MLO Mortgage Loan Origination (SAFE MLO) Exam Questions and Answers

To verify a borrower's income for the ability-to-repay (ATR) requirements, lenders must rely on verified documentation, such as:

Electronic paystubs

W-2 forms

Tax returns

An electronic paystub is acceptable as it provides detailed proof of the borrower's income, including salary, deductions, and other compensation.

Items like a check register (B), the income stated on the loan application (C), or a borrower’s attestation (D) without documentation are not considered valid forms of income verification.

Prepayment penalties can be used as a tool for predatory lending or steering, especially if borrowers are not made aware of them or if such penalties are used to discourage refinancing or early payoff, which may not be in the borrower’s best interest.

“Certain loan terms such as prepayment penalties… may be considered predatory when they are not adequately disclosed or when used to lock borrowers into unfavorable loans.”

— CFPB, Protecting Consumers from Predatory Lending Practices

Cash-out and lowered interest rates are not inherently predatory, and a fixed interest rate is generally a consumer-friendly feature.

The Real Estate Settlement Procedures Act (RESPA) applies to federally related mortgage loans, which include:

Loans made by lenders insured by a federal agency (such as FHA or VA loans)

Loans intended for sale to Fannie Mae or Freddie Mac

Loans from lenders that are federally regulated or insured

RESPA's goal is to protect consumers by requiring disclosures related to the costs of real estate transactions, preventing kickbacks, and ensuring transparency in the settlement process. It applies to most residential mortgage loans.

Other options:

County-related mortgage loans (B), state registration loans (C), and unified commerce loans (D) are not standard terms under RESPA.

For FHA loans, borrowers are required to pay a Mortgage Insurance Premium (MIP). This insurance protects the lender in case of default or foreclosure. FHA loans are backed by the Federal Housing Administration, and MIP is mandatory for borrowers due to the lower down payment requirements and increased risk to lenders.

Mortgage Insurance Premium (MIP): FHA loans require an upfront MIP at closing (usually 1.75% of the loan amount) and annual MIP, which is divided into monthly installments and added to the mortgage payment.

The MIP protects lenders by providing insurance coverage in the event the borrower defaults, reducing the lender’s loss.

Other options:

Down payment (A) is required but does not protect the lender.

Hazard insurance premium (B) protects the property, not the lender in foreclosure.

Homeowners association dues (D) are unrelated to lender protection.

According to the TILA-RESPA Integrated Disclosure (TRID) rule, the borrower must receive the Closing Disclosure (CD) at least 3 business days prior to loan consummation. This waiting period gives the borrower adequate time to review the final terms and costs associated with the mortgage loan. If there are significant changes to the terms of the loan after the CD is issued, a new 3-day waiting period may be required.

The VA funding fee varies based on several factors, including whether the borrower has a service-connected disability, if the borrower is a first-time or subsequent user of VA benefits, and the loan-to-value ratio (LTV). Marital status does NOT affect the funding fee.

“Factors that determine the VA funding fee include: type of veteran, type of loan, down payment amount (LTV), and whether the veteran has previously used entitlement. Marital status does not impact the funding fee.”

— U.S. Department of Veterans Affairs, VA Funding Fee Table

Under RESPA Section 8(b), it is illegal for any person to give or accept any portion, split, or percentage of a settlement service fee other than for services actually performed. This is known as fee splitting or unearned fee splitting.

“No person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a settlement service other than for services actually performed.”

— 12 USC § 2607(b), RESPA Section 8(b)

Under TILA (Truth in Lending Act), higher-priced mortgage loans (HPMLs) are subject to several regulations, including:

Lenders must verify income and assets to ensure the borrower’s ability to repay the loan (A).

Creditors are required to establish escrow accounts for taxes and property insurance for first-lien mortgages (B).

There are restrictions on prepayment penalties (C).

However, borrowers of HPMLs do not have a five-day right of rescission. The right of rescission is typically three business days and applies to refinances on primary residences, not to HPMLs.

