NMLS SAFE MLO — Mortgage Loan Originator — All Questions

A residential mortgage loan originator notices a borrower structuring a large cash down payment into several deposits just under the reporting threshold. Under the Bank Secrecy Act, where must the company file a report of this suspicious activity?

• a.With the Consumer Financial Protection Bureau
• b.With the Federal Reserve Board
• c.With the Financial Crimes Enforcement Network (FinCEN)✓
• d.With the local police department

Suspicious Activity Reports (SARs) required under the BSA are filed with FinCEN, the bureau of the U.S. Treasury that administers anti-money laundering rules. Since 2012, non-bank residential mortgage lenders and originators must maintain an AML program and file SARs. The CFPB and police are not the recipients of SAR filings.Bank Secrecy Act / Anti-Money Laundering (FinCEN rules)

After detecting activity that appears suspicious, within how many calendar days must a covered mortgage company generally file a Suspicious Activity Report?

• a.Within 90 calendar days
• b.Within 30 calendar days✓
• c.Within 10 calendar days
• d.Within 180 calendar days

FinCEN rules generally require a SAR to be filed no later than 30 calendar days after the date the company initially detects facts that may constitute a basis for filing. If no suspect is identified, the deadline may be extended an additional 30 days, but never beyond 60 days total.Bank Secrecy Act / Anti-Money Laundering (FinCEN rules)

A borrower asks a loan officer directly whether the company filed a Suspicious Activity Report about his transaction. What is the loan officer permitted to do under the Bank Secrecy Act?

• a.Tell the borrower only if a supervisor approves
• b.Neither confirm nor deny that a SAR was filed✓
• c.Read the SAR aloud to reassure the borrower
• d.Confirm the SAR was filed but not share its contents

The BSA imposes strict confidentiality: no person involved may disclose to any party involved in the transaction that a SAR has been filed or even considered. This 'no tipping off' rule protects investigations. Disclosing the existence of a SAR is itself a federal violation.Bank Secrecy Act / Anti-Money Laundering (FinCEN rules)

A Currency Transaction Report (CTR) under the Bank Secrecy Act must generally be filed when a person conducts currency transactions exceeding what amount in a single business day?

• a.More than $10,000✓
• b.More than $25,000
• c.More than $50,000
• d.More than $5,000

The BSA requires a CTR for currency (physical cash) transactions totaling more than $10,000 in a single business day by or on behalf of one person. This is distinct from a SAR, which is triggered by suspicion rather than a fixed dollar amount. Structuring transactions to evade the CTR threshold is itself illegal.Bank Secrecy Act (Currency Transaction Report rules)

Which of the following is a required 'pillar' of an anti-money laundering compliance program for a covered non-bank mortgage lender?

• a.Designating a compliance officer to oversee the AML program✓
• b.Paying loan originators a flat salary
• c.Offering the lowest interest rate in the market
• d.Filing a CTR for every loan application

An effective AML program must include, among its pillars, a designated compliance officer, internal policies and controls, ongoing employee training, and independent testing (audit). These structural requirements apply to covered non-bank residential mortgage lenders and originators. Interest rates and compensation structure are unrelated to AML pillars.Bank Secrecy Act / Anti-Money Laundering (FinCEN rules)

Under the Loan Originator Compensation Rule, a loan originator's compensation may NOT be based on which of the following?

• a.The number of loans closed over a year at a flat per-loan amount
• b.The interest rate of the loan✓
• c.The total dollar amount of credit extended
• d.A fixed hourly wage

Reg Z 1026.36 prohibits compensating a loan originator based on a term of a transaction, and the interest rate is a loan term. Compensation may be based on the loan amount (as a fixed percentage), hourly pay, or a flat amount per loan. Basing pay on the rate would incentivize steering borrowers into costlier loans.Loan Originator Compensation Rule (Reg Z 1026.36)

A loan originator is paid a commission by the borrower directly on a transaction. On that same transaction, the originator also wants to collect a commission from the lender. What does the LO Compensation Rule say about this?

