22 Federal Mortgage-Related Laws Practice Questions & Answers

1. 1. A title company gives an MLO a $75 gift card for each closed loan the MLO refers to it. Both parties argue no cash changed hands and the amount is small. Under RESPA, this arrangement is:

   • A.A prohibited kickback, because a thing of value was given for the referral of settlement service business✓ Answer
   • B.Permitted, because non-cash items of nominal value are exempt from Section 8
   • C.Permitted, so long as the arrangement is disclosed on the Closing Disclosure
   • D.Permitted, because the title company is not the creditor on the loan

   RESPA Section 8(a) bars giving or accepting any fee, kickback, or 'thing of value' pursuant to an agreement or understanding that business incident to a real estate settlement service be referred. 'Thing of value' is defined broadly and expressly reaches gifts, merchandise, trips, and similar non-cash items, so a gift card is no safer than cash. There is no de minimis exception and disclosure does not cure a Section 8 violation — only payment for goods actually furnished or services actually performed is permitted.

   Source: RESPA Section 8(a); 12 CFR 1024.14(b), (d) ('thing of value')Report a problem with this question

2. 2. A mortgage brokerage refers borrowers to a title agency in which the brokerage's owner holds a 40% interest. Which set of conditions must be satisfied for this affiliated business arrangement to fall within RESPA's exception?

   • A.Written disclosure within three business days after the referral and a fee split of no more than 50%
   • B.Written disclosure of the relationship at or before the referral, no required use of the affiliate, and the only return is a return on the ownership interest✓ Answer
   • C.Disclosure on the Closing Disclosure and written consent from the consumer at consummation
   • D.Approval of the arrangement by the state regulator and disclosure of the owner's percentage interest to the CFPB

   RESPA's affiliated business arrangement exception is conditional: the referring party must give a written ABA disclosure at or before the time of referral describing the relationship and estimated charges, must not require the consumer to use the affiliate (aside from narrow exceptions such as attorney or lender selection of its own representative), and may receive nothing beyond a return on its ownership interest. Fee splits or 'thank you' payments outside a bona fide ownership return remain prohibited even when the affiliation is disclosed.

   Source: RESPA Section 8(c)(4); 12 CFR 1024.15(b) and Appendix DReport a problem with this question

3. 3. In a residential purchase transaction, the seller conditions acceptance of the buyer's offer on the buyer purchasing title insurance from a title company the seller names. Which statement is correct?

   • A.This is permitted if the seller pays for the title policy
   • B.This is permitted if the designated title company's rates are competitive
   • C.This violates RESPA Section 9, and the seller is liable to the buyer for three times all charges made for the title insurance✓ Answer
   • D.This violates RESPA Section 8, and the penalty is limited to a refund of the premium

   RESPA Section 9 prohibits a seller from requiring, directly or indirectly, that the buyer purchase title insurance from any particular title company as a condition of sale. The remedy written into the statute is treble damages — the seller is liable to the buyer for three times all charges made for the title insurance — which is why the violation is costly regardless of whether the named company's pricing is reasonable.

   Source: RESPA Section 9; 12 CFR 1024.16Report a problem with this question

4. 4. Under RESPA's escrow account rules, the servicer must deliver the initial escrow account statement at settlement or, if not delivered then, within:

   • A.60 calendar days of the first payment due date
   • B.30 calendar days of settlement
   • C.45 business days of settlement
   • D.45 calendar days of settlement✓ Answer

   Regulation X requires the initial escrow account statement at settlement or within 45 CALENDAR days of settlement — the rule is written in calendar days, not business days, and many circulating study decks state this incorrectly. The same section caps the cushion at one-sixth of the estimated annual disbursements and requires an annual escrow statement within 30 days of the end of the computation year.

   Source: 12 CFR 1024.17(g) (initial escrow account statement)Report a problem with this question

5. 5. A borrower's loan servicing is being transferred to a new servicer. Which combination of RESPA servicing-transfer requirements is correct?

