MLO Mortgage Loan Origination (SAFE MLO) Exam Questions and Answers

Under ECOA, a creditor may decline a loan based on an applicant’s inability to repay, as demonstrated by verified income and other underwriting criteria. It is illegal to consider race, receipt of public assistance, or exercise of consumer rights as a basis for denial.

“A creditor may consider verified income in evaluating creditworthiness. Discrimination based on race, public assistance, or exercise of rights under the Consumer Credit Protection Act is prohibited.”

— 12 CFR § 1002.6, Regulation B (ECOA)

To verify a borrower's income for the ability-to-repay (ATR) requirements, lenders must rely on verified documentation, such as:

Electronic paystubs

W-2 forms

Tax returns

An electronic paystub is acceptable as it provides detailed proof of the borrower's income, including salary, deductions, and other compensation.

Items like a check register (B), the income stated on the loan application (C), or a borrower’s attestation (D) without documentation are not considered valid forms of income verification.

A purchase money second mortgage allows a borrower to avoid paying private mortgage insurance (PMI) by using a second loan to cover part of the down payment. This structure, often referred to as a "piggyback loan", is commonly used when a borrower does not have a 20% down payment but wants to avoid PMI, which is typically required for loans with less than 20% down.

The borrower makes payments on both the primary mortgage and the second mortgage, but by keeping the loan-to-value (LTV) on the first mortgage below 80%, they can avoid PMI.

Regulation Z (TILA) and the SAFE Act require that all mortgage loan applications include the MLO's unique identifier, which allows regulators and consumers to identify the MLO involved in the transaction.

“Each loan application must include the mortgage loan originator’s name and unique identifier.”

— 12 CFR § 1026.36(g); SAFE Act

Other listed information is not federally required on every mortgage application.

For FHA loans, when a borrower’s commission income is 25% or more of total income, the lender must obtain copies of the borrower’s signed federal income tax returns for the previous two years and must also document current commission income.

“Commission income must be averaged over the previous two years. Borrowers whose commission income represents 25 percent or more of their total annual employment income must provide signed tax returns for the previous two years.”

— HUD 4000.1 FHA Single Family Housing Policy Handbook

Under RESPA (Real Estate Settlement Procedures Act), it is illegal to charge a fee for a settlement service if no services or only nominal services are performed. This is true regardless of who pays the fee, whether it’s the borrower, seller, real estate agent, or any other party. RESPA prohibits unearned fees, kickbacks, or payments for referrals in federally related mortgage transactions.

Even if someone other than the borrower pays, the charge is still illegal if it is not justified by actual services performed.

The main purpose of the secondary market is to fund additional loans by allowing lenders to sell existing mortgages to investors. This process replenishes the lender’s capital, enabling them to originate more loans. The secondary market is where mortgage-backed securities (MBS) are bought and sold, providing liquidity to the mortgage market.

Other options such as funding second mortgages or second home loans are specific transactions that do not capture the overall purpose of the secondary market.

Under TILA (Truth in Lending Act), higher-priced mortgage loans (HPMLs) are subject to several regulations, including:

Lenders must verify income and assets to ensure the borrower’s ability to repay the loan (A).

Creditors are required to establish escrow accounts for taxes and property insurance for first-lien mortgages (B).

There are restrictions on prepayment penalties (C).

However, borrowers of HPMLs do not have a five-day right of rescission. The right of rescission is typically three business days and applies to refinances on primary residences, not to HPMLs.

The Gramm-Leach-Bliley Act (GLBA) prohibits the disclosure of nonpublic personal information about consumers to third parties, except as permitted by law (e.g., for processing the loan). Discussing a consumer’s credit history in a public place where privacy cannot be ensured is a violation of GLBA privacy rules.

“Financial institutions must protect the confidentiality of consumer records and information. Discussing customer information in public or unsecured locations can violate privacy regulations.”

— GLBA Privacy Rule; FTC Compliance Guidelines

Other choices reflect permissible or prudent actions, such as sharing information with authorized third parties or using secure data storage.

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)

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

According to RESPA (Regulation X), a borrower generally has the right to choose their own settlement service providers. However, the appraiser is selected by the lender (not the borrower), and the borrower is required to use the appraiser chosen by the lender to ensure appraisal independence and lender risk management.

“A lender may require the use of a particular appraiser to perform the appraisal for a loan.”

— RESPA, 12 CFR § 1024.2(b); Appraiser Independence Requirements

Under the SAFE Act, offering or negotiating the terms of a loan includes presenting specific loan terms to an applicant, whether verbally, in writing, or through any other communication method. This activity directly involves discussing or negotiating loan details like interest rates, loan amounts, and repayment terms, which requires licensure as a mortgage loan originator (MLO).

Providing general explanations (A) and arranging loan closings (D) do not require an MLO license because they do not involve negotiating or offering specific loan terms.

Making underwriting decisions (B) is also a separate activity not considered "offering or negotiating" loan terms.

Under TILA’s right of rescission, when there are multiple borrowers with an ownership interest in the property, each owner must receive notice of the right to rescind. If any one of them exercises the right, the loan is rescinded.

“When more than one consumer has the right to rescind, the exercise of the right by one consumer is effective as to all.”

— 12 CFR § 1026.23(a)(4), Regulation Z

A borrower who knowingly makes false statements on a federally related mortgage loan to obtain property can face severe penalties under federal law. The penalties can include:

A fine of up to $1 million.

Imprisonment for up to 30 years.

These penalties fall under federal statutes such as 18 U.S.C. § 1014, which covers fraud and false statements related to loan applications. This is a serious offense, and the law is designed to deter fraud in federally related mortgage transactions.

Under Regulation Z (TILA), when mortgage loan originators (MLOs) advertise mortgage services, including payment amounts, they must disclose the Annual Percentage Rate (APR). The APR reflects the total cost of the loan, including interest and certain fees, and provides a clear picture of the loan's true cost over time.

Failure to include the APR in an advertisement that mentions payment amounts, interest rates, or other specific loan terms is considered a violation of TILA’s advertising requirements.

Other details (B, C, D), such as the MLO's website or the number of days the rate is available, are not mandatory in all advertisements, but the APR is required.

Fee splitting is the illegal practice where a mortgage loan originator (MLO) and another party, such as an appraiser, share fees in exchange for referrals or future business. This is prohibited under the Real Estate Settlement Procedures Act (RESPA), which bans kickbacks, referral fees, and unearned fees between settlement service providers.

In this case, the appraiser offering to give the MLO half of her appraisal fees in exchange for future business is a clear violation of RESPA’s anti-kickback provisions. Fee splitting can lead to inflated costs for consumers and undermines the integrity of the mortgage process.

Other options:

Redlining (A) refers to discriminatory lending practices based on geography.

Blockbusting (C) refers to discriminatory real estate practices.

Paying it forward (D) is not a term in the context of mortgage lending.

Under Regulation Z, when a consumer applies for an ARM, the required variable-rate program disclosures must be given when an application form is provided or before a nonrefundable fee is paid, whichever is earlier.

“The disclosures required… must be given at the time an application form is provided or before the consumer pays a nonrefundable fee, whichever is earlier.”

— 12 CFR § 1026.19(b)(1)

An origination fee is considered a finance charge under TILA because it represents the cost of obtaining credit. A finance charge includes all fees that a borrower must pay as a condition of securing a loan, excluding certain exempt fees like notary or appraisal fees.

Notary fees (A) and appraisal fees (C) are typically excluded from the finance charge calculation.

Late payment fees (D) are not considered finance charges; they are penalties for delinquent payments.

Under the SAFE Act, mortgage loan originators (MLOs) must complete 8 hours of continuing education (CE) each year to maintain their licenses. The required CE topics include:

3 hours of federal law and regulations.

2 hours of ethics, which must include instruction on fraud, consumer protection, and fair lending.

2 hours on nontraditional mortgage lending standards, which refers to loan products that do not have fixed interest rates, such as adjustable-rate mortgages (ARMs) and other alternative loan types.

1 elective hour, which can vary based on state or company preferences.

The focus on nontraditional mortgage lending helps ensure MLOs understand the complexities and risks of nonstandard loan products.

According to the TILA-RESPA Integrated Disclosure (TRID) rule, the borrower must receive the Closing Disclosure (CD) at least 3 business days prior to loan consummation. This waiting period gives the borrower adequate time to review the final terms and costs associated with the mortgage loan. If there are significant changes to the terms of the loan after the CD is issued, a new 3-day waiting period may be required.

Under TILA's Right of Rescission, in a federally related mortgage loan (such as a refinance) secured by a primary residence, any person who has an ownership interest in the property has the right to rescind the transaction within three business days after the closing, delivery of the notice of right to rescind, or delivery of all material disclosures, whichever occurs last.