• a.It is prohibited dual compensation✓
• b.It is allowed if both amounts are disclosed
• c.It is allowed if the total does not exceed 3% of the loan
• d.It is allowed with the borrower's written consent

Reg Z 1026.36 generally bans dual compensation: if a loan originator receives compensation directly from the consumer, no other person may pay the originator on that transaction, and vice versa. Disclosure or consent does not cure the violation. The rule prevents a borrower from unknowingly paying twice.Loan Originator Compensation Rule (Reg Z 1026.36)

A loan originator has two loan products available for a qualified borrower. Product A pays the originator a higher commission but carries a higher rate; Product B is cheaper for the borrower. The originator directs the borrower to Product A to earn more. This practice is best described as:

• a.Prohibited steering✓
• b.A qualified mortgage
• c.An affiliated business arrangement
• d.Permissible cross-selling

Reg Z 1026.36's anti-steering provision prohibits directing a consumer to a loan based on the fact that it produces greater compensation for the originator, unless the loan is in the consumer's interest. Steering a borrower into a costlier product to increase pay violates the rule. This is unrelated to affiliated business or QM status.Loan Originator Compensation Rule (Reg Z 1026.36)

Under Reg Z, which arrangement for changing a loan originator's compensation is generally permitted?

• a.Reducing the originator's pay to cover a pricing concession the borrower requested
• b.Paying compensation based on a fixed percentage of the loan amount
• c.Paying more for adjustable-rate loans than fixed-rate loans✓
• d.Increasing pay when the borrower accepts a higher interest rate

Compensation based on a fixed percentage of the loan amount is expressly permitted because the loan amount is not treated as a prohibited transaction term for this purpose. Tying pay to interest rate or loan type (ARM vs. fixed) is prohibited. Reducing an originator's own compensation to absorb a cost is only allowed in limited circumstances, not as a general practice.Loan Originator Compensation Rule (Reg Z 1026.36)

The anti-steering safe harbor under Reg Z is satisfied when the loan originator presents the consumer with loan options that include the loan with the lowest interest rate, the loan with the lowest total dollar amount for origination points/fees, and:

• a.The loan with the shortest term
• b.The loan the originator personally recommends
• c.The loan with the highest available loan amount
• d.The loan with the lowest interest rate without risky features such as prepayment penalties or negative amortization✓

The safe harbor requires presenting, for each loan type the consumer expresses interest in, the loan with the lowest interest rate, the loan with the lowest rate that lacks risky features (e.g., negative amortization, balloon, prepayment penalty), and the loan with the lowest total dollar amount of origination points and fees. Meeting these presentation requirements protects the originator from steering claims.Loan Originator Compensation Rule (Reg Z 1026.36)

The Ability-to-Repay rule requires a creditor to make a reasonable, good-faith determination of the consumer's ability to repay. Which of the following is NOT one of the underwriting factors the rule requires the creditor to consider and verify?

• a.The consumer's race or national origin✓
• b.Current debt obligations, alimony, and child support
• c.Employment status
• d.Current or reasonably expected income or assets

Reg Z 1026.43 lists eight underwriting factors, including income/assets, employment status, monthly mortgage payment, other debts, current obligations such as alimony/child support, monthly debt-to-income ratio or residual income, and credit history. A consumer's race or national origin is never a permissible underwriting factor and considering it would violate fair lending laws.Ability-to-Repay/Qualified Mortgage Rule (Reg Z 1026.43)

For a Qualified Mortgage of $100,000 or more, the total points and fees generally may not exceed what percentage of the total loan amount?

• a.5 percent
• b.3 percent✓
• c.8 percent
• d.10 percent

For a QM with a loan amount of $100,000 or more (thresholds are adjusted annually for inflation), total points and fees generally cannot exceed 3% of the total loan amount. Smaller loans are allowed higher percentage caps because fixed costs are a larger share. Exceeding the applicable cap disqualifies the loan from QM status and its liability protections.Ability-to-Repay/Qualified Mortgage Rule (Reg Z 1026.43)

Which loan feature is generally NOT permitted in a Qualified Mortgage?

