Mortgage Loan Originator Prep 4 — Questions and Answers
Question 1: A borrower receives a Loan Estimate on Monday. By when must they receive the Closing Disclosure before closing?
- Three business days before consummation (Correct answer)
- One business day before consummation
- Seven calendar days before consummation
- Five business days before consummation
Correct answer: Three business days before consummation
Under TRID, lenders must provide the Closing Disclosure at least three business days before loan consummation.
Question 2: Which of the following is NOT a permissible basis for denying a mortgage application under ECOA?
- Applicant's national origin (Correct answer)
- Insufficient income to repay the loan
- Poor credit history with multiple defaults
- High debt-to-income ratio exceeding lender guidelines
Correct answer: Applicant's national origin
ECOA prohibits credit discrimination based on national origin, race, color, religion, sex, marital status, age, or receipt of public assistance.
Question 3: What does the term 'points' refer to in mortgage lending?
- Prepaid interest paid at closing to reduce the interest rate (Correct answer)
- The number of months remaining on the loan term
- The lender's profit margin built into the interest rate
- Credit score increments used to determine rate pricing
Correct answer: Prepaid interest paid at closing to reduce the interest rate
One point equals 1% of the loan amount paid at closing, typically to buy down the interest rate (discount points) or as origination fees.
Question 4: An MLO receives a referral fee from a title company for steering clients their way. Under RESPA, this is:
- Illegal — RESPA prohibits kickbacks for referrals of settlement services (Correct answer)
- Legal if the fee is disclosed on the Closing Disclosure
- Legal if both parties are licensed real estate professionals
- Legal if the fee does not exceed 1% of the loan amount
Correct answer: Illegal — RESPA prohibits kickbacks for referrals of settlement services
RESPA Section 8 strictly prohibits kickbacks or unearned fees between settlement service providers for referring business.
Question 5: What is the primary difference between a fixed-rate mortgage and an adjustable-rate mortgage (ARM)?
- Fixed-rate has a constant interest rate; ARM's rate changes periodically based on an index (Correct answer)
- Fixed-rate requires a larger down payment; ARM allows smaller down payments
- Fixed-rate is only available for purchase loans; ARMs are for refinances only
- Fixed-rate has no prepayment penalty; ARMs always have prepayment penalties
Correct answer: Fixed-rate has a constant interest rate; ARM's rate changes periodically based on an index
A fixed-rate mortgage maintains the same interest rate for the life of the loan, while an ARM's rate adjusts periodically based on a market index plus a margin.
Question 6: Under TRID, the Loan Estimate must be delivered to the applicant within how many business days of receiving a completed loan application?
- Three business days (Correct answer)
- One business day
- Five business days
- Seven business days
Correct answer: Three business days
Lenders must deliver or place in the mail the Loan Estimate no later than three business days after receiving the consumer's loan application.
Question 7: Which entity maintains the Nationwide Multistate Licensing System (NMLS) used for mortgage licensing?
- Conference of State Bank Supervisors (CSBS) (Correct answer)
- Consumer Financial Protection Bureau (CFPB)
- Federal Reserve Board
- Department of Housing and Urban Development (HUD)
Correct answer: Conference of State Bank Supervisors (CSBS)
The NMLS is maintained by the Conference of State Bank Supervisors (CSBS) and is the system through which MLOs apply for and maintain their licenses.
Mortgage Loan Originator Prep 4
A borrower receives a Loan Estimate on Monday.
By when must they receive the Closing Disclosure before closing?