NMLS SAFE MLO Test, Practice Exams

For a federally related mortgage loan, what form must the Loan Estimate take?

1. Any form substantially similar to H-24 that the creditor designs
2. Any clear written form, provided every required figure appears
3. Form H-24 itself, in the order and layout shown in appendix H ✓
4. The creditor's own form, once approved by its state regulator

Why: 12 CFR 1026.37(o)(3)(i): for a transaction subject to 1026.19(e) that is a federally related mortgage loan, "the disclosures must be made using form H-24"; other transactions may use a substantially similar form under (o)(3)(ii).

Source: 12 CFR 1026.37(o)(3)

On the Loan Estimate's Comparisons table, what does the Total Interest Percentage (TIP) show?

1. Total interest over the loan term as a share of the loan amount ✓
2. The interest rate after any adjustable-rate changes are applied
3. The cost of credit over the term, expressed as a yearly rate
4. Interest paid in the first five years as a share of all payments

Why: 12 CFR 1026.37(l)(3) defines the TIP as the total amount of interest the consumer will pay over the life of the loan, expressed as a percentage of the amount of credit extended. The APR, the cost of credit expressed as a rate, is a separate row under 1026.37(l)(2).

Source: 12 CFR 1026.37(l)(3)

Which of these is NOT one of the purposes Congress stated for RESPA?

1. Setting a ceiling on mortgage interest rates ✓
2. Better advance disclosure of settlement costs
3. Eliminating kickbacks and referral fees
4. Reducing amounts required to be escrowed

Why: 12 U.S.C. 2601(b) lists four purposes: more effective advance disclosure of settlement costs to buyers and sellers, the elimination of kickbacks or referral fees that increase settlement costs, a reduction in the amounts home buyers must place in escrow, and reform of local recordkeeping of land title information. RESPA does not regulate interest rates.

Source: 12 U.S.C. 2601(b)

A borrower knowingly overstates his income on an application to a mortgage lending business to get a larger loan. What is the maximum federal penalty under 18 U.S.C. 1014?

1. A fine of up to $10,000, prison for up to 1 year, or both
2. A fine of up to $250,000, prison for up to 5 years, or both
3. A civil penalty only, since a false application is not a federal crime
4. A fine of up to $1,000,000, prison for up to 30 years, or both ✓

Why: 18 U.S.C. 1014 covers whoever knowingly makes any false statement to influence, among others, "a mortgage lending business" or an FDIC-insured institution on any application or loan, and provides that the person "shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both."

Source: 18 U.S.C. 1014

Tom has failed the SAFE MLO test on three consecutive attempts. When may he sit it again?

1. After waiting at least 30 days
2. After retaking pre-licensing education
3. After waiting at least 6 months ✓
4. Not until the following calendar year

Why: 12 U.S.C. 5104(d)(3)(C) requires an individual who has failed 3 consecutive tests to wait at least 6 months before testing again; Regulation H, 12 CFR 1008.105(e)(2), is identical. The 30-day wait applies between the initial retests. (NMLS applies the longer wait as 180 calendar days.)

Source: 12 U.S.C. 5104(d)(3)(C); 12 CFR 1008.105(e)(2)

A buyer takes over a seller's mortgage on the home she will live in, and the creditor agrees in writing to accept her as a primary obligor. What does Regulation Z require?

1. New disclosures to the buyer, based on the remaining obligation, before it occurs ✓
2. Nothing, since the seller already received disclosures when the loan was first made
3. A fresh Loan Estimate within three days, then a Closing Disclosure a week later
4. Disclosures to the seller only, confirming release from all further liability

Why: 12 CFR 1026.20(b): an assumption occurs when a creditor "expressly agrees in writing with a subsequent consumer to accept that consumer as a primary obligor on an existing residential mortgage transaction. Before the assumption occurs, the creditor shall make new disclosures to the subsequent consumer, based on the remaining obligation."

Source: 12 CFR 1026.20(b)

What annual continuing education does the SAFE Act require of a state-licensed loan originator?

1. 8 hours, with 3 federal law, 3 ethics and 2 nontraditional
2. 20 hours, with 3 federal law, 3 ethics and 2 nontraditional
3. 8 hours, with 3 federal law, 2 ethics and 2 nontraditional ✓
4. 12 hours, with 4 federal law, 4 ethics and 4 nontraditional

Why: 12 U.S.C. 5105(b)(1) and 12 CFR 1008.107(a)(2): at least 8 hours of NMLS-approved education each year, including at least 3 hours of federal law and regulations, 2 hours of ethics and 2 hours on nontraditional lending standards. Note the ethics figure is 2, not the 3 required in pre-licensing education.

Source: 12 U.S.C. 5105(b)(1); 12 CFR 1008.107(a)(2)

A real estate brokerage owns part of a title agency and refers its clients there. Which of these is NOT a condition for the affiliated business arrangement to comply with Regulation X?

1. Each client must first obtain two competing title quotes ✓
2. Each client gets a written disclosure of the relationship
3. No client is required to use the affiliated title agency
4. The brokerage receives only a return on its ownership

Why: 12 CFR 1024.15(b) sets three conditions: a written disclosure of the relationship and estimated charges, in the appendix D format; no required use of the affiliated provider (with narrow exceptions); and nothing of value received beyond a return on the ownership interest or franchise relationship and payments 1024.14(g) permits. Competing quotes are not a condition.

Source: 12 CFR 1024.15(b)

Under Regulation X, which of these describes a "mortgage broker"?

1. A lender's own employee who takes loan applications
2. A non-employee go-between for borrower and lender ✓
3. Any company that services loans for other investors
4. A real estate agent who refers buyers to a lender

Why: 12 CFR 1024.2 defines a mortgage broker as a person, other than an employee of a lender, that renders origination services and serves as an intermediary between a borrower and a lender in a transaction involving a federally related mortgage loan, including one that closes the loan in its own name in a table-funded transaction. A lender's employee is expressly outside the definition.

Source: 12 CFR 1024.2

An investor buys mortgage loans on homes in some neighbourhoods but refuses to buy loans in others because of the national origin of the residents. How does the Fair Housing Act regulation treat this?

