Free NMLS MLO Practice Exam with Questions & Answers | Set: 3

The upfront premium charged on an FHA mortgage is an example of government mortgage insurance. This upfront mortgage insurance premium (UFMIP) is required for FHA loans and protects the lender (creditor) in the event of borrower default. FHA loans are insured by the Federal Housing Administration (FHA), a government agency.

Private mortgage insurance (D) is used for conventional loans, while optional credit life insurance (A) and force-placed hazard insurance (B) are unrelated to FHA loans.

The Truth in Lending Act (TILA) Regulation Z requires that advertisements for mortgage credit products that state a rate or terms must be clear and not misleading. Phrases like “with approved credit” are permissible when a specific APR is disclosed and required terms are provided. However, “no closing costs” or “variable rate starting at ___” are considered potentially misleading if not all relevant terms are disclosed.

“If an advertisement states a rate of finance charge, it must state the rate as an annual percentage rate (APR)… Disclosures must not be misleading. Stating ‘with approved credit’ in connection with an APR is permissible.”

— 12 CFR § 1026.24, Regulation Z

TRID regulations require that the consumer receive the Closing Disclosure at least three business days before loan consummation. This gives the borrower adequate time to review final terms and costs.

“The creditor must ensure that the consumer receives the Closing Disclosure no later than three business days before consummation.”

— 12 CFR § 1026.19(f)(1)(ii)

Section 8 of RESPA prohibits giving or accepting anything of value in exchange for referrals of settlement service business related to federally related mortgage loans. Renting office space at lower rates (or free) in exchange for referrals is specifically called out in RESPA guidance as an illegal kickback.

“Section 8(a) of RESPA prohibits giving or accepting any fee, kickback, or thing of value… for the referral of settlement service business. Examples of violations include… renting office space at above or below market rates based on the amount of business referred.”

— 12 CFR § 1024.14; CFPB RESPA Section 8 Guidance

Hosting seminars, sponsoring uniforms, or donating to charity are generally permissible if not conditioned on referrals.

Under TRID, a revised Loan Estimate (LE) can be issued if there is a changed circumstance that affects the loan terms or costs. This can include situations such as a natural disaster in the area where the loan will close, which may impact the value of the property or loan costs. Such changes are considered beyond the control of the parties involved and justify a revised estimate.

Market fluctuations (A) on a locked loan and borrower salary increases (B) are not valid reasons for issuing a revised LE.

Changes that the MLO should have known at the time of the original LE (D) do not qualify as a valid changed circumstance.

The right of rescission is a provision under TILA (Truth in Lending Act) that gives borrowers the right to cancel certain types of loans within three business days after closing. This right applies specifically to refinance transactions on a borrower's primary residence, where they are taking cash out or refinancing their mortgage.

Cash-out refinances on a primary residence (C) are subject to the right of rescission because they involve the homeowner's primary residence.

Purchase loans (A) and loans secured by vacation homes (B) or other investment properties are not subject to this rule.

Even if the same creditor is refinancing the loan (Option D), the right of rescission still applies if it's a refinance of the primary residence.

Regulation Z (TILA) and the SAFE Act require that all mortgage loan applications include the MLO's unique identifier, which allows regulators and consumers to identify the MLO involved in the transaction.

“Each loan application must include the mortgage loan originator’s name and unique identifier.”

— 12 CFR § 1026.36(g); SAFE Act

Other listed information is not federally required on every mortgage application.

A mortgage loan originator must only offer rates and terms that are actually available at the time. If a 3.5% rate is only available with 1 discount point, that is the only option the MLO may lawfully present.

“Originators may only quote and offer the rates, terms, and fees actually available from the creditor.”

— Regulation Z, 12 CFR § 1026.25, SAFE MLO National Test Study Guide

Under the SAFE Act, offering or negotiating the terms of a loan includes presenting specific loan terms to an applicant, whether verbally, in writing, or through any other communication method. This activity directly involves discussing or negotiating loan details like interest rates, loan amounts, and repayment terms, which requires licensure as a mortgage loan originator (MLO).

Providing general explanations (A) and arranging loan closings (D) do not require an MLO license because they do not involve negotiating or offering specific loan terms.

Making underwriting decisions (B) is also a separate activity not considered "offering or negotiating" loan terms.

The SAFE Act defines a "nontraditional mortgage" as any loan product other than a 30-year fixed-rate mortgage. Nontraditional loans include adjustable-rate mortgages (ARMs), interest-only loans, payment option ARMs, and other products with features outside the standard fixed-rate structure.

“Nontraditional mortgage product means any mortgage product other than a thirty-year fixed-rate mortgage.”

— SAFE Act, 12 USC § 5102(7); NMLS UST Outline

Thus, the 30-year fixed-rate mortgage with a 25% down payment is not nontraditional; all the other examples are.