Lenders are permitted to verify employment status as part of underwriting and evaluating an applicant’s ability to repay. However, lenders are prohibited by ECOA and Fair Housing Act from making inquiries about sex, religion, or childbearing intentions.

“A creditor may request information regarding the applicant’s employment status, income, and other credit qualifications, but may not inquire about an applicant’s sex, religion, or childbearing intentions.”

— 12 CFR § 1002.5(b); Regulation B (ECOA)

Under TRID/Regulation Z, if a borrower requests a change in loan product, this is considered a changed circumstance, and a new Loan Estimate must be provided reflecting the revised terms within three business days.

“A revised Loan Estimate must be provided if a changed circumstance affects the consumer’s eligibility for a specific loan product or terms.”

— 12 CFR § 1026.19(e)(3)(iv)

For state-licensed, non-depository lenders, the primary regulatory authority is the state regulator in the jurisdiction where the lender operates. Each state has its own agency or department responsible for overseeing licensing, compliance, and enforcement of mortgage laws for non-depository institutions.

The NMLS (A) is the system used to manage licenses but is not a regulatory authority.

The Federal Trade Commission (B) oversees federal consumer protection laws but is not the primary regulator for state-licensed lenders.

The Conference of State Bank Supervisors (CSBS) (D) helps coordinate state regulation but does not directly regulate individual lenders.

Coercion is the act of using force, threats, or pressure to influence another party’s actions or decisions. Imposing arbitrary and unreasonable time limits to force a borrower to act quickly—when such urgency is not legitimate—is considered a form of coercion.

“Coercion includes pressuring consumers to make decisions in haste or under duress, such as requiring immediate action to lock in a loan rate.”

— SAFE MLO National Test Study Guide; CFPB Consumer Protection Resources

This practice is prohibited and unethical.

Redlining is the illegal practice of refusing to lend or offering less favorable terms to residents of certain geographic areas, often based on the racial or ethnic composition of those areas.

“Redlining is the practice of denying or restricting financial services to certain neighborhoods based on race or ethnicity.”

— CFPB, What is redlining?

A title search is performed during the mortgage process to uncover any preexisting claims, liens, judgments, or encumbrances on the property. This ensures that the lender and buyer are aware of any legal interests other parties may have and helps establish clear ownership.

“A title search is a review of public records to determine and confirm a property’s legal ownership, and to find out what claims or liens are on the property.”

— CFPB, Buying a House: Settlement Process Overview

Confirming applicant identity, insurance, or purchase ability are not the primary purposes of a title search.

The Consumer Financial Protection Bureau (CFPB) is responsible for regulating mortgage lenders and overseeing their origination practices and procedures. The CFPB was created under the Dodd-Frank Act to protect consumers from unfair, deceptive, or abusive practices in financial services, including mortgages. Its functions include:

Enforcing rules related to mortgage origination, such as TILA, RESPA, and ECOA.

Ensuring that lenders provide clear disclosures and follow fair lending practices.

Other functions:

Regulating the federal funds rate (A) is the role of the Federal Reserve.

Deciding the quantity of mortgage-backed securities purchased by the government (D) is related to Federal Reserve monetary policy, not the CFPB.

Under the TILA-RESPA Integrated Disclosure (TRID) rule, fees that are paid to third parties not controlled by the lender, such as property taxes, are not subject to tolerance limits. This means they can change from the Loan Estimate to the Closing Disclosure without restriction.

Lender fees (like tax service or processing fees) and escrow fees (when the borrower did not shop for the service) are subject to zero or 10% tolerance limits.

“Property taxes, homeowners insurance premiums, and similar charges are not subject to any tolerance limitation, and can change between the Loan Estimate and the Closing Disclosure.”

— 12 CFR § 1026.19(e)(3)(iii); CFPB TILA-RESPA Small Entity Compliance Guide

When underwriting a loan, large or unusual deposits that are not readily identifiable (such as payroll deposits) must be sourced and documented. This is to ensure the funds are not borrowed or from an unacceptable source.