• a.Verified income documentation
• b.A fixed interest rate
• c.Negative amortization that increases the principal balance✓
• d.A fully amortizing 30-year term

A QM cannot have negative-amortization, interest-only, or balloon-payment features (with narrow exceptions for certain small-creditor loans), and its term cannot exceed 30 years. Negative amortization, which increases the principal over time, is expressly prohibited. Fully amortizing fixed-rate loans with verified income are hallmarks of a QM.Ability-to-Repay/Qualified Mortgage Rule (Reg Z 1026.43)

When underwriting an adjustable-rate Qualified Mortgage, the monthly payment used to evaluate the consumer's ability to repay must generally be calculated using:

• a.The lowest possible rate over the loan's life
• b.The average of all rates over the loan term
• c.The initial teaser rate only
• d.The maximum interest rate that could apply in the first five years (or the fully indexed rate, whichever is greater)✓

For ATR/QM purposes, the payment on an adjustable-rate mortgage must be calculated using the greater of the fully indexed rate or the introductory rate, and a monthly payment that fully amortizes the loan; for many ARMs the rule requires using the maximum rate in the first five years. Using only the low teaser rate would understate the true payment burden and is not permitted.Ability-to-Repay/Qualified Mortgage Rule (Reg Z 1026.43)

A loan originator calls an appraiser before the report is finished and says the deal needs the home to appraise at least at the contract price to close. Under the appraisal independence requirements, this communication is:

• a.Prohibited coercion of the appraiser✓
• b.Acceptable, because the value is only a suggestion
• c.Acceptable, because the originator is explaining the loan terms
• d.Acceptable if the appraiser agrees in writing

Appraisal independence rules under TILA/Reg Z prohibit coercing, influencing, or otherwise encouraging an appraiser to reach a predetermined or target value. Telling an appraiser what value is 'needed' to close is exactly the kind of pressure the rule bans. Legitimate communication about factual property details is allowed, but pressuring for a target value is not.Appraisal Independence Requirements (TILA / Reg Z 1026.42)

The Home Valuation Code of Conduct (HVCC) was largely superseded by which framework establishing appraisal independence?

• a.The Real Estate Settlement Procedures Act
• b.The appraisal independence provisions of the Dodd-Frank Act codified in TILA✓
• c.The Fair Credit Reporting Act
• d.The Bank Secrecy Act

The HVCC was an interim agreement that was largely replaced when the Dodd-Frank Act added appraisal independence requirements to TILA, implemented in Reg Z. These provisions prohibit coercion and require customary and reasonable compensation for fee appraisers. RESPA, the BSA, and FCRA address different subject matter.Appraisal Independence Requirements (TILA / Reg Z 1026.42)

Which of the following is permitted under appraisal independence rules?

• a.Promising future business if the value comes in high
• b.Selecting an appraiser because the originator knows he will 'hit' the value
• c.Asking an appraiser to consider additional comparable sales and correct factual errors✓
• d.Withholding payment until the appraiser raises the value

Appraisal independence rules do not prohibit legitimate steps such as asking an appraiser to consider additional appropriate comparable properties, correct factual errors, or provide further support for the valuation. What is banned is coercion, value targeting, and conditioning pay or future work on a particular result. Choosing an appraiser for his tendency to hit values is prohibited.Appraisal Independence Requirements (TILA / Reg Z 1026.42)

A property securing a federally related mortgage is located in a Special Flood Hazard Area. What must the lender require?

• a.That the borrower waive all flood coverage
• b.That the property be relocated
• c.That the loan be denied automatically
• d.That the borrower obtain and maintain flood insurance✓

Under the Flood Disaster Protection Act, a lender making a loan secured by improved real property in a Special Flood Hazard Area of a community participating in the NFIP must require the borrower to obtain and maintain flood insurance. Being in an SFHA does not require denying the loan, only that flood coverage be in place.Flood Disaster Protection Act / National Flood Insurance Program

The required amount of flood insurance on a residential building is generally the least of the outstanding principal balance, the insurable value of the building, or:

• a.Twice the loan amount
• b.The full purchase price
• c.The maximum coverage available under the NFIP✓
• d.The county's median home price

Required flood coverage generally equals the least of: the outstanding principal balance of the loan, the maximum limit of coverage available under the NFIP for the property type, or the insurable (replacement) value of the building. Land value is excluded because land does not wash away. For residential buildings the NFIP maximum is a fixed statutory cap.Flood Disaster Protection Act / National Flood Insurance Program

A borrower lets required flood insurance lapse. After proper notice, the servicer purchases coverage and charges the borrower. This is known as:

• a.An affiliated business arrangement
• b.Force-placed (lender-placed) flood insurance✓
• c.A qualified mortgage
• d.A right of rescission

When a borrower fails to maintain required flood insurance, the servicer may obtain force-placed (lender-placed) coverage and charge the cost to the borrower, but only after sending the borrower notice and allowing at least 45 days to obtain coverage. If the borrower later provides proof of their own coverage, the servicer must terminate the force-placed policy and refund overlapping premiums.Flood Disaster Protection Act / National Flood Insurance Program

Under the Mortgage Acts and Practices Advertising Rule (Regulation N), which advertising practice is prohibited?

