NMLS SAFE MLO — Mortgage Loan Originator — All Questions

Which loan feature, when combined with a borrower who clearly cannot afford it, is a hallmark of predatory lending?

• a.A modest, verified down payment
• b.Excessive fees and a large balloon payment the borrower cannot meet✓
• c.A clearly disclosed, competitive APR
• d.A fully amortizing fixed-rate loan within the borrower's budget

Excessive fees paired with an unaffordable balloon payment set the borrower up to fail and are hallmarks of predatory lending. An affordable amortizing loan, a competitive disclosed APR, and a verified down payment are all features of responsible lending.Predatory lending

A borrower qualifies for both a lower-cost conventional loan and a higher-cost product that pays the originator more. Ethically, the originator should:

• a.Refuse to discuss costs
• b.Present the options honestly and not steer the borrower into the costlier loan for personal gain✓
• c.Hide the conventional option
• d.Always sell the product that pays the most

Ethical practice requires presenting options honestly and not steering a borrower into a costlier loan just to increase the originator's pay. Always selling the highest-paying product, hiding the cheaper option, or refusing to discuss costs all breach the duty of fair dealing and may violate steering rules.Ethical duty / suitability

Under ECOA, discrimination is prohibited in:

• a.Only the decision to approve or deny
• b.Any aspect of a credit transaction, from application through servicing and collection✓
• c.Only the interest rate charged
• d.Only advertising

ECOA prohibits discrimination in any aspect of a credit transaction, including application, evaluation, terms, servicing, and collection. Limiting it to only the rate, only the approval decision, or only advertising understates the statute's full reach.ECOA / Regulation B

A fraudster creates a completely fictitious borrower and property that do not exist, then obtains loan proceeds. This scheme is known as:

• a.An air loan✓
• b.A permissible bridge loan
• c.A rate-and-term refinance
• d.A gift of equity

An 'air loan' is a fraud in which the borrower, property, and sometimes the entire transaction are fabricated to extract loan proceeds. A bridge loan, a gift of equity, and a rate-and-term refinance are all legitimate, real transactions, not fabrications.Mortgage fraud (air loan)

Which statement about mortgage advertising is TRUE?

• a.Only the interest rate must be truthful; other claims can be exaggerated
• b.Advertisements must not contain material misrepresentations about loan terms✓
• c.APR never has to be stated accurately
• d.Fine-print disclaimers can cure an otherwise misleading headline

Advertising must avoid material misrepresentations about loan terms, and misleading claims are prohibited regardless of the topic. It is false that only the rate must be truthful, that fine print cures a misleading headline, or that the APR need not be accurate.UDAAP / advertising

A lender's policy is to reject all applicants whose income comes from a housing voucher or public assistance, regardless of amount or reliability. This policy:

• a.Violates only state law
• b.Violates ECOA, which protects applicants whose income derives from public assistance✓
• c.Is fully permissible risk management
• d.Is required by federal law

ECOA protects applicants who derive income from public assistance, so a blanket rejection of such income violates the statute. It is not permissible risk management, it is a federal violation (not merely state), and no federal law requires rejecting public-assistance income.Fair lending / ECOA

When income fraud leads a borrower into a loan they truly cannot afford, the MOST directly harmed party is often:

• a.Only the federal government
• b.No one, if home prices rise
• c.The fraud ring only
• d.The borrower, who faces default and potential foreclosure✓

Income fraud that places a borrower in an unaffordable loan most directly harms that borrower, who risks default and foreclosure, along with the lender. It is false that no one is harmed if prices rise, that only the government suffers, or that only the fraud ring bears the consequences.Mortgage fraud (who is harmed)

Which entity is primarily responsible for enforcing the federal Fair Housing Act?