This right applies to all individuals with a legal interest in the property, not just the primary borrower or the person who will occupy the property. This ensures that all owners can consent to the mortgage terms.

An assumable loan is a loan in which a purchaser of a property has the option to take over the existing loan payments under the same terms as the original borrower. This can happen with certain types of loans, such as FHA or VA loans, which allow the buyer to assume the mortgage, potentially at a more favorable interest rate than current market rates.

Options like taking out a second mortgage (A), choosing a loan servicer (B), or selling the loan (D) do not describe assumable loans.

Under the Equal Credit Opportunity Act (ECOA), creditors must notify applicants of the action taken (approval, counteroffer, or denial) within 30 calendar days of receiving a completed application or additional information related to a counteroffer. This timeline ensures transparency and fairness in the loan application process.

This 30-day window applies both for original applications and responses to counteroffers, allowing the borrower sufficient time to receive and act on the decision.

An underwriting fee is considered an origination fee because it is a charge for the lender’s services in processing and evaluating the mortgage application. Origination fees include any fees associated with creating and underwriting the loan.

Appraisal fees (A), title insurance fees (C), and prepaid interest fees (D) are not considered origination fees; they are separate charges related to third-party services or pre-paid interest.

Under the Equal Credit Opportunity Act (ECOA), the term adverse action is defined as a refusal to grant credit based on the requested loan terms, an unfavorable change in loan terms, or a termination of an account/application. This can include:

Denying a credit application.

Offering credit on terms different from those requested.

Closing an existing credit account.

Lenders must provide a formal notice of adverse action, explaining the reasons for the denial or change in terms, to comply with ECOA’s requirements for transparency and fairness.

Other options:

Account closure (B) and credit closure (C) are not specific ECOA terms.

Denial of credit (D) is a form of adverse action but does not cover all situations like a change in loan terms.

For rental properties, an appraiser will typically use the Income Approach to estimate the property's value. This method is based on the income-generating potential of the property, which is most relevant for investment properties, including rentals.

The Income Approach assesses the property's ability to generate future cash flow by evaluating the income that can be derived from renting it. The formula often involves determining the net operating income (NOI) and applying a capitalization rate (cap rate) to estimate value.

This method is most appropriate for rental properties because their value is inherently tied to their profitability.

Other methods:

Cost approach: More suited for unique properties or new construction.

Sales comparison approach: Often used for owner-occupied properties, comparing recent sales of similar properties.

For state-licensed, non-depository lenders, the primary regulatory authority is the state regulator in the jurisdiction where the lender operates. Each state has its own agency or department responsible for overseeing licensing, compliance, and enforcement of mortgage laws for non-depository institutions.

The NMLS (A) is the system used to manage licenses but is not a regulatory authority.

The Federal Trade Commission (B) oversees federal consumer protection laws but is not the primary regulator for state-licensed lenders.

The Conference of State Bank Supervisors (CSBS) (D) helps coordinate state regulation but does not directly regulate individual lenders.

A lock-in agreement (rate lock) is a written commitment by a lender to hold a specific interest rate for a borrower for a certain period, usually prior to closing.

“A lock-in agreement is a written agreement guaranteeing the applicant a specified interest rate for a designated period.”

— SAFE MLO National Test Study Guide; CFPB Mortgage Glossary

The Fair Housing Act prohibits discrimination in housing based on disability. Federal courts and HUD have consistently ruled that HIV/AIDS qualifies as a disability under the Act.

“The Fair Housing Act prohibits discrimination in housing based on disability, including HIV/AIDS.”

— U.S. Department of Justice; HUD Fair Housing Act Overview

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 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.

Steering occurs when a loan officer influences or directs a borrower towards a specific loan product or lender based on the compensation the loan officer will receive, rather than the borrower’s best interests. In Option C, the loan officer is steering the borrower to a loan from a particular lender to earn higher compensation, which is prohibited under the Dodd-Frank Act and TILA’s Loan Originator Compensation Rule.

Other options:

Option A describes offering a loan with higher fees, but it does not indicate that compensation is the motive, so it is not a clear example of steering.

Option B and Option D describe fair loan presentation practices.

Consumer complaints and their analysis are critical for identifying weaknesses in a company's compliance management system (CMS) and internal controls. The CFPB (Consumer Financial Protection Bureau) emphasizes that analyzing complaints helps companies spot patterns of non-compliance, risks, or failures in managing regulatory requirements. By reviewing consumer feedback, businesses can identify gaps in their compliance practices, including weaknesses in training programs and internal systems, that may lead to violations of laws like RESPA, TILA, and ECOA.

