Free MLO Questions and Answers — Questions and Answers
Question 1: Which of the following best describes a non-traditional mortgage product, as defined by the SAFE Act:
- An open-end mortgage
- Any mortgage other than 30-year fixed (Correct answer)
- An adjustable rate mortgage
- A mortgage with a term of less than 30 years
Correct answer: Any mortgage other than 30-year fixed
According to the SAFE Act, this qualifies as a factual statement.
Question 2: Which of the following would be exempt from the MLO designation requirement under the SAFE Act?
- A person who takes a loan application and negotiates terms on a residential loan
- A loan originator who does not have to be licensed
- A real estate broker performing brokerage activity (Correct answer)
- A contract mortgage processor
Correct answer: A real estate broker performing brokerage activity
An MLO designation is not required for brokers who engage in real estate brokerage activities.
Question 3: An individual who works for any of the following, with the exception of:
- A subsidiary of a depository institution regulated by a Federal banking agency
- A mortgage brokerage company under the authority of the DRE (Correct answer)
- A depository institution
- An institution regulated by the Farm Credit Administration
Correct answer: A mortgage brokerage company under the authority of the DRE
MLOs working with the DRE's permission need to be licensed.
Question 4: A residential mortgage loan is any loan that is primarily used for one of the purposes listed below, with the exception of:
- Family use
- 1-4 owner-occupied use (Correct answer)
- Household use
- Personal use
Correct answer: 1-4 owner-occupied use
Owner occupied properties are not mentioned in the SAFE Act. The SAFE Act defers to TILA, Sec. 103(v), which defines a habitation as a residential building, a mobile home, or individual condominium or cooperative units that house one to four families.
Question 5: What one phrase best captures the intent behind having a unique identification number?
- Responsibility
- Compatibility
- Liability
- Accountability (Correct answer)
Correct answer: Accountability
The unique identity number's function is to hold MLOs responsible for the tasks they perform.
Question 6: The SAFE Act states that all of the following show that an MLO candidate lacks financial accountability, with the exception of:
- Foreclosures within the past three years
- Current outstanding judgments
- The candidate has participated in a short sale as a principal within the past three years (Correct answer)
- Outstanding government liens and filings
Correct answer: The candidate has participated in a short sale as a principal within the past three years
Short Sales are not covered by the SAFE Act because they are more a result of the economy than of a particular person's actions.
Question 7: Which of the following describes the pre-licensing education requirements for MLO candidates the best?
- Twenty hours to include Federal and State-specific topics (Correct answer)
- Eight hours of revolving Federal and State-specific topics
- Eight hours every year
- Twenty hours to include Federal topics only
Correct answer: Twenty hours to include Federal and State-specific topics
Before receiving a license, a 20-hour course is a one-time requirement that covers both federal and state-specific issues.
Question 8: The new regulation is applicable to all of the following, with the exception of:
- Loans made to a business entity (Correct answer)
- Vacant land
- Loans made to certain trusts for tax and estate planning purposes
- Construction loans
Correct answer: Loans made to a business entity
The new regulation expressed in the Loan Estimate (LE) form, which is part of the TILA-RESPA Integrated Disclosure (TRID) rule, applies to a variety of mortgage transactions involving consumer borrowers. However, it generally does not apply to loans made to a business entity. The TRID rule primarily focuses on transactions involving individual consumers and their residential mortgage loans.
Question 9: How should this situation be addressed if the MLO is creating the Loan Estimate form but is unaware of the identity of the wholesale lender?
- Mark the space N/A
- The MLO must hold onto the form and apply for an extension of the 3 business day disclosure requirement
- Leave the space on the form blank (Correct answer)
- Mark the space to be determined
Correct answer: Leave the space on the form blank
If the Mortgage Loan Officer (MLO) is preparing the Loan Estimate (LE) form but does not know the wholesale lender's name, the appropriate way to handle this is to leave the space on the form blank. It's important to ensure that the information provided on the Loan Estimate form is accurate and complete.
