Pass the NMLS SAFE MLO MLO Questions and answers with CertsForce

Under the Ability-to-Repay (ATR) Rule and Qualified Mortgage (QM) standards, mortgages with adjustable rates can be considered qualified mortgages if they meet certain criteria, such as having fully amortizing payments and adhering to limits on points and fees. Adjustable-rate mortgages (ARMs) are qualified as long as the borrower’s ability to repay is assessed using the maximum rate that could apply in the first five years.

Loans like interest-only mortgages (A), balloon payment loans (B), and negative amortization loans (C) are not typically considered qualified mortgages because they carry higher risks of default.

An origination fee is a charge by the lender for processing a new loan application, which typically includes the costs of underwriting and originating the loan. The underwriting fee is a common component of the lender's origination charges. Appraisal, title insurance, and prepaid interest are separate, non-origination costs.

“Origination charges include fees for underwriting, processing, and originating the loan.”

— CFPB, Loan Estimate Explainer; TRID Rule Guide

Redlining is the illegal practice of refusing to lend or offering less favorable terms to residents of certain geographic areas, often based on the racial or ethnic composition of those areas.

“Redlining is the practice of denying or restricting financial services to certain neighborhoods based on race or ethnicity.”

— CFPB, What is redlining?

Under ECOA, a creditor may decline a loan based on an applicant’s inability to repay, as demonstrated by verified income and other underwriting criteria. It is illegal to consider race, receipt of public assistance, or exercise of consumer rights as a basis for denial.

“A creditor may consider verified income in evaluating creditworthiness. Discrimination based on race, public assistance, or exercise of rights under the Consumer Credit Protection Act is prohibited.”

— 12 CFR § 1002.6, Regulation B (ECOA)

Under the SAFE Act, individuals who take an application and offer or negotiate terms of a residential mortgage loan for compensation or gain must be licensed as MLOs.

A seller providing financing for the sale of their own property (such as in an owner-finance transaction) is generally required to be licensed as an MLO unless specifically exempted by state or federal law (limited situations, e.g., seller-finance up to 3 properties per year).

Other individuals listed (processors, assistants, underwriters) do not require licensure as long as they are working under the direction and supervision of a licensed MLO and not negotiating loan terms or taking applications.

“Any individual who takes a residential mortgage loan application and offers or negotiates terms for compensation or gain must be licensed as a mortgage loan originator, unless specifically exempted.”

— SAFE Act, 12 U.S.C. § 5102(4)

Under the Homeowners Protection Act (HPA) of 1998, PMI must be automatically terminated by the lender when the principal balance reaches 78% of the original value of the property (based on the original amortization schedule), provided the borrower is current on payments.

“PMI must be automatically terminated by the lender when the principal balance of the mortgage is first scheduled to reach 78 percent of the original value of the property, if the borrower is current on payments.”

— 12 USC § 4901-4910, Homeowners Protection Act (HPA)

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.

For FHA loans, borrowers are required to pay a Mortgage Insurance Premium (MIP). This insurance protects the lender in case of default or foreclosure. FHA loans are backed by the Federal Housing Administration, and MIP is mandatory for borrowers due to the lower down payment requirements and increased risk to lenders.

Mortgage Insurance Premium (MIP): FHA loans require an upfront MIP at closing (usually 1.75% of the loan amount) and annual MIP, which is divided into monthly installments and added to the mortgage payment.

The MIP protects lenders by providing insurance coverage in the event the borrower defaults, reducing the lender’s loss.

Other options:

Down payment (A) is required but does not protect the lender.

Hazard insurance premium (B) protects the property, not the lender in foreclosure.

Homeowners association dues (D) are unrelated to lender protection.

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.

Fee splitting is the illegal practice where a mortgage loan originator (MLO) and another party, such as an appraiser, share fees in exchange for referrals or future business. This is prohibited under the Real Estate Settlement Procedures Act (RESPA), which bans kickbacks, referral fees, and unearned fees between settlement service providers.

In this case, the appraiser offering to give the MLO half of her appraisal fees in exchange for future business is a clear violation of RESPA’s anti-kickback provisions. Fee splitting can lead to inflated costs for consumers and undermines the integrity of the mortgage process.

Other options:

Redlining (A) refers to discriminatory lending practices based on geography.

Blockbusting (C) refers to discriminatory real estate practices.

Paying it forward (D) is not a term in the context of mortgage lending.