Mortgage Loan Originator MLO 3 — Questions and Answers
Question 1: The Dodd-Frank Act established the Consumer Financial Protection Bureau (CFPB). Which of the following best describes the CFPB's primary authority over mortgage lending?
- Rulemaking, supervision, and enforcement of federal consumer financial protection laws for large non-bank entities and banks over $10 billion (Correct answer)
- Setting the federal funds rate that influences mortgage interest rates
- Insuring mortgage loans against borrower default
- Licensing all mortgage loan originators nationwide
Correct answer: Rulemaking, supervision, and enforcement of federal consumer financial protection laws for large non-bank entities and banks over $10 billion
The CFPB has authority to write rules, supervise financial institutions, and enforce federal consumer financial protection laws, with primary supervisory authority over non-banks and large banks.
Question 2: An MLO is structuring a loan and intentionally divides a loan amount that would trigger HOEPA thresholds into two smaller loans to avoid disclosure requirements. This practice is known as:
- Loan flipping
- Churning
- Loan splitting or structuring (Correct answer)
- Redlining
Correct answer: Loan splitting or structuring
Loan splitting or structuring involves deliberately dividing a transaction to avoid regulatory thresholds and is illegal under HOEPA and anti-evasion provisions of Dodd-Frank.
Question 3: Which federal law requires lenders to provide borrowers with a Uniform Residential Loan Application (Form 1003) and sets standards for its completion?
- No single federal law mandates the 1003; it is required by the GSEs (Fannie Mae/Freddie Mac) for conforming loans (Correct answer)
- The Community Reinvestment Act
- The Home Mortgage Disclosure Act
- The Truth in Lending Act
Correct answer: No single federal law mandates the 1003; it is required by the GSEs (Fannie Mae/Freddie Mac) for conforming loans
The Uniform Residential Loan Application (Form 1003) is required by Fannie Mae and Freddie Mac for conforming loans, not by a specific federal statute, though HMDA governs data collected from it.
Question 4: A VA-eligible borrower is purchasing a home. Which of the following fees is the seller prohibited from paying on behalf of the veteran under VA loan rules?
- The VA funding fee (Correct answer)
- The real estate agent commission
- Title insurance
- Pest inspection in states where required by the lender
Correct answer: The VA funding fee
The VA funding fee must be paid by the veteran or financed into the loan; sellers are prohibited from paying it, though veterans with service-connected disabilities may be exempt from it entirely.
Question 5: Under the Equal Credit Opportunity Act (ECOA), how long must a creditor retain records of a completed credit application?
- 25 months from the date the creditor notifies the applicant of the action taken (Correct answer)
- 12 months from the date of application
- 7 years from the date of loan closing
- 6 months from application date
Correct answer: 25 months from the date the creditor notifies the applicant of the action taken
ECOA requires creditors to retain records for 25 months after notifying applicants of action taken, allowing time for regulators and applicants to investigate potential discrimination.
Question 6: A borrower has a monthly gross income of $6,000, proposed housing payment of $1,500, and other monthly debt obligations totaling $600. What is the borrower's total debt-to-income (DTI) ratio?
- 35% (Correct answer)
- 25%
- 30%
- 40%
Correct answer: 35%
Total DTI = (housing payment + all monthly debts) / gross monthly income = ($1,500 + $600) / $6,000 = $2,100 / $6,000 = 35%.
Question 7: Which HMDA data point was added by the 2015 HMDA rule to better identify potential fair lending violations?
- The applicant's age and credit score range (Correct answer)
- The loan officer's NMLS ID number
- The property's assessed tax value
- The lender's cost of funds
Correct answer: The applicant's age and credit score range
The 2015 HMDA rule expanded data collection to include applicant age and credit score information, enabling regulators to better identify disparate treatment in lending decisions.
Mortgage Loan Originator MLO 3
The Dodd-Frank Act established the Consumer Financial Protection Bureau (CFPB).
Which of the following best describes the CFPB's primary authority over mortgage lending?