MLO Exam Dumps - NMLS SAFE MLO Questions and Answers

The SAFE Act defines a mortgage loan originator (MLO) as someone who takes a residential mortgage loan application and offers or negotiates terms for compensation or gain. An individual who only handles the collection of mortgage payments is not acting as an MLO under the Act.

“Mortgage loan originator means an individual who (i) takes a residential mortgage loan application; and (ii) offers or negotiates terms of a residential mortgage loan for compensation or gain. The term does not include an individual who only performs administrative or clerical tasks or who only collects mortgage payments.”

— SAFE Act, 12 U.S.C. § 5102(4); NMLS Uniform State Content Outline

A lock-in agreement (rate lock) is a written commitment by a lender to hold a specific interest rate for a borrower for a certain period, usually prior to closing.

“A lock-in agreement is a written agreement guaranteeing the applicant a specified interest rate for a designated period.”

— SAFE MLO National Test Study Guide; CFPB Mortgage Glossary

A balloon mortgage is a type of loan where a large portion of the principal is repaid in a lump sum at the end of the loan term. This structure often features smaller, periodic payments during the life of the loan, with the remaining balance (the balloon payment) due at the end of the loan period. Balloon mortgages are typically shorter-term loans, such as 5 or 7 years.

This differs from other loan types:

FHA mortgages (A) are fully amortized loans backed by the government.

Qualified mortgages (C) meet specific ability-to-repay standards and are fully amortized.

Deferred-payment mortgages (D) often refer to reverse mortgages or loans with delayed payment schedules, which are not the same as balloon loans.

Prepaid charges refer to certain upfront costs paid at closing. These include:

Per diem interest (D), which covers the interest from the closing date to the end of the month.

Other items like origination fees (A), credit report fees (B), and conveyance taxes (C) are not considered prepaid charges; they are typically categorized as closing costs or settlement fees.

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 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)

Under HOEPA (Home Ownership and Equity Protection Act) rules for high-cost mortgages, a creditor may not refinance a high-cost mortgage into another high-cost mortgage within 12 months of the previous transaction unless the new loan is in the borrower’s best interest. This is to prevent loan flipping and predatory lending.

“A creditor may not refinance a high-cost mortgage into another high-cost mortgage within one year unless the new loan is in the borrower’s best interest.”

— 12 CFR § 1026.34(a)(3)

Since the purpose here is a cash-out for a collector car (not generally a “best interest” purpose), the MLO should deny the loan unless a strong case can be made that it is in the borrower’s best interest.

An individual who had their MLO license application denied, or had a license revoked or suspended in any governmental jurisdiction, is not eligible for temporary authority to act as a mortgage loan originator (MLO) under the SAFE Act. Temporary authority allows registered MLOs who move to a state-licensed mortgage company to act as MLOs while their application for a state license is being processed. However, individuals with disqualifying events, such as prior license denial or revocation, lose this privilege.

Other options:

Court orders for child support (B) and being a witness in a trial (A) do not disqualify individuals from obtaining temporary authority.

Interest-only mortgages are considered higher risk compared to traditional mortgages because the borrower’s scheduled payments only cover the interest on the loan, and none of the principal balance is reduced during the interest-only period. As a result, the loan balance remains unchanged, which increases the risk for both the borrower and lender if the value of the home decreases or if the borrower cannot make larger payments when the principal becomes due.

Other risks, such as exceeding the APOR (Average Prime Offer Rate) by a certain margin (C, D), apply to high-cost mortgages, not specifically interest-only loans.

Under the Equal Credit Opportunity Act (ECOA), lenders can deny a loan based on immigration status, as it directly relates to the borrower’s ability to legally reside and work in the country. Lenders must ensure that the borrower has the legal capacity to enter into a binding contract and that they are authorized to work in the U.S. for the loan’s duration.

Receipt of child support (A), marital status (C), and country of birth (D) are protected characteristics under ECOA, meaning a lender cannot deny credit based on these factors.