Complaints may reveal issues with loan disclosures, error resolution, unfair lending practices, or lack of training in regulatory updates.

Regular analysis helps reinforce internal controls and improve compliance processes.

According to the Telemarketing Sales Rule (TSR) and the National Do Not Call Registry requirements, nonexempt telemarketing entities must check their call lists against the National Do Not Call Registry at least every 31 days. This ensures that they do not call individuals who have opted out of receiving telemarketing calls.

The 31-day rule helps ensure compliance and reduces the likelihood of violating the Do Not Call regulations.

Under TILA’s advertising rules (Regulation Z), general statements such as "Come in today for your free consultation" do not trigger the requirement for additional disclosures. This type of advertisement does not include specific loan terms like payment amounts, interest rates, or other terms that would require further explanation.

Advertisements with terms like "Payments as low as $600" (A) or "1 point up front" (B) are triggering terms under TILA and would require additional disclosures about the APR, loan term, and other conditions.

The Equal Credit Opportunity Act (ECOA) prohibits discrimination based on receipt of child support, marital status, and age (provided the applicant is legally able to contract). However, it permits denial based on immigration status if it affects the creditor's ability to enforce legal rights in case of default.

“A creditor may inquire about an applicant’s immigration status and may deny credit if the applicant is not a permanent resident or otherwise not legally in the U.S. and able to contract.”

— 12 CFR § 1002.5(e), Regulation B (ECOA)

According to the SAFE Act, a nontraditional mortgage loan is any loan product other than a 30-year, fixed-rate mortgage. Interest-only mortgage loans are specifically mentioned as an example of nontraditional loans.

“The term ‘nontraditional mortgage product’ means any mortgage product other than a thirty-year fixed-rate mortgage.”

— SAFE Act, 12 U.S.C. § 5102(7)

An individual who is an independent contractor and performs loan processing or underwriting activities must maintain a state originator license if they collect, receive, or distribute information in connection with making a credit decision. This is because independent contractors are not considered supervised employees, and their work directly impacts the loan approval process.

In contrast, employees of a mortgage lender who perform clerical duties (A) under supervision do not need a state license, nor do those who do not interact with consumers (B).

Prepaid items are costs that a borrower pays in advance at closing, such as interest, property taxes, and homeowners insurance. These are often collected to set up escrow accounts for future payments. Real estate taxes paid at closing are a classic example of a prepaid item.

“Prepaid items are charges that are paid in advance at closing for items such as interest, property taxes, and insurance premiums.”

— CFPB, Your Home Loan Toolkit

Under Regulation Z, Section 1026.35(c), for higher-priced mortgage loans (HPMLs), if the seller acquired the property 90 days or less before the date of the borrower’s purchase agreement and the resale price exceeds the seller’s acquisition price by more than 10%, the lender must obtain two written appraisals from different certified or licensed appraisers.

“A creditor must obtain two written appraisals if the seller acquired the property 90 days or fewer prior to the date of the consumer’s agreement to acquire the property and the price exceeds the seller’s acquisition price by more than 10 percent.”

— 12 CFR § 1026.35(c)(4)(i)

The purpose of the TILA-RESPA Integrated Disclosure (TRID) rule is to aid borrowers in understanding the loan transaction process by using clear and readily understandable language in the Loan Estimate (LE) and Closing Disclosure (CD) forms. TRID simplifies and standardizes the mortgage disclosure process, making it easier for borrowers to understand the costs, terms, and potential risks of their loan.

TRID does not provide a cooling-off period (A) or prevent loan terms from changing (C), but it requires transparency and clarity in disclosure.

The purpose of an appraisal in mortgage underwriting is to determine the current market value of the property being used as collateral for the loan. This is to ensure the loan amount does not exceed the value of the property and to protect the lender’s interest in case of default.

“An appraisal provides an opinion of the property’s market value, which is essential for the lender to determine if the property adequately secures the loan.”

— Fannie Mae Selling Guide, B4-1.1-03: Appraisal Report Forms and Exhibits

The loan-to-value (LTV) ratio is calculated by dividing the loan amount by the lesser of the appraised value or the purchase price of the property. This protects lenders from over-lending on a property that may have a sales price above its actual market value.

“The loan-to-value ratio is calculated by dividing the loan amount by the lesser of the appraised value or sales price.”

— Fannie Mae Selling Guide; SAFE MLO National Test Study Guide

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.

