MLO Test Study Guide Questions With All
Correct & Verified Answers
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? Correct 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: Correct 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? Correct 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? Correct 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? Correct answer-There are
three fee tolerance, zero, 10% cumulative and no-tolerance.
Is a referral fee ever allowed? Correct 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:
Correct 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? Correct
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: Correct 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: Correct 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? Correct 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? Correct 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: Correct
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? Correct 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? Correct 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 their ethnicity, race, and sex. MLOs
obtain this information to ensure they comply with the Home Mortgage Disclosure Act (HMDA,
Regulation C). If the borrower does not volunteer the information, you have to do the best you can
to determine the information.
When a self-employed borrower is a 25% owner of his business, which of the following documents is
required? Correct answer-Any borrower is going to have to provide 2 years of tax returns, that
includes self-employed borrowers. The underwriter might also require 2 years of the business tax
returns.
HMDA is implemented as what Regulation? Correct answer-The Home Mortgage Disclosures Act or
HMDA is implemented by Regulation C.
What can you tell a borrower about a 7/1 ARM? Correct answer-A 7/1 ARM allows for a fixed rate
for 7 years and then an adjustable rate after that 7-year term.
Where, in the TILA, is the explanation for higher-priced loans located? Correct answer-Section 35
of TILA deals with higher-priced mortgage loans.
If two people are married, how do they likely hold title? Correct answer-Tenancy by the Entirety is
a form of co-ownership that involves only owners who are husband and wife, with each having an
equal and undivided share of the property. This form of ownership includes the right to survivorship
with the property automatically going to the surviving spouse.
,Land is given as a separate value in which of the following appraisal methods? Correct answer-The
cost approach is a way to discover the value by determining the value of the land plus how much it
would cost to build this house again.
The FACTA allows a consumer to dispute inaccurate credit information. How many days are allowed
for an incorrect item to be investigated? Correct answer-The dispute must be resolved within thirty
(30) days after the dispute was received.
A lender who preys upon minority, elderly or recent immigrant borrowers in order to take their
home's equity is engaging in: Correct answer-Predatory lending is unscrupulous actions carried out
by a lender to entice, induce or assist a borrower in taking a mortgage that carries high fees, a high-
interest rate, strips the borrower of equity, or places the borrower in a lower credit-rated loan to the
benefit of the lender.
Regulation X is also known as what law? Correct answer-Regulation X is also known as RESPA.
When a lender learns that a property is in a flood zone, the lender must do which of the following?
Correct answer-When a property is in a flood zone, most lenders are going to require that that
borrower obtain flood insurance. Every loan application is going to be required to have a flood
hazard determination form. This form will notify the borrower if their property is or is not in a flood
zone. If it is in a flood zone, the form will indicate that flood insurance is required.
A lender has how many business days to notify the borrower of an underwriting decision? Correct
answer-Under ECOA, it is the lender's responsibility to notify an applicant of any action taken on the
applicant's request for credit, whether favorable or adverse, within thirty (30) days of receiving the
completed application.
A loan officer creates a marketing plan to make between 2k and 4k per loan. His cousin calls, he
agrees to do the 300k loan for .75% commission. This is: Correct answer-This situation is legal and
ethical. He is working within his normal marketing plan.
An MLO referred his pre-approved borrower to a real estate company that both he and his partner
own. According to RESPA the MLO must: Correct answer-This would be considered an AfBA and
must be disclosed per RESPA at the time of referral.
Relevant financial information about an applicant who applies for an FHA or conventional residential
mortgage is entered on: Correct answer-The 1003 is the loan application, all pertinent information
about the loan and the borrower goes on the 1003.
In qualifying the income of a sole proprietor borrower, the originator should consider which of the
following to be most important? Correct answer-Usually when determining sole proprietor
income, you're going to use the net income to add things back in like depletion and depreciation and
subtract meals and entertainment.
A borrower is looking to obtain conventional financing for a refinance, the appraisal comes in lower
than expected and the borrower no longer qualifies for conventional financing. They want to go
ahead and proceed with FHA financing; the lender would have to what: Correct answer-This
situation would be an acceptable changed circumstance because information specific to the
transaction that the lender relied upon when providing disclosure is inaccurate or changed after the
disclosures were provided. The lender would have to re-disclose the Loan Estimate within 3 days of
the changed circumstance.
, An affiliated business arrangement must be given if there is what percent of an ownership interest?
Correct answer-RESPA says an AfBA exists if a person who may refer business to a settlement service
for a federally related mortgage loan and has either an affiliate relationship with or a direct beneficial
ownership interest of more than 1 percent in the provider of the settlement service and the person
directly or indirectly refers business to that provider or influences the selection of that provider.