• a.Listing the lender's NMLS unique identifier
• b.Stating the actual annual percentage rate clearly
• c.Disclosing that rates are subject to change
• d.Misrepresenting that a mortgage product is endorsed or affiliated with a government agency when it is not✓

Regulation N prohibits any material misrepresentation in commercial communications about mortgage credit products, including false claims of government endorsement or affiliation. Truthful statements of the APR, disclosure that rates may change, and listing the NMLS ID are all proper. The rule targets deceptive advertising that could mislead consumers.Mortgage Acts and Practices Advertising Rule (Reg N, 12 CFR 1014)

An advertisement states 'Fixed 3.5% payment for life!' when in fact only the minimum payment is fixed and the interest rate adjusts, causing the balance to grow. Under Regulation N this ad is:

• a.Compliant because a number is disclosed
• b.Exempt because it is a teaser rate
• c.A prohibited misrepresentation about the existence or amount of payments✓
• d.Compliant because payments are technically fixed

Regulation N specifically bars misrepresentations about the terms, amounts, payments, or existence of fees, including implying a fixed payment or rate that is not truly fixed. Advertising a 'payment for life' that hides negative amortization deceives consumers about the true cost. The presence of a number does not cure a misleading impression.Mortgage Acts and Practices Advertising Rule (Reg N, 12 CFR 1014)

A title company pays a mortgage broker $200 for each borrower the broker refers, regardless of any services performed. Under RESPA, this arrangement is:

• a.A prohibited kickback for referrals✓
• b.Permitted as a marketing expense
• c.Permitted if under $500
• d.Permitted if disclosed at closing

RESPA Section 8(a) prohibits giving or accepting any fee, kickback, or thing of value for the referral of settlement service business involving a federally related mortgage. Paying for referrals themselves is illegal regardless of amount or disclosure. Only payments for goods or services actually furnished at reasonable market value are permitted.Real Estate Settlement Procedures Act (RESPA Section 8)

For an Affiliated Business Arrangement to fall within RESPA's exception to the anti-kickback rule, the person making the referral must generally do all of the following EXCEPT:

• a.Guarantee the affiliate will offer the lowest price✓
• b.Not require the consumer to use the affiliated provider
• c.Limit the return received to a return on ownership interest
• d.Disclose the affiliate relationship to the consumer

The Affiliated Business Arrangement exception requires written disclosure of the relationship, that the consumer not be required to use the affiliate (with narrow exceptions), and that the only thing of value received be a return on the ownership interest. There is no requirement to guarantee the lowest price, and promising that would not satisfy the exception.Real Estate Settlement Procedures Act (RESPA Section 8)

Which payment is generally permitted under RESPA Section 8?

• a.A fee split with a broker who did no work
• b.A payment to an appraiser for an appraisal actually performed at market value✓
• c.A finder's fee for a referral
• d.A gift card to a real estate agent for sending a buyer

RESPA Section 8(c) permits payments for goods or facilities actually furnished or services actually performed, as long as the payment bears a reasonable relationship to market value. Paying an appraiser for a real appraisal is legitimate. Gifts, finder's fees, and split fees for referrals with no work performed are prohibited kickbacks.Real Estate Settlement Procedures Act (RESPA Section 8)

A homeowner refinances the mortgage on her principal dwelling with a new lender. Under TILA, how long is her right to rescind the transaction after receiving the required disclosures and notice of the right to rescind?