1. As lawful, since the Act covers only the lenders that make loans
2. As lawful, if the investor's prices are the same everywhere
3. As unlawful only if a borrower is personally turned down
4. As unlawful discrimination in the purchasing of loans ✓

Why: 24 CFR 100.125(b)(1) lists as unlawful "Purchasing loans ... secured by dwellings in certain communities or neighborhoods but not in others because of the ... national origin of persons in such neighborhoods".

Source: 24 CFR 100.125(b)(1)

An ARM program starts with a discounted rate below index plus margin. What must the program disclosure say about this?

1. That it is discounted, and the consumer should ask by how much ✓
2. The exact discount in basis points and the date on which it ends
3. Nothing, since discounts are shown only on the Loan Estimate
4. That the discount will be recaptured at the first adjustment

Why: 12 CFR 1026.19(b)(2)(v) requires "The fact that the interest rate will be discounted, and a statement that the consumer should ask about the amount of the interest rate discount."

Source: 12 CFR 1026.19(b)(2)(v)

A loan is guaranteed by a state housing agency. How is the Loan Type shown on the Loan Estimate?

1. As Conventional, as no federal agency backs it
2. As Other, with a brief description ✓
3. As FHA
4. As VA

Why: 12 CFR 1026.37(a)(11)(iv): for federally insured or guaranteed loans other than FHA and VA, "and for loans insured or guaranteed by a State agency, the creditor shall disclose the loan type as 'Other', and provide a brief description".

Source: 12 CFR 1026.37(a)(11)

A loan officer originated eight consumer mortgage loans in the 12 months before her company sets its annual bonus. The bonus comes from mortgage profits and is not based on her loans' terms. Does the 10 percent cap apply?

1. No; ten or fewer loans in the prior 12 months lifts the cap ✓
2. Yes; a profits-based bonus may never exceed 10 percent of total compensation
3. No; profits-based bonuses are banned outright
4. Yes, unless the bonus is paid into a tax-advantaged retirement plan instead

Why: 12 CFR 1026.36(d)(1)(iv) allows a non-deferred profits-based bonus not based on the originator's own terms if either it does not exceed 10 percent of total compensation for the period, or the originator "was a loan originator for ten or fewer transactions ... consummated during the 12-month period preceding the date of the compensation determination" (d)(1)(iv)(B)(2).

Source: 12 CFR 1026.36(d)(1)(iv)

Under Regulation Z, which feature defines a reverse mortgage transaction?

1. It is a first-lien loan to a borrower aged 62 or older, insured by FHA
2. Its payments are interest-only for the first ten years of the term
3. It must be set up as an open-end line of credit, never as a closed-end loan
4. Nonrecourse; due, barring default, only on death, transfer or move-out ✓

Why: 12 CFR 1026.33(a) defines a reverse mortgage as "a nonrecourse consumer credit obligation" secured by the principal dwelling, under which amounts are due (other than on default) only after the consumer dies, the dwelling is transferred, or the consumer ceases to occupy it as a principal dwelling.

Source: 12 CFR 1026.33(a)

A homeowner applies to refinance her existing mortgage. Must the creditor give her the special information booklet (Your Home Loan Toolkit)?

1. Yes; every mortgage applicant must receive it
2. No; refinances are not purchase transactions ✓
3. Yes, within 3 business days of the application
4. No, unless the refinance is taken with a broker

Why: 12 CFR 1026.19(g)(1)(iii) says the booklet need not be provided for a transaction whose purpose is not the purchase of a one-to-four family residential property, including refinancings, closed-end subordinate-lien loans and reverse mortgages.

Source: 12 CFR 1026.19(g)(1)(iii)

A consumer signs a home equity loan on Tuesday and receives the rescission notice and all material disclosures that day. When does her right to rescind end, assuming no holidays?

1. At midnight on the following Thursday
2. At close of business on the Tuesday after
3. At midnight 30 days after the signing
4. At midnight on the following Friday ✓

Why: 12 CFR 1026.23(a)(3)(i) allows rescission until midnight of the third business day following consummation, delivery of the notice, or delivery of all material disclosures, whichever occurs last. With all three on Tuesday, the three business days are Wednesday, Thursday and Friday.

Source: 12 CFR 1026.23(a)(3)(i)

What is the purpose of the Calculating Cash to Close table on the Closing Disclosure?

1. To show the lender's profit margin on the loan transaction
2. To show the borrower what has changed from her Loan Estimate ✓
3. To show the seller's net proceeds after paying off the lien
4. To show the monthly payment over the first five loan years

Why: 12 CFR 1026.38(i) requires a table headed "Calculating Cash to Close" with the statement "Use this table to see what has changed from your Loan Estimate", setting the Loan Estimate figures beside the final ones and answering whether each changed.

Source: 12 CFR 1026.38(i)

Servicing of a loan transferred on 1 March. On 20 March the borrower sends her on-time payment to the old servicer by mistake. How must it be treated?

1. It is late, since it went to the wrong servicer
2. It is late unless she resends it within 5 days
3. It may not be treated as late for any purpose ✓
4. It is late but no late fee may be charged

Why: 12 CFR 1024.33(c)(1): during the 60-day period beginning on the effective date of transfer, a payment received by the transferor servicer on or before the due date "may not be treated as late for any purpose." Under (c)(2) the old servicer must forward or return it promptly.

Source: 12 CFR 1024.33(c)

A buyer finances her purchase with a first mortgage and a second mortgage from the same lender at the same closing. Under the ability-to-repay rule, what is the second loan?

1. A separate loan that the first lender may disregard
2. A home equity line, exempt from the repayment rules
3. A simultaneous loan; its payment must be counted ✓
4. A bridge loan, outside the ability-to-repay rule

Why: 12 CFR 1026.43(b)(12): a simultaneous loan is another covered transaction or HELOC "secured by the same dwelling and made to the same consumer at or before consummation". Under (c)(2)(iv) and (c)(6) the creditor must consider the consumer's payment on it.

