[Sep 13, 2025] Pass SAFE MLO MLO Exam With 232 Questions
Ultimate Guide to Prepare Free NMLS MLO Exam Questions and Answer
NEW QUESTION # 79
A mortgage loan originator (MLO) submits a refinance application for a primary residence. However, if the MLO later discovers that the property is no longer occupied by the borrower, which of the following actions, if any, should the MLO take?
- A. Notify the MLO's employer and/or the mortgage lender of the discovery
- B. Allow the mortgage loan processor and/or underwriter to discover this through their due diligence processes
- C. Allow the application to be underwritten before raising any concerns
- D. Take no action as the property was occupied at the time of application
Answer: A
Explanation:
Mortgage loan originators are bound by ethical and legal requirements to disclose any material changes in a loan application that could affect the underwriting decision. Discovering that the property is no longer the borrower's primary residence is a significant change and may affect loan terms, program eligibility, and disclosures. According to the SAFE Act and industry best practices, the MLO must immediately report such information to their employer and/or the lender.
"A mortgage loan originator has a duty to promptly notify the lender of any material change in the application or circumstances of the borrower that could impact loan eligibility or the terms of the loan."
- SAFE MLO National Test Study Guide; NMLS UST Outline
Other options fail to fulfill the MLO's legal and ethical obligations and could be construed as misrepresentation or fraud.
References:
SAFE MLO National Test Study Guide
NMLS Uniform State Content Outline
CFPB, Mortgage Origination Rules
NEW QUESTION # 80
Under which of the following conditions, if any, is a mortgage lender permitted to charge a fee for the preparation of a Closing Disclosure?
- A. The borrower requests additional copies of the Closing Disclosure after the closing.
- B. The borrower requests that the Closing Disclosure be prepared before the scheduled closing.
- C. The lender has an affiliated business arrangement with the escrow agent.
- D. The lender is not allowed to charge a fee for the preparation of the Closing Disclosure.
Answer: D
Explanation:
According to Regulation Z (TILA-RESPA Integrated Disclosure Rule, or TRID), lenders and settlement agents are not allowed to charge a fee for the preparation or delivery of the Closing Disclosure. This applies regardless of when or how many times the Closing Disclosure is provided.
"A creditor or other person may not charge any fee for the preparation or delivery of the disclosures required under this section (Closing Disclosure)."
- 12 CFR § 1026.19(f)(5)(i)
References:
CFPB, TILA-RESPA Integrated Disclosure Rule Small Entity Compliance Guide
12 CFR § 1026.19(f)(5)(i)
NEW QUESTION # 81
Which of the following types of income are considered as qualifying when applying for a mortgage loan?
- A. Federal tax refund
- B. Family gifts
- C. Net rental income
- D. Reimbursed expenses
Answer: C
Explanation:
Net rental income is considered qualifying income when applying for a mortgage, as it represents income generated from rental properties. Lenders typically calculate net rental income by subtracting property expenses from the total rental income, and they require documentation such as tax returns or lease agreements to verify this income.
* Reimbursed expenses (A), family gifts (C), and federal tax refunds (D) are generally not considered qualifying income, as they are one-time or non-recurring sources of funds.
References:
* Fannie Mae Selling Guide on qualifying income
* Freddie Mac Guidelines for rental income
NEW QUESTION # 82
If a borrower only receives commission pay for 18 months, which of the following actions should a mortgage loan originator (MLO) take?
- A. Tell the borrower they need a steady income and not one that fluctuates
- B. Take the application but tell the borrower that they will need a cosigner
- C. Tell the borrower to come back in 6 months when they will have 24 months of commission pay
- D. Take the application because positive factors may offset the short income history
Answer: D
Explanation:
Standard guidelines recommend a 2-year history of commission income to count it as qualifying income.
However, lenders may consider a shorter history if there are positive factors to offset the shortfall. MLOs should always take the application and allow underwriting to review the overall credit risk.
"Generally, a minimum history of two years is recommended for commission income, but a shorter period may be considered with compensating factors."
- Fannie Mae Selling Guide, B3-3.1-05: Secondary Employment Income
References:
Fannie Mae, Commission Income Requirements
SAFE MLO National Test Study Guide
NEW QUESTION # 83
Which of the following lender payments is prohibited according to Real Estate Settlement Procedures Act (RESPA)?
- A. A payment to an attorney for services actually rendered
- B. A payment to its own employees for lender referral activities
- C. A payment to a real estate agent for loan referral activities
- D. A payment to the lender's duly appointed agent or contractor for services actually performed in the origination, processing or funding of a loan
Answer: C
Explanation:
Under RESPA (Real Estate Settlement Procedures Act), Section 8 prohibits any payment, kickback, or unearned fee in exchange for loan referrals. This includes payments to real estate agents or other third parties for referring business to lenders or mortgage brokers. Such payments are illegal because they could inflate the cost of settlement services and are not tied to any actual services rendered.
* Payments for actual services (A, D), such as payments to attorneys or contractors for legitimate work, are allowed under RESPA, but paying for loan referrals (B) is strictly prohibited.
References:
* RESPA (Real Estate Settlement Procedures Act), Section 8
* CFPB RESPA Guidance
NEW QUESTION # 84
The Equal Credit Opportunity Act (ECOA) defines the term "elderly" as anyone:
- A. 62 years of age or older.
- B. 70 years of age or older.
- C. 65 years of age or older.
- D. 60 years of age or older.
Answer: A
Explanation:
Under the Equal Credit Opportunity Act (ECOA), the term "elderly" is defined as anyone who is 62 years of age or older. This designation is significant in fair lending, as the ECOA prohibits discrimination based on age in any aspect of a credit transaction, including mortgage lending.
* ECOA protects borrowers from being denied credit or offered unfavorable terms based solely on their age, and it provides additional protections to borrowers considered "elderly." References:
* Equal Credit Opportunity Act (ECOA), 15 U.S.C. § 1691(a)
* CFPB Regulation B, 12 CFR Part 1002
NEW QUESTION # 85
A mortgage loan originator (MLO) closes a high-cost mortgage for a borrower. Seven months later, the borrower returns to the MLO to apply for a cash-out refinance as the borrower intends to use the cash to purchase a collector car. The MLO determines that the only loan the borrower qualifies for is a high-cost mortgage at a higher interest rate. In which of the following ways should the MLO proceed?
- A. Close the loan as normal, as the borrower can refinance a high-cost mortgage after six months
- B. Close the loan as normal and take the vehicle as additional collateral
- C. Close the loan as normal with no further action required
- D. Deny the loan, unless it is in the best interest of the borrower
Answer: D
Explanation:
Under HOEPA (Home Ownership and Equity Protection Act) rules for high-cost mortgages, a creditor may not refinance a high-cost mortgage into another high-cost mortgage within 12 months of the previous transaction unless the new loan is in the borrower's best interest. This is to prevent loan flipping and predatory lending.
"A creditor may not refinance a high-cost mortgage into another high-cost mortgage within one year unless the new loan is in the borrower's best interest."
- 12 CFR § 1026.34(a)(3)
Since the purpose here is a cash-out for a collector car (not generally a "best interest" purpose), the MLO should deny the loan unless a strong case can be made that it is in the borrower's best interest.
References:
CFPB, High-Cost Mortgages (HOEPA)
12 CFR § 1026.34(a)(3)
NEW QUESTION # 86
Which of the following property types is eligible for FHA financing?
- A. Vacation home
- B. Bed and breakfast
- C. Commercial real estate loan
- D. Manufactured home
Answer: D
Explanation:
FHA loans are available for primary residences, including manufactured homes, if they meet HUD standards.
FHA loans are not available for vacation homes, investment properties, bed and breakfasts, or commercial real estate.
"FHA will insure mortgages on manufactured homes that are principal residences and meet HUD requirements."
- HUD 4000.1 FHA Single Family Housing Policy Handbook
References:
HUD, FHA Manufactured Homes Guidelines
FHA Single Family Housing Policy Handbook (4000.1)
NEW QUESTION # 87
Which of the following loan types may be considered a qualified loan under ability-to-pay rules
- A. A loan with negative amortization
- B. A loan with a balloon payment
- C. An interest-only mortgage
- D. A mortgage with an adjustable rate
Answer: D
Explanation:
Under the Ability-to-Repay (ATR) Rule and Qualified Mortgage (QM) standards, mortgages with adjustable rates can be considered qualified mortgages if they meet certain criteria, such as having fully amortizing payments and adhering to limits on points and fees. Adjustable-rate mortgages (ARMs) are qualified as long as the borrower's ability to repay is assessed using the maximum rate that could apply in the first five years.