• a.Until midnight of the third business day✓
• b.Until the loan funds
• c.Until noon the next day
• d.Until the end of 30 days

For a refinance or other non-purchase-money loan secured by the consumer's principal dwelling, TILA gives a right to rescind until midnight of the third business day following consummation, delivery of the material disclosures, or delivery of the rescission notice, whichever occurs last. Business days for this purpose include Saturdays but not Sundays or federal holidays.Truth in Lending Act (Right of Rescission, Reg Z 1026.23)

Which of the following transactions carries a TILA right of rescission?

• a.A refinance that increases the loan on the borrower's primary residence✓
• b.A loan to purchase a vacation second home
• c.A loan secured by an investment rental property
• d.A loan to purchase a new primary home

The TILA right of rescission applies to consumer credit transactions in which a security interest is taken in the consumer's principal dwelling, but it does NOT apply to residential mortgage transactions used to acquire or construct that dwelling (purchase-money loans). A refinance of the primary residence is subject to rescission; purchase loans and loans on non-principal dwellings are not.Truth in Lending Act (Right of Rescission, Reg Z 1026.23)

If a lender never provides the required material TILA disclosures or notice of the right to rescind on a rescindable refinance, the borrower's right of rescission may be extended for up to:

• a.Three years from consummation✓
• b.Ten years from consummation
• c.Six months from consummation
• d.One year from consummation

When the required material disclosures or the notice of the right to rescind are not delivered, the standard three-business-day period is extended, and the right to rescind can last up to three years after consummation (or until the property is sold, whichever comes first). This gives lenders a strong incentive to deliver accurate disclosures promptly.Truth in Lending Act (Right of Rescission, Reg Z 1026.23)

On a rescindable transaction, when may the lender disburse loan funds?

• a.Within 24 hours of application
• b.Immediately at signing
• c.Only after 30 days
• d.Only after the three-business-day rescission period has expired without rescission✓

On a transaction subject to the right of rescission, the creditor generally may not disburse funds, and no work may be performed, until the three-business-day rescission period has expired and the lender is reasonably satisfied the consumer has not rescinded. Disbursing early would defeat the consumer's protected right to cancel.Truth in Lending Act (Right of Rescission, Reg Z 1026.23)

A borrower sends her servicer a written notice claiming a payment was misapplied. Under Reg X error-resolution rules, within how many business days must the servicer acknowledge receipt of the notice of error?

• a.Within 15 business days
• b.Within 2 business days
• c.Within 5 business days✓
• d.Within 3 business days

Under RESPA's Regulation X, a servicer must provide a written acknowledgment of a notice of error within 5 business days of receiving it. The servicer must then investigate and respond, generally within 30 business days (extendable by 15 business days in some cases). These timelines protect borrowers from unresolved servicing errors.Real Estate Settlement Procedures Act (Reg X servicing rules)

Under Reg X, before a servicer may charge a borrower for force-placed hazard insurance, it must generally send an initial notice and then wait at least how long before charging?

• a.30 days
• b.45 days✓
• c.10 days
• d.15 days

Regulation X requires a servicer to deliver an initial notice at least 45 days before charging for force-placed insurance, and a second reminder notice no earlier than 30 days after the first, before assessing any premium. If the borrower provides proof of their own hazard coverage, the servicer must cancel the force-placed policy and refund duplicate charges.Real Estate Settlement Procedures Act (Reg X servicing rules)

A borrower becomes 45 days delinquent. Under Reg X's early intervention requirements, the servicer must generally:

• a.Immediately begin foreclosure
• b.Sell the loan to another servicer
• c.File a Suspicious Activity Report
• d.Make good-faith efforts to establish live contact and provide information about loss mitigation options✓

Regulation X's early intervention rules require servicers to make good-faith efforts to establish live contact with delinquent borrowers by the 36th day of delinquency and to provide written information about available loss mitigation options by the 45th day. These rules are meant to help borrowers avoid foreclosure, not accelerate it.Real Estate Settlement Procedures Act (Reg X servicing rules)

An applicant provides identity documents that appear altered, then abruptly withdraws the application when asked for verification. The loan officer suspects fraud. What is the most appropriate first step under the company's AML program?