“If a bank statement reveals a large deposit that is not payroll-related, the lender must document the source of funds.”

— Fannie Mae Selling Guide, B3-4.2-02: Depository Accounts

The Home Ownership and Equity Protection Act (HOEPA) applies to certain types of high-cost loans, particularly refinance and home equity loans, that meet specific APR and fee thresholds. HOEPA was enacted to protect consumers from predatory lending practices in loans that carry excessive fees, high interest rates, or abusive terms.

HOEPA mainly covers:

Refinance loans

Home equity loans

Closed-end home equity loans

Certain purchase-money mortgages under specific conditions

Loans like construction loans (B), reverse mortgages (C), and USDA Rural Development loans (D) are generally excluded from HOEPA coverage.

The Truth in Lending Act (TILA) Regulation Z requires that advertisements for mortgage credit products that state a rate or terms must be clear and not misleading. Phrases like “with approved credit” are permissible when a specific APR is disclosed and required terms are provided. However, “no closing costs” or “variable rate starting at ___” are considered potentially misleading if not all relevant terms are disclosed.

“If an advertisement states a rate of finance charge, it must state the rate as an annual percentage rate (APR)… Disclosures must not be misleading. Stating ‘with approved credit’ in connection with an APR is permissible.”

— 12 CFR § 1026.24, Regulation Z

In an Adjustable-Rate Mortgage (ARM), the components that adjust periodically are the index and the interest rate. Here’s how it works:

The index is the benchmark interest rate that fluctuates with market conditions (e.g., LIBOR, SOFR).

The interest rate adjusts based on changes in the index, but the margin (the fixed percentage added to the index) remains constant throughout the life of the loan.

Thus, the index and interest rate are the variables that change periodically, while the margin remains fixed.

An origination fee is considered a finance charge under TILA because it represents the cost of obtaining credit. A finance charge includes all fees that a borrower must pay as a condition of securing a loan, excluding certain exempt fees like notary or appraisal fees.

Notary fees (A) and appraisal fees (C) are typically excluded from the finance charge calculation.

Late payment fees (D) are not considered finance charges; they are penalties for delinquent payments.

The index for an adjustable-rate mortgage (ARM) is tied to a published benchmark (such as LIBOR, SOFR, or U.S. Treasury securities). Index rates fluctuate over time as the general level of interest rates in the market changes.

“The index is a published interest rate to which the interest rate on an ARM is tied. The index rate changes over time, usually in line with general market rates.”

— CFPB, Consumer Handbook on Adjustable-Rate Mortgages (CHARM)

A best practice in cybersecurity is to set computers to automatically lock, shut down, and require a password or login after a period of inactivity. This helps prevent unauthorized access if the device is left unattended.

“Locking computers when not in use and requiring passwords after periods of inactivity is an essential safeguard to protect sensitive consumer data.”

— FTC, Cybersecurity for Small Business; GLBA Safeguards Rule

Other options are not best practices: laptops may need to leave the office, should not be shared, and passwords should never be shared with anyone.

Under Regulation B (ECOA), creditors may ask about permanent residency or immigration status because this is relevant to the creditor’s ability to enforce rights in the event of default. However, they may not ask about childbearing, and other options are either unnecessary or potentially discriminatory.

“A creditor may inquire about an applicant’s permanent residency and immigration status.”

— 12 CFR § 1002.5(e); Regulation B

A Loan Estimate is considered “expired” if the consumer does not express an intent to proceed within 10 business days after the Loan Estimate is provided, unless a longer period is specified by the creditor.

“If a creditor does not receive an intent to proceed from a consumer within ten business days after the Loan Estimate is provided, the creditor is no longer bound by the Loan Estimate.”