* Loans like interest-only mortgages (A), balloon payment loans (B), and negative amortization loans (C) are not typically considered qualified mortgages because they carry higher risks of default.
References:
* CFPB Ability-to-Repay and Qualified Mortgage Rule
* Dodd-Frank Act standards for Qualified Mortgages
NEW QUESTION # 88
A mortgage loan originator paying compensation to a real estate agent for client referrals is:
- A. Prohibited unless the client is notified and consents to the payment.
- B. Permissible if the compensation is limited to meals or other noncash gifts.
- C. Permissible if the compensation is limited to payment for the real estate agent's related business expenses.
- D. Considered an illegal kickback prohibited by the Real Estate Settlement Procedures Act (RESPA).
Answer: D
Explanation:
Section 8(a) of the Real Estate Settlement Procedures Act (RESPA) strictly prohibits giving or accepting any fee, kickback, or thing of value in exchange for the referral of settlement service business related to a federally related mortgage loan.
"No person shall give and no person shall accept any fee, kickback or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person."
- 12 U.S.C. § 2607(a); 12 CFR § 1024.14(b), Regulation X
This means it is illegal for a mortgage loan originator (MLO) to pay a real estate agent for referring clients, regardless of client notification, consent, or limitation to business expenses. Minor items of minimal value (e.
g., pens, promotional items) may be allowed if not given in exchange for referrals, but any compensation for referrals is a prohibited kickback.
References:
CFPB, RESPA Section 8 Kickbacks and Referral Fees
SAFE MLO National Test Study Guide
NEW QUESTION # 89
Which of the following property value approaches does an appraiser use on a rental property?
- A. Sales comparison approach
- B. Cost approach
B Income approach - C. Annual approach
Answer: C
Explanation:
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.
References:
* Uniform Standards of Professional Appraisal Practice (USPAP)
* Fannie Mae's Appraisal Guidelines for Rental Properties
NEW QUESTION # 90
A creditor receives an application with all the required pieces of information but wants to have additional information to determine a borrower's qualifications for a loan. Which of the following actions is most compliant with industry regulations?
- A. Provide timely initial disclosures to the consumer even though the requested information when received may reflect that the initially disclosed figures are outdated
- B. Consider the application incomplete and put initial processing on hold until the additional information is received
- C. Provide a fees worksheet, a Falr Lending Disclosure and an Equal Credit Opportunity Act (ECOA) form to the consumer, waiting until the additional necessary information is obtained to Issue the balance of required disclosures
- D. Carefully document attempts to obtain the necessary additional information from the consumer to show why the decision to hold further processing was made
Answer: A
Explanation:
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.
References:
* TILA-RESPA Integrated Disclosure Rule (TRID)
* CFPB Regulation Z requirements for disclosures
NEW QUESTION # 91
Interest-only mortgages are considered high risk compared to traditional mortgage products because:
- A. the borrower's ability to repay is not considered when making the credit decision.
- B. scheduled payments do not reduce the loan's principal balance.
- C. the interest rate exceeds the average prime offer (APOR) rate by 1.5 percentage points.
- D. the interest rate exceeds the APOR by 6.5 percentage points.
Answer: B
Explanation:
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.
References:
* CFPB Qualified Mortgage and Ability-to-Repay Rule
* Fannie Mae Guidelines on interest-only mortgages
NEW QUESTION # 92
Which of the following characteristics is unique to a home equity line of credit (HELOC)?
- A. A borrower is permitted to borrow more than the property is worth.
- B. A borrower is permitted to make interest-only payments for the term of the loan.
- C. A borrower is permitted to sell the property without paying off the loan.
- D. A borrower is permitted to receive additional advances.
Answer: D
Explanation:
A home equity line of credit (HELOC) is a revolving form of credit secured by the equity in the borrower's home. What is unique about a HELOC, compared to traditional closed-end loans, is that the borrower can take multiple draws or advances up to the credit limit during the draw period.
"A HELOC is a line of credit extended to a homeowner that uses the borrower's home as collateral. The distinguishing feature of a HELOC is that the borrower may take additional advances at his or her discretion, up to the approved credit limit, during the draw period."
