Free Practice Questions for NMLS MLO Exam

TRID regulations require that the consumer receive the Closing Disclosure at least three business days before loan consummation. This gives the borrower adequate time to review final terms and costs.

“The creditor must ensure that the consumer receives the Closing Disclosure no later than three business days before consummation.”

— 12 CFR § 1026.19(f)(1)(ii)

Under Regulation Z, which implements the Truth in Lending Act (TILA), creditors offering Adjustable-Rate Mortgages (ARM) are required to provide disclosures that fully describe each variable-rate loan program in which the consumer expresses interest. These disclosures must explain:

How the interest rate and payment could change over time

The frequency of rate changes

The index used to determine the rate

Potential caps and limits on rate increases

These disclosures ensure transparency and protect consumers from unexpected payment shocks.

Other loan types:

FHA loans (B) follow fixed or ARM terms, but the requirement for variable-rate disclosure is specific to ARMs.

Fixed-rate loans (C) don’t have variable rates, so they don’t require such detailed disclosures.

Construction loans (D) may involve different terms but aren’t subject to this particular requirement.

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

Redlining is a discriminatory practice in mortgage lending where certain neighborhoods, often those predominantly inhabited by minority groups, are systematically denied access to mortgages, insurance, or other financial services. Lenders would use literal red lines on maps to designate these areas as high-risk or undesirable, refusing to offer loans or offering them at inflated interest rates.

Redlining is a violation of fair lending laws such as the Fair Housing Act (FHA) and Equal Credit Opportunity Act (ECOA). Both of these federal laws prohibit discrimination based on race, color, national origin, religion, sex, family status, or disability in housing and credit transactions.

This practice has historically contributed to racial segregation and economic inequality in the U.S., as minority groups were systematically excluded from access to homeownership and wealth-building opportunities.

Coercion is the act of using force, threats, or pressure to influence another party’s actions or decisions. Imposing arbitrary and unreasonable time limits to force a borrower to act quickly—when such urgency is not legitimate—is considered a form of coercion.

“Coercion includes pressuring consumers to make decisions in haste or under duress, such as requiring immediate action to lock in a loan rate.”

— SAFE MLO National Test Study Guide; CFPB Consumer Protection Resources

This practice is prohibited and unethical.

Under the Ability-to-Repay (ATR) rule (TILA § 1026.43), lenders must evaluate specific factors such as income, employment, current debt, alimony, child support, credit history, monthly payment for the loan, and monthly payments on simultaneous loans. However, projected proceeds from the sale of the property securing the loan are explicitly not required (and are generally prohibited from being considered).

“The creditor must not consider the value of, or proceeds from, the sale of the property securing the loan.”

— 12 CFR § 1026.43(c)(4); CFPB ATR/QM Rule

Under the Equal Credit Opportunity Act (ECOA), lenders can deny a loan based on immigration status, as it directly relates to the borrower’s ability to legally reside and work in the country. Lenders must ensure that the borrower has the legal capacity to enter into a binding contract and that they are authorized to work in the U.S. for the loan’s duration.

Receipt of child support (A), marital status (C), and country of birth (D) are protected characteristics under ECOA, meaning a lender cannot deny credit based on these factors.

A second (subordinate) mortgage loan refers to a mortgage taken out after the primary mortgage and is subordinate to the first in priority of claims on the property in case of default or foreclosure. One of the most common types of subordinate mortgages is a home equity line of credit (HELOC).

HELOC allows homeowners to borrow against the equity in their home, typically after the first mortgage, making it a subordinate loan.

Other options:

Government home purchase loans (A) and conventional home purchase loans (B) are typically first mortgages.

A home equity conversion mortgage (C) is a type of reverse mortgage, which is also typically a primary loan, not a subordinate one.

A Suspicious Activity Report (SAR) is filed by financial institutions to report known or suspected violations of law or suspicious financial activities. The requirement to file SARs falls under the Bank Secrecy Act (BSA), which is designed to prevent money laundering, fraud, and other financial crimes. SARs must be filed with FinCEN (Financial Crimes Enforcement Network) whenever suspicious transactions are detected.

TILA (B), Gramm-Leach-Bliley Act (C), and RESPA (D) do not govern the filing of SARs.

Under the CFPB mortgage servicing rules, a mortgage company cannot initiate foreclosure proceedings until a borrower’s loan is at least 120 days delinquent. This rule is designed to give borrowers sufficient time to explore loss mitigation options, such as loan modification, forbearance, or repayment plans, before facing foreclosure.

The 120-day delinquency rule applies to all residential mortgage loans, providing a mandatory grace period before foreclosure filing.

This requirement is part of the Dodd-Frank Act and is enforced under Regulation X.