Source: 12 CFR 1026.43(b)(12), (c)(6)

A mortgage company pays its loan officers a bonus for each customer referred to its title affiliate, and the affiliate repays the company for those bonuses. How does RESPA section 8 treat the repayments?

1. As permitted, since the bonus itself is exempt
2. As permitted if disclosed on the ABA disclosure form
3. As a violation: the affiliate may not fund the bonuses ✓
4. As permitted, provided the affiliate is wholly owned by the company

Why: 12 CFR 1024.14(g)(1)(vii) permits "An employer's payment to its own employees for any referral activities", but Appendix B to part 1024, illustration 11, explains that it would be a violation if the affiliate reimbursed the employer for those bonuses or paid them directly.

Source: 12 CFR 1024.14(g)(1)(vii); Appendix B to part 1024, illustration 11

Which of these gives the CFPB supervisory authority over a non-bank mortgage broker, whatever its size?

1. It is a larger participant in a market defined by a later CFPB rule only
2. It originates or brokers consumer loans secured by real estate ✓
3. It holds total assets of more than $10 billion, with its affiliates
4. It has received a referral from a state regulator after an examination

Why: 12 U.S.C. 5514(a)(1)(A) applies the CFPB's supervision of nondepository covered persons to any covered person who "offers or provides origination, brokerage, or servicing of loans secured by real estate for use by consumers primarily for personal, family, or household purposes". No size test applies to mortgage originators; the $10 billion test in 5515 is for banks and credit unions.

Source: 12 U.S.C. 5514(a)(1)(A)

A title agent pays a loan officer a $250 kickback on a transaction in which the borrower paid a $900 title fee. What damages does RESPA section 8(d)(2) allow the borrower, before costs and attorneys' fees?

1. $250
2. $750
3. $900
4. $2,700 ✓

Why: 12 U.S.C. 2607(d)(2) makes violators jointly and severally liable to the person charged for the settlement service "in an amount equal to three times the amount of any charge paid for such settlement service": 3 x $900 = $2,700.

Source: 12 U.S.C. 2607(d)(2)

Which of these does the CFPB's ARM handbook name as a common ARM index?

1. The lender's own margin on the loan
2. The Constant Maturity Treasury (CMT) rate ✓
3. The borrower's debt-to-income ratio
4. The property's current appraised value

Why: CHARM: "Common indexes include the U.S. prime rate and the Constant Maturity Treasury (CMT) rate." The margin is the extra percentage the lender adds to the index.

Source: CFPB Consumer Handbook on Adjustable-Rate Mortgages (CHARM), p. 4

A borrower buys a house for $310,000 that appraises at $300,000, with no inducements. She borrows $270,000. What is the loan-to-value ratio under HUD's definition?

1. 87.1%
2. 90% ✓
3. 91.3%
4. 93.5%

Why: HUD Handbook 4000.1 Glossary: LTV is "the Base Loan Amount divided by the Adjusted Value", and for a purchase the Adjusted Value is the lesser of the purchase price less inducements or the Property Value. The lesser is $300,000, so $270,000 / $300,000 = 90%.

Source: HUD Handbook 4000.1, Glossary (Loan-to-Value; Adjusted Value)

Above what asset size does the CFPB have exclusive authority to examine an insured bank for compliance with federal consumer financial law?

1. $1 billion
2. $50 billion
3. $10 billion ✓
4. $250 million

Why: 12 U.S.C. 5515(a) applies to "an insured depository institution with total assets of more than $10,000,000,000 and any affiliate thereof" ($10 billion), and 5515(b)(1) gives the Bureau "exclusive authority to require reports and conduct examinations" of those institutions.

Source: 12 U.S.C. 5515(a)-(b)

A creditor wants to offer a fixed-rate QM with a prepayment penalty. What must it also offer?

1. The same kind of loan and term without a penalty, if the consumer likely qualifies ✓
2. A written waiver of the penalty if the home is sold in the first year
3. A lower interest rate, set at least half a point below the rate on the other loan
4. An adjustable-rate loan with no penalty and a shorter loan term

Why: 12 CFR 1026.43(g)(3) requires an alternative without a prepayment penalty that has a rate that cannot increase and the same type of rate, the same loan term, QM payment and points-and-fees conditions, and for which the creditor has a good faith belief the consumer likely qualifies.

Source: 12 CFR 1026.43(g)(3)

Where the flipping rule requires two appraisals on a higher-priced mortgage loan, which of these is correct?

1. One appraiser may do both, as long as the two inspections are 30 days apart
2. The consumer must pay for both, as the second protects only the consumer
3. They must be by different appraisers, and the consumer pays for one at most ✓
4. The second may be an automated valuation, provided the first is full

Why: 12 CFR 1026.35(c)(4)(ii): the two appraisals "may not be performed by the same certified or licensed appraiser"; (c)(4)(iii) requires each to meet (c)(3)(i); and (c)(4)(v): "the creditor may charge the consumer for only one of the appraisals", so the consumer pays for 1 of the 2 at most.

Source: 12 CFR 1026.35(c)(4)(ii)-(v)

A servicer learns the flood policy on a designated loan has lapsed and notifies the borrower. If the borrower does nothing, when must the servicer force-place cover?

1. After 45 days from the notice ✓
2. After 30 days from the notice
3. After 60 days from the notice
4. After 90 days from the notice

Why: 12 CFR 339.7(a): "If the borrower fails to obtain flood insurance within 45 days after notification, then the FDIC-supervised institution or its servicer shall purchase insurance on the borrower's behalf", and may charge the borrower for it. 42 U.S.C. 4012a(e)(2) puts the same 45-day duty on the "lender or servicer".

Source: 12 CFR 339.7(a); 42 U.S.C. 4012a(e)(2)

A lender's standard home equity line of credit agreement requires all disputes to go to binding arbitration. Is the clause permitted?

1. Yes, if the clause is printed in bold and initialled by the borrower
2. Yes, as the rule on arbitration applies only to closed-end loans
3. No, unless the arbitration is held in the borrower's home county
4. No; dwelling-secured credit contracts may not require arbitration ✓

Why: 12 CFR 1026.36(h)(1): a contract for a consumer credit transaction secured by a dwelling, "including a home equity line of credit secured by the consumer's principal dwelling", may not include terms that require arbitration or any other non-judicial procedure.