- SAFE MLO National Test Study Guide
Other answers:
Interest-only payments can occur in some loan types but are not unique to HELOCs.
Borrowing more than the property is worth (being "underwater") is not allowed.
Selling the property without paying off the loan is not permitted; the HELOC must be satisfied at sale.
References:
CFPB, What is a HELOC?
SAFE MLO National Test Study Guide
NEW QUESTION # 93
When there is no tax return history for a rental property, the Federal Housing Administration (FHA) requires gross rental income to be documented and reduced by what percentage?
- A. 25%
- B. 10%
- C. 20%
- D. 15%
Answer: A
Explanation:
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
References:
HUD 4000.1, FHA Rental Income Requirements (see Rental Income)
NEW QUESTION # 94
When a consumer applies for an ARM, the creditor must provide a variable-rate program disclosure:
- A. At the time an application form is provided or before the consumer pays a nonrefundable fee, whichever is earlier.
- B. After the creditor has received documents verifying information related to the consumer's application.
- C. No later than three business days before loan consummation.
- D. No later than seven business days before loan consummation.
Answer: A
Explanation:
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)
References:
Regulation Z, 12 CFR § 1026.19(b)
NEW QUESTION # 95
Under the TILA-RESPA Integrated Disclosure rule (TRID), what is the minimum time period that must pass between a borrower's receipt of a Loan Estimate and the closing of a mortgage loan?
- A. 7 business days
- B. 30 business days
- C. 45 calendar days
- D. 15 business days
Answer: A
Explanation:
Under the TILA-RESPA Integrated Disclosure (TRID) rule, the borrower must receive the Loan Estimate (LE) at least 7 business days before the closing (also called consummation) of the mortgage loan. This rule ensures that the borrower has sufficient time to review and understand the loan terms and costs.
The 7-day waiting period starts from the day the Loan Estimate is delivered or placed in the mail. This period allows the borrower to ask questions and possibly negotiate terms before finalizing the mortgage.
References:
* TILA-RESPA Integrated Disclosure Rule (TRID), 12 CFR §1026.19(e)
* Consumer Financial Protection Bureau (CFPB) Guidelines
NEW QUESTION # 96
A mortgage company is permitted to verify which of the following information?
- A. Employment status
- B. Childbearing intentions
- C. Religion
- D. Sex
Answer: A
Explanation:
Lenders are permitted to verify employment status as part of underwriting and evaluating an applicant's ability to repay. However, lenders are prohibited by ECOA and Fair Housing Act from making inquiries about sex, religion, or childbearing intentions.
"A creditor may request information regarding the applicant's employment status, income, and other credit qualifications, but may not inquire about an applicant's sex, religion, or childbearing intentions."
- 12 CFR § 1002.5(b); Regulation B (ECOA)
References:
CFPB, ECOA Inquiries Prohibited
SAFE MLO National Test Study Guide
NEW QUESTION # 97
The purpose of a Suspicious Activity Report (SAR) is to report known or suspected violations or suspicious activity observed by financial institutions subject to the:
- A. Bank Secrecy Act (BSA).
- B. Gramm-Leach-Bliley Act(GLBA).
- C. Real Estate Settlement Procedures Act(RESPA).
- D. Truth in Lending Act (TILA).
Answer: A
Explanation:
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.
References:
* Bank Secrecy Act (BSA), 31 USC §5311
* FinCEN Guidelines on SAR filing
NEW QUESTION # 98
The term "primary mortgage market" refers to which of the following responses?
- A. The role of Fannie Mae, Freddie Mac and Ginnie Mae in the mortgage industry
- B. The confluence of borrowers and mortgage loan originators to negotiate loan terms and complete mortgage transactions
- C. The medium in which mortgages are bought and sold following origination
- D. The process by which mortgages are pooled and converted to marketable securities
Answer: B
Explanation:
The primary mortgage market is where borrowers and lenders (such as banks, credit unions, and mortgage companies) come together to negotiate and complete mortgage transactions. The secondary market is where existing mortgages are bought and sold between investors.
"The primary mortgage market is composed of lenders who originate mortgage loans directly to consumers."
- SAFE MLO National Test Study Guide
References:
SAFE MLO National Test Study Guide
CFPB, Mortgage Market Overview
NEW QUESTION # 99
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