An individual who had their MLO license application denied, or had a license revoked or suspended in any governmental jurisdiction, is not eligible for temporary authority to act as a mortgage loan originator (MLO) under the SAFE Act. Temporary authority allows registered MLOs who move to a state-licensed mortgage company to act as MLOs while their application for a state license is being processed. However, individuals with disqualifying events, such as prior license denial or revocation, lose this privilege.

Other options:

Court orders for child support (B) and being a witness in a trial (A) do not disqualify individuals from obtaining temporary authority.

In this situation, the most compliant action is to provide timely initial disclosures to the borrower within the required timeframe, even if the figures may be adjusted later when additional information is obtained. This is in accordance with TILA-RESPA Integrated Disclosure (TRID) rules, which mandate that the Loan Estimate (LE) must be provided within three business days after receiving an application, even if all details are not yet finalized.

Holding off on processing (Option A) or waiting until additional information is obtained (Option D) is non-compliant, as this could violate the timely disclosure requirements.

While documenting attempts to gather information (Option B) is good practice, it does not fulfill the regulatory obligation to provide disclosures promptly.

By issuing initial disclosures, even if the numbers are subject to change, the creditor remains compliant with the Consumer Financial Protection Bureau (CFPB) guidelines. Corrections can be made in subsequent disclosures.

Lenders are permitted to accept the employment information provided by the borrower on the initial loan application without asking for a letter of explanation when the borrower has a stable employment history, such as being employed by the same company for three years or more. This provides sufficient documentation of employment stability, reducing the need for further explanation.

Other options (A, B, C) involve situations where the employment status or job stability may raise concerns, thus requiring additional documentation or explanation.

The Real Estate Settlement Procedures Act (RESPA) applies to federally related mortgage loans, which include:

Loans made by lenders insured by a federal agency (such as FHA or VA loans)

Loans intended for sale to Fannie Mae or Freddie Mac

Loans from lenders that are federally regulated or insured

RESPA's goal is to protect consumers by requiring disclosures related to the costs of real estate transactions, preventing kickbacks, and ensuring transparency in the settlement process. It applies to most residential mortgage loans.

Other options:

County-related mortgage loans (B), state registration loans (C), and unified commerce loans (D) are not standard terms under RESPA.

An easement is a legal right granted to one party to cross or use another party's land for a specific purpose, such as for utility lines, access roads, or water drainage. Easements are commonly granted in property transactions and are recorded in the public records.

Easements are unrelated to mortgage modifications (A) or payment reductions (D).

Real estate brokerage activities are not a primary function of a mortgage loan originator (MLO). The MLO’s primary role is to assist consumers in taking an application (A), offering or negotiating credit terms (B), and helping consumers apply for credit (C).

Real estate brokerage activities, such as negotiating real estate transactions, are separate from the loan origination process and require different licensing and qualifications.

Under the TILA-RESPA Integrated Disclosure (TRID) rule, fees that are paid to third parties not controlled by the lender, such as property taxes, are not subject to tolerance limits. This means they can change from the Loan Estimate to the Closing Disclosure without restriction.

Lender fees (like tax service or processing fees) and escrow fees (when the borrower did not shop for the service) are subject to zero or 10% tolerance limits.

“Property taxes, homeowners insurance premiums, and similar charges are not subject to any tolerance limitation, and can change between the Loan Estimate and the Closing Disclosure.”

— 12 CFR § 1026.19(e)(3)(iii); CFPB TILA-RESPA Small Entity Compliance Guide

Under the Truth in Lending Act (TILA), for mortgage rescission purposes, a business day is defined as every day except Sunday and legal holidays. This definition applies to the three-business-day right of rescission period, during which a borrower can cancel certain refinance or home equity transactions.

The right of rescission allows the borrower three business days after signing the loan documents to cancel the loan without penalty.

FHA insurance protects the lender if the borrower defaults on the mortgage. The FHA pays a claim to the lender for losses incurred due to non-payment.

“FHA insurance protects the lender against losses if a homeowner defaults on their mortgage.”

— HUD, What is FHA Mortgage Insurance?

If an MLO suspects fraud, they have an obligation to report it to the company’s compliance officer or appropriate supervisor for investigation. Ignoring, failing to report, or handling it informally is not acceptable.

“If an MLO suspects fraud, the MLO must report it to their company's compliance officer or other responsible person as required by company policy and law.”

