Mixed Deck — All Loan Officer Exam Topics Flashcards

Under the SAFE Act, which of the following criminal convictions would permanently bar someone from obtaining an MLO license?

Answer: A felony involving fraud, dishonesty, or breach of trust at any time

A felony conviction involving fraud, dishonesty, breach of trust, or money laundering at any time permanently disqualifies a person from obtaining an MLO license.

Under the Mortgage Acts and Practices (MAP) Rule, also known as Regulation N, which of the following advertising statements is a clear violation?

Answer: “We are an official FHA-endorsed lender operating under the authority of the U.S. Government.”

The MAP Rule (Regulation N) expressly prohibits misrepresenting any affiliation with a government entity. A private lender cannot claim to be an 'official' government-endorsed entity or to operate under government authority, as this is a material misrepresentation designed to mislead the consumer.

A consumer report will stop include ALL of the following after seven years, EXCEPT?

Answer: bankruptcy

Under the Fair Credit Reporting Act (FCRA), most negative information, such as civil judgments, paid tax liens, and accounts placed for collection, must be removed from a consumer's credit report after seven years. However, bankruptcies are a notable exception and can remain on a credit report for up to 10 years from the date of filing, reflecting their significant and prolonged impact on creditworthiness.

A borrower is obtaining an FHA loan to purchase their primary residence. In addition to the monthly mortgage insurance premium (MIP), which of the following is also a required component of this loan type?

Answer: A one-time, upfront mortgage insurance premium (UFMIP)

FHA loans require both an Upfront Mortgage Insurance Premium (UFMIP), which is typically 1.75% of the loan amount and can be financed, and a monthly Mortgage Insurance Premium (MIP) for a specified period. The funding fee is for VA loans, PMI is for conventional loans, and the guarantee fee is for USDA loans.

During the mortgage underwriting process, the underwriter's primary responsibility is to:

Answer: Assess the risk of the loan and ensure it meets lender and investor guidelines.

The core function of a mortgage underwriter is to evaluate the risk associated with a loan application. They analyze the borrower's credit history, capacity to repay (income and DTI), and the collateral (the property) to determine if the loan meets the lender's and any applicable investor's guidelines before making a final approval or denial decision.

Which of the following are two primary eligibility requirements that are unique to a USDA Rural Development Guaranteed Housing Loan?

Answer: Property location in an eligible rural area and household income within specific limits.

USDA loans are designed to promote homeownership in less populated areas. Therefore, the two most critical and unique eligibility criteria are that the property must be located in a designated rural area as defined by the USDA, and the borrower's total household income must not exceed the program's limits for that area.

Which appraisal approach is most commonly used and given the most weight when valuing single-family residential properties?

Answer: Sales comparison approach

The sales comparison approach is given the most weight for single-family residences because abundant comparable sales data exists, and it best reflects how buyers make purchase decisions.

What does 'disparate impact' mean in fair lending law?

Answer: A neutral lending policy that disproportionately affects members of a protected class

Disparate impact occurs when a facially neutral lending policy or practice has a disproportionately negative effect on a protected class, even without discriminatory intent.

A loan originator is working with a first-time homebuyer who has a limited understanding of mortgage products. The originator rushes through the explanation of a complex adjustable-rate mortgage, focusing only on the low initial 'teaser' rate and failing to adequately explain the risks of future payment shock. This action MOST likely constitutes which type of UDAAP violation?

Answer: An abusive practice

This is an abusive practice because the loan originator is taking unreasonable advantage of the consumer's lack of understanding of the material risks, costs, or conditions of the product. An 'abusive' act under UDAAP specifically includes materially interfering with a consumer's ability to understand a term or taking unreasonable advantage of their lack of understanding.

What is 'functional obsolescence' in real estate appraisal?

Answer: A loss in value due to outdated design, layout, or features that do not meet current buyer standards

Functional obsolescence is a loss in value due to design deficiencies or outdated features — such as inadequate electrical capacity or a poor floor plan — that reduce the property's utility compared to modern standards.

What does "change of circumstance" NOT entail?