Question 10: Which of the following has the ultimate duty for the accurate and timely transmission of disclosures to the consumer after the borrower has submitted a full loan application:
- The creditor (Correct answer)
- The MLO
- The MLO and lender have equal responsibility
- The trustee
Correct answer: The creditor
After a complete loan application has been provided by the borrower, the creditor (lender) has the ultimate responsibility for ensuring the correct and timely delivery of disclosures to the consumer. This responsibility is in line with the requirements set forth by the Truth in Lending Act (TILA), the Real Estate Settlement Procedures Act (RESPA), and other relevant regulations.
Question 11: Which of the following time periods must be included in the estimation of costs and conditions for all settlement services:
- At least 15 business days
- At least 10 business days (Correct answer)
- At least 5 business days
- At least 20 business days
Correct answer: At least 10 business days
Keep in mind this does not apply to the interest rate or charges and terms dependent on the interest rate, like per diem interest, or adjusted origination charges, or the charge or credit for the interest rate chosen.
Question 12: Which of the following situations may result in the estimate of the costs and terms for all settlement services remaining available for longer?
- If the borrower wants to close quickly
- If the Fed hikes the interest rate
- If the MLO extends the period of availability (Correct answer)
- If the lender authorizes an extension
Correct answer: If the MLO extends the period of availability
If the Mortgage Loan Officer (MLO) extends the period of availability, the estimate of the costs and terms for all settlement services supplied in the Loan Estimate (LE) form may continue to be available for a longer time.
Question 13: Where on the Loan Estimate is the expiration date for the availability of charges and terms?
- Page 1 of the Loan Estimate in the Loan Terms section
- Page 2 of the Loan Estimate in the Loan Costs section
- Page 1 of the Loan Estimate in the Rate Lock section (Correct answer)
- Page 3 of the Loan Estimate in the Other Considerations section
Correct answer: Page 1 of the Loan Estimate in the Rate Lock section
It is advised that the student become quite familiar with the new forms, including what is on them, where various things are located, what the various provisions mean, and what their purposes are, in order to prepare well for the test. Consider the advantages for the consumer.
Question 14: Which of the following is not covered by the 10-business day provision for the estimation of charges and terms for all settlement services?
- Charges and terms dependent on the interest rate
- The charge or credit for the interest rate chosen, the adjusted origination charges, and per diem interest
- The interest rate
- All of the above (Correct answer)
Correct answer: All of the above
Many borrowers choose to lock in the interest rate in conjunction with the MLOs in order to prevent disappointment because the 10-business day provision does not lock the interest rate.
Question 15: Which of the following is used to establish if the initial Loan Estimate was made in good faith:
- By looking at the difference between the initial cost estimate and the final costs charged at loan closing (Correct answer)
- When the borrower is generally happy with the outcome.
- If there are no changed circumstances.
- If the actual costs are greater than the original Loan Estimate.
Correct answer: By looking at the difference between the initial cost estimate and the final costs charged at loan closing
The original Loan Estimate (LE) is determined to have been made in good faith by comparing the difference between the initial cost estimates provided in the Loan Estimate and the final costs that are charged at loan closing. This comparison is used to assess whether the lender or creditor provided the borrower with accurate and consistent information about the costs associated with the mortgage loan.
Question 16: All of the following are subject to TILA-mandated tolerance limitations on settlement service provider prices that may vary by any amount, with the exception of:
- Transfer taxes (Correct answer)
- Flood insurance
- Prepaid interest
- Services the borrower is allowed to shop for
Correct answer: Transfer taxes
TILA-regulated tolerance limits on settlement service provider charges that can change by any amount do not include "Transfer taxes." <br> Under the TILA-RESPA Integrated Disclosure (TRID) rule, certain charges and fees provided by settlement service providers are subject to tolerance limits, meaning that they can change by a certain percentage without affecting the good faith determination on the Loan Estimate (LE).
Free MLO Questions and Answers
Which of the following best describes a non-traditional mortgage product, as defined by the SAFE Act: