Pass the NMLS SAFE MLO MLO Questions and answers with ExamsMirror

The right of rescission is a provision under TILA (Truth in Lending Act) that gives borrowers the right to cancel certain types of loans within three business days after closing. This right applies specifically to refinance transactions on a borrower's primary residence, where they are taking cash out or refinancing their mortgage.

Cash-out refinances on a primary residence (C) are subject to the right of rescission because they involve the homeowner's primary residence.

Purchase loans (A) and loans secured by vacation homes (B) or other investment properties are not subject to this rule.

Even if the same creditor is refinancing the loan (Option D), the right of rescission still applies if it's a refinance of the primary residence.

Private mortgage insurance (PMI) is typically required for conventional first-lien loans when the loan-to-value (LTV) ratio exceeds 80%. That is, when the borrower puts down less than 20% as a down payment.

“PMI is required by lenders on conventional loans with a loan-to-value ratio greater than 80 percent.”

— Homeowners Protection Act of 1998; CFPB PMI Guidance

Redlining is the discriminatory practice of denying loans or other financial services to otherwise creditworthy applicants based on the location of the property, often in minority or economically disadvantaged neighborhoods. This is illegal under the Fair Housing Act and Equal Credit Opportunity Act (ECOA), as it constitutes a form of racial or ethnic discrimination in housing and lending.

Steering (A) involves directing borrowers toward certain loan products for the lender’s benefit, while low balling (D) and appraising (C) are unrelated to this form of discrimination.

For a 30-year fixed-rate mortgage with an escrow account, the monthly mortgage payment consists of principal, interest, taxes, and insurance (often referred to as PITI). The principal and interest portions remain constant with a fixed-rate mortgage, but the escrow account is used by the lender to collect and pay property taxes and homeowners insurance premiums on the borrower's behalf.

Escrow accounts are required by many lenders to ensure that taxes and insurance are paid on time. If the annual property taxes and/or homeowners insurance premiums increase, the lender will adjust the amount collected for escrow each month, which will increase the total monthly payment (even though the principal and interest portion stays the same).

“While your principal and interest payment remains the same on a fixed-rate mortgage, your total monthly payment can increase if your property taxes or homeowners insurance premiums increase, since these are typically included in your monthly escrow payment.”

— Consumer Financial Protection Bureau (CFPB): What is an escrow account?

Other options are incorrect:

A. Utility bills are not part of the mortgage payment or escrow.

B. The interest rate does not increase with a fixed-rate mortgage; it remains constant.

D. Servicers do not collect payments for unrelated auto loans with the mortgage.

Under TRID/Regulation Z, if a borrower requests a change in loan product, this is considered a changed circumstance, and a new Loan Estimate must be provided reflecting the revised terms within three business days.

“A revised Loan Estimate must be provided if a changed circumstance affects the consumer’s eligibility for a specific loan product or terms.”

— 12 CFR § 1026.19(e)(3)(iv)

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.

Under TILA-RESPA Integrated Disclosure (TRID) rules, borrowers must receive the Loan Estimate (LE) at least 7 business days before consummation of the loan. This rule allows borrowers ample time to review the terms and costs of the mortgage before closing.

If a revised Loan Estimate is issued due to changes in circumstances (e.g., interest rate changes, property changes), the borrower still needs to receive it no later than 7 business days before consummation.

When responding to a state regulator’s request regarding a consumer complaint, the company should provide all requested documents, along with an explanation of the facts and what caused the complaint. Regulators have authority to access unredacted information as part of their oversight and investigative powers.

“Regulators have the right to access all pertinent documentation in the course of investigations or examinations. Companies should provide a full and factual response, including all supporting documentation and their explanation of events.”

— SAFE Act, 12 U.S.C. § 5117; NMLS Policy Guidebook

A Loan Estimate is considered “expired” if the consumer does not express an intent to proceed within 10 business days after the Loan Estimate is provided, unless a longer period is specified by the creditor.

“If a creditor does not receive an intent to proceed from a consumer within ten business days after the Loan Estimate is provided, the creditor is no longer bound by the Loan Estimate.”

— 12 CFR § 1026.19(e)(3)(iv)(E); CFPB TILA-RESPA Guide

For an Adjustable-Rate Mortgage (ARM), specific disclosures must be provided to the borrower within three business days of receiving a completed loan application. These disclosures are required under TILA (Truth in Lending Act) and include detailed information about the loan’s terms, how the interest rate can change, and what potential payment increases might occur over time.

The Loan Estimate (LE), which includes ARM-specific information, must be provided within this timeframe to ensure the borrower understands the adjustable nature of the loan before proceeding further in the process.

Other options like at closing or when a loan is locked in are incorrect, as disclosures must be provided much earlier in the process.