• a.Post about the applicant online
• b.Call the applicant's employer directly
• c.Approve the loan to avoid conflict
• d.Report the concern internally so the company can evaluate filing a SAR with FinCEN✓

Under an AML program, employees who detect suspicious activity should escalate the concern through internal channels (such as the designated compliance officer) so the company can evaluate whether a SAR must be filed with FinCEN. Loan originators are typically not the ones who file directly, but they must recognize and report red flags. Confronting third parties or ignoring the issue is improper.Bank Secrecy Act / Anti-Money Laundering (FinCEN rules)

Under Reg Z 1026.36, which of the following is generally required of individual loan originators?

• a.They must guarantee loan approval
• b.They must meet qualification standards including character, fitness, and criminal background checks✓
• c.They must always work for the lowest-cost lender
• d.They must personally fund the loans they originate

Reg Z 1026.36 requires that individual loan originators meet qualification requirements, including standards of character and general fitness and criminal background checks comparable to those required under the SAFE Act, and be properly identified with NMLS unique identifiers. It does not require originators to fund loans, guarantee approval, or work for the cheapest lender.Loan Originator Compensation Rule (Reg Z 1026.36)

Which statement about a 'Qualified Mortgage' is accurate?

• a.A QM must have a balloon payment
• b.A QM guarantees the borrower cannot default
• c.A QM provides the lender certain protections from ability-to-repay liability✓
• d.A QM eliminates the need to verify income

A Qualified Mortgage is a category of loan that meets specific product and underwriting criteria and, in return, gives the creditor a presumption of compliance (safe harbor or rebuttable presumption) with the ability-to-repay requirement. A QM does not guarantee against default, does not waive income verification, and generally cannot have balloon or risky features.Ability-to-Repay/Qualified Mortgage Rule (Reg Z 1026.43)

Two loan officers agree that each will send the other's spouse's insurance agency referrals in exchange for cash per closed deal. Under RESPA, this reciprocal referral-for-fee agreement is:

• a.Allowed because both are licensed
• b.Allowed if under $1,000 per year
• c.A prohibited kickback arrangement✓
• d.Allowed because it is reciprocal

RESPA Section 8 prohibits any agreement or understanding to refer settlement service business in exchange for a thing of value. Reciprocity, licensing, or a dollar threshold does not make the arrangement legal; paying per referral is exactly what the statute forbids. Only payment for services actually performed at reasonable value is allowed.Real Estate Settlement Procedures Act (RESPA Section 8)

On a rescindable refinance, how many copies of the notice of the right to rescind must generally be given to each consumer who has the right to rescind?

• a.Two copies✓
• b.Four copies
• c.One copy
• d.No copies are required

Reg Z generally requires that each consumer entitled to rescind receive two copies of the notice of the right to rescind, so that one can be kept and one used to exercise the right if desired. All consumers with an ownership interest in the principal dwelling have the right to rescind, and any one of them exercising it cancels the transaction for all.Truth in Lending Act (Right of Rescission, Reg Z 1026.23)

Regulation N (the MAP Advertising Rule) applies to commercial communications about mortgage credit products made by which of the following?

• a.Only appraisers
• b.A broad range of persons, including mortgage brokers, lenders, servicers, and advertisers✓
• c.Only federally chartered banks
• d.Only real estate agents

The Mortgage Acts and Practices Advertising Rule (Regulation N) applies broadly to persons who advertise mortgage credit products, including mortgage brokers, lenders, servicers, advertising agencies, and others involved in such commercial communications. Its prohibition on material misrepresentations is not limited to a single category of entity.Mortgage Acts and Practices Advertising Rule (Reg N, 12 CFR 1014)

Before closing a loan secured by improved real estate, a lender must obtain a determination of whether the property is located in a Special Flood Hazard Area. This determination is documented on:

• a.The Standard Flood Hazard Determination Form✓
• b.The appraisal report
• c.A Suspicious Activity Report
• d.The Loan Estimate

Federal flood rules require lenders to complete the Standard Flood Hazard Determination Form (SFHDF) to document whether the property securing the loan is in a Special Flood Hazard Area. This determination drives whether flood insurance is required. The Loan Estimate, appraisal, and SAR serve entirely different purposes.Flood Disaster Protection Act / National Flood Insurance Program

A borrower submits a complete loss mitigation application 40 days before a scheduled foreclosure sale. Under Reg X, the servicer generally must:

