NMLS MLO - Mortgage Loan Origination (SAFE MLO) Exam

The Uniform Residential Loan Application (URLA/Fannie Mae Form 1003) allows the applicant to select one of the following occupancy types: primary residence, secondary residence, or investment property.

“Occupancy types on the URLA are: Primary Residence, Secondary Residence, Investment Property.”

— Fannie Mae Form 1003: Uniform Residential Loan Application

If an applicant withdraws the application or the loan is denied by the creditor within three business days of receiving the application, the creditor is not required to provide a Loan Estimate.

“If the creditor determines within the three-business-day period that the application will not or cannot be approved on the terms requested, and notifies the applicant, a Loan Estimate is not required.”

— 12 CFR § 1026.19(e)(1)(iii)

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.

Under TILA, the term finance charge includes any fees related to the cost of borrowing, such as daily or per diem interest paid by the borrower. The finance charge encompasses all charges imposed by the creditor as a condition of extending credit, including interest, points, and loan origination fees.

Seller's points (B) are not part of the finance charge because they are paid by the seller.

Standard application fees (C) and document preparation fees (D) are typically excluded unless they are specifically tied to the cost of obtaining credit.

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.

The MLO must advise the borrower that if they plan to purchase a new home shortly after refinancing, they must disclose this information upfront. Since the terms of the refinance loan require that the borrower occupy the property for 12 months, the MLO should suggest refinancing the current property as a non-owner-occupied loan if the borrower does not intend to stay in the home. This approach ensures compliance with the loan terms and avoids potential mortgage fraud.

Other options (A, B, C) involve potential conflicts of interest or violations of the loan terms.

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

A corrected Closing Disclosure (CD) requires a new three-day waiting period before consummation if the following major changes occur:

The APR changes beyond the allowable tolerance (which is not the scenario here; hence, Option C is incorrect).

The loan product changes (e.g., switching from a fixed-rate to an adjustable-rate mortgage).

A prepayment penalty is added, which is the correct answer in this case. A prepayment penalty can significantly impact the borrower’s ability to repay the loan early without incurring additional costs, which is why this triggers a new waiting period.

Changes like the addition of an escrow account (A) or revisions to contact information (D) do not typically require the three-day waiting period, as they do not materially alter the terms of the loan in a way that would affect the borrower’s decision to proceed.

Interest-only mortgages are considered higher risk compared to traditional mortgages because the borrower’s scheduled payments only cover the interest on the loan, and none of the principal balance is reduced during the interest-only period. As a result, the loan balance remains unchanged, which increases the risk for both the borrower and lender if the value of the home decreases or if the borrower cannot make larger payments when the principal becomes due.

Other risks, such as exceeding the APOR (Average Prime Offer Rate) by a certain margin (C, D), apply to high-cost mortgages, not specifically interest-only loans.