Free NMLS MLO Practice Exam with Questions & Answers | Set: 5

Lenders may consider whether alimony, child support, or separate maintenance payments are likely to be consistently made, as this affects the borrower's ability to repay. Consideration of family status, phone listings, or age (except as required for legal capacity) is prohibited by the Equal Credit Opportunity Act (ECOA).

“A creditor must consider alimony, child support, or separate maintenance income to the extent that it is likely to be consistently received.”

— 12 CFR § 1002.6(b)(5), Regulation B (ECOA)

The Red Flags Rule, under the Fair and Accurate Credit Transactions Act (FACTA), requires lenders and other financial institutions to develop and implement a written Identity Theft Prevention Program. This program must detect, prevent, and mitigate identity theft by identifying “red flags” that signal potential fraud, such as:

Unusual account activity

Inconsistent or mismatched identification information

Suspicious patterns in credit applications

Lenders are required to take steps to verify identities, monitor transactions, and respond to signs of identity theft to protect consumers and minimize fraud risk.

FHA loans are available for primary residences, including manufactured homes, if they meet HUD standards. FHA loans are not available for vacation homes, investment properties, bed and breakfasts, or commercial real estate.

“FHA will insure mortgages on manufactured homes that are principal residences and meet HUD requirements.”

— HUD 4000.1 FHA Single Family Housing Policy Handbook

Under the Telemarketing Sales Rule, companies are required to access the National Do Not Call Registry at least once every 31 days and must maintain records documenting this process. Solicitors may not call any number on the registry that has been there for 31 days or more.

“You must update your call list every 31 days by accessing the National Do Not Call Registry.”

— FTC, National Do Not Call Registry FAQs

For an Adjustable-Rate Mortgage (ARM), specific disclosures must be provided to the borrower within three business days of receiving a completed loan application. These disclosures are required under TILA (Truth in Lending Act) and include detailed information about the loan’s terms, how the interest rate can change, and what potential payment increases might occur over time.

The Loan Estimate (LE), which includes ARM-specific information, must be provided within this timeframe to ensure the borrower understands the adjustable nature of the loan before proceeding further in the process.

Other options like at closing or when a loan is locked in are incorrect, as disclosures must be provided much earlier in the process.

A rate lock agreement is the document that specifies the time period during which a mortgage lender agrees to hold the interest rate at a certain percentage for the borrower. It guarantees that the rate will not change, even if market interest rates fluctuate, as long as the loan closes within the agreed-upon timeframe.

The loan application (A) initiates the mortgage process, but it does not secure the interest rate.

A preapproval letter (B) gives a preliminary loan approval but does not lock the rate.

The Closing Disclosure (C) provides final loan terms but does not set the rate lock.

Under the Ability-to-Repay (ATR) Rule and Qualified Mortgage (QM) standards, mortgages with adjustable rates can be considered qualified mortgages if they meet certain criteria, such as having fully amortizing payments and adhering to limits on points and fees. Adjustable-rate mortgages (ARMs) are qualified as long as the borrower’s ability to repay is assessed using the maximum rate that could apply in the first five years.

Loans like interest-only mortgages (A), balloon payment loans (B), and negative amortization loans (C) are not typically considered qualified mortgages because they carry higher risks of default.

The Truth in Lending Act (TILA) Regulation Z requires that if a mortgage advertisement states a specific payment amount, it must also clearly and conspicuously disclose all required terms such as the APR, loan amount, terms of repayment, and interest rate. An ad that only mentions a monthly payment and loan amount—without these other disclosures—is a violation of TILA advertising requirements.

“If an advertisement states the amount of any payment, the amount of any finance charge, or the number of payments or period of repayment, it must also state all required triggering terms, including the APR.”

— 12 CFR § 1026.24(d); Regulation Z, TILA

Under the Equal Credit Opportunity Act (ECOA), the term "elderly" is defined as anyone who is 62 years of age or older. This designation is significant in fair lending, as the ECOA prohibits discrimination based on age in any aspect of a credit transaction, including mortgage lending.

ECOA protects borrowers from being denied credit or offered unfavorable terms based solely on their age, and it provides additional protections to borrowers considered "elderly."

The Equal Credit Opportunity Act (ECOA) Valuations Rule (Regulation B) requires creditors to provide a written notice to applicants within three business days of application stating their right to receive a copy of any appraisal report developed in connection with their application.

“A creditor must deliver or mail a notice of the applicant’s right to receive a copy of all appraisals or valuations developed in connection with the application within three business days of receiving an application.”

— 12 CFR § 1002.14(a)(2), Regulation B

Applicants do not have the right to select their appraiser.