Free NMLS Mortgage Loan Origination Activities Questions and Answers — Questions and Answers
Question 1: An MLO is working on a loan application for a borrower who is purchasing a new primary residence. The only fee collected from the borrower at the time of application is for a credit report. Which of the following actions is permissible before the borrower has received a Loan Estimate and expressed their intent to proceed?
- Requiring verification of income and assets. (Correct answer)
- Charging an appraisal fee.
- Charging a loan application fee.
- Collecting the borrower's credit card number for future fees.
Correct answer: Requiring verification of income and assets.
According to the TILA-RESPA Integrated Disclosure (TRID) rule, a creditor or any other person may only charge a consumer a bona fide and reasonable fee for obtaining the consumer's credit report before the consumer has received the Loan Estimate and indicated an intent to proceed. A creditor may collect information such as income and asset documentation to verify the borrower's ability to repay, but cannot impose any other fees until after the borrower has received the Loan Estimate and indicated they want to move forward with the loan.
Question 2: A mortgage loan originator's advertisement for a fixed-rate mortgage prominently features an attractive monthly payment amount. Under Regulation Z (TILA), which of the following is also required to be included in the advertisement, and with equal prominence?
- The loan originator's unique identifier (NMLS ID).
- A statement that the borrower should consult a tax advisor.
- The total of payments over the life of the loan and the repayment period. (Correct answer)
- The lender's contact information and business hours.
Correct answer: The total of payments over the life of the loan and the repayment period.
Regulation Z, which implements the Truth in Lending Act (TILA), has specific rules for advertising. If an advertisement for closed-end credit (like a mortgage) states the amount of any payment (a 'triggering term'), it must also disclose the amount or percentage of the down payment, the terms of repayment (the repayment period), and the 'annual percentage rate' (APR) with equal prominence. For certain purchases, the total of payments must also be disclosed.
Question 3: Under the Ability-to-Repay (ATR) rule, which of the following is NOT one of the eight specific underwriting factors a lender must consider and verify when making a reasonable, good-faith determination of a borrower's ability to repay a mortgage loan?
- The borrower's credit history.
- The borrower's current or reasonably expected income or assets.
- The borrower's potential for future income growth. (Correct answer)
- The monthly payment for mortgage-related obligations.
Correct answer: The borrower's potential for future income growth.
The Ability-to-Repay (ATR) rule requires lenders to consider eight specific factors: (1) current or reasonably expected income or assets; (2) current employment status; (3) the monthly payment on the loan; (4) the monthly payment on any simultaneous loans; (5) the monthly payment for mortgage-related obligations; (6) current debt obligations, alimony, and child support; (7) the monthly debt-to-income ratio or residual income; and (8) credit history. Potential for future income growth is not one of the mandated factors.
Question 4: An MLO is originating a first-lien mortgage that qualifies as a Higher-Priced Mortgage Loan (HPML). Under Regulation Z, for which of the following transaction types would an escrow account for property taxes and insurance NOT be required?
- A loan to purchase a condominium that will be the borrower's principal dwelling.
- A loan to refinance an existing mortgage on a manufactured home used as a principal dwelling.
- A regular purchase loan for a single-family home with a 30-year term.
- A temporary or 'bridge' loan with a term of 12 months or less. (Correct answer)
Correct answer: A temporary or 'bridge' loan with a term of 12 months or less.
Regulation Z generally requires creditors to establish an escrow account for first-lien HPMLs. However, there are specific exemptions. These exemptions include transactions for temporary or 'bridge' loans with terms of 12 months or less, reverse mortgages, and initial construction loans.
Question 5: An individual loan originator is compensated based on a percentage of the loan amount for every loan they close. According to the Loan Originator Compensation Rule, which of the following compensation practices is prohibited?
- Receiving a higher percentage of the loan amount for loans with higher interest rates. (Correct answer)
- Receiving a bonus from a profit pool that is not based on the terms of individual transactions.
- Being paid an hourly rate based on the actual number of hours worked.
- Receiving a fixed percentage of the loan amount for all closed loans, regardless of the loan terms.
Correct answer: Receiving a higher percentage of the loan amount for loans with higher interest rates.
The Loan Originator Compensation Rule, part of the Truth in Lending Act (Regulation Z), prohibits paying a loan originator based on the terms of a transaction, such as the interest rate. Compensation cannot vary based on the loan's rate or other terms. Permissible compensation methods include a fixed percentage of the loan amount for all loans, an hourly rate, or certain bonuses not tied to individual loan terms.
Question 6: A borrower is completing the Uniform Residential Loan Application (URLA). In the 'Information for Government Monitoring Purposes' section, the borrower declines to provide information on their ethnicity, race, and sex. What is the loan originator's responsibility in this situation?
- Inform the borrower that the application cannot be processed without this information.
- Leave the section blank and submit the application as is.
- Complete the section on the basis of visual observation or surname if the application is taken in person. (Correct answer)
- Make a note in the file that the borrower was uncooperative.
Correct answer: Complete the section on the basis of visual observation or surname if the application is taken in person.
Under the Home Mortgage Disclosure Act (HMDA), which is implemented by Regulation C, if an applicant does not wish to provide the demographic information requested for government monitoring purposes on an application taken in person, the loan originator is required to note the refusal and then complete the information based on visual observation or surname.
Free NMLS Mortgage Loan Origination Activities Questions and Answers
An MLO is working on a loan application for a borrower who is purchasing a new primary residence.
The only fee collected from the borrower at the time of application is for a credit report.
Which of the following actions is permissible before the borrower has received a Loan Estimate and expressed their intent to proceed?