   • A.Notice from either servicer within 30 days after the transfer and a 90-day grace period for misdirected payments
   • B.Transferee notice at least 15 days before the effective date and a 15-day grace period for misdirected payments
   • C.Transferor notice at least 30 days before the effective date and a 30-day period during which no late fee may be imposed
   • D.Transferor notice at least 15 days before the effective date, transferee notice within 15 days after, and a 60-day period during which a payment sent to the old servicer cannot trigger a late fee✓ Answer

   RESPA Section 6 requires the transferring servicer to notify the borrower at least 15 days before the effective transfer date and the new servicer to notify within 15 days after it. To protect borrowers from confusion during the handoff, a payment received by the old servicer during the 60-day period beginning on the transfer date may not be treated as late for purposes of a late fee or an adverse credit report.

   Source: RESPA Section 6; 12 CFR 1024.33(b) and 1024.33(c)(1)Report a problem with this question

6. 6. A borrower sends the servicer a written notice asserting that a payment was misapplied. Under Regulation X's error resolution procedures, the servicer must:

   • A.Respond within 30 calendar days with no acknowledgment required
   • B.Acknowledge within 5 calendar days and respond within 45 calendar days
   • C.Acknowledge the notice within 5 business days and respond within 30 business days, with one permitted 15-business-day extension✓ Answer
   • D.Acknowledge within 20 business days and respond within 60 business days

   Regulation X's notice of error framework gives the servicer 5 business days to acknowledge receipt in writing and 30 business days to investigate and respond, either correcting the error or explaining why no error occurred. The servicer may extend the response period once by 15 business days with notice to the borrower, and the same timeline governs a request for information.

   Source: 12 CFR 1024.35(d), (e)(3) (notice of error); 12 CFR 1024.36Report a problem with this question

7. 7. Under TRID, which of the following, taken together, constitute an 'application' that starts the Loan Estimate clock?

   • A.Name, income, Social Security number, property address, estimated property value, and loan amount sought✓ Answer
   • B.Name, income, Social Security number, property address, estimated value, loan amount, and any other information the creditor deems necessary
   • C.A signed Uniform Residential Loan Application together with the credit report fee
   • D.Name, income, credit score, property address, purchase price, and down payment

   TRID defines an application as exactly six pieces of information: the consumer's name, income, Social Security number to obtain a credit report, the property address, an estimate of the property's value, and the mortgage loan amount sought. The former seventh catch-all — 'any other information the creditor deems necessary' — was eliminated, so a creditor cannot delay the Loan Estimate by claiming it still needs additional items.

   Source: 12 CFR 1026.2(a)(3)(ii) (definition of application for 1026.19(e)/(f))Report a problem with this question

8. 8. A consumer submits a complete application on Monday. Consummation is scheduled soon. Which pair of TRID deadlines applies to the Loan Estimate?

   • A.Delivered or placed in the mail no later than 3 business days after application and received no later than 7 business days before consummation✓ Answer
   • B.Delivered no later than 7 business days after application and received no later than 3 business days before consummation
   • C.Delivered no later than 3 business days after application and received no later than 3 business days before consummation
   • D.Delivered at or before consummation, with no minimum waiting period

   Wait — the correct rule is the 3-day delivery plus a 7-business-day wait before consummation. The Loan Estimate must be delivered or placed in the mail within 3 business days of receiving the six-item application, and consummation may not occur until the 7th business day after the LE is delivered or mailed. The 3-business-day rule before consummation belongs to the Closing Disclosure, not the Loan Estimate.

   Source: 12 CFR 1026.19(e)(1)(iii) and 1026.19(e)(1)(iii)(B) (7-business-day wait)Report a problem with this question

9. 9. Which change occurring after the consumer has received the Closing Disclosure requires the creditor to provide a corrected disclosure AND a new three-business-day waiting period?

   • A.The loan product changes from a fixed rate to an adjustable rate✓ Answer
   • B.The seller agrees to pay an additional $500 toward closing costs
   • C.The recording fee increases by $85
   • D.The borrower's homeowner's insurance premium comes in higher than estimated

   Only three changes restart the three-business-day waiting period: the disclosed APR becomes inaccurate, the loan product changes, or a prepayment penalty is added. Switching from a fixed rate to an ARM is a product change, so a corrected Closing Disclosure and a fresh three-business-day wait are required. All other changes require a corrected disclosure at or before consummation but no new waiting period.