Source: 12 CFR 1026.36(h)(1)

A lender receives a completed mortgage application on Monday. By when must it give the applicant the list of homeownership counseling organizations?

1. Within 7 business days after receiving it
2. Within 3 business days after receiving it ✓
3. At least 3 business days before closing
4. Only if the applicant asks the lender for it

Why: 12 CFR 1024.20(a)(1) requires the lender to provide a clear and conspicuous written list of homeownership counseling organizations in the applicant's location not later than three business days after a lender, mortgage broker or dealer receives an application. The list must be obtained from the CFPB's data no earlier than 30 days before it is given.

Source: 12 CFR 1024.20(a)(1)

A mortgage company holds borrowers' appraisal deposits and cannot say what happened to several of them. Which prohibited act in the Model State Law is most directly involved?

1. Requiring property insurance above the replacement cost
2. Advertising terms that are not actually available
3. Charging a best-efforts fee when no loan is made
4. Failing to account truthfully for monies of a party ✓

Why: MSL XX.XXX.170(14) makes it a prohibited act to fail to truthfully account for monies belonging to a party to a residential mortgage loan transaction. Deposits held for borrowers belong to them until properly applied.

Source: Model State Law MSL XX.XXX.170(14)

A non-bank mortgage lender outsources its information security programme to a managed service provider. Under the FTC Safeguards Rule, who remains responsible for compliance?

1. The lender, which must name a senior person to oversee it ✓
2. The provider alone, once the contract assigns the duty to it
3. The FTC, which approves providers
4. The lender's auditors, who certify the programme every year

Why: 16 CFR 314.4(a): the Qualified Individual may be employed by a service provider, but the institution must "(1) Retain responsibility for compliance with this part; (2) Designate a senior member of your personnel responsible for direction and oversight of the Qualified Individual".

Source: 16 CFR 314.4(a)

A creditor requires HUD-approved counseling before making a negative amortization loan to a first-time borrower. May it tell the borrower which counselor to use?

1. Yes; it may require a counselor on its own approved list
2. Yes, if the counseling is free of charge to the borrower
3. No, unless the counselor is a HUD employee rather than an agency
4. No; it may not steer the borrower to a particular counselor ✓

Why: 12 CFR 1026.36(k)(3): a creditor making such a loan to a first-time borrower "shall not steer or otherwise direct a consumer to choose a particular counselor or counseling organization" for the required counseling.

Source: 12 CFR 1026.36(k)(3)

May a USDA guaranteed loan finance an investment property?

1. Yes, if the property is in an eligible rural area
2. No; the borrower must occupy it as a principal residence ✓
3. Yes, if the rental income covers the full payment
4. No, unless the borrower already owns a home there

Why: 7 CFR 3555.151(c): applicants must agree and be able to occupy the dwelling as their principal residence; "Rural Development will not guarantee loans for investment properties, or temporary, short-term housing."

Source: 7 CFR 3555.151(c)

A loan officer is paid 1 percent of the loan amount on every loan she closes. How does the loan originator compensation rule treat this?

1. Prohibited, since pay rises with the loan's size
2. Allowed only on loans at or above the Freddie Mac limit
3. Allowed; the amount of credit is not a term or proxy ✓
4. Prohibited unless the percentage is under 0.5 percent

Why: Under 12 CFR 1026.36(d)(1)(ii) "the amount of credit extended is not a term of a transaction or a proxy for a term of a transaction", so compensation expressed as a fixed percentage of the loan amount is permitted. What is prohibited is pay tied to rate, fees or other terms, or to a proxy for them.

Source: 12 CFR 1026.36(d)(1)(ii)

A house is being built with the loan's proceeds. What must the Loan Estimate's property tax estimate reflect?

1. Assessed value after closing, counting known improvements ✓
2. The last tax bill on the land, as the house does not yet exist
3. The sale price, multiplied by the national average tax rate
4. The appraised value of the lot alone until construction ends

Why: 12 CFR 1026.37(c)(5)(i): estimated property taxes reflect "The taxable assessed value of the real property ... after consummation, including the value of any improvements on the property or to be constructed on the property, if known, whether or not such construction will be financed from the proceeds of the transaction".

Source: 12 CFR 1026.37(c)(5)(i)

Dana works for a mortgage company that is not a bank. She takes loan applications and negotiates rates with borrowers for a commission. What does the SAFE Act require of her before she does this work?

1. A state license, NMLS registration and a unique identifier ✓
2. NMLS registration only, since her employer holds the license
3. A federal registration arranged by her employer's regulator
4. A state license only, with NMLS registration left optional

Why: 12 U.S.C. 5103(a) bars an individual from the business of a loan originator without first obtaining and annually maintaining either a registration as a registered loan originator or a license and registration as a state-licensed loan originator, and obtaining a unique identifier. Because Dana is not employed by a depository institution, 5102(12) puts her in the state-licensed category, which needs the license, the NMLS registration and the identifier together. Federal registration is the route for bank employees.

Source: 12 U.S.C. 5102(12), 5103(a)

The buyer has agreed to pay a homeowners' association transfer fee at closing, and the creditor knows about it when preparing the Loan Estimate. Where does it go?

1. Under Other Costs, in the "Other" section ✓
2. Nowhere, as it is not charged by the creditor
3. Under Origination Charges, as a lender fee
4. Under Services You Cannot Shop For, as title

Why: 12 CFR 1026.37(g)(4) requires itemization under "Other" of any other amounts the consumer is likely to pay, or has contracted with someone other than the creditor or loan originator to pay, at closing and of which the creditor is aware when issuing the Loan Estimate.

Source: 12 CFR 1026.37(g)(4)

A loan officer knowingly and wilfully submits a materially falsified income document to HUD staff reviewing an FHA insurance claim. What is the general maximum prison term under 18 U.S.C. 1001?

