Free Practice Questions for NMLS MLO Exam

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

When obtaining a mortgage loan, title insurance is typically required to protect the lender. The lender’s title insurance policy ensures that the lender has a valid lien on the property and protects against potential claims on the title, such as unpaid property taxes, liens, or ownership disputes.

While owner's title insurance protects the buyer, the lender’s title insurance is required to protect the financial interest of the lender.

The Consumer Financial Protection Bureau (CFPB) is responsible for regulating mortgage lenders and overseeing their origination practices and procedures. The CFPB was created under the Dodd-Frank Act to protect consumers from unfair, deceptive, or abusive practices in financial services, including mortgages. Its functions include:

Enforcing rules related to mortgage origination, such as TILA, RESPA, and ECOA.

Ensuring that lenders provide clear disclosures and follow fair lending practices.

Other functions:

Regulating the federal funds rate (A) is the role of the Federal Reserve.

Deciding the quantity of mortgage-backed securities purchased by the government (D) is related to Federal Reserve monetary policy, not the CFPB.

Under the TILA-RESPA Integrated Disclosure (TRID) rules, any significant change to the Annual Percentage Rate (APR) beyond the allowed tolerance before closing requires the lender to provide a revised Closing Disclosure (CD). If the APR increases by more than 0.125% for fixed-rate loans, the lender must re-disclose the CD and provide the borrower with at least three business days to review the updated terms before consummation (closing).

In this case, the interest rate increase from 3.250% to 3.875% is a significant change that impacts the APR, triggering the need for re-disclosure and the mandatory three-business-day waiting period.

The lender must postpone the closing until the new three-day waiting period passes to ensure compliance with TRID regulations.

Title insurance protects against losses arising from disputes over property ownership or other defects in title. It ensures the borrower (and lender) that the property being purchased is rightfully owned by the borrower and is free of undisclosed liens or encumbrances.

“Title insurance protects against losses if there are problems with the ownership of your property after you buy it. It guarantees that you legally own the home.”

— CFPB, What is title insurance?

An origination charge is an allowable closing cost typically found on the Closing Disclosure (CD). This fee is charged by the lender for processing the mortgage application and creating the loan. It may include administrative fees, underwriting fees, and other costs related to loan origination.

Referral fees (B) are illegal under RESPA.

Servicing fees (C) are not typically listed as closing costs but are part of ongoing loan maintenance.

Yield-to-loan fees (D) are not a standard item on a Closing Disclosure.

The USA PATRIOT Act was enacted in 2001 to help deter and punish terrorist acts in the United States and around the world, and to enhance law enforcement investigatory tools. It requires financial institutions to establish anti-money laundering programs and procedures to help prevent terrorist financing.

“The purpose of the USA PATRIOT Act is to deter and punish terrorist acts in the United States and around the world, to enhance law enforcement investigatory tools, and to address money laundering and terrorist financing.”

— USA PATRIOT Act, Public Law 107-56

When there is no tax return history for a rental property, FHA guidelines require lenders to reduce the gross rental income by 25% to account for vacancies and maintenance.

“If there is no history of rental income on the borrower’s tax returns, the lender must reduce the market rent by 25% before considering it as effective income.”

— HUD 4000.1 FHA Single Family Housing Policy Handbook

Section 8 of RESPA prohibits giving or accepting anything of value in exchange for referrals of settlement service business related to federally related mortgage loans. Renting office space at lower rates (or free) in exchange for referrals is specifically called out in RESPA guidance as an illegal kickback.

“Section 8(a) of RESPA prohibits giving or accepting any fee, kickback, or thing of value… for the referral of settlement service business. Examples of violations include… renting office space at above or below market rates based on the amount of business referred.”

— 12 CFR § 1024.14; CFPB RESPA Section 8 Guidance

Hosting seminars, sponsoring uniforms, or donating to charity are generally permissible if not conditioned on referrals.