— 12 CFR § 1026.19(e)(3)(iv)(E); CFPB TILA-RESPA Guide

Under RESPA, a settlement service includes any service provided in connection with a real estate settlement, including the origination, processing, or funding of a federally related mortgage loan. A federally related mortgage loan is defined as any loan (other than temporary financing) secured by a first or subordinate lien on residential real property.

“Settlement service means any service provided in connection with a real estate settlement including but not limited to… the origination of a federally related mortgage loan.”

— 12 CFR § 1024.2, Regulation X

Timeshare, chattel, and unsecured loans are not considered federally related mortgage loans under RESPA.

The Real Estate Settlement Procedures Act (RESPA, Regulation X) applies specifically to loans secured by a 1-4 family residential property (owner-occupied or investment) made by lenders, brokers, or others involved in real estate settlement services. RESPA does not cover auto loans, student loans, or commercial real estate loans.

“RESPA covers loans secured with a mortgage placed on a one-to-four family residential property, including most purchase loans, assumptions, refinances, property improvement loans, and equity lines of credit.”

— Consumer Financial Protection Bureau (CFPB): Real Estate Settlement Procedures Act (Regulation X)

Thus, of the choices provided, only residential real estate loans are covered by RESPA.

Consumers should dispute errors in writing directly with the credit bureau that is reporting the incorrect information. This written notification triggers an official investigation by the bureau, which must respond within 30 days.

“To dispute an error on your credit report, write a letter to the credit reporting company identifying each item in your report you dispute. Include copies of documents that support your position.”

— Fair Credit Reporting Act (FCRA); CFPB Disputing Errors on Credit Reports

Under TILA-RESPA Integrated Disclosure (TRID) Rule, fees paid to affiliates of the lender (e.g., title companies, appraisers) must remain the same on the Loan Estimate (LE) unless there is a valid changed circumstance (such as a significant change in the loan terms or property value). These fees fall under the zero-tolerance category, meaning they cannot increase from the amount disclosed on the LE unless a change in circumstance justifies the increase.

Other costs like per diem interest (A), homeowner's insurance (B), and owner's title insurance premiums (C) can change, as they are not subject to the same zero-tolerance rules.

Under Regulation Z, Section 1026.35(c), for higher-priced mortgage loans (HPMLs), if the seller acquired the property 90 days or less before the date of the borrower’s purchase agreement and the resale price exceeds the seller’s acquisition price by more than 10%, the lender must obtain two written appraisals from different certified or licensed appraisers.

“A creditor must obtain two written appraisals if the seller acquired the property 90 days or fewer prior to the date of the consumer’s agreement to acquire the property and the price exceeds the seller’s acquisition price by more than 10 percent.”

— 12 CFR § 1026.35(c)(4)(i)

According to the SAFE Act, state-licensed MLOs must complete at least eight hours of approved continuing education annually, including three hours of federal law and regulations, two hours of ethics (which includes instruction on fraud, consumer protection, and fair lending), and two hours of training on nontraditional mortgage products.

“The annual continuing education requirement must include at least—(A) 3 hours of Federal law and regulations; (B) 2 hours of ethics, including instruction on fraud, consumer protection, and fair lending issues; (C) 2 hours of training related to lending standards for the nontraditional mortgage product marketplace.”

— SAFE Act, 12 U.S.C. § 5105(b)(2)(A)-(C)

In this situation, the most compliant action is to provide timely initial disclosures to the borrower within the required timeframe, even if the figures may be adjusted later when additional information is obtained. This is in accordance with TILA-RESPA Integrated Disclosure (TRID) rules, which mandate that the Loan Estimate (LE) must be provided within three business days after receiving an application, even if all details are not yet finalized.

Holding off on processing (Option A) or waiting until additional information is obtained (Option D) is non-compliant, as this could violate the timely disclosure requirements.

While documenting attempts to gather information (Option B) is good practice, it does not fulfill the regulatory obligation to provide disclosures promptly.

