MLO TEST STUDY GUIDE QUESTIONS
WITH 100% CORRECT ANSWERS
Which of the following would be considered discrimination through advertising per
ECOA? - Answer- MLOs need to be careful not to take any action, on a prohibited
basis, to discourage someone from attempting to apply for a loan. Advertising with no
racial diversity could discourage someone from another race to apply for the loan and
could be considered discriminatory.
What does TRID stand for? - Answer- TRID stands for the TILA-RESPA Integrated
Disclosure Rule.
Under Section 8 of RESPA, which of the following is not considered a violation? -
Answer- Section 8 of RESPA prohibits kickbacks and referral fees, splitting advertising
jointly between an MLO and Realtor would not be a violation because not one is paying
referral fee or a kickback, it's being equally split between the two.
The Acronym (ATR) stands for: - Answer- ATR stands for ability to repay.
Section X of the 1003 exists to fulfill the requirements of what law: - Answer- Section X
of the current 1003 is the Government Monitoring Section and is where HMDA
information sex, ethnicity and race are collected.
What is not applicable if the Verification of Deposit does not match up with bank
statements? - Answer- The VOD is meant to verify the deposits into a borrower's
account, if they do not match up with the bank statements provided it is possible the
borrower has doctored those bank statements and fraud may be occurring.
If a borrower makes a substantial amount of commission, what would have to be true for
that borrower to use that income to qualify for their mortgage? - Answer- Just like any
other type of income, to use variable income like commission, the borrower has to prove
they have received it for 2 or more years.
What is a wraparound mortgage? - Answer- A wraparound mortgage is a second
mortgage issued when a lender assumes the payments on the borrower's low-interest
first mortgage (usually issued through a different lender) and lends additional funds.
Such a mortgage covers both the outstanding balance of the first mortgage and the
additional funds loaned.
The borrowers wanted to expedite the home-buying process so they got a pre-approval.
Which statement best describes their situation? - Answer- A pre-approval is not an
,unconditional commitment to lend, often the borrower still has many hoops to go
through to obtain financing.
If appraising a 10 year old residential home, what is the best approach to determine
value? - Answer- The sales comparison approach is the most common type of appraisal
and will be the one an MLO will see most frequently. Cost approach and Income
approach are only use in certain situations. For example, the income approach could be
used when we are dealing with investment properties.
Which of the following would be considered "acceptable use of a credit report" per
FCRA? - Answer- The only time it is acceptable for an MLO to pull credit for anyone is if
there is a loan happening.
Which of the following is considered Steering? - Answer- Steering occurs when an MLO
steers a borrower into a specific loan for their own benefit. For example, the MLO gets
paid more for an ARM than they do for a conventional loan so the MLO always tries to
push their borrowers into doing ARMs even if it's not in the borrower's best interest. The
LO Comp Rule was put into place to try to prevent this particular situation.
Which of the following is NOT true about the VOE? - Answer- The VOE is a third-party
verification, it has to be completed and provided by a third-party. The borrower can have
nothing to do with third party verifications, it's a conflict of interest.
Business income is derived from a sole proprietorship and is calculated on which of the
following tax forms? - Answer- The Schedule C (or Form 1040) is the Profit or Loss
statement for Sole Proprietorships. It is the form that an underwriter will use to
determine a self-employed sole proprietor borrower's income.
Regulation Z is another name for: - Answer- Regulation Z is also known as the Truth in
Lending Act or TILA.
What is the definition of a business day for the Loan Estimate disclosure? - Answer- For
the LE, a business day is a day on which the lender's offices are open to the public for
carrying out substantially all its business functions. For example, if the lender is open on
Saturday, that would count as a business day for providing the LE to the consumer.
Which of the following buys closed mortgage loans? - Answer- The secondary market
purchase mortgage backed securities and servicing rights after the loan has been
closed.
Jonathan has an ARM; his index is the COFI and his margin is 1.25%. How could
Jonathan determine his next adjustment?? - Answer- All Jonathan really needs to look
at is the index and the margin at the time of adjustment. If he adds the index and the
margin, he will get his new rate. The interest rate caps may come into play but to find
the generally interest rate, index plus margin.
,If an underwriter is looking at a borrower's credit report, how far back are they looking at
credit inquiries? - Answer- For a mortgage, the underwriter could see multiple recent
inquiries (they'll only consider the last ninety (90) days) can indicate that a borrower is a
higher credit risk (even if they did not obtain new accounts).