• a.The Internal Revenue Service (IRS)
• b.The Federal Trade Commission only
• c.The Department of Housing and Urban Development (HUD)✓
• d.The Securities and Exchange Commission (SEC)

HUD is primarily responsible for administering and enforcing the Fair Housing Act (with the DOJ for litigation). The SEC oversees securities, the IRS handles taxes, and the FTC's consumer-protection role does not make it the primary Fair Housing Act enforcer.Fair Housing Act

The main purpose of the Loan Originator Compensation Rule is to:

• a.Set a national maximum interest rate
• b.Prevent originators from being incentivized to sell consumers worse loan terms✓
• c.Require all loans to be fixed-rate
• d.Guarantee originators a minimum commission

The rule exists to remove incentives that would lead originators to push consumers into worse terms for higher pay. It does not guarantee a minimum commission, mandate fixed-rate loans, or impose a national rate cap.Loan Originator Compensation Rule

A permissible way for a mortgage broker and a real estate agent to share the cost of a jointly produced advertisement is:

• a.The agent pays nothing but receives referral credit
• b.Each party pays its fair share based on its actual proportion of the ad✓
• c.The broker pays per closed referral disguised as advertising
• d.The broker pays the agent's entire marketing budget

Under RESPA, co-marketing is permissible only if each party pays a share proportionate to its actual benefit or space in the advertisement. Free advertising given in exchange for referrals, paying another's full budget, or disguised per-referral payments are prohibited kickbacks.RESPA Section 8

The type of information protected as nonpublic personal information (NPI) under GLBA includes:

• a.Only a customer's name
• b.Only information already public in county records
• c.Financial information a customer provides, like SSN, account numbers, and income✓
• d.Only marketing preferences

NPI includes personally identifiable financial information a customer provides or that results from a transaction, such as SSNs, account numbers, and income. A name alone is not NPI, publicly available record information is generally not NPI, and NPI is far broader than marketing preferences.Gramm-Leach-Bliley Act

Two applicants with identical credit profiles apply on the same day; the lender charges the applicant of a different race a higher rate for no legitimate reason. This is the clearest example of:

• a.A privacy violation
• b.Disparate impact
• c.A permissible pricing exception
• d.Disparate treatment✓

Charging different prices to similarly situated applicants because of race is intentional disparate treatment, the most direct form of lending discrimination. Disparate impact involves neutral policies with unequal effects, this is not a privacy issue, and there is no legitimate exception when the only difference is race.Fair lending / disparate treatment

A loan officer notices the borrower's stated employer phone number connects to the borrower's own cell phone. The officer should:

• a.Investigate the discrepancy as a potential employment-fraud red flag✓
• b.Coach the borrower on a better story
• c.Ignore it because the loan is otherwise strong
• d.Close quickly before anyone notices

An employer 'verification' number that rings the borrower's own phone is a red flag for fabricated employment and must be investigated. Ignoring it, coaching a cover story, or rushing to close would each facilitate potential fraud rather than address it.Mortgage fraud / ethics

Which of the following best illustrates an 'unfair' act or practice under UDAAP?

• a.Causing substantial injury the consumer cannot reasonably avoid, not outweighed by benefits✓
• b.Providing accurate loan estimates on time
• c.Charging a clearly disclosed, competitive origination fee
• d.Offering a lower rate to well-qualified borrowers

An 'unfair' practice causes or is likely to cause substantial injury that consumers cannot reasonably avoid and that is not outweighed by countervailing benefits. Disclosed competitive fees, risk-based lower rates, and timely accurate estimates are legitimate practices, not unfair ones.UDAAP

A friend asks a loan officer to 'just look up' a neighbor's mortgage balance and income out of curiosity. The officer should:

• a.Share only the income, not the balance
• b.Post it in a group chat
• c.Refuse, because accessing and disclosing NPI for no legitimate business purpose is prohibited✓
• d.Share it since they are friends

Accessing or disclosing a consumer's NPI without a legitimate business purpose and authorization violates privacy duties, so the officer must refuse. Sharing any portion, or posting it publicly, would breach GLBA and the duty to safeguard customer information.Ethical duty / privacy