By issuing initial disclosures, even if the numbers are subject to change, the creditor remains compliant with the Consumer Financial Protection Bureau (CFPB) guidelines. Corrections can be made in subsequent disclosures.

Under the SAFE Act (Secure and Fair Enforcement for Mortgage Licensing Act), the maximum civil penalty for each violation or failure to comply is $25,000 per act or omission. This applies to mortgage loan originators (MLOs) and others who violate licensing or regulatory requirements under the SAFE Act. Violations can include actions such as failing to obtain proper licensure or engaging in fraudulent lending practices.

Under the Equal Credit Opportunity Act (ECOA), creditors must notify applicants of action taken (approval, denial, or other) within 30 days of receiving a completed application.

“A creditor shall notify an applicant of action taken within 30 days after receiving a completed application concerning the creditor's approval of, counteroffer to, or adverse action on the application.”

— 12 CFR § 1002.9(a)(1), Regulation B (ECOA)

Under TILA’s right of rescission, when there are multiple borrowers with an ownership interest in the property, each owner must receive notice of the right to rescind. If any one of them exercises the right, the loan is rescinded.

“When more than one consumer has the right to rescind, the exercise of the right by one consumer is effective as to all.”

— 12 CFR § 1026.23(a)(4), Regulation Z

Temporary authority to originate loans applies to registered MLOs (from a depository institution) who become employed by a state-licensed mortgage company, as well as to state-licensed MLOs seeking licensure in another state, provided they meet all SAFE Act requirements.

“Temporary authority to originate loans applies to… registered mortgage loan originators seeking state licensure and state-licensed MLOs seeking licensure in a new state.”

— SAFE Act, 12 U.S.C. § 5117; NMLS Temporary Authority Guidelines

It does not apply to real estate brokers or those who have not passed required testing/background checks.

Under RESPA (Real Estate Settlement Procedures Act), Section 8 prohibits any payment, kickback, or unearned fee in exchange for loan referrals. This includes payments to real estate agents or other third parties for referring business to lenders or mortgage brokers. Such payments are illegal because they could inflate the cost of settlement services and are not tied to any actual services rendered.

Payments for actual services (A, D), such as payments to attorneys or contractors for legitimate work, are allowed under RESPA, but paying for loan referrals (B) is strictly prohibited.

The loan-to-value (LTV) ratio is calculated by dividing the loan amount by the lesser of the appraised value or the purchase price of the property. This protects lenders from over-lending on a property that may have a sales price above its actual market value.

“The loan-to-value ratio is calculated by dividing the loan amount by the lesser of the appraised value or sales price.”

— Fannie Mae Selling Guide; SAFE MLO National Test Study Guide

The Bank Secrecy Act (BSA) requires mortgage lenders and other financial institutions to adopt anti-money laundering (AML) policies to detect and prevent money laundering and other financial crimes. Under BSA, lenders must:

Implement a written AML compliance program.

Report suspicious activities using Suspicious Activity Reports (SARs).

Maintain records and report large cash transactions to prevent illegal financial activities such as money laundering and fraud.

Other laws mentioned:

The National Bank Act and National Currency Act focus on the regulation of national banks.

The Real Estate Settlement Procedures Act (RESPA) addresses settlement and disclosure requirements but does not cover AML rules.

Under TILA's Right of Rescission, in a federally related mortgage loan (such as a refinance) secured by a primary residence, any person who has an ownership interest in the property has the right to rescind the transaction within three business days after the closing, delivery of the notice of right to rescind, or delivery of all material disclosures, whichever occurs last.

This right applies to all individuals with a legal interest in the property, not just the primary borrower or the person who will occupy the property. This ensures that all owners can consent to the mortgage terms.

The MLO must advise the borrower that if they plan to purchase a new home shortly after refinancing, they must disclose this information upfront. Since the terms of the refinance loan require that the borrower occupy the property for 12 months, the MLO should suggest refinancing the current property as a non-owner-occupied loan if the borrower does not intend to stay in the home. This approach ensures compliance with the loan terms and avoids potential mortgage fraud.

