Mortgage Uniform State Content 3 — Questions and Answers
Question 1: A borrower applies for a mortgage and is denied. The lender must provide a written adverse action notice that includes which of the following?
- The borrower's credit score only
- The specific reasons for denial or notice of the right to request those reasons (Correct answer)
- Only the name and address of the credit reporting agency used
- The lender's internal underwriting criteria
Correct answer: The specific reasons for denial or notice of the right to request those reasons
ECOA and the Fair Credit Reporting Act require that adverse action notices state specific reasons for denial or inform the applicant of their right to request those reasons.
Question 2: Under the NMLS system, an MLO license can be transferred to a new employer through which process?
- The MLO must retake the SAFE test before transferring
- The MLO submits a sponsorship request through NMLS and the new employer approves it (Correct answer)
- A state regulator must approve the transfer in writing within 30 days
- The MLO must obtain a new license number for each employer
Correct answer: The MLO submits a sponsorship request through NMLS and the new employer approves it
An MLO transfers their license through the NMLS by requesting sponsorship from their new employer, who then approves the association.
Question 3: Which type of loan is generally exempt from the Home Mortgage Disclosure Act (HMDA) reporting requirements?
- A home purchase loan on a 1-4 family dwelling
- A refinance of a primary residence
- A business-purpose loan secured by a commercial property (Correct answer)
- A home improvement loan on a borrower's primary residence
Correct answer: A business-purpose loan secured by a commercial property
HMDA reporting covers loans for home purchase, home improvement, and refinancing on dwelling-secured loans; business-purpose loans on commercial properties are generally excluded.
Question 4: A lender charges a borrower a fee for paying off their mortgage early. Under federal law, which loan type restriction applies to prepayment penalties?
- All conventional loans are prohibited from having prepayment penalties
- Qualified Mortgages (QMs) may have prepayment penalties only during the first year
- Prepayment penalties on higher-priced mortgage loans are restricted under Regulation Z (Correct answer)
- FHA loans allow prepayment penalties for the full loan term
Correct answer: Prepayment penalties on higher-priced mortgage loans are restricted under Regulation Z
Regulation Z restricts prepayment penalties on higher-priced mortgage loans and prohibits them entirely on most qualified mortgages after three years.
Question 5: Under the SAFE Act, the term 'nontraditional mortgage product' includes which of the following?
- A 30-year fixed-rate conventional loan
- An interest-only loan or a payment-option adjustable-rate mortgage (Correct answer)
- A 15-year fixed-rate FHA loan
- A VA loan with standard amortization
Correct answer: An interest-only loan or a payment-option adjustable-rate mortgage
Nontraditional mortgage products include interest-only loans and payment-option ARMs because they defer principal repayment and carry higher risk of payment shock.
Question 6: Which agency is primarily responsible for enforcing the Truth in Lending Act for non-bank mortgage lenders?
- Federal Deposit Insurance Corporation (FDIC)
- Office of the Comptroller of the Currency (OCC)
- Consumer Financial Protection Bureau (CFPB) (Correct answer)
- Federal Housing Finance Agency (FHFA)
Correct answer: Consumer Financial Protection Bureau (CFPB)
The CFPB has primary enforcement authority over TILA for non-bank mortgage lenders and other consumer financial products.
Question 7: An MLO collects a $400 application fee from a borrower at the time of application. Under which circumstance may the lender retain this fee if the loan does not close?
- Whenever the borrower withdraws the application for any reason
- If the fee is for a bona fide third-party service already performed, such as a credit report or appraisal (Correct answer)
- Only if the lender's underwriter has reviewed the file
- The lender may never retain any portion of an upfront fee
Correct answer: If the fee is for a bona fide third-party service already performed, such as a credit report or appraisal
Lenders may retain fees for bona fide third-party services actually rendered (e.g., appraisals, credit reports) even if the loan does not close.
Mortgage Uniform State Content 3
A borrower applies for a mortgage and is denied.
The lender must provide a written adverse action notice that includes which of the following?