An advertisement using imagery and language that signals a lender only welcomes applicants of a particular race or religion may violate fair-lending law because it:

• a.Is protected commercial speech in all cases
• b.Discourages applications from protected classes✓
• c.Improves consumer choice
• d.Only matters if someone is actually denied

Advertising that discourages members of protected classes from applying can itself violate ECOA and the Fair Housing Act, even before any denial. It does not improve choice, it is not immune as commercial speech, and a violation does not require an actual denial.Fair lending / advertising

Which practice would MOST clearly be considered predatory rather than merely aggressive?

• a.Targeting elderly homeowners with high equity for unaffordable, fee-laden refinances✓
• b.Offering a competitive fixed-rate product
• c.Explaining loan risks clearly
• d.Marketing loans widely to potential customers

Deliberately targeting vulnerable elderly homeowners with unaffordable, fee-heavy loans to strip their equity is a classic predatory practice. Broad marketing, competitive products, and clear risk explanations are legitimate and consumer-friendly, not predatory.Predatory lending / ethics

Under ECOA, a lender evaluating an applicant's age may:

• a.Require a younger cosigner for older borrowers
• b.Automatically reduce the score of older applicants
• c.Deny credit to anyone over 62
• d.Consider age only in an empirically derived, demonstrably sound credit scoring system in limited ways✓

ECOA allows age to be considered only in narrow, empirically derived and statistically sound ways (for example, favoring older applicants), not to penalize them. Denying older applicants, cutting their scores, or requiring a younger cosigner all discriminate on the basis of age.ECOA / Regulation B

Which fact pattern is LEAST likely to indicate occupancy fraud?

• a.The borrower never moves in and keeps their prior home
• b.A first-time buyer sells their rental lease and moves into the new home as their sole residence✓
• c.A borrower buys a fourth 'primary residence' in one year
• d.An 'owner-occupied' condo is immediately listed for rent after closing

A first-time buyer who ends their lease and moves into the new home as their only residence is behaving consistently with a legitimate owner-occupied purchase. Buying multiple 'primary' homes in a year, renting out an 'owner-occupied' unit right away, and never moving in are all classic occupancy-fraud indicators.Mortgage fraud (occupancy)

A builder offers a mortgage broker free office space inside its sales center in exchange for the broker steering all buyers to that broker. Under RESPA, this arrangement is:

• a.A prohibited thing of value exchanged for referrals✓
• b.Permitted if buyers can technically choose another lender
• c.Permitted because office space is not cash
• d.Required to speed up closings

Free office space given in exchange for steering referrals is a 'thing of value' for referrals and violates RESPA Section 8. The non-cash nature does not exempt it, a theoretical ability to choose does not cure a steering-for-value scheme, and nothing requires such an arrangement.RESPA Section 8 / ethics

A lender may lawfully consider which of the following when deciding whether to extend mortgage credit?

• a.The applicant's national origin
• b.The applicant's religion
• c.Whether the applicant receives public assistance
• d.The applicant's verified debt-to-income ratio✓

Debt-to-income ratio is a legitimate, non-prohibited creditworthiness factor a lender may consider. National origin, religion, and receipt of public assistance are all prohibited bases under ECOA and may not be used in the credit decision.Fair lending / ECOA

A borrower asks a loan officer to 'leave off' an existing car loan from the application so the debt-to-income ratio looks better. The officer should:

• a.Refuse and include all known liabilities accurately✓
• b.Ask a coworker to submit it instead
• c.Omit it since the borrower requested it
• d.Reduce the amount instead of omitting it

Knowingly omitting a real liability to distort the DTI is misrepresentation and mortgage fraud, so the officer must include all known debts accurately. Omitting, understating, or having a coworker submit the false file would each participate in fraud rather than prevent it.Ethical duty / mortgage fraud