NMLS SAFE ACT MLO -Ethics and Fraud |ACTUAL
QUESTIONS AND VERIFIED ANSWERS |LATEST
2026/2027 UPDATE|GRADED A+
Question 1
A lender provides a borrower with an initial amortization schedule for Private Mortgage
Insurance (PMI) disclosure at loan closing for an adjustable-rate mortgage. The lender MUST
also provide a written notice stating the
A. Lender's right to increase the monthly payment amount for PMI
B. Borrower's right to refuse a PMI
C. Lender's right to extend the time for monthly payments for a PMI
D. Borrower's right to cancel PMI
ANSWER
D. Borrower's right to cancel PMI
Question 2
The Privacy Rule of the Gramm-Leach-Bliley Act requires that financial institutions provide
the consumer with a Consumer Privacy Policy disclosure
A. each time the servicing is transferred.
B. each time the policy is revised.
C. annually as long as the relationship continues.
D. at closing only.
ANSWER
C. annually as long as the relationship continues.
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@THE STUDY VAULT
,Question 3
Which of the following is true of a dual contract?
A. It deprives the seller of receipt of the full price of the property.
B. It deprives third parties of their proper fees.
C. It defrauds the lender providing the funds for the purchase of the property.
D. It is usually used so the real estate agent may earn a higher commission.
ANSWER
C. It defrauds the lender providing the funds for the purchase of the property.
Explanation:
A dual contract is an instrument that states a sales price higher than the actual sales price
in an effort to obtain a larger loan from a lender or lending institution or for the purpose
of misinforming a governmental agency or some other reason.
Question 4
Which law ensures that some borrowers have the right of rescission for three business days
after a loan contract is signed?
A. Regulation Z
B. Regulation X
C. Title VIII
D. Equal Credit Opportunity Act
ANSWER
A. Regulation Z
2
@THE STUDY VAULT
,Explanation:
The Truth in Lending Act (TILA) of 1968 is a United States federal law and designed to
protect Consumers in credit by requiring clear key terms of the lending arrangement and
all costs. is legal in Title I of the Consumer Credit Protection Act, as amended. The
regulations implementing the statute, which are known as "Regulation Z", are codified at
12 CFR Part 226. Most of the specific requirements imposed by TILA are found in
Regulation Z, so a reference to the requirements of TILA usually refers to the requirements
contained in Regulation Z, as well as the statute itself.
Question 5
Which is LEAST LIKELY to be an example of illegal flipping?
A. an inflated appraisal
B. a series of sales and quick resales
C. a group of sellers and buyers changing ownership of one property among them
D. purchasing and remodeling a house and selling it for quick profit
ANSWER
D. purchasing and remodeling a house and selling it for quick profit
Explanation:
Purchasing and remodeling a house and then selling it for a quick profit is the good side of
flipping, which is perfectly legal. The illegal side of flipping is when colluding parties profit
from the sale of property with an inflated appraisal that supports a loan. It may involve a
series of sales and quick resales, with one property and a group of sellers and buyers
changing ownership among them.
Question 6
Under the USA Patriot Act, which of the following is NOT obtained by a mortgage broker
from a borrower for customer identification purposes?
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@THE STUDY VAULT
, A. Alien identification number
B. Passport number
C. Taxpayer identification number
D. Credit card number
ANSWER
D. Credit card number
Question 7
Which of the following is true of property flipping?
A. It is illegal.
B. It does not apply to a situation where the owner fixes up a property and sells it shortly
after acquiring it.
C. It involves making a purchase and a quick resale at a profit.
D. It is illegal when used to take advantage of a seller who had to sell below market price
because he was facing foreclosure.
ANSWER
C. It involves making a purchase and a quick resale at a profit.
Explanation:
Property flipping occurs when a buyer resells (flips) a property, shortly after he has
purchased it, for a much higher price than he paid. Flipping is legal when it is the result of
making a wise investment, purchasing a property in need of work and then fixing it up, or
being able to take advantage of a seller who had to sell at a below market price, perhaps
because he was facing foreclosure.