Section 32 which covers high cost loans is part of which federal law? Correct answer-Section 32 is
the Homeownership and Equity Protection Act (HOEPA) and is under TILA.
After the crisis of the Great Recession according to FHA underwriting when can a borrower
repurchase again after a short sale? Correct answer-FHA's three-year waiting period starts from:
The date of the short sale, OR. If the prior mortgage was also an FHA-insured loan, from the date
that FHA paid the claim on the short sale.
The purpose of a Market Conditions Addendum is to: Correct answer-The Market Conditions
Addendum (Form 1004MC) is designed to enhance the transparency of the market trends and
conditions conclusions made by the appraiser.
Which of the following statements best describes Form 1008? Correct answer-The Uniform
Underwriting and Transmittal Summary Form 1008 summarizes key data from the loan application
package. Lenders use this information in reaching the underwriting decision. Form 1008 (or a similar
document) must be retained in the mortgage file for manually underwritten mortgage loans. Lenders
may, but are not required to, retain Form 1008 for loans underwritten with DU.
A loan's APR must be disclosed to the consumer on the: Correct answer-The Loan Estimate
includes the borrower's APR on the last page.
Approval of a reverse mortgage application will be largely based on which of the following? Correct
answer-A reverse mortgage enables older homeowners to convert the equity they have in their
homes into cash, using a variety of payment options to address their specific financial needs.
Which of the following may engage in residential mortgage loan origination activities as a loan
processor or underwriter without a state issued loan originator license? Correct answer-An
independent contractor underwriter or processor is required to be licensed, if they work for a lender
or another licensee, they are exempt.
Discount points would only be used if the interest rate offered to the borrower were which of the
following? Correct answer-Discount points are used to buydown the rate. If the borrower is
receiving par rate the lender might offer discount points as an option to lower the borrower's
interest rate.
When is a Notice of Adverse action required when the borrower applies for a loan? Correct
answer-Under ECOA, it is the lender's responsibility to notify an applicant of any action taken on the
applicant's request for credit, whether favorable or adverse, within thirty (30) days of receiving the
completed application. FCRA requires an adverse action disclosure be provided to the borrower if
their credit is the reasoning for all or part of the decision to deny the loan application. This disclosure
must be given within 30 days of a credit decision.
Correct & Verified Answers
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? Correct 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: Correct 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? Correct 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? Correct 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? Correct answer-There are
three fee tolerance, zero, 10% cumulative and no-tolerance.
Is a referral fee ever allowed? Correct 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:
Correct 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? Correct
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: Correct 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: Correct 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? Correct 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? Correct 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: Correct
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? Correct 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? Correct 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 their ethnicity, race, and sex. MLOs
obtain this information to ensure they comply with the Home Mortgage Disclosure Act (HMDA,
Regulation C). If the borrower does not volunteer the information, you have to do the best you can
to determine the information.
When a self-employed borrower is a 25% owner of his business, which of the following documents is
required? Correct answer-Any borrower is going to have to provide 2 years of tax returns, that
includes self-employed borrowers. The underwriter might also require 2 years of the business tax
returns.
HMDA is implemented as what Regulation? Correct answer-The Home Mortgage Disclosures Act or
HMDA is implemented by Regulation C.
What can you tell a borrower about a 7/1 ARM? Correct answer-A 7/1 ARM allows for a fixed rate
for 7 years and then an adjustable rate after that 7-year term.
Where, in the TILA, is the explanation for higher-priced loans located? Correct answer-Section 35
of TILA deals with higher-priced mortgage loans.
If two people are married, how do they likely hold title? Correct answer-Tenancy by the Entirety is
a form of co-ownership that involves only owners who are husband and wife, with each having an
equal and undivided share of the property. This form of ownership includes the right to survivorship
with the property automatically going to the surviving spouse.
,Land is given as a separate value in which of the following appraisal methods? Correct answer-The
cost approach is a way to discover the value by determining the value of the land plus how much it
would cost to build this house again.
The FACTA allows a consumer to dispute inaccurate credit information. How many days are allowed
for an incorrect item to be investigated? Correct answer-The dispute must be resolved within thirty
(30) days after the dispute was received.
A lender who preys upon minority, elderly or recent immigrant borrowers in order to take their
home's equity is engaging in: Correct answer-Predatory lending is unscrupulous actions carried out
by a lender to entice, induce or assist a borrower in taking a mortgage that carries high fees, a high-
interest rate, strips the borrower of equity, or places the borrower in a lower credit-rated loan to the
benefit of the lender.