   Source: 12 CFR 1026.19(f)(2)(ii) (changes before consummation requiring a new waiting period)Report a problem with this question

10. 10. Under TRID's good-faith 'variation' rules, which charge falls into the ZERO tolerance category?

    • A.A recording fee
    • B.A transfer tax✓ Answer
    • C.Prepaid interest
    • D.The premium for hazard insurance the consumer selects

    Transfer taxes sit in the zero tolerance bucket along with creditor and broker fees, fees paid to a creditor affiliate, and fees for services the consumer cannot shop for — these amounts may not increase at all from the Loan Estimate. Recording fees and services shopped from the creditor's written provider list are subject to the 10% cumulative bucket, while prepaid interest, property insurance premiums, and escrow deposits may vary without a numeric limit so long as the estimate was made in good faith.

    Source: 12 CFR 1026.19(e)(3)(i)-(iii) (good faith determination and tolerance categories)Report a problem with this question

11. 11. A creditor discovers 20 days after consummation that it exceeded the 10% cumulative tolerance. To cure the violation, the creditor must refund the excess and deliver a corrected Closing Disclosure no later than:

    • A.3 business days after discovering the error
    • B.60 calendar days after consummation✓ Answer
    • C.30 calendar days after consummation
    • D.At the next annual escrow analysis

    Regulation Z allows a creditor to cure a tolerance violation by refunding the excess to the consumer and delivering a corrected Closing Disclosure within 60 calendar days after consummation. That is distinct from the 30-calendar-day window for correcting non-numerical clerical errors or events occurring after consummation that make the disclosure inaccurate.

    Source: 12 CFR 1026.19(f)(2)(v) (refunds related to the good faith analysis)Report a problem with this question

12. 12. Which of the following transactions carries a right of rescission under Regulation Z?

    • A.A loan to an LLC secured by a four-unit rental building
    • B.A purchase-money first mortgage on the borrower's principal residence
    • C.A refinance of a vacation home the borrower occupies two months a year
    • D.A cash-out refinance with a new lender secured by the borrower's principal residence✓ Answer

    The right of rescission attaches when a non-purchase-money lien is placed on the consumer's principal dwelling, so a cash-out refinance with a new creditor is rescindable. Purchase-money loans are expressly exempt, second homes and investment properties are not principal dwellings, and credit extended to a legal entity such as an LLC is outside Regulation Z's consumer-credit coverage entirely.

    Source: 12 CFR 1026.23(a), (f) (right of rescission and exempt transactions); 12 CFR 1026.3(a)Report a problem with this question

13. 13. For purposes of counting the three-day rescission period, which day is NOT counted as a business day?

    • A.Sunday✓ Answer
    • B.Saturday
    • C.A Monday when the creditor's office is closed for staff training
    • D.The day the consumer signs the note

    For rescission, the seven-business-day Loan Estimate wait, and the three-business-day Closing Disclosure receipt rule, Regulation Z uses the 'precise' definition: all calendar days except Sundays and the ten federal legal public holidays. Saturdays therefore count, and whether the individual creditor's office happens to be open is irrelevant under this definition — that open-for-business test applies only to the general definition used for the three-day Loan Estimate delivery deadline.

    Source: 12 CFR 1026.2(a)(6) (definition of business day); 12 CFR 1026.23(a)(3)Report a problem with this question

14. 14. A borrower refinanced her principal residence but was never given the required notice of the right to rescind. What is the effect on her rescission rights, and what must the creditor do once she rescinds?

    • A.The rescission period is unlimited, and the creditor must respond within 60 calendar days
    • B.The rescission period extends to one year, and the creditor must respond within 30 calendar days
    • C.The rescission right is lost after closing, but the borrower may recover statutory damages
    • D.The rescission period extends to three years from consummation, and within 20 calendar days of receiving the notice of rescission the creditor must return money and release the security interest✓ Answer

    If the creditor fails to deliver the rescission notice or the material disclosures, the three-business-day period expands to three years from consummation (or until the property is sold or transferred, whichever comes first). Once the consumer rescinds, Regulation Z gives the creditor 20 calendar days to return any money or property received and to take the action necessary to terminate the security interest.

