Practice Exam #15
1. Which of the following is true regarding the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (The SAFE Act):
A. It is effective as of July 31, 2009.
B. It is a key component of the Housing and Economic Recovery Act of 2008.
C. It requires all states to implement a SAFE-compliant mortgage loan originator (MLO) licensing process that meets certain minimum standards through the Nationwide Mortgage Licensing System and Registry (NMLS).
D. All of the above.
A. It is effective as of July 31, 2009.
B. It is a key component of the Housing and Economic Recovery Act of 2008.
C. It requires all states to implement a SAFE-compliant mortgage loan originator (MLO) licensing process that meets certain minimum standards through the Nationwide Mortgage Licensing System and Registry (NMLS).
D. All of the above.
answer
The correct answer is D.
2. The SAFE Act is designed to accomplish all of the following, except:
A. Enhance consumer protection.
B. Set usury limits by capping interest rates on certain loans.
C. Reduce fraud.
D. Increase accountability for mortgage loan professionals.
A. Enhance consumer protection.
B. Set usury limits by capping interest rates on certain loans.
C. Reduce fraud.
D. Increase accountability for mortgage loan professionals.
answer
The correct answer is B. Yes, the SAFE Act does not cap interest rates.
3. By the authority of the SAFE Act, which of the following agencies are charged with establishing and maintaining a nationwide mortgage licensing system and registry for the residential mortgage industry:
A. Conference of State Bank Supervisors (CSBS).
B. American Association of Residential Mortgage Regulators (AARMR).
C. Mortgage Regulatory Commission (MRC).
D. A & B.
A. Conference of State Bank Supervisors (CSBS).
B. American Association of Residential Mortgage Regulators (AARMR).
C. Mortgage Regulatory Commission (MRC).
D. A & B.
answer
The correct answer is D.
4. All of the following are SAFE Act objectives, except:
A. Provide uniform license applications for state licensed MLOs.
B. Provide increased accountability and tracking of MLOs.
C. Provide comprehensive training and examination requirements related to conforming mortgage products.
D. Facilitate the collection and disbursement of consumer complaints.
A. Provide uniform license applications for state licensed MLOs.
B. Provide increased accountability and tracking of MLOs.
C. Provide comprehensive training and examination requirements related to conforming mortgage products.
D. Facilitate the collection and disbursement of consumer complaints.
answer
The correct answer is C. The statement is true for nonconforming mortgage products, but not conforming products.
5. Which of the following is a legitimate objective of the SAFE Act:
A. Make mortgage fraud a felony.
B. Eliminate the subprime mortgage market.
C. Provide a comprehensive licensing database.
D. Increase regulations to ensure that all MLOs will act in the best interests of the consumer.
A. Make mortgage fraud a felony.
B. Eliminate the subprime mortgage market.
C. Provide a comprehensive licensing database.
D. Increase regulations to ensure that all MLOs will act in the best interests of the consumer.
ANSWER
The correct answer is C. Yes, of this list, only C represents a legitimate objective of the SAFE Act.
6. All of the following are legitimate objectives of the SAFE Act, except:
A. Streamline the licensing process.
B. Privatize the employment history, public disciplinary and enforcement actions against MLOs.
C. Improve the flow of information to and between regulators.
D. Decrease the likelihood of fraud being committed against consumers.
A. Streamline the licensing process.
B. Privatize the employment history, public disciplinary and enforcement actions against MLOs.
C. Improve the flow of information to and between regulators.
D. Decrease the likelihood of fraud being committed against consumers.
ANSWER
The correct answer is C. This is a government function intended for transparency in the mortgage industry.
7. The NMLS is a comprehensive licensing and supervisory database. Which of the following is true regarding the information contained in that database:
A. State regulatory agencies must have a process to challenge information contained in the NMLS.
B. MLOs must be provided with a process whereby they may challenge information entered in the NMLS.
C. The state regulatory agencies may challenge information filed with the NMLS, but MLOs may not.
D. A & B.
A. State regulatory agencies must have a process to challenge information contained in the NMLS.
B. MLOs must be provided with a process whereby they may challenge information entered in the NMLS.
C. The state regulatory agencies may challenge information filed with the NMLS, but MLOs may not.
D. A & B.
ANSWER
The correct answer is D. Errors and false information could be found either by the state regulatory agencies or the MLOs. Either has a right to challenge incorrect information.