1. 1 year
2. 5 years ✓
3. 10 years
4. 30 years

Why: 18 U.S.C. 1001(a) punishes knowingly and wilfully making or using a materially false writing "in any matter within the jurisdiction of the executive, legislative, or judicial branch" with a fine, "imprisoned not more than 5 years", or both (8 years in terrorism cases).

Source: 18 U.S.C. 1001(a)

Under the Model State Law, what is the maximum civil penalty the commissioner may impose for each act or omission that violates the Act?

1. $1,000
2. $10,000
3. $25,000 ✓
4. $100,000

Why: MSL XX.XXX.130(3) sets the maximum penalty for each act or omission at $25,000, and 130(4) makes each violation or failure to comply with a directive or order a separate and distinct violation. The figure is the model's; each state sets its own in enacting it.

Source: Model State Law MSL XX.XXX.130(3)-(4)

Which of these applicants must receive the special information booklet?

1. A homeowner taking a closed-end second mortgage
2. A homeowner refinancing to a lower interest rate
3. A buyer taking a first mortgage to purchase a duplex ✓
4. A 72-year-old homeowner taking a reverse mortgage

Why: 12 CFR 1026.19(g)(1) requires the booklet for consumers applying for credit secured by real property, and 1026.19(g)(1)(iii) exempts transactions whose purpose is not the purchase of a one-to-four family residential property, including refinancings, closed-end subordinate-lien loans and reverse mortgages. A duplex purchase is a one-to-four family purchase.

Source: 12 CFR 1026.19(g)(1)

Which of these is a "valuation management function" under Regulation Z's valuation independence rules?

1. Setting the interest rate the borrower will pay on the loan
2. Pulling the borrower's credit report from a consumer reporting agency
3. Ordering the flood zone determination for the mortgaged property
4. Reviewing or verifying the work of a person who prepares valuations ✓

Why: 12 CFR 1026.42(b)(4) defines valuation management functions as recruiting, selecting or retaining a valuer, contracting with or employing one, managing the valuation process, and "(iv) Reviewing or verifying the work of a person that prepares valuations."

Source: 12 CFR 1026.42(b)(4)

Where did the Dodd-Frank Act establish the Consumer Financial Protection Bureau?

1. Inside the Department of the Treasury, as a new office
2. Inside HUD, replacing its old RESPA enforcement office
3. In the Federal Reserve System ✓
4. As a division of the Federal Trade Commission

Why: 12 U.S.C. 5491(a) establishes "in the Federal Reserve System, an independent bureau" known as the Bureau of Consumer Financial Protection, to regulate the offering and provision of consumer financial products and services under the Federal consumer financial laws.

Source: 12 U.S.C. 5491(a)

When is the annual renewal period for a registered mortgage loan originator under Regulation G?

1. 1 January through 31 January each year
2. 1 November through 31 December each year ✓
3. The anniversary of the original registration
4. 1 October through 30 November each year

Why: Regulation G defines the annual renewal period as November 1 through December 31 of each year (12 CFR 1007.102), and 1007.103(b)(1)(i) requires the registrant to renew during it. A registration completed less than 6 months before the end of that period need not be renewed that year (1007.103(b)(3)).

Source: 12 CFR 1007.102, 1007.103(b)

Marcus is employed by a national bank and takes residential mortgage applications and quotes loan terms. What does federal law require him to have?

1. A state license from each state where the bank's borrowers live
2. NMLS registration and a unique identifier, with no state license ✓
3. A state license plus separate registration with the OCC
4. Nothing, because bank employees are outside the SAFE Act

Why: Marcus is a registered loan originator: 12 U.S.C. 5102(8) covers a loan originator employed by a depository institution who registers with, and keeps a unique identifier through, the NMLS. Regulation G, 12 CFR 1007.103(a)(1), requires each such employee to register and obtain the identifier. Bank employees are inside the Act; they are simply registered rather than state-licensed.

Source: 12 U.S.C. 5102(8); 12 CFR 1007.103(a)

For which kind of mortgage application does Regulation X still require a separate servicing disclosure statement within three business days?

1. A fixed-rate purchase loan
2. A reverse mortgage ✓
3. An FHA refinance
4. A home equity loan

Why: 12 CFR 1024.33(a): "Within three days (excluding legal public holidays, Saturdays, and Sundays) after a person applies for a reverse mortgage transaction", the lender must say whether servicing may be transferred. For loans that get a Loan Estimate, the servicing statement is part of it; HELOCs get none.

Source: 12 CFR 1024.33(a)

An applicant was convicted of felony drug possession nine years before applying. The offense involved no fraud, dishonesty, breach of trust or money laundering. How does the SAFE Act's felony standard apply?

1. It bars her permanently, because every felony is disqualifying
2. It does not bar her, as the conviction is outside the 7 years ✓
3. It bars her until ten years have passed since the conviction
4. It bars her unless the conviction was later reduced to a fine

Why: Under 12 U.S.C. 5104(b)(2) the bar reaches a felony conviction or plea during the 7 years preceding the application, or at any time if the felony involved fraud, dishonesty, breach of trust or money laundering. A nine-year-old conviction of another kind falls outside both. The state still judges character and fitness under 5104(b)(3), so the conviction is not irrelevant, just not an automatic bar.

Source: 12 U.S.C. 5104(b)(2)-(3)

Where the flipping rule requires two appraisals on a higher-priced loan, what must one of them analyse?

1. The buyer's income and debts over the three years before the application
2. The seller's reasons for selling and the length of time the home was listed for sale
3. The rents of comparable homes nearby, to test the price as an investment
4. The price difference, market changes and improvements since the seller bought ✓

Why: 12 CFR 1026.35(c)(4)(iv): one appraisal must analyse "(A) The difference between the price at which the seller acquired the property and the price that the consumer is obligated to pay ...; (B) Changes in market conditions ...; and (C) Any improvements made to the property" in between.

Source: 12 CFR 1026.35(c)(4)(iv)

When does a person who makes high-cost (HOEPA) mortgages count as regularly extending consumer credit?

