Pass the NMLS SAFE MLO MLO Questions and answers with CertsForce

According to the SAFE Act, a nontraditional mortgage loan is any loan product other than a 30-year, fixed-rate mortgage. Interest-only mortgage loans are specifically mentioned as an example of nontraditional loans.

“The term ‘nontraditional mortgage product’ means any mortgage product other than a thirty-year fixed-rate mortgage.”

— SAFE Act, 12 U.S.C. § 5102(7)

The VA funding fee varies based on several factors, including whether the borrower has a service-connected disability, if the borrower is a first-time or subsequent user of VA benefits, and the loan-to-value ratio (LTV). Marital status does NOT affect the funding fee.

“Factors that determine the VA funding fee include: type of veteran, type of loan, down payment amount (LTV), and whether the veteran has previously used entitlement. Marital status does not impact the funding fee.”

— U.S. Department of Veterans Affairs, VA Funding Fee Table

The Real Estate Settlement Procedures Act (RESPA) requires disclosures intended to prevent lenders and mortgage loan originators (MLOs) from increasing fees during the loan origination process. RESPA mandates the disclosure of estimated fees through the Loan Estimate (LE) and ensures that fees do not change substantially from the Loan Estimate to the final Closing Disclosure (CD) unless specific conditions justify the changes. This protects borrowers from "fee increases" during the settlement process.

While TILA (A) deals with disclosure of loan terms and APR, RESPA (D) focuses specifically on fees and closing costs during origination.

A lock-in agreement (rate lock) is a written commitment by a lender to hold a specific interest rate for a borrower for a certain period, usually prior to closing.

“A lock-in agreement is a written agreement guaranteeing the applicant a specified interest rate for a designated period.”

— SAFE MLO National Test Study Guide; CFPB Mortgage Glossary

Mortgage loan originators (MLOs) are subject to strict rules regarding compensation to prevent conflicts of interest and protect consumers. According to the Truth in Lending Act (TILA) Regulation Z, Loan Originator Compensation Rule (12 CFR § 1026.36(d)), an MLO may not receive compensation from both the borrower and any other person (such as a creditor or lender) in a single transaction. This is often referred to as the "anti-dual compensation rule" and is designed to prevent situations where an MLO could be incentivized to steer consumers into less favorable loans for higher pay.

"A loan originator may not receive compensation directly or indirectly from both the consumer and another person in connection with the same transaction."

— 12 CFR § 1026.36(d)(2), Regulation Z, Truth in Lending Act

Other options are not prohibited and are actually required or encouraged by law:

B: Presenting best program options is part of an MLO’s fiduciary and ethical duties.

C: Providing required disclosures (e.g., Loan Estimate) within three business days of application is required under TILA/RESPA Integrated Disclosure (TRID) rules.

D: Providing a copy of the credit application is permissible and often requested.

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)

Section 8(a) of the Real Estate Settlement Procedures Act (RESPA) strictly prohibits giving or accepting any fee, kickback, or thing of value in exchange for the referral of settlement service business related to a federally related mortgage loan.

“No person shall give and no person shall accept any fee, kickback or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.”

— 12 U.S.C. § 2607(a); 12 CFR § 1024.14(b), Regulation X

This means it is illegal for a mortgage loan originator (MLO) to pay a real estate agent for referring clients, regardless of client notification, consent, or limitation to business expenses. Minor items of minimal value (e.g., pens, promotional items) may be allowed if not given in exchange for referrals, but any compensation for referrals is a prohibited kickback.

A red flag is a pattern, practice, or specific activity that indicates the possible existence of identity theft. The Red Flags Rule requires financial institutions and creditors to develop and implement programs to detect, prevent, and mitigate identity theft.

“Red flags are patterns, practices, or specific activities that indicate the possible existence of identity theft.”

— FTC, Red Flags Rule: Identity Theft Prevention Program

A 2-1 buydown provides for a reduced interest rate for the first two years:

Year 1: Note rate minus 2% (6% - 2% = 4%)

Year 2: Note rate minus 1% (6% - 1% = 5%)

Years 3–30: Note rate (6%)

“In a 2-1 buydown, the interest rate is reduced by 2% the first year and 1% the second year. The third and subsequent years, the rate is the note rate.”

— SAFE MLO National Test Study Guide; CFPB Mortgage Glossary

A loan is a Qualified Mortgage (QM) with “safe harbor” legal protection if its APR does not exceed the average prime offer rate (APOR) by more than 100 basis points (1%) for a first-lien transaction.

“A covered transaction is a safe harbor QM if the APR does not exceed the APOR for a comparable transaction by 1.5 or more percentage points for first-lien transactions, or 3.5 percentage points for subordinate-lien transactions. For purposes of safe harbor protection, the threshold is 1 percentage point (100 basis points) above APOR.”

— 12 CFR § 1026.43(e); CFPB QM/ATR Rule Summary