8. On the issue of financial accountability, the MLO must be covered by which of the following:
A. A net worth commensurate with the dollar amount of loans produced annually by the MLO.
B. A surety bond commensurate with the dollar amount of loans produced annually by the MLO.
C. A state recovery fund.
D. Any of the above.
A. A net worth commensurate with the dollar amount of loans produced annually by the MLO.
B. A surety bond commensurate with the dollar amount of loans produced annually by the MLO.
C. A state recovery fund.
D. Any of the above.
ANSWER
The correct answer is D. A mortgage broker would be covered by the state recovery fund, which protects all real estate licensees. A mortgage banker would be covered either by net worth or a surety bond.
9. Regarding the protection option of a minimum net worth, which of the following is true:
A. The minimum net worth must be reflected in the MLO’s personal financial statement.
B. The minimum net worth could be the net worth of a person employing the MLO and who is subject to the SAFE Act.
C. This requirement could be satisfied by the value of the employing company.
D. None of the above.
A. The minimum net worth must be reflected in the MLO’s personal financial statement.
B. The minimum net worth could be the net worth of a person employing the MLO and who is subject to the SAFE Act.
C. This requirement could be satisfied by the value of the employing company.
D. None of the above.
ANSWER
The correct answer is B. This gives an individual just getting started an opportunity to start earning and build his/her net worth.
10. When the protection option is a surety bond, all of the following are true, except:
A. The bond must be in an amount commensurate with the dollar amount of loans the MLO produces annually.
B. If the MLO is an employee or exclusive agent of a person subject to the SAFE Act, the surety bond could be that of such person.
C. When an action is commenced on a licensee’s bond, a surety bond will no longer be an option for the licensee in the future.
D. Upon recovery of any action on a bond, the licensee must file a new bond.
A. The bond must be in an amount commensurate with the dollar amount of loans the MLO produces annually.
B. If the MLO is an employee or exclusive agent of a person subject to the SAFE Act, the surety bond could be that of such person.
C. When an action is commenced on a licensee’s bond, a surety bond will no longer be an option for the licensee in the future.
D. Upon recovery of any action on a bond, the licensee must file a new bond.
ANSWER
The correct answer is C. The licensee would just file for a new bond.
11. Which of the following licensees would be protected by a state recovery fund:
A. An MLO with a real estate sales license.
B. An MLO working for a mortgage banker.
C. An MLO working for Wells Fargo Bank.
D. The owner-operator of a mortgage banking firm.
A. An MLO with a real estate sales license.
B. An MLO working for a mortgage banker.
C. An MLO working for Wells Fargo Bank.
D. The owner-operator of a mortgage banking firm.
ANSWER
The correct answer is A. All individuals who get a real estate license in California pay into the recovery fund, and this fund protects them even when they enter the mortgage business.
12. To investigate compliance with the SAFE Act, which of the following do the CFPB enforcement authorities not have the power to do:
A. Examine any books, papers, records, or other data of any MLO at any time.
B. Summon any MLO to appear before the Bureau at a time and place named in the summons.
C. Order any MLO from any state to give testimony under oath.
D. None of the above.
A. Examine any books, papers, records, or other data of any MLO at any time.
B. Summon any MLO to appear before the Bureau at a time and place named in the summons.
C. Order any MLO from any state to give testimony under oath.
D. None of the above.
ANSWER
The correct answer is D. The CFPB enforcement authorities have the authority to do all of this, and more.
13. The cost of conducting an examination of an MLO shall be paid by which of the following:
A. The MLO.
B. The individual subject to the SAFE Act for whom the MLO is an employee or an exclusive agent.
C. The taxpayers.
D. The mortgage company for whom the MLO works.
A. The MLO.
B. The individual subject to the SAFE Act for whom the MLO is an employee or an exclusive agent.
C. The taxpayers.
D. The mortgage company for whom the MLO works.
ANSWER
The correct answer is A.