    Source: 12 CFR 1026.23(a)(3) and 1026.23(d)(2)Report a problem with this question

15. 15. Which of the following fees is NOT included in the finance charge on a mortgage loan?

    • A.The private mortgage insurance premium
    • B.Discount points paid by the borrower to reduce the rate
    • C.Per-diem interest collected at closing
    • D.The title insurance premium and closing agent fee✓ Answer

    The finance charge is the cost of consumer credit as a dollar amount, so it captures charges imposed by the creditor as an incident to the extension of credit — discount points, prepaid interest, and mortgage insurance premiums all qualify. Title insurance, title/closing agent fees, appraisals, credit reports, surveys, and recording fees are excluded as bona fide third-party real-estate closing costs, which is why they do not raise the APR.

    Source: 12 CFR 1026.4(a), (c)(7) (real-estate related fees excluded from the finance charge)Report a problem with this question

16. 16. A radio ad for a fixed-rate mortgage states: 'Own a home for just $1,450 a month!' Under Regulation Z's advertising rules, this ad must also disclose:

    • A.The interest rate, the total of payments, and the amount financed
    • B.The amount or percentage of the down payment, the terms of repayment, and the annual percentage rate✓ Answer
    • C.Only the annual percentage rate
    • D.The lender's NMLS unique identifier and the total finance charge

    Stating the amount of any payment is a trigger term in a closed-end credit ad, along with the amount or percentage of a down payment, the number of payments or period of repayment, and the amount of any finance charge. Once a trigger term appears, the ad must clearly and conspicuously state the down payment amount or percentage, the terms of repayment, and the annual percentage rate. Stating only the APR triggers nothing.

    Source: 12 CFR 1026.24(d) (advertisement of terms that require additional disclosures)Report a problem with this question

17. 17. A loan is classified as a high-cost mortgage under HOEPA. Which requirement or prohibition applies?

    • A.The loan must be sold to a government-sponsored enterprise within 90 days
    • B.A second appraisal is required whenever the property was recently resold at a higher price
    • C.An escrow account must be maintained for at least five years, but prepayment penalties remain permitted
    • D.The borrower must receive homeownership counseling from a HUD-approved counselor before the loan is made, and prepayment penalties are prohibited✓ Answer

    Once any one of HOEPA's three triggers (APR spread, points and fees, or prepayment penalty) is crossed, the loan becomes a high-cost mortgage and a package of restrictions attaches: mandatory pre-loan counseling from a HUD-approved counselor, plus bans on prepayment penalties, balloon payments (with narrow exceptions), negative amortization, financing points and fees, default interest-rate increases, and recommending default. The five-year escrow and second-appraisal-on-flip rules belong to the separate higher-priced mortgage loan category.

    Source: 12 CFR 1026.32(b)(1), 1026.34(a)(4)-(5) (high-cost mortgage restrictions and counseling)Report a problem with this question

18. 18. Under Regulation Z's loan originator compensation rule, which basis for paying an individual loan originator is PERMITTED?

    • A.Extra compensation for loans that include a prepayment penalty
    • B.A higher commission when the loan-to-value ratio exceeds a set level
    • C.A bonus that increases with the interest rate on each closed loan
    • D.A fixed percentage of the loan amount, applied consistently across transactions✓ Answer

    Regulation Z forbids compensating a loan originator based on a term of the transaction or any proxy for a term — the interest rate, the presence of a prepayment penalty, and the loan-to-value ratio are all transaction terms. A fixed percentage of the loan amount is expressly allowed because loan amount is treated as a permissible basis, as are loan volume, hours worked, pull-through rate, and file quality.

