MLO Exam Dumps - NMLS SAFE MLO Questions and Answers

The Real Estate Settlement Procedures Act (RESPA) prohibits payment of fees or kickbacks to any party unless that party performs actual, legitimate services related to the origination or processing of a loan. In this case, the MLO did not perform any actual origination services for the borrower, so the fee paid by Bank XYZ to the MLO is not permitted.

RESPA Section 8 prohibits referral fees or any unearned fees. The MLO did not originate the loan or perform any substantive services related to the HELOC, which makes the payment illegal.

Under the Truth in Lending Act (TILA) Regulation Z, for a refinance or non-purchase transaction secured by the borrower’s principal dwelling, the right of rescission allows the borrower to rescind the transaction until midnight of the third business day following consummation or delivery of all material disclosures, whichever occurs last.

“The consumer may rescind the transaction until midnight of the third business day following consummation, delivery of the notice of right to rescind, and delivery of all material disclosures, whichever occurs last.”

— 12 CFR § 1026.23(a)(3), Regulation Z

Under Dodd-Frank Act regulations and Regulation Z (TILA), mortgage loan originators (MLOs) cannot be compensated based on the terms of the loan, such as interest rates, loan amount, or product type. This includes any financial incentives, like bonuses or rewards, tied to loan terms. In this case:

The trip to Hawaii was awarded based on closing loans with an interest rate of 5% or higher, which directly ties the MLO's compensation to a specific loan term (the interest rate).

This violates the Loan Originator Compensation Rule, which prohibits compensating MLOs based on the terms or conditions of a loan, in order to protect borrowers from steering into unfavorable loan products.

Therefore, all forms of compensation—including bonuses, trips, or other rewards—are scrutinized if they are tied to loan terms, making the MLO's trip to Hawaii an illegal incentive under current law.

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)

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

According to ECOA (Equal Credit Opportunity Act) and Regulation B, if a borrower waives the right to receive their appraisal three business days before consummation, and the transaction does not close, the creditor must still provide a copy of the appraisal within 30 days of determining that the loan will not consummate.

This ensures that borrowers still receive essential documentation, even if the loan fails to close.

Under TILA/Regulation Z, a finance charge is any charge payable directly or indirectly by the consumer and imposed as a condition of the extension of credit.

“The finance charge is the cost of consumer credit as a dollar amount. It includes any charge payable by the consumer and imposed by the creditor as a condition of or an incident to the extension of credit.”

— 12 CFR § 1026.4(a), Regulation Z

Under TILA (Regulation Z) Appraisal Independence Requirements, it is a violation for anyone (including an MLO) to influence an appraiser to obtain a minimum or target value. This includes asking for a minimum value needed to approve a loan. Requesting corrections of errors or additional information is allowed as long as it does not attempt to influence the appraiser’s value conclusion.

“It is prohibited for any person to influence, coerce, or otherwise encourage an appraiser to misstate or misrepresent the value of the property.”

— 12 CFR § 1026.42(c), Appraisal Independence Requirements (AIR)

Temporary authority allows certain MLOs to originate loans while their license application is pending. However, this authority only exists if the state participates and grants temporary authority. If a state does not grant temporary authority to transitioning MLOs, the individual cannot legally originate loans in that state under temporary authority.

“Temporary authority to operate applies only in states that have adopted the provisions of the SAFE Act regarding temporary authority. If a state does not grant temporary authority, the MLO cannot operate under it.”

— SAFE Act, 12 U.S.C. § 5117; NMLS Guidance

Other events listed do not directly cause the loss of temporary authority unless dictated by state law.

FHA loans are available for primary residences, including manufactured homes, if they meet HUD standards. FHA loans are not available for vacation homes, investment properties, bed and breakfasts, or commercial real estate.

“FHA will insure mortgages on manufactured homes that are principal residences and meet HUD requirements.”

— HUD 4000.1 FHA Single Family Housing Policy Handbook