Other options (A, B, C) involve potential conflicts of interest or violations of the loan terms.

The Equal Credit Opportunity Act (ECOA) prohibits discrimination based on receipt of child support, marital status, and age (provided the applicant is legally able to contract). However, it permits denial based on immigration status if it affects the creditor's ability to enforce legal rights in case of default.

“A creditor may inquire about an applicant’s immigration status and may deny credit if the applicant is not a permanent resident or otherwise not legally in the U.S. and able to contract.”

— 12 CFR § 1002.5(e), Regulation B (ECOA)

The SAFE Act requires all state-licensed mortgage loan originators (MLOs) to obtain and maintain an active license through their state’s regulatory agency, including meeting annual renewal and continuing education requirements.

“Each mortgage loan originator must obtain a license from, and annually renew a license with, the State in which the mortgage loan originator maintains a unique identifier.”

— SAFE Act, 12 U.S.C. § 5104(a)(1)-(2)

AARMR and CSBS administer the NMLS system, but licenses are maintained through state agencies. While re-taking the national test is required after some periods of inactivity, it is not required specifically after failing to maintain a license for four years unless mandated by the state.

Community second funds are an acceptable source of funds for down payments, closing costs, or financial reserves. These are subordinate loans provided by housing finance agencies, nonprofits, or government entities to help borrowers meet the required down payment or closing costs. These funds are often offered to low-to-moderate income borrowers or first-time homebuyers as part of affordable housing programs.

Virtual currency (A), such as Bitcoin, is not an acceptable source due to its volatility and challenges in verifying its stability.

Personal unsecured loans (C) are generally not allowed, as they increase the borrower’s debt and reduce their financial stability.

Foreign assets outside of the U.S. (D) are not typically acceptable unless they can be easily liquidated and transferred to the U.S.

A second (subordinate) mortgage loan refers to a mortgage taken out after the primary mortgage and is subordinate to the first in priority of claims on the property in case of default or foreclosure. One of the most common types of subordinate mortgages is a home equity line of credit (HELOC).

HELOC allows homeowners to borrow against the equity in their home, typically after the first mortgage, making it a subordinate loan.

Other options:

Government home purchase loans (A) and conventional home purchase loans (B) are typically first mortgages.

A home equity conversion mortgage (C) is a type of reverse mortgage, which is also typically a primary loan, not a subordinate one.

Real estate brokerage activities are not a primary function of a mortgage loan originator (MLO). The MLO’s primary role is to assist consumers in taking an application (A), offering or negotiating credit terms (B), and helping consumers apply for credit (C).

Real estate brokerage activities, such as negotiating real estate transactions, are separate from the loan origination process and require different licensing and qualifications.

When multiple discrepancies in a borrower’s Social Security number (SSN) are found within the same loan file, it raises concerns of mortgage fraud. The Social Security number is a critical identifier used to verify a borrower's identity, credit history, and employment. Inconsistent or altered SSNs may suggest attempts to hide the true identity of the borrower, which can be an indicator of fraudulent activity.

Mortgage fraud involves deliberate misrepresentation of information on loan applications, documents, or other parts of the mortgage process. SSN discrepancies can point to identity theft or attempts to use multiple identities to obtain a loan fraudulently.

This is a serious concern under the Fair Credit Reporting Act (FCRA) and can lead to legal action if discovered during underwriting or later in the loan process.

Mortgage loan originators (MLOs) must report such discrepancies as they may violate federal laws like RESPA and TILA and lead to further investigation.

The upfront premium charged on an FHA mortgage is an example of government mortgage insurance. This upfront mortgage insurance premium (UFMIP) is required for FHA loans and protects the lender (creditor) in the event of borrower default. FHA loans are insured by the Federal Housing Administration (FHA), a government agency.

Private mortgage insurance (D) is used for conventional loans, while optional credit life insurance (A) and force-placed hazard insurance (B) are unrelated to FHA loans.