Regulation X is also known as what law? Correct answer-Regulation X is also known as RESPA.
When a lender learns that a property is in a flood zone, the lender must do which of the following?
Correct answer-When a property is in a flood zone, most lenders are going to require that that
borrower obtain flood insurance. Every loan application is going to be required to have a flood
hazard determination form. This form will notify the borrower if their property is or is not in a flood
zone. If it is in a flood zone, the form will indicate that flood insurance is required.
A lender has how many business days to notify the borrower of an underwriting decision? Correct
answer-Under ECOA, it is the lender's responsibility to notify an applicant of any action taken on the
applicant's request for credit, whether favorable or adverse, within thirty (30) days of receiving the
completed application.
A loan officer creates a marketing plan to make between 2k and 4k per loan. His cousin calls, he
agrees to do the 300k loan for .75% commission. This is: Correct answer-This situation is legal and
ethical. He is working within his normal marketing plan.
An MLO referred his pre-approved borrower to a real estate company that both he and his partner
own. According to RESPA the MLO must: Correct answer-This would be considered an AfBA and
must be disclosed per RESPA at the time of referral.
Relevant financial information about an applicant who applies for an FHA or conventional residential
mortgage is entered on: Correct answer-The 1003 is the loan application, all pertinent information
about the loan and the borrower goes on the 1003.
In qualifying the income of a sole proprietor borrower, the originator should consider which of the
following to be most important? Correct answer-Usually when determining sole proprietor
income, you're going to use the net income to add things back in like depletion and depreciation and
subtract meals and entertainment.
A borrower is looking to obtain conventional financing for a refinance, the appraisal comes in lower
than expected and the borrower no longer qualifies for conventional financing. They want to go
ahead and proceed with FHA financing; the lender would have to what: Correct answer-This
situation would be an acceptable changed circumstance because information specific to the
transaction that the lender relied upon when providing disclosure is inaccurate or changed after the
disclosures were provided. The lender would have to re-disclose the Loan Estimate within 3 days of
the changed circumstance.
, An affiliated business arrangement must be given if there is what percent of an ownership interest?
Correct answer-RESPA says an AfBA exists if a person who may refer business to a settlement service
for a federally related mortgage loan and has either an affiliate relationship with or a direct beneficial
ownership interest of more than 1 percent in the provider of the settlement service and the person
directly or indirectly refers business to that provider or influences the selection of that provider.
Section 32 which covers high cost loans is part of which federal law? Correct answer-Section 32 is
the Homeownership and Equity Protection Act (HOEPA) and is under TILA.
After the crisis of the Great Recession according to FHA underwriting when can a borrower
repurchase again after a short sale? Correct answer-FHA's three-year waiting period starts from:
The date of the short sale, OR. If the prior mortgage was also an FHA-insured loan, from the date
that FHA paid the claim on the short sale.
The purpose of a Market Conditions Addendum is to: Correct answer-The Market Conditions
Addendum (Form 1004MC) is designed to enhance the transparency of the market trends and
conditions conclusions made by the appraiser.
Which of the following statements best describes Form 1008? Correct answer-The Uniform
Underwriting and Transmittal Summary Form 1008 summarizes key data from the loan application
package. Lenders use this information in reaching the underwriting decision. Form 1008 (or a similar
document) must be retained in the mortgage file for manually underwritten mortgage loans. Lenders
may, but are not required to, retain Form 1008 for loans underwritten with DU.
A loan's APR must be disclosed to the consumer on the: Correct answer-The Loan Estimate
includes the borrower's APR on the last page.
Approval of a reverse mortgage application will be largely based on which of the following? Correct
answer-A reverse mortgage enables older homeowners to convert the equity they have in their
homes into cash, using a variety of payment options to address their specific financial needs.
Which of the following may engage in residential mortgage loan origination activities as a loan
processor or underwriter without a state issued loan originator license? Correct answer-An
independent contractor underwriter or processor is required to be licensed, if they work for a lender
or another licensee, they are exempt.
Discount points would only be used if the interest rate offered to the borrower were which of the
following? Correct answer-Discount points are used to buydown the rate. If the borrower is
receiving par rate the lender might offer discount points as an option to lower the borrower's
interest rate.
When is a Notice of Adverse action required when the borrower applies for a loan? Correct
answer-Under ECOA, it is the lender's responsibility to notify an applicant of any action taken on the
applicant's request for credit, whether favorable or adverse, within thirty (30) days of receiving the
completed application. FCRA requires an adverse action disclosure be provided to the borrower if
their credit is the reasoning for all or part of the decision to deny the loan application. This disclosure
must be given within 30 days of a credit decision.