Alison has two jobs; she works full-time as a W-2 second grade teacher. She also has
worked as a waitress at a local restaurant making $10.00 an hour for three years. Which
of the following is true about Alison's income? - Answer- Alison has worked at her
second job for over two years so she can use that income to qualify for the loan.
Second job income is considered variable income as it's more likely to fluctuate since it
is a second job.
Josh, an MLO, is working with Javier. Josh knows that HOEPA requires a specific
disclosure on all federally related transactions, what is not true about that disclosure? -
Answer- HOEPA requires that all federally-related loan applicants receive a list of
housing counselors. The list of housing counselors must be sent three (3) business
days after receiving the application.
Andrea is receiving two payments of child support for her two children, they are 14 and
12. For that income to be used as income, the child support must continue for: -
Answer- Child support income must be believed to continue for 3 years or more to be
used as income. In this situation, Andrea will be able to use her child support as income
because most child support stops at age 18 and her children won't be 18 for over 3
years.
If an underwriter needs to verify a borrower's down payment, what might they request
the processor order? - Answer- A VOD is a Verification of Deposit. It is used to verify if
X amount of money is in a borrower's bank account.
Under RESPA what is the dollar fine that can be imposed for each instance of a referral
fee kickback or unearned fee? - Answer- If someone violates Section 8 of RESPA, they
are looking at a fine of up to $10,000, up to 1 year in prison or both. They also may be
required to make payment to damaged parties up to 3 times the original fee that violated
the section and if more than one individual is involved, then all parties are liable to the
damaged borrower both jointly and separately.
All fees on the Loan Estimate fall into three (3) categories, these are? - Answer- There
are three fee tolerance, zero, 10% cumulative and no-tolerance.
Is a referral fee ever allowed? - Answer- No. Section 8 of RESPA prohibits referral fees.
The estimate of closing costs on the mortgage loan disclosed on the Loan Estimate are
good for: - Answer- The initial Loan Estimate expires 10 business days from the date
the creditor provided the LE to the consumer if the consumer does not expressly
provide their Intent to Proceed.
, Which of the following situations is not a red flag that illegal flipping may be taking
place? - Answer- Illegal property flipping occurs when the property is purchased and
resold quickly at an artificially inflated price by utilizing fraudulently inflated appraisals.
Illegal property flips typically have not been improved or renovated since the purchase
and are quickly resold at a much higher price. Sometimes the property is only owned for
twenty-four (24) hours before it is resold.
An applicant who has had a loan originator license revoked previously is eligible for a
license as long as: - Answer- Once you've had a license revoked in another state, there
is no getting licensed again anywhere in the United States.
An MLO advertises a low interest rate for qualified applicants. A prospective borrower
meeting the qualifications applies. The MLO moves the borrower into another loan
which makes more profit to the lender. This is an example of: - Answer- Bait and switch
occurs when a licensee advertising specific rates and terms to get a borrower in the
door and then puts them in an entirely different product than they advertised. This is
prohibited conduct.
Which of the following is NOT a finance charge in a residential mortgage loan? -
Answer- A finance charge is a cost of credit. A good way to think about it is, would the
borrower potentially pay this fee if they were paying cash for this home? If the answer is
yes, then it's likely not a finance charge. In this situation - if the borrower is paying cash
for the home, they will likely still have to pay for an appraisal, so an appraisal fee is not
a finance charge. The other fees are all costs of obtaining a loan.
In lieu of your social security number, what number assigned by the NMLS will the state
use to identify you as an MLO? - Answer- The NMLS assigns each MLO a unique
identifier, the unique identifier is like the MLO's social security number it is unique to
them and no one else will ever have that number. It is an easy way to identify the
individual MLO.
An MLO is working on disclosing a borrower's Loan Estimate, which of the following is
true: - Answer- Lenders are not allowed to impose any fee to the borrower for a
mortgage transaction until the borrower has received the LE, and they have indicated
an intent to proceed with the transaction. The only exception to the rule is for a bona-
fide and reasonable fee for obtaining a consumer's credit report.
Trevor is looking to obtain an ARM loan, his MLO is required to disclose what within 3
days of application? - Answer- Per TILA, the Consumer Handbook on Adjustable Rate
Mortgages must be disclosed within 3 business days of a application on all ARM
transactions.