When applying for a Home Equity Line of Credit (HELOC), consumers should carefully review the APR and the total costs of acquiring and maintaining the HELOC. The APR reflects the overall cost of borrowing, including interest and certain fees, and is crucial for understanding the long-term expense of the HELOC. Additionally, consumers should consider fees associated with setting up and maintaining the HELOC, such as annual fees, transaction fees, and closing costs.

While HUD insurance (A) and FDIC deposit insurance (C) are unrelated to HELOCs, and private mortgage insurance (B) is generally not required for HELOCs, the APR and fees are critical factors that directly impact the cost of borrowing.

A Qualified Mortgage (QM) is a category of loans that has certain, more stable features that help make it more likely that a borrower will be able to afford their loan. QMs cannot have negative amortization, interest-only payments, or balloon payments (with a few rural lender exceptions). They must provide for regular, substantially equal periodic payments of principal and interest.

“A qualified mortgage provides for regular periodic payments that are substantially equal, does not result in negative amortization, does not allow for interest-only payments, and does not generally include balloon payments.”

— 12 CFR § 1026.43(e), Ability-to-Repay/Qualified Mortgage Rule; CFPB

Under TILA-RESPA Integrated Disclosure (TRID) rules, borrowers must receive the Loan Estimate (LE) at least 7 business days before consummation of the loan. This rule allows borrowers ample time to review the terms and costs of the mortgage before closing.

If a revised Loan Estimate is issued due to changes in circumstances (e.g., interest rate changes, property changes), the borrower still needs to receive it no later than 7 business days before consummation.

Under RESPA (Real Estate Settlement Procedures Act), settlement services include activities related to closing the mortgage loan, such as title company services and escrow agent services. These services are integral to the settlement process and ensure that the transaction is completed legally and correctly.

Flood insurance (A) is required for properties in flood zones but is not considered a settlement service.

Homeowners association fees (B) and the sale of the mortgage loan on the secondary market (D) are also not part of the settlement services.

Under the SAFE Act, offering or negotiating the terms of a loan includes presenting specific loan terms to an applicant, whether verbally, in writing, or through any other communication method. This activity directly involves discussing or negotiating loan details like interest rates, loan amounts, and repayment terms, which requires licensure as a mortgage loan originator (MLO).

Providing general explanations (A) and arranging loan closings (D) do not require an MLO license because they do not involve negotiating or offering specific loan terms.

Making underwriting decisions (B) is also a separate activity not considered "offering or negotiating" loan terms.

An origination fee is a charge by the lender for processing a new loan application, which typically includes the costs of underwriting and originating the loan. The underwriting fee is a common component of the lender's origination charges. Appraisal, title insurance, and prepaid interest are separate, non-origination costs.

“Origination charges include fees for underwriting, processing, and originating the loan.”

— CFPB, Loan Estimate Explainer; TRID Rule Guide

A mortgage loan originator must only offer rates and terms that are actually available at the time. If a 3.5% rate is only available with 1 discount point, that is the only option the MLO may lawfully present.

“Originators may only quote and offer the rates, terms, and fees actually available from the creditor.”

— Regulation Z, 12 CFR § 1026.25, SAFE MLO National Test Study Guide

Under the SAFE Act, state regulators have the authority to examine, investigate, and review any mortgage loan originator “as often as necessary” to ensure compliance with applicable laws and regulations. There is no specific limit on frequency.

“The State licensing agency may investigate and examine any mortgage loan originator as often as necessary to carry out the purposes of this chapter.”

— SAFE Act, 12 U.S.C. § 5117(b)

Under the Appraiser Independence Requirements (AIR), appraisers are obligated to perform their duties free from outside influence or coercion. Asking the appraiser to substantiate a value is permissible because it falls within the scope of ensuring an accurate and credible appraisal. However, it is not permissible to pressure the appraiser into achieving a target value (A) or to withhold payment (B) for unfavorable valuations.

