MLO Exam Dumps - NMLS SAFE MLO Questions and Answers

Private mortgage insurance (PMI) is typically required for conventional first-lien loans when the loan-to-value (LTV) ratio exceeds 80%. That is, when the borrower puts down less than 20% as a down payment.

“PMI is required by lenders on conventional loans with a loan-to-value ratio greater than 80 percent.”

— Homeowners Protection Act of 1998; CFPB PMI Guidance

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.

The Fair Credit Reporting Act (FCRA) restricts the permissible purposes for which a credit report can be obtained. A mortgage loan originator may only pull a credit report for a bona fide mortgage loan transaction. Pulling a credit report for a non-mortgage transaction, even with the consumer’s consent, is not a permissible purpose.

“A person may obtain a consumer report only if the report is to be used for a permissible purpose under the FCRA. Permissible purposes include credit transactions initiated by the consumer.”

— 15 U.S.C. § 1681b; FCRA

Under the SAFE Act, a mortgage loan originator (MLO) cannot be approved for licensure if they have been convicted of a felony within the past seven years, or at any time if the felony involved fraud, dishonesty, breach of trust, or money laundering. This provision ensures that individuals with serious criminal backgrounds are not permitted to operate as MLOs.

Other factors, such as failing the SAFE MLO test (C) or having never been licensed (D), do not automatically disqualify an applicant from obtaining an MLO license.

The TILA-RESPA Integrated Disclosure (TRID) rule applies to most closed-end consumer credit transactions secured by real property, including loans on primary residences, second homes, and investment properties. It does not apply to HELOCs, reverse mortgages, or chattel-dwelling loans (like mobile homes not secured by real property).

“TRID applies to most closed-end consumer credit transactions secured by real property. It does not apply to HELOCs, reverse mortgages, or chattel-dwelling loans.”

— CFPB, TILA-RESPA Integrated Disclosure Rule Small Entity Compliance Guide

Steering occurs when a loan officer influences or directs a borrower towards a specific loan product or lender based on the compensation the loan officer will receive, rather than the borrower’s best interests. In Option C, the loan officer is steering the borrower to a loan from a particular lender to earn higher compensation, which is prohibited under the Dodd-Frank Act and TILA’s Loan Originator Compensation Rule.

Other options:

Option A describes offering a loan with higher fees, but it does not indicate that compensation is the motive, so it is not a clear example of steering.

Option B and Option D describe fair loan presentation practices.

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

The Federal Trade Commission (FTC) has primary enforcement authority under the Red Flags Rule, which is part of the Fair and Accurate Credit Transactions Act (FACTA). The Red Flags Rule requires financial institutions and creditors, including mortgage companies, to implement identity theft prevention programs that detect, prevent, and mitigate identity theft.

IRS (A), HUD (C), and the Conference of State Bank Supervisors (D) are not responsible for enforcing the Red Flags Rule.

Under the SAFE Act, administrative and clerical duties may be performed by an individual (including a third-party underwriter) if performed at the direction and supervision of a licensed MLO. Origination activities must be done only by licensed MLOs, and company or MLO licensing is state-specific.

“Administrative or clerical tasks performed at the direction and subject to the supervision and instruction of a licensed mortgage loan originator do not require licensure.”

— SAFE Act, 12 U.S.C. § 5102(4)(C)

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.