Loan Origination Activities Flashcards

A borrower applies for a mortgage but provides falsified income documents. The MLO suspects fraud but submits the application anyway. Under federal law, this MLO could be charged with:

Answer: Mortgage fraud under the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA)

Knowingly participating in mortgage fraud, including submission of false documentation, can result in federal prosecution under FIRREA, which carries up to 30 years imprisonment.

What is 'loan flipping' in the context of mortgage origination?

Answer: Repeatedly refinancing a borrower's loan primarily to generate fees rather than benefit the borrower

Loan flipping is a predatory practice of repeatedly refinancing a borrower's loan to collect new fees, with little or no benefit to the borrower.

Under HMDA, which lenders are required to report mortgage data to federal regulators?

Answer: Depository institutions meeting asset thresholds and non-depository lenders meeting volume thresholds

HMDA requires reporting by covered depository institutions above asset thresholds and non-depository lenders that meet origination volume thresholds in MSAs.

During origination, what distinguishes a 'prequalification' from a 'preapproval'?

Answer: Prequalification is an informal estimate; preapproval involves verified documentation and underwriting review

Prequalification is a quick informal assessment based on unverified information, while preapproval involves income/asset verification and often a credit pull with a more formal review.

A borrower wants to use gift funds for their entire down payment on a conventional loan. Which statement is correct?

Answer: Gift funds are permitted if accompanied by a gift letter and the donor is an acceptable source

Fannie Mae and Freddie Mac guidelines allow gift funds from acceptable donors (family members, employers, etc.) provided a gift letter is obtained and no repayment is expected.

Which index is most commonly used as the benchmark for adjustable-rate mortgages (ARMs) originated today?

Answer: Secured Overnight Financing Rate (SOFR)

Following the phase-out of LIBOR, SOFR has become the primary benchmark index for new ARM originations in the U.S.

When an MLO originates a loan through a mortgage broker arrangement, who is the MLO's employer of record for SAFE Act licensing purposes?

Answer: The mortgage broker company (the sponsoring entity)

Under the SAFE Act, an MLO must be employed by and registered or licensed through a sponsoring entity — in a broker arrangement, that sponsor is the mortgage broker company.