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Question # 1



A mortgage loan originator (MLO) cannot be approved for licensure if the applicant has:
A. been convicted of a felony within the past seven years.
B. had an MLO license suspended in any governmental jurisdiction.
C. taken and failed the SAFE MLO National Test three times within the last year.
D. never been licensed or registered as an MLO in any governmental jurisdiction.



A.
  been convicted of a felony within the past seven years.


Explanation:

Under the SAFE Act, a mortgage loan originator (MLO) cannot be approved for licensure if they have been convicted of a felony within the past seven years, or at any time if the felony involved fraud, dishonesty, breach of trust, or money laundering. This provision ensures that individuals with serious criminal backgrounds are not permitted to operate as MLOs.

Other factors, such as failing the SAFE MLO test (C) or having never been licensed (D), do not automatically disqualify an applicant from obtaining an MLO license.

References:

SAFE Act, 12 USC §5104

NMLS Licensing Requirements





Question # 2



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 # 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



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 # 5



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 # 6



How many days before consummation must a borrower receive a revised Loan Estimate?
A. 4 business days
B. 5 business days
C. 7 business days
D. 10 business days



C.
  7 business days


Explanation:

Under TILA-RESPA Integrated Disclosure (TRID) rules, borrowers must receive the Loan Estimate (LE) at least 7 business days before consummation of the loan. This rule allows borrowers ample time to review the terms and costs of the mortgage before closing.

If a revised Loan Estimate is issued due to changes in circumstances (e.g., interest rate changes, property changes), the borrower still needs to receive it no later than 7 business days before consummation.

References:

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

CFPB Loan Estimate Requirements





Question # 7



Which of the following responses describes the main purpose of the secondary market?

A. To fund additional loans
B. To fund a second home loan
C. To fund second mortgage loans
D. To service second mortgage loans



A.
  To fund additional loans


Explanation:

The main purpose of the secondary market is to fund additional loans by allowing lenders to sell existing mortgages to investors. This process replenishes the lender’s capital, enabling them to originate more loans. The secondary market is where mortgage-backed securities (MBS) are bought and sold, providing liquidity to the mortgage market.

Other options such as funding second mortgages or second home loans are specific transactions that do not capture the overall purpose of the secondary market.

References:

Fannie Mae and Freddie Mac Secondary Market Guidelines

HUD Secondary Mortgage Market Overview





Question # 8



Which of the following applicant characteristics is legally permitted to be considered in evaluating credit risk?
A. Whether the applicant seems likely to have children
B. Whether the applicant has a phone number listing in their name
C. Whether the applicant's age makes them ineligible for credit-related insurance
D. Whether the alimony payments the applicant relies on for income are likely to continue and to be consistently made



D.
  Whether the alimony payments the applicant relies on for income are likely to continue and to be consistently made


Explanation:

When evaluating credit risk, lenders are legally permitted to consider whether alimony payments that the applicant relies on for income are likely to continue and be consistently made. Lenders need to assess the reliability of income sources, and documented alimony that is expected to continue is a valid consideration under ECOA (Equal Credit Opportunity Act) guidelines.

Factors like the applicant’s likelihood of having children (A), phone listing (B), and age (C) are not permissible criteria for evaluating creditworthiness under ECOA, as these would constitute discrimination.

References:

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

CFPB ECOA Guidelines





Question # 9



Which of the following sources of funds is acceptable to utilize for down payments, closing costs or financial reserves?
A. Virtual currency funds
B. Community second funds
C. Personal unsecured loans
D. Foreign assets located outside of the U.S. or its territories



B.
  Community second funds


Explanation:

Community second funds are an acceptable source of funds for down payments, closing costs, or financial reserves. These are subordinate loans provided by housing finance agencies, nonprofits, or government entities to help borrowers meet the required down payment or closing costs. These funds are often offered to low-to-moderate income borrowers or first-time homebuyers as part of affordable housing programs.

Virtual currency (A), such as Bitcoin, is not an acceptable source due to its volatility and challenges in verifying its stability.

Personal unsecured loans (C) are generally not allowed, as they increase the borrower’s debt and reduce their financial stability.

Foreign assets outside of the U.S. (D) are not typically acceptable unless they can be easily liquidated and transferred to the U.S.

References:

Fannie Mae Selling Guide on acceptable sources of funds

Freddie Mac Guidelines for down payment and closing costs





Question # 10



The practice of denying a creditworthy applicant a loan for housing because of the location of the property is sometimes referred to as:
A. steering.
B. redlining.
C. appraising.
D. low balling.



B.
  redlining.


Explanation:

Redlining is the discriminatory practice of denying loans or other financial services to otherwise creditworthy applicants based on the location of the property, often in minority or economically disadvantaged neighborhoods. This is illegal under the Fair Housing Act and Equal Credit Opportunity Act (ECOA), as it constitutes a form of racial or ethnic discrimination in housing and lending.

Steering (A) involves directing borrowers toward certain loan products for the lender’s benefit, while low balling (D) and appraising (C) are unrelated to this form of discrimination.

References:

Fair Housing Act

Equal Credit Opportunity Act (ECOA)




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Mortgage Loan Origination (SAFE MLO) Exam Dumps


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

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