On Form 1003 Section X: Information for Government Monitoring Purposes is used in
order to comply with which federal law? - Answer- The final section of the 1003 is the
information for government monitoring purposes. This section includes a statement that
the borrower should read, and requests that the borrower furnish information regarding
WITH 100% CORRECT ANSWERS
Which of the following would be considered discrimination through advertising per
ECOA? - Answer- MLOs need to be careful not to take any action, on a prohibited
basis, to discourage someone from attempting to apply for a loan. Advertising with no
racial diversity could discourage someone from another race to apply for the loan and
could be considered discriminatory.
What does TRID stand for? - Answer- TRID stands for the TILA-RESPA Integrated
Disclosure Rule.
Under Section 8 of RESPA, which of the following is not considered a violation? -
Answer- Section 8 of RESPA prohibits kickbacks and referral fees, splitting advertising
jointly between an MLO and Realtor would not be a violation because not one is paying
referral fee or a kickback, it's being equally split between the two.
The Acronym (ATR) stands for: - Answer- ATR stands for ability to repay.
Section X of the 1003 exists to fulfill the requirements of what law: - Answer- Section X
of the current 1003 is the Government Monitoring Section and is where HMDA
information sex, ethnicity and race are collected.
What is not applicable if the Verification of Deposit does not match up with bank
statements? - Answer- The VOD is meant to verify the deposits into a borrower's
account, if they do not match up with the bank statements provided it is possible the
borrower has doctored those bank statements and fraud may be occurring.
If a borrower makes a substantial amount of commission, what would have to be true for
that borrower to use that income to qualify for their mortgage? - Answer- Just like any
other type of income, to use variable income like commission, the borrower has to prove
they have received it for 2 or more years.
What is a wraparound mortgage? - Answer- A wraparound mortgage is a second
mortgage issued when a lender assumes the payments on the borrower's low-interest
first mortgage (usually issued through a different lender) and lends additional funds.
Such a mortgage covers both the outstanding balance of the first mortgage and the
additional funds loaned.
The borrowers wanted to expedite the home-buying process so they got a pre-approval.
Which statement best describes their situation? - Answer- A pre-approval is not an
,unconditional commitment to lend, often the borrower still has many hoops to go
through to obtain financing.
If appraising a 10 year old residential home, what is the best approach to determine
value? - Answer- The sales comparison approach is the most common type of appraisal
and will be the one an MLO will see most frequently. Cost approach and Income
approach are only use in certain situations. For example, the income approach could be
used when we are dealing with investment properties.
Which of the following would be considered "acceptable use of a credit report" per
FCRA? - Answer- The only time it is acceptable for an MLO to pull credit for anyone is if
there is a loan happening.
Which of the following is considered Steering? - Answer- Steering occurs when an MLO
steers a borrower into a specific loan for their own benefit. For example, the MLO gets
paid more for an ARM than they do for a conventional loan so the MLO always tries to
push their borrowers into doing ARMs even if it's not in the borrower's best interest. The
LO Comp Rule was put into place to try to prevent this particular situation.
Which of the following is NOT true about the VOE? - Answer- The VOE is a third-party
verification, it has to be completed and provided by a third-party. The borrower can have
nothing to do with third party verifications, it's a conflict of interest.
Business income is derived from a sole proprietorship and is calculated on which of the
following tax forms? - Answer- The Schedule C (or Form 1040) is the Profit or Loss
statement for Sole Proprietorships. It is the form that an underwriter will use to
determine a self-employed sole proprietor borrower's income.
Regulation Z is another name for: - Answer- Regulation Z is also known as the Truth in
Lending Act or TILA.
What is the definition of a business day for the Loan Estimate disclosure? - Answer- For
the LE, a business day is a day on which the lender's offices are open to the public for
carrying out substantially all its business functions. For example, if the lender is open on
Saturday, that would count as a business day for providing the LE to the consumer.
Which of the following buys closed mortgage loans? - Answer- The secondary market
purchase mortgage backed securities and servicing rights after the loan has been
closed.
Jonathan has an ARM; his index is the COFI and his margin is 1.25%. How could
Jonathan determine his next adjustment?? - Answer- All Jonathan really needs to look
at is the index and the margin at the time of adjustment. If he adds the index and the
margin, he will get his new rate. The interest rate caps may come into play but to find
the generally interest rate, index plus margin.
,If an underwriter is looking at a borrower's credit report, how far back are they looking at
credit inquiries? - Answer- For a mortgage, the underwriter could see multiple recent
inquiries (they'll only consider the last ninety (90) days) can indicate that a borrower is a
higher credit risk (even if they did not obtain new accounts).