1. Only after more than five high-cost loans in the whole of the preceding calendar year
2. More than one in any 12 months, or one or more through a mortgage broker ✓
3. Only after more than 25 high-cost loans in any two-year period
4. Never, since high-cost loans are counted as business-purpose credit

Why: 12 CFR 1026.2(a)(17)(v): "A person regularly extends consumer credit if, in any 12-month period, the person originates more than one credit extension that is subject to the requirements of § 1026.32 or one or more such credit extensions through a mortgage broker."

Source: 12 CFR 1026.2(a)(17)

Under 24 CFR 203.18, what is the maximum FHA mortgage amount on a dwelling to be occupied as a secondary residence?

1. The same limits as a principal residence, with no separate cap
2. 100 percent of the price, as FHA does not limit loans on second homes
3. Nothing; FHA never insures loans on a secondary residence
4. 85 percent of the appraised value, if lower than the other limits ✓

Why: 24 CFR 203.18(a): the mortgage must not exceed the lesser of the applicable amounts, including "(3) An amount equal to 85 percent of the appraised value if the mortgage covers a dwelling that is to be occupied as a secondary residence".

Source: 24 CFR 203.18(a)(3)

For a first-lien small-creditor portfolio QM, how far above the APOR must the APR be before it is a higher-priced covered transaction?

1. 1.5 or more percentage points
2. 2.25 or more percentage points
3. 6.5 or more percentage points
4. 3.5 or more percentage points ✓

Why: 12 CFR 1026.43(b)(4) uses "3.5 or more percentage points for a first-lien covered transaction that is a qualified mortgage under paragraph (e)(5), (e)(6), or (f)" and for subordinate liens, against 1.5 for other first liens.

Source: 12 CFR 1026.43(b)(4)

A lender adds a quarter point to the rate for applicants with children under 18 living with them. How does the Fair Housing Act treat this?

1. As lawful, since the price is disclosed on the Loan Estimate
2. As lawful risk-based pricing if every such applicant pays it
3. As unlawful: it fixes loan terms because of familial status ✓
4. As unlawful only where the loan is insured or guaranteed by FHA

Why: 24 CFR 100.130(b)(2) makes it unlawful to fix "the amount, interest rate, cost, duration or other terms or conditions" of a loan secured by residential real estate because of, among other things, familial status.

Source: 24 CFR 100.130(b)(2)

The funds for an FHA borrower's Minimum Required Investment must NOT come from which of these?

1. The borrower's own savings
2. The seller of the property ✓
3. A gift from her sister
4. Her employer's housing grant

Why: HUD Handbook 4000.1 II.A.4.d.ii(B), applying section 203(b)(9)(C) of the National Housing Act: the MRI "must not come from: (1) the seller of the Property; (2) any other person or entity who financially benefits from the transaction ... or (3) anyone who is or will be reimbursed" by them.

Source: HUD Handbook 4000.1 (Update 17, 11/26/2025), II.A.4.d.ii(B)

In the Costs at Closing table on the Loan Estimate, which two headline figures are shown?

1. Loan Amount and Interest Rate
2. Finance Charge and APR
3. Closing Costs and Cash to Close ✓
4. Monthly Payment and Escrow

Why: 12 CFR 1026.37(d)(1) requires a table headed "Costs at Closing" showing "Closing Costs" (with its split into loan costs, other costs and lender credits) and "Cash to Close".

Source: 12 CFR 1026.37(d)(1)

Under the FTC Safeguards Rule, what must the information security programme of a mortgage lender holding data on 20,000 consumers be based on?

1. A written risk assessment of foreseeable risks to customer information ✓
2. The security standards its largest outside vendor has itself chosen to follow
3. A checklist the FTC sends to each lender at the start of every calendar year
4. Whatever controls its insurer requires for a cyber insurance policy

Why: 16 CFR 314.4(b) requires the programme to be based on a risk assessment that identifies reasonably foreseeable internal and external risks to customer information, and (b)(1) says "The risk assessment shall be written". 16 CFR 314.6 exempts institutions holding information on fewer than 5,000 consumers from (b)(1).

Source: 16 CFR 314.4(b), 314.6

The borrower may choose her own title insurance agent and survey company. Under which Loan Estimate heading are those fees itemised?

1. Services You Cannot Shop For
2. Services You Can Shop For ✓
3. Taxes and Other Government Fees
4. Initial Escrow Payment at Closing

Why: 12 CFR 1026.37(f)(3) requires an itemization under "Services You Can Shop For" of settlement services the consumer can shop for under 1026.19(e)(1)(vi)(A) that are provided by persons other than the creditor or mortgage broker.

Source: 12 CFR 1026.37(f)(3)

Which adjustable-rate mortgages are exempt from the initial rate adjustment notice in 12 CFR 1026.20(d)?

1. ARMs with a fixed period of five years or more
2. ARMs with terms of one year or less ✓
3. ARMs held in portfolio by the originating bank
4. ARMs whose rate is capped at 2 points a year

Why: 12 CFR 1026.20(d)(1)(ii): "The requirements of this paragraph (d) do not apply to ARMs with terms of one year or less."

Source: 12 CFR 1026.20(d)(1)(ii)

Which of these must appear in the table in a 1026.20(c) notice of an ARM rate adjustment that changes the payment?

1. Current and new rates and payments, and the new payment's due date ✓
2. The borrower's current credit score and the score used at origination
3. The lender's margin history over the past fifteen years of the loan program
4. A list of other lenders offering refinance loans at current market rates

Why: 12 CFR 1026.20(c)(2)(ii) requires a table with "(A) The current and new interest rates; (B) The current and new payments and the date the first new payment is due" and, for interest-only or negatively amortizing payments, the allocation of each payment.

Source: 12 CFR 1026.20(c)(2)(ii)

After force-placing flood cover, a servicer receives proof that the borrower's own policy was in force all along. What must it do within 30 days?

1. Keep both policies until the next renewal date of either one
2. Cancel the force-placed policy and refund overlapping premiums ✓
3. Refund half the force-placed premium and keep the policy in place
4. Nothing, since the borrower did not respond within 45 days

Why: 12 CFR 339.7(b)(1): within 30 days of confirming existing cover, the institution or servicer must notify the insurer to terminate the force-placed insurance and refund premiums paid by the borrower for any period of overlap, as 42 U.S.C. 4012a(e)(3) also requires.

