Free NMLS MLO Practice Exam with Questions & Answers | Set: 4

To qualify as a Safe Harbor Qualified Mortgage (QM), the APR must be less than 1.5% above the Average Prime Offer Rate (APOR) for first-lien loans. This threshold is set by the Qualified Mortgage Rule under the Dodd-Frank Act to ensure that Safe Harbor QMs offer fair and affordable loan terms, protecting borrowers from predatory lending practices.

Safe Harbor QMs are considered the most consumer-friendly loans and are protected from liability under the Ability-to-Repay Rule (ATR).

Redlining is an illegal discriminatory practice where lenders refuse to offer credit or offer less favorable terms to residents of certain neighborhoods, often based on race, ethnicity, or national origin.

“Redlining is an illegal practice in which lenders refuse to make loans or provide other services to people in certain neighborhoods based on their race or ethnicity.”

— CFPB, Fair Lending Glossary; Equal Credit Opportunity Act (ECOA)

Section 8(a) of the Real Estate Settlement Procedures Act (RESPA) strictly prohibits giving or accepting any fee, kickback, or thing of value in exchange for the referral of settlement service business related to a federally related mortgage loan.

“No person shall give and no person shall accept any fee, kickback or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.”

— 12 U.S.C. § 2607(a); 12 CFR § 1024.14(b), Regulation X

This means it is illegal for a mortgage loan originator (MLO) to pay a real estate agent for referring clients, regardless of client notification, consent, or limitation to business expenses. Minor items of minimal value (e.g., pens, promotional items) may be allowed if not given in exchange for referrals, but any compensation for referrals is a prohibited kickback.

The loan-to-value (LTV) ratio is calculated by dividing the loan amount by the lesser of the appraised value or the purchase price of the property. This protects lenders from over-lending on a property that may have a sales price above its actual market value.

“The loan-to-value ratio is calculated by dividing the loan amount by the lesser of the appraised value or sales price.”

— Fannie Mae Selling Guide; SAFE MLO National Test Study Guide

Temporary authority to originate loans applies to registered MLOs (from a depository institution) who become employed by a state-licensed mortgage company, as well as to state-licensed MLOs seeking licensure in another state, provided they meet all SAFE Act requirements.

“Temporary authority to originate loans applies to… registered mortgage loan originators seeking state licensure and state-licensed MLOs seeking licensure in a new state.”

— SAFE Act, 12 U.S.C. § 5117; NMLS Temporary Authority Guidelines

It does not apply to real estate brokers or those who have not passed required testing/background checks.

The primary mortgage market is where borrowers and lenders (such as banks, credit unions, and mortgage companies) come together to negotiate and complete mortgage transactions. The secondary market is where existing mortgages are bought and sold between investors.

“The primary mortgage market is composed of lenders who originate mortgage loans directly to consumers.”

— SAFE MLO National Test Study Guide

If an MLO suspects fraud, they have an obligation to report it to the company’s compliance officer or appropriate supervisor for investigation. Ignoring, failing to report, or handling it informally is not acceptable.

“If an MLO suspects fraud, the MLO must report it to their company's compliance officer or other responsible person as required by company policy and law.”

— SAFE MLO National Test Study Guide; FFIEC, Guidance on Mortgage Fraud Detection

Under Regulation Z, Section 1026.35(c), for higher-priced mortgage loans (HPMLs), if the seller acquired the property 90 days or less before the date of the borrower’s purchase agreement and the resale price exceeds the seller’s acquisition price by more than 10%, the lender must obtain two written appraisals from different certified or licensed appraisers.

“A creditor must obtain two written appraisals if the seller acquired the property 90 days or fewer prior to the date of the consumer’s agreement to acquire the property and the price exceeds the seller’s acquisition price by more than 10 percent.”

— 12 CFR § 1026.35(c)(4)(i)

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.

Under TILA's Right of Rescission, in a federally related mortgage loan (such as a refinance) secured by a primary residence, any person who has an ownership interest in the property has the right to rescind the transaction within three business days after the closing, delivery of the notice of right to rescind, or delivery of all material disclosures, whichever occurs last.

This right applies to all individuals with a legal interest in the property, not just the primary borrower or the person who will occupy the property. This ensures that all owners can consent to the mortgage terms.