Direct communication between the loan officer and the appraiser (D) may be restricted or controlled to prevent undue influence.

The minimum amount of flood insurance required by lenders for a residential building located in a Special Flood Hazard Area (SFHA) is the lesser of:

100% of the replacement cost of the structure, or

The maximum available under the National Flood Insurance Program (NFIP), which is $250,000 for residential property structures.

This requirement ensures that the property is adequately covered in case of flood damage.

The income approach (sometimes called the capitalization approach) is a method used to estimate the value of income-producing properties. This method divides the net operating income (rent collected, less expenses) by the capitalization rate (cap rate) to determine value.

“The income approach to value is used to estimate the value of properties that generate income. The appraiser divides net operating income by a capitalization rate to derive the value.”

— Fannie Mae Appraisal Guidelines; SAFE MLO National Test Study Guide

To qualify as a Safe Harbor Qualified Mortgage (QM), the APR must be less than 1.5% above the Average Prime Offer Rate (APOR) for first-lien loans. This threshold is set by the Qualified Mortgage Rule under the Dodd-Frank Act to ensure that Safe Harbor QMs offer fair and affordable loan terms, protecting borrowers from predatory lending practices.

Safe Harbor QMs are considered the most consumer-friendly loans and are protected from liability under the Ability-to-Repay Rule (ATR).

The Equal Credit Opportunity Act (ECOA) Valuations Rule (Regulation B) requires creditors to provide a written notice to applicants within three business days of application stating their right to receive a copy of any appraisal report developed in connection with their application.

“A creditor must deliver or mail a notice of the applicant’s right to receive a copy of all appraisals or valuations developed in connection with the application within three business days of receiving an application.”

— 12 CFR § 1002.14(a)(2), Regulation B

Applicants do not have the right to select their appraiser.

Redlining is the discriminatory practice of denying loans or other financial services to otherwise creditworthy applicants based on the location of the property, often in minority or economically disadvantaged neighborhoods. This is illegal under the Fair Housing Act and Equal Credit Opportunity Act (ECOA), as it constitutes a form of racial or ethnic discrimination in housing and lending.

Steering (A) involves directing borrowers toward certain loan products for the lender’s benefit, while low balling (D) and appraising (C) are unrelated to this form of discrimination.

Prepaid items are costs that a borrower pays in advance at closing, such as interest, property taxes, and homeowners insurance. These are often collected to set up escrow accounts for future payments. Real estate taxes paid at closing are a classic example of a prepaid item.

“Prepaid items are charges that are paid in advance at closing for items such as interest, property taxes, and insurance premiums.”

— CFPB, Your Home Loan Toolkit

Regulation Z (TILA) and the SAFE Act require that all mortgage loan applications include the MLO's unique identifier, which allows regulators and consumers to identify the MLO involved in the transaction.

“Each loan application must include the mortgage loan originator’s name and unique identifier.”

— 12 CFR § 1026.36(g); SAFE Act

Other listed information is not federally required on every mortgage application.

When a mortgage loan originator (MLO) is also acting as a real estate broker in the same transaction, an Affiliated Business Arrangement (ABA) Disclosure is required under RESPA. This disclosure ensures that the borrower is made aware of the relationship between the parties involved in the transaction and any potential conflict of interest, especially if the MLO could benefit financially from both roles.

Loan application (A), appraisal disclosure (B), and the special information booklet (C) are separate required disclosures, but they do not address the issue of affiliated businesses.

Regulation Z requires mortgage loan originators to present loan options that are in the consumer’s interest and for which the consumer is likely to qualify. Loan options presented must be appropriate to the consumer’s financial circumstances, not just the highest rate or those with penalties.

“Loan originators must present loan options for which the consumer likely qualifies, and which are in the consumer’s interest, including a loan with the lowest interest rate, lowest points and origination fees, and no risky features if such products are available.”

— 12 CFR § 1026.36(e), Regulation Z