Source: 12 CFR 339.7(b)(1); 42 U.S.C. 4012a(e)(3)

Which of these applicants does NOT qualify for temporary authority to originate under the SAFE Act?

1. One who was registered at a bank for the preceding 11 months
2. One who was licensed in another state until last week
3. One whose license application was denied in another state ✓
4. One whose former employer was a federally chartered bank

Why: Every route to temporary authority in 12 U.S.C. 5117 requires that the individual has not had an application for a loan originator license denied, or a license revoked or suspended, in any governmental jurisdiction (5117(b)(1)(A), applied to interstate moves by 5117(c)(1)(A)). Eleven months at a bank falls within the one-year look-back, and a license held until last week falls within the 30-day window.

Source: 12 U.S.C. 5117(b)(1)(A), (c)(1)(A)

An originator's NMLS license application asks about past civil judgments. He carelessly answers "no", forgetting a judgment entered against him three years ago. How does the Model State Law treat the answer?

1. No violation, because he did not intend to mislead
2. No violation unless the judgment exceeded $10,000
3. A violation; negligent false statements count ✓
4. A violation only if the regulator had asked him twice

Why: MSL XX.XXX.170(10) prohibits negligently making any false statement, or knowingly and willfully making any omission of material fact, in information or reports filed with a governmental agency or the NMLS. Negligence is enough for a false statement. Separately, MSL XX.XXX.130(1)(b) lets the commissioner deny a license for a material misstatement in an application.

Source: Model State Law MSL XX.XXX.170(10), .130(1)(b)

A lender caps a conventional loan at 80% LTV. The property's adjusted value is $425,000. What is the largest loan it will make?

1. $340,000 ✓
2. $361,250
3. $382,500
4. $425,000

Why: LTV is loan / value (HUD Handbook 4000.1 Glossary), so the maximum loan is value x LTV: $425,000 x 0.80 = $340,000.

Source: HUD Handbook 4000.1, Glossary (Loan-to-Value)

A consumer applies by telephone for an adjustable-rate mortgage on her principal dwelling. By when must the creditor deliver or mail the CHARM booklet and program disclosure?

1. At the same time as the Closing Disclosure is given
2. Before she pays any fee, even if that is during the telephone call
3. Within seven business days before consummation
4. Within three business days of receiving the application ✓

Why: 12 CFR 1026.19(b) requires the disclosures when an application form is provided or before a non-refundable fee, whichever is earlier, "except that the disclosures may be delivered or placed in the mail not later than three business days following receipt of a consumer's application when the application reaches the creditor by telephone, or through an intermediary agent or broker".

Source: 12 CFR 1026.19(b)

A lender denies credit based partly on information in a consumer report. Which of these must its notice under the FCRA include?

1. A copy of the underwriter's notes explaining the credit decision
2. A statement that the agency did not decide and cannot give reasons ✓
3. The agency's reasons for the denial, exactly as the agency stated them
4. The names of any other lenders that pulled the report this year

Why: 15 U.S.C. 1681m(a) requires notice of the adverse action, disclosure of any numerical credit score used, the name, address and telephone number of the agency, "a statement that the consumer reporting agency did not make the decision to take the adverse action and is unable to provide the consumer the specific reasons", and notice of the right to a free report and to dispute.

Source: 15 U.S.C. 1681m(a)

How is the lender's title insurance charge labelled in the Loan Costs section of the Loan Estimate?

1. With the title company's name as the whole label
2. With the word "(optional)" at the end of its label
3. Only as part of a single total for all third parties
4. With the words "Title —" at the start of its label ✓

Why: 12 CFR 1026.37(f)(2)(i) and (f)(3)(i) require the introductory description "Title —" at the beginning of the label for any item that is a component of title insurance or is for conducting the closing. The parenthetical "(optional)" is used only in the Other section, for separate products such as an owner's title policy (1026.37(g)(4)(ii) and comment 37(g)(4)-1).

Source: 12 CFR 1026.37(f)(2)(i), (f)(3)(i), (g)(4)(ii)

Under the Consumer Financial Protection Act, what must the CFPB show to declare a practice unfair?

1. Substantial injury not reasonably avoidable and not outweighed by benefits ✓
2. That the practice breaches established public policy, on that basis alone
3. That at least one consumer was misled by a written statement from the firm
4. That the firm intended to harm consumers when it adopted the practice

Why: 12 U.S.C. 5531(c)(1) requires a reasonable basis to conclude that the practice "causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers" and that the injury "is not outweighed by countervailing benefits to consumers or to competition". Under 5531(c)(2), public policy may not be a primary basis.

Source: 12 U.S.C. 5531(c)

A company pays higher commissions on loans secured by property in State A, where rates run higher, than in State B. Its originators have no way to influence where the property is. Is location a proxy for a loan term?

1. Yes; any factor that tracks the interest rate is a proxy
2. Yes, unless the company pays the same base salary to all
3. No, but only if the rate gap is below one percentage point
4. No; the originators cannot add, drop or change the factor ✓

Why: Under 12 CFR 1026.36(d)(1)(i), comment 36(d)(1)-2.ii.B: where the loan originator "does not have any ability to influence whether the transaction is secured by property located in State A or State B", the location "is not a proxy for a term of a transaction". Both limbs of the proxy test in 1026.36(d)(1)(i) must be met.

Source: 12 CFR 1026.36(d)(1)(i); Supplement I comment 36(d)(1)-2

A small creditor sells a small-creditor portfolio QM, 18 months after consummation, to a bank too large to meet the small-creditor tests. What happens to its QM status?

1. Nothing; QM status is fixed at consummation and cannot be lost afterwards
2. It keeps QM status as long as the buyer does not change any of the loan terms
3. It becomes a seasoned QM automatically, as it has passed 12 months of payments
4. It loses that QM status, having been sold too soon to a large bank ✓

Why: 12 CFR 1026.43(e)(5)(ii): a small-creditor QM "immediately loses its status" if legal title is transferred, except, among others, a transfer "three years or more after consummation" or to another creditor meeting the small-creditor conditions in (e)(5)(i)(D).