• a.Immediately deny all options
• b.Ignore the application because foreclosure has started
• c.Charge a review fee before evaluating
• d.Evaluate the application and not proceed to foreclosure sale while it is pending review✓

Regulation X's loss mitigation procedures generally prohibit a servicer from proceeding to a foreclosure sale (the 'dual tracking' prohibition) while a complete loss mitigation application submitted more than 37 days before the sale is pending evaluation. The servicer must review the application and give the borrower an opportunity to accept or appeal an offer before moving forward.Real Estate Settlement Procedures Act (Reg X servicing rules)

A branch manager proposes paying originators an extra bonus on any loan that closes with a rate at least 0.25% above par. Under the LO Compensation Rule, this bonus structure is:

• a.Permitted if the bonus is under $500
• b.Permitted because bonuses are always allowed
• c.Permitted if disclosed on the Closing Disclosure
• d.Prohibited because it bases compensation on a transaction term (the interest rate)✓

Basing any part of an originator's compensation on the interest rate is prohibited because the rate is a term of the transaction. A bonus tied to closing above-par-rate loans directly incentivizes charging consumers higher rates and violates Reg Z 1026.36. Neither a dollar cap nor disclosure would make it compliant.Loan Originator Compensation Rule (Reg Z 1026.36)

Which of the following best describes 'structuring' as a red flag under anti-money laundering rules?

• a.Breaking a large cash transaction into smaller amounts to evade reporting thresholds✓
• b.Paying off a loan early
• c.Refinancing to a lower rate
• d.Buying flood insurance in installments

Structuring means deliberately breaking up a large currency transaction into multiple smaller transactions to keep each one below the reporting threshold and avoid triggering a Currency Transaction Report. It is a recognized money-laundering red flag and is itself a federal crime. Legitimate activities like refinancing or early payoff are not structuring.Bank Secrecy Act / Anti-Money Laundering (FinCEN rules)

Under appraisal independence rules, a person who prepares a valuation must generally be compensated at:

• a.A fee set entirely by the loan originator
• b.No fee at all
• c.The lowest fee the lender can negotiate
• d.A rate that is customary and reasonable for the geographic market✓

The Dodd-Frank appraisal independence provisions require that fee appraisers be paid a rate that is customary and reasonable for appraisal services performed in the geographic market where the property is located. This protects appraiser independence by preventing pressure through artificially low fees. Loan originators cannot unilaterally suppress the fee.Appraisal Independence Requirements (TILA / Reg Z 1026.42)

A borrower validly exercises the right of rescission on a home equity refinance within the three-day window. What is the effect on the security interest?

• a.The security interest becomes void and the lender must return fees within 20 days✓
• b.The rescission has no legal effect
• c.The borrower still owes all fees immediately
• d.The lender may keep the loan proceeds

When a consumer rescinds, the security interest becomes void and the consumer is not liable for any amount, including finance charges. Within 20 calendar days after receiving the rescission notice, the creditor must return any money or property and take action to reflect that the security interest is terminated. The consumer then tenders the loan proceeds.Truth in Lending Act (Right of Rescission, Reg Z 1026.23)

Under Reg X, a servicer generally may not make the first notice or filing required for a foreclosure until the borrower is more than how many days delinquent?

• a.90 days
• b.30 days
• c.120 days✓
• d.60 days

Regulation X generally prohibits a servicer from making the first notice or filing for a foreclosure process until the borrower's mortgage loan obligation is more than 120 days delinquent. This waiting period gives borrowers time to pursue loss mitigation options before foreclosure proceedings begin.Real Estate Settlement Procedures Act (Reg X servicing rules)

A lender wants to keep records of its mortgage advertisements to comply with Regulation N. Which practice best supports compliance?

• a.Advertising only rates that are lower than actually offered
• b.Retaining copies of commercial communications and materially different versions for the required period✓
• c.Relying only on verbal approval of ad copy
• d.Deleting ads immediately after they run

Regulation N includes recordkeeping requirements directing covered persons to retain copies of materially different commercial communications, sales scripts, and related materials regarding mortgage credit products for a set period (generally 24 months). Good recordkeeping demonstrates that advertisements were not deceptive. Deleting ads or advertising unavailable rates undermines compliance.Mortgage Acts and Practices Advertising Rule (Reg N, 12 CFR 1014)