— SAFE MLO National Test Study Guide; FFIEC, Guidance on Mortgage Fraud Detection

The Real Estate Settlement Procedures Act (RESPA) requires disclosures intended to prevent lenders and mortgage loan originators (MLOs) from increasing fees during the loan origination process. RESPA mandates the disclosure of estimated fees through the Loan Estimate (LE) and ensures that fees do not change substantially from the Loan Estimate to the final Closing Disclosure (CD) unless specific conditions justify the changes. This protects borrowers from "fee increases" during the settlement process.

While TILA (A) deals with disclosure of loan terms and APR, RESPA (D) focuses specifically on fees and closing costs during origination.

The Truth in Lending Act (TILA) Regulation Z requires that advertisements for mortgage credit products that state a rate or terms must be clear and not misleading. Phrases like “with approved credit” are permissible when a specific APR is disclosed and required terms are provided. However, “no closing costs” or “variable rate starting at ___” are considered potentially misleading if not all relevant terms are disclosed.

“If an advertisement states a rate of finance charge, it must state the rate as an annual percentage rate (APR)… Disclosures must not be misleading. Stating ‘with approved credit’ in connection with an APR is permissible.”

— 12 CFR § 1026.24, Regulation Z

Under the Truth in Lending Act (TILA), for adjustable-rate mortgages (ARMs) like a 5/1 ARM, the MLO must calculate the borrower's monthly payment amount based on the fully indexed rate, not the introductory rate. The fully indexed rate is the sum of the index and the margin at the time of origination, reflecting the potential payment increases after the introductory period ends.

This requirement ensures borrowers understand what their payments could be after the rate adjusts, helping them evaluate the true affordability of the loan.

A servicing transfer is when the responsibility for collecting payments, managing escrow accounts, and handling other aspects of loan servicing is moved from one lender or servicer to another. This is regulated by RESPA, which requires timely notification to borrowers.

“A servicing transfer is the transfer of the right to collect payments and service a mortgage loan from one servicer to another.”

— CFPB, RESPA Servicing Transfer Disclosures

The TILA-RESPA Integrated Disclosure (TRID) rule applies to most closed-end consumer credit transactions secured by real property, including the refinance of a condominium property. TRID mandates specific disclosures, like the Loan Estimate (LE) and Closing Disclosure (CD), to ensure transparency in the loan process.

TRID does not apply to reverse mortgages (A) or home equity lines of credit (HELOCs) (B), which are covered by other regulations.

Loans secured by a mobile home on a leased lot (D) are also generally excluded from TRID.

In an Adjustable-Rate Mortgage (ARM), the index is a benchmark interest rate that can change periodically, and the interest rate on the loan adjusts based on changes to this index, plus a fixed margin. The margin itself remains fixed throughout the life of the loan.

“The interest rate on an ARM is composed of two parts: the index (which fluctuates) and the margin (which is fixed). The interest rate adjusts periodically based on changes in the index.”

— SAFE MLO National Test Study Guide; CFPB’s Consumer Handbook on ARMs

An origination fee is a charge by the lender for processing a new loan application, which typically includes the costs of underwriting and originating the loan. The underwriting fee is a common component of the lender's origination charges. Appraisal, title insurance, and prepaid interest are separate, non-origination costs.

“Origination charges include fees for underwriting, processing, and originating the loan.”

— CFPB, Loan Estimate Explainer; TRID Rule Guide

Under Truth in Lending Act (TILA) Regulation Z, a finance charge is defined as the cost of consumer credit as a dollar amount, including any charges payable directly or indirectly by the consumer and imposed as a condition of or an incident to the extension of credit. Discount points are a form of prepaid interest paid at closing to lower the interest rate, and are always considered a finance charge.

“Finance charges include interest, points, and other costs payable by the consumer at closing, such as loan fees and certain mortgage broker fees. Charges such as appraisal fees, title insurance, and pest inspection fees are typically not finance charges if not required by the creditor.”

— 12 CFR § 1026.4(a); TILA/Regulation Z Commentary

The SAFE Act defines a "nontraditional mortgage" as any loan product other than a 30-year fixed-rate mortgage. Nontraditional loans include adjustable-rate mortgages (ARMs), interest-only loans, payment option ARMs, and other products with features outside the standard fixed-rate structure.

“Nontraditional mortgage product means any mortgage product other than a thirty-year fixed-rate mortgage.”

— SAFE Act, 12 USC § 5102(7); NMLS UST Outline

Thus, the 30-year fixed-rate mortgage with a 25% down payment is not nontraditional; all the other examples are.

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)

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