Source: 12 CFR 1026.43(e)(5)(ii)

What does 12 U.S.C. 5511 give as the CFPB's purpose?

1. Setting interest rates for all consumer mortgage loans
2. Insuring deposits at banks and credit unions nationwide
3. Licensing every mortgage loan originator in each of the states
4. Consumer access to fair, transparent, competitive markets ✓

Why: 12 U.S.C. 5511(a) directs the Bureau to implement and enforce Federal consumer financial law consistently "for the purpose of ensuring that all consumers have access to markets for consumer financial products and services and that markets ... are fair, transparent, and competitive". States license originators under the SAFE Act.

Source: 12 U.S.C. 5511(a)

On a mortgage secured by real property, which of these charges is excluded from the finance charge if it is bona fide and reasonable?

1. Discount points paid to buy down the rate
2. An appraisal fee for pre-closing value ✓
3. The lender's own loan origination fee
4. A mortgage broker fee paid by the consumer

Why: 12 CFR 1026.4(c)(7) excludes real-estate related fees if bona fide and reasonable, including title fees, document preparation, notary and credit-report fees, and property appraisal fees for services performed before closing. Points, origination fees and broker fees are charges imposed as an incident to the credit and stay in the finance charge (1026.4(a), (b)).

Source: 12 CFR 1026.4(c)(7)

A consumer who suspects she is about to become a victim of identity theft asks a nationwide credit bureau for an initial fraud alert. How long must the alert stay in her file?

1. At least 90 days, then renewable by further request
2. At least 1 year, unless she asks to remove it sooner ✓
3. 7 years, running from the date she first asked for it
4. Until the next time any lender pulls her credit report

Why: 15 U.S.C. 1681c-1(a)(1)(A) requires the agency to include a fraud alert for not less than 1 year from the request, unless the consumer asks for earlier removal, and to refer the alert to the other nationwide agencies. The 7-year alert is the extended alert available with an identity theft report (1681c-1(b)).

Source: 15 U.S.C. 1681c-1(a)

After a dispute arises over a mortgage, the borrower and the lender both agree to settle it through arbitration. Is that allowed?

1. Yes; the ban covers only pre-dispute terms requiring arbitration ✓
2. No; any arbitration of a claim on a dwelling-secured loan is barred
3. Yes, but only if a court first approves the arbitration agreement
4. No, unless the claim is below the state small-claims court limit

Why: 12 CFR 1026.36(h)(1): the prohibition "does not limit a consumer and creditor or any assignee from agreeing, after a dispute or claim under the transaction arises, to settle or use arbitration or other non-judicial procedure to resolve that dispute or claim."

Source: 12 CFR 1026.36(h)(1)

An originator offers an appraiser a bonus on future orders if the appraisal "comes in at the contract price". Which prohibited act in the Model State Law does this fall under?

1. Failing to account truthfully for monies held for others
2. Charging the appraiser a fee the Act does not authorize
3. Soliciting rates that are not available when advertised
4. Paying or promising to influence the appraiser's judgment ✓

Why: MSL XX.XXX.170(11) prohibits making any payment, threat or promise, directly or indirectly, to any appraiser of a property for the purpose of influencing the appraiser's independent judgment as to value. A promise of future orders tied to the value is exactly that. Regulation Z's valuation independence rule, 12 CFR 1026.42, prohibits the same conduct at federal level.

Source: Model State Law MSL XX.XXX.170(11)

While PMI remains on a loan, what must the servicer send the borrower each year?

1. A new appraisal showing the home's current market value and LTV ratio
2. A written statement of the PMI cancellation rights and a contact number ✓
3. A copy of the insurer's annual report and the premiums it has collected
4. Nothing more, once the notices at consummation have been given in writing

Why: 12 U.S.C. 4903(a)(3): the servicer must disclose "in an annual written statement (A) the rights of the mortgagor under this chapter to cancellation or termination ...; and (B) an address and telephone number" for contacting the servicer.

Source: 12 U.S.C. 4903(a)(3)

A borrower has a $150,000 first mortgage and applies for a $50,000 home equity loan. The home is worth $250,000. What will the combined LTV be?

1. 20%
2. 60%
3. 75%
4. 80% ✓

Why: Combined LTV is all mortgage balances on the property divided by its value (HUD Handbook 4000.1 Glossary, Combined Loan-to-Value). ($150,000 + $50,000) / $250,000 = 80%.

Source: HUD Handbook 4000.1, Glossary (Combined Loan-to-Value)

Before issuing a Loan Estimate, a loan officer tells the applicant he will not prepare one until she emails her last two pay stubs and bank statements. What does Regulation Z say?

1. He may not require verifying documents before the estimate ✓
2. He may require them, as long as the request is in writing
3. He may require pay stubs, but not the bank statements
4. He may require them if the applicant is self-employed

Why: 12 CFR 1026.19(e)(2)(iii) bars a creditor or other person from requiring a consumer to submit documents verifying information related to the application before providing the Loan Estimate. The CFPB TRID guide, section 6.8, gives the examples of a purchase contract and bank statements: the facts may be asked for orally, the documents may not be required.

Source: 12 CFR 1026.19(e)(2)(iii); CFPB TRID guide 6.8

An annual escrow analysis finds a shortage of less than one month's escrow payment. Which of these may the servicer NOT do?

1. Allow the shortage to exist and do nothing about it
2. Require the borrower to repay it within 30 days
3. Require repayment in equal parts over 12 months
4. Require repayment of the shortage over 6 months ✓

Why: 12 CFR 1024.17(f)(3)(i): for a shortage of less than one month's payment the servicer may (A) allow it to exist, (B) require repayment within 30 days, or (C) require repayment "in equal monthly payments over at least a 12-month period". Six months is shorter than the rule allows.

Source: 12 CFR 1024.17(f)(3)(i)