Answer: a change in the borrower's monthly income

A "change of circumstance" under TRID (TILA-RESPA Integrated Disclosure) rules allows a lender to revise a Loan Estimate and reset fee tolerances. These typically involve unforeseen events or new information affecting the loan, such as a disaster or the need for flood insurance. A change in the borrower's monthly income, while impacting qualification, is generally not considered a "change of circumstance" that permits a revised Loan Estimate for tolerance purposes, as income is part of the initial application assessment.

A loan officer is concerned that a property's appraisal may come in too low to make the deal work. The officer calls the appraiser and says, “We really need this property to be valued at $350,000 for the loan to be approved. Future business depends on it.” This is a prohibited act known as:

Answer: Appraisal coercion

This action is known as appraisal coercion. Regulations, including the Truth in Lending Act (TILA), prohibit any attempt to influence an appraiser's independent judgment of value through intimidation, bribery, or pressure, such as threatening to withhold future business.

When is a notice of adverse action required?

Answer: when a counteroffer is extended, but the offer is rejected

A notice of adverse action is required under the Equal Credit Opportunity Act (ECOA) when a lender denies a loan application or makes a counteroffer that the applicant rejects. This notice informs the applicant of the reasons for the denial or the terms of the rejected counteroffer, ensuring transparency and fairness in lending decisions.

A loan officer leaves a borrower's file, which contains their credit report and bank statements, unsecured on their desk in an open-plan office. A colleague from another department is able to view the sensitive information. This careless handling of non-public personal information is a violation of the requirements set forth by the:

Answer: Gramm-Leach-Bliley Act (GLBA)

The Gramm-Leach-Bliley Act (GLBA) contains the Safeguards Rule, which requires financial institutions to have a written security plan to protect the confidentiality and integrity of customers' non-public personal information (NPI). Failing to secure sensitive documents from unauthorized access is a direct violation of these safeguards.

How long does a person's name stay on the national do-not-call list if they don't take it off?

Answer: indefinitely

Once a consumer registers their phone number on the National Do Not Call Registry, it remains on the list indefinitely unless they choose to remove it. This permanent registration provides lasting protection against unwanted telemarketing calls. Consumers do not need to re-register their numbers periodically.

The primary purpose of the Truth in Lending Act (TILA) is to:

Answer: Ensure that credit terms are disclosed in a meaningful and uniform way.

TILA was enacted to promote the informed use of consumer credit by requiring disclosures about its terms and cost. It ensures that consumers can compare credit terms from different lenders more readily by standardizing the disclosure of costs like the Annual Percentage Rate (APR) and finance charges.

What must a consumer do before receiving and electronically signing electronic loan disclosures?

Answer: properly consent a receive e-disclosures

Before a consumer can legally receive and electronically sign loan disclosures, they must provide proper consent to receive disclosures electronically, as mandated by the E-SIGN Act. This ensures that the consumer understands and agrees to conduct transactions and receive documents in an electronic format. This consent protects both the consumer's rights and the legal validity of the electronic signatures.

A homebuyer is obtaining a $320,000 mortgage. To lower their interest rate, they decide to pay 1.5 discount points at closing. What is the total cost of these points?

Answer: $4,800

One discount point is equal to 1% of the loan amount. In this case, 1 point would cost $3,200 (1% of $320,000). Since the homebuyer is paying 1.5 points, the total cost is 1.5 multiplied by the cost of one point, which is $320,000 * 0.015 = $4,800.

Which of the three appraisal approaches estimates value by calculating land value plus the cost to replace improvements minus accrued depreciation?

Answer: Cost approach

The cost approach estimates value by adding the land value to the depreciated cost of reproducing or replacing the improvements on the property.

When must a lender deliver a copy of the appraisal to the borrower?

Answer: 3 days before a loan closes

Under the Equal Credit Opportunity Act (ECOA), lenders are required to provide applicants with a copy of their appraisal and all other written valuations developed in connection with an application for credit secured by a first lien on a dwelling. This must be delivered at least three business days prior to loan closing, allowing the borrower time to review it.