disqualifying events, such as prior license denial or revocation, lose this privilege.

Other options:

Court orders for child support (B) and being a witness in a trial (A) do not disqualify individuals from obtaining temporary authority.

References:

SAFE Act, 12 USC §5101

NMLS Temporary Authority to Operate Guidelines


Question # 8
When a mortgage loan originator notices multiple Social Security number discrepancies within the same loan file, it is considered a red flag of:

A. Fair lending.
B. Mortgage fraud.
C. A forgetful borrower.
D. Pricing discrepancies.


B. Mortgage fraud.

Explanation:

When multiple discrepancies in a borrower’s Social Security number (SSN) are found within the same loan file, it raises concerns of mortgage fraud. The Social Security number is a critical identifier used to verify a borrower's identity, credit history, and employment. Inconsistent or altered SSNs may suggest attempts to hide the true identity of the borrower, which can be an indicator of fraudulent activity.

Mortgage fraud involves deliberate misrepresentation of information on loan applications, documents, or other parts of the mortgage process. SSN discrepancies can point to identity theft or attempts to use multiple identities to obtain a loan fraudulently.

This is a serious concern under the Fair Credit Reporting Act (FCRA) and can lead to legal action if discovered during underwriting or later in the loan process.

Mortgage loan originators (MLOs) must report such discrepancies as they may violate federal laws like RESPA and TILA and lead to further investigation.

References:

Federal Trade Commission (FTC) guidelines on identity theft

Mortgage Acts and Practices (MAP) Rule


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NMLS MLO Exam Dumps

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

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