4
@THE STUDY VAULT
QUESTIONS AND VERIFIED ANSWERS |LATEST
2026/2027 UPDATE|GRADED A+
Question 1
A lender provides a borrower with an initial amortization schedule for Private Mortgage
Insurance (PMI) disclosure at loan closing for an adjustable-rate mortgage. The lender MUST
also provide a written notice stating the
A. Lender's right to increase the monthly payment amount for PMI
B. Borrower's right to refuse a PMI
C. Lender's right to extend the time for monthly payments for a PMI
D. Borrower's right to cancel PMI
ANSWER
D. Borrower's right to cancel PMI
Question 2
The Privacy Rule of the Gramm-Leach-Bliley Act requires that financial institutions provide
the consumer with a Consumer Privacy Policy disclosure
A. each time the servicing is transferred.
B. each time the policy is revised.
C. annually as long as the relationship continues.
D. at closing only.
ANSWER
C. annually as long as the relationship continues.
1
@THE STUDY VAULT
,Question 3
Which of the following is true of a dual contract?
A. It deprives the seller of receipt of the full price of the property.
B. It deprives third parties of their proper fees.
C. It defrauds the lender providing the funds for the purchase of the property.
D. It is usually used so the real estate agent may earn a higher commission.
ANSWER
C. It defrauds the lender providing the funds for the purchase of the property.
Explanation:
A dual contract is an instrument that states a sales price higher than the actual sales price
in an effort to obtain a larger loan from a lender or lending institution or for the purpose
of misinforming a governmental agency or some other reason.
Question 4
Which law ensures that some borrowers have the right of rescission for three business days
after a loan contract is signed?
A. Regulation Z
B. Regulation X
C. Title VIII
D. Equal Credit Opportunity Act
ANSWER
A. Regulation Z
2
@THE STUDY VAULT
,Explanation:
The Truth in Lending Act (TILA) of 1968 is a United States federal law and designed to
protect Consumers in credit by requiring clear key terms of the lending arrangement and
all costs. is legal in Title I of the Consumer Credit Protection Act, as amended. The
regulations implementing the statute, which are known as "Regulation Z", are codified at
12 CFR Part 226. Most of the specific requirements imposed by TILA are found in
Regulation Z, so a reference to the requirements of TILA usually refers to the requirements
contained in Regulation Z, as well as the statute itself.
Question 5
Which is LEAST LIKELY to be an example of illegal flipping?
A. an inflated appraisal
B. a series of sales and quick resales
C. a group of sellers and buyers changing ownership of one property among them
D. purchasing and remodeling a house and selling it for quick profit
ANSWER
D. purchasing and remodeling a house and selling it for quick profit
Explanation:
Purchasing and remodeling a house and then selling it for a quick profit is the good side of
flipping, which is perfectly legal. The illegal side of flipping is when colluding parties profit
from the sale of property with an inflated appraisal that supports a loan. It may involve a
series of sales and quick resales, with one property and a group of sellers and buyers
changing ownership among them.
Question 6
Under the USA Patriot Act, which of the following is NOT obtained by a mortgage broker
from a borrower for customer identification purposes?
3
@THE STUDY VAULT
, A. Alien identification number
B. Passport number
C. Taxpayer identification number
D. Credit card number
ANSWER
D. Credit card number
Question 7
Which of the following is true of property flipping?
A. It is illegal.
B. It does not apply to a situation where the owner fixes up a property and sells it shortly
after acquiring it.
C. It involves making a purchase and a quick resale at a profit.
D. It is illegal when used to take advantage of a seller who had to sell below market price
because he was facing foreclosure.
ANSWER
C. It involves making a purchase and a quick resale at a profit.
Explanation:
Property flipping occurs when a buyer resells (flips) a property, shortly after he has
purchased it, for a much higher price than he paid. Flipping is legal when it is the result of
making a wise investment, purchasing a property in need of work and then fixing it up, or
being able to take advantage of a seller who had to sell at a below market price, perhaps
because he was facing foreclosure.
4
@THE STUDY VAULT