    Source: 12 CFR 1026.36(d)(1) (prohibited payments to loan originators)Report a problem with this question

19. 19. A married applicant qualifies for the mortgage on her own income and credit. The MLO tells her the lender still requires her husband to sign the note. Under ECOA, this is:

    • A.Permitted, because both spouses will live in the property
    • B.A violation only if the couple lives in a community property state
    • C.A violation, because a creditor may not require a spouse's signature when the applicant qualifies independently under the creditor's standards✓ Answer
    • D.Permitted, because the lender may require any additional signature it considers prudent

    Regulation B prohibits requiring the signature of an applicant's spouse or other person on a credit instrument when the applicant qualifies on her own under the creditor's standards of creditworthiness. Marital status is a prohibited basis, and the rule exists precisely to stop creditors from conditioning individual credit on a spouse's participation; a creditor may require a non-applicant's signature only on documents needed to perfect the security interest, such as a deed of trust.

    Source: 12 CFR 1002.7(d)(1) (signature requirements)Report a problem with this question

20. 20. Which protected class is covered by the Equal Credit Opportunity Act but is NOT one of the classes protected by the federal Fair Housing Act?

    • A.National origin
    • B.Familial status
    • C.Receipt of income from a public assistance program✓ Answer
    • D.Disability

    ECOA's prohibited bases include race, color, religion, national origin, sex, marital status, age, receipt of public assistance income, and the good-faith exercise of rights under the Consumer Credit Protection Act. The Fair Housing Act covers race, color, religion, sex, national origin, familial status, and disability — so age, marital status, and public assistance income are unique to ECOA, while familial status and disability are unique to the FHA.

    Source: 15 USC 1691(a); 12 CFR 1002.2(z); Fair Housing Act, 42 USC 3604-3605Report a problem with this question

21. 21. An MLO tells a borrower whose loan was denied that she will get the reasons 'sometime after closing season.' Under ECOA, notice of action taken on a completed application must be given within:

    • A.90 days after receiving the completed application
    • B.30 days after receiving the completed application✓ Answer
    • C.15 days after the credit decision
    • D.60 days after the application date

    Regulation B requires notification of action taken within 30 days after receiving a completed application, and the same 30-day clock applies to adverse action on an existing account and to a counteroffer the applicant does not accept. The 90-day period applies only to notice regarding an incomplete application. The adverse action notice must state either the specific principal reasons or the applicant's right to request them within 60 days.

    Source: 12 CFR 1002.9(a)(1) (notifications)Report a problem with this question

22. 22. An MLO reviewing a file notices a series of $9,500 cash deposits made on consecutive days and suspects the borrower is breaking up a larger sum. After the company files a SAR, may the MLO tell the borrower?

    • A.No — a SAR and its existence are confidential, and disclosing them to the subject is prohibited✓ Answer
    • B.Yes, if the borrower asks directly and the MLO documents the conversation
    • C.Yes, because the borrower has a right to know what is in his own file
    • D.Only after the 30-day filing deadline has passed

    The Bank Secrecy Act makes a suspicious activity report and any information revealing its existence strictly confidential — 'tipping off' the subject is itself a violation and would defeat the report's law-enforcement purpose. The filer is protected by a statutory safe harbor from liability for filing, must file within 30 calendar days of initial detection, and must retain supporting documentation for five years. Splitting cash to stay under the currency reporting threshold is structuring, a separate federal crime.

    Source: 31 CFR 1029.320(d) (SAR confidentiality) and 1029.320(b)(3) (filing deadline)Report a problem with this question

Practice questions written to the published NMLS content outline for the SAFE MLO National Test Component with Uniform State Content, and to the underlying federal regulations (TILA/Regulation Z, RESPA/Regulation X, ECOA/Regulation B, HMDA, FCRA, GLBA, the Fair Housing Act, and the S.A.F.E. Mortgage Licensing Act). NMLS is a service of the Conference of State Bank Supervisors; this site is not affiliated with or endorsed by NMLS, the CSBS, the CFPB, or any state regulator. Dollar thresholds, loan limits, mortgage insurance factors, funding fees, license fees and bond amounts are adjusted periodically and are deliberately not tested here — confirm current figures and your own state's requirements with your state regulator before testing. Nothing here is legal or financial advice. About the NMLS SAFE MLO test →