Alison has two jobs; she works full-time as a W-2 second grade teacher. She also has
worked as a waitress at a local restaurant making $10.00 an hour for three years. Which
of the following is true about Alison's income? - Answer- Alison has worked at her
second job for over two years so she can use that income to qualify for the loan.
Second job income is considered variable income as it's more likely to fluctuate since it
is a second job.
Josh, an MLO, is working with Javier. Josh knows that HOEPA requires a specific
disclosure on all federally related transactions, what is not true about that disclosure? -
Answer- HOEPA requires that all federally-related loan applicants receive a list of
housing counselors. The list of housing counselors must be sent three (3) business
days after receiving the application.
Andrea is receiving two payments of child support for her two children, they are 14 and
12. For that income to be used as income, the child support must continue for: -
Answer- Child support income must be believed to continue for 3 years or more to be
used as income. In this situation, Andrea will be able to use her child support as income
because most child support stops at age 18 and her children won't be 18 for over 3
years.
If an underwriter needs to verify a borrower's down payment, what might they request
the processor order? - Answer- A VOD is a Verification of Deposit. It is used to verify if
X amount of money is in a borrower's bank account.
Under RESPA what is the dollar fine that can be imposed for each instance of a referral
fee kickback or unearned fee? - Answer- If someone violates Section 8 of RESPA, they
are looking at a fine of up to $10,000, up to 1 year in prison or both. They also may be
required to make payment to damaged parties up to 3 times the original fee that violated
the section and if more than one individual is involved, then all parties are liable to the
damaged borrower both jointly and separately.
All fees on the Loan Estimate fall into three (3) categories, these are? - Answer- There
are three fee tolerance, zero, 10% cumulative and no-tolerance.
Is a referral fee ever allowed? - Answer- No. Section 8 of RESPA prohibits referral fees.
The estimate of closing costs on the mortgage loan disclosed on the Loan Estimate are
good for: - Answer- The initial Loan Estimate expires 10 business days from the date
the creditor provided the LE to the consumer if the consumer does not expressly
provide their Intent to Proceed.
, Which of the following situations is not a red flag that illegal flipping may be taking
place? - Answer- Illegal property flipping occurs when the property is purchased and
resold quickly at an artificially inflated price by utilizing fraudulently inflated appraisals.
Illegal property flips typically have not been improved or renovated since the purchase
and are quickly resold at a much higher price. Sometimes the property is only owned for
twenty-four (24) hours before it is resold.
An applicant who has had a loan originator license revoked previously is eligible for a
license as long as: - Answer- Once you've had a license revoked in another state, there
is no getting licensed again anywhere in the United States.
An MLO advertises a low interest rate for qualified applicants. A prospective borrower
meeting the qualifications applies. The MLO moves the borrower into another loan
which makes more profit to the lender. This is an example of: - Answer- Bait and switch
occurs when a licensee advertising specific rates and terms to get a borrower in the
door and then puts them in an entirely different product than they advertised. This is
prohibited conduct.
Which of the following is NOT a finance charge in a residential mortgage loan? -
Answer- A finance charge is a cost of credit. A good way to think about it is, would the
borrower potentially pay this fee if they were paying cash for this home? If the answer is
yes, then it's likely not a finance charge. In this situation - if the borrower is paying cash
for the home, they will likely still have to pay for an appraisal, so an appraisal fee is not
a finance charge. The other fees are all costs of obtaining a loan.
In lieu of your social security number, what number assigned by the NMLS will the state
use to identify you as an MLO? - Answer- The NMLS assigns each MLO a unique
identifier, the unique identifier is like the MLO's social security number it is unique to
them and no one else will ever have that number. It is an easy way to identify the
individual MLO.
An MLO is working on disclosing a borrower's Loan Estimate, which of the following is
true: - Answer- Lenders are not allowed to impose any fee to the borrower for a
mortgage transaction until the borrower has received the LE, and they have indicated
an intent to proceed with the transaction. The only exception to the rule is for a bona-
fide and reasonable fee for obtaining a consumer's credit report.
Trevor is looking to obtain an ARM loan, his MLO is required to disclose what within 3
days of application? - Answer- Per TILA, the Consumer Handbook on Adjustable Rate
Mortgages must be disclosed within 3 business days of a application on all ARM
transactions.
On Form 1003 Section X: Information for Government Monitoring Purposes is used in
order to comply with which federal law? - Answer- The final section of the 1003 is the
information for government monitoring purposes. This section includes a statement that
the borrower should read, and requests that the borrower furnish information regarding