14. CSBS, AARMR, and the CFPB may charge reasonable fees to cover the costs of maintaining and providing access to information from the NMLS-R. Fees can be charged to any of the following, except:
A. MLOs.
B. Individuals employing MLOs subject to the SAFE Act.
C. Consumers.
D. Mortgage companies.
A. MLOs.
B. Individuals employing MLOs subject to the SAFE Act.
C. Consumers.
D. Mortgage companies.
answer
The correct answer is C. The consumer is entitled to research and find information on individual MLOs without paying a fee.
15. State enforcement agencies have the authority to do all of the following, except:
A. Issue licenses to conduct business under the SAFE Act.
B. Deny, suspend, condition, or revoke licenses issued under the Act.
C. Conduct enforcement actions including detention and jail time.
D. Subpoena witnesses and documents.
A. Issue licenses to conduct business under the SAFE Act.
B. Deny, suspend, condition, or revoke licenses issued under the Act.
C. Conduct enforcement actions including detention and jail time.
D. Subpoena witnesses and documents.
answer
The correct answer is C. Yes, it would take criminal charges and due process through the services of the District Attorney to put an MLO in jail.
16. The type of authority that state regulatory agencies have in the implementation of the SAFE Act is which of the following:
A. General.
B. Broad.
C. Specific.
D. Retroactive.
A. General.
B. Broad.
C. Specific.
D. Retroactive.
answer
The correct answer is B. In order to carry out the intention of the legislature, these agencies have to be able to promulgate rules and regulations for implementing the Act.
17. How often may a state regulatory agency examine, review, or investigate an MLO under the SAFE Act?
A. Annually.
B. Bi-annually.
C. Not more than three times per year.
D. As often as necessary to carry out the purposes of the SAFE Act.
A. Annually.
B. Bi-annually.
C. Not more than three times per year.
D. As often as necessary to carry out the purposes of the SAFE Act.
answer
The correct answer is D.
18. Regarding access to information, which of the following does a state regulatory agency have the authority to examine:
A. All business activity and information, but not personal.
B. They can interview the MLO, but not third parties like customers or independent contractors.
C. They can expect that an MLO will not hide or keep secret any requested information.
D. If the purpose is to enforce the SAFE Act, they can request pretty much whatever they want.
A. All business activity and information, but not personal.
B. They can interview the MLO, but not third parties like customers or independent contractors.
C. They can expect that an MLO will not hide or keep secret any requested information.
D. If the purpose is to enforce the SAFE Act, they can request pretty much whatever they want.
answer
The correct answer is D. The state regulatory agencies have the right to access any information that pertains to an MLO’s compliance with the SAFE Act. For the purposes of initial licensing, they can look into personal history and experience, including independent credit reports. They can request any information or evidence the Commissioner deems relevant to the investigation.
19. All of the following statements are true regarding a state regulatory agency’s investigation, except:
A. All books and records pertaining to an MLO’s operation must be made available upon request.
B. The agency may not investigate an individual who is not designated as an MLO.
C. The agency may interview officers, principals, and employees of a mortgage company.
D. For initial licensing, the agency may even examine non-conviction data, if permitted by the state criminal code.
A. All books and records pertaining to an MLO’s operation must be made available upon request.
B. The agency may not investigate an individual who is not designated as an MLO.
C. The agency may interview officers, principals, and employees of a mortgage company.
D. For initial licensing, the agency may even examine non-conviction data, if permitted by the state criminal code.
answer
The correct answer is B. The regulatory agency may investigate an individual who is performing activities requiring an MLO license, but does not have one.
20. According to the SAFE Act, Mortgage Call Reports must be submitted through the NMLS how frequently?
A. Monthly.
B. Quarterly.
C. Bi-annually.
D. Annually.
A. Monthly.
B. Quarterly.
C. Bi-annually.
D. Annually.
answer
The correct answer is B.
21. During an investigation, a state regulatory agency may do which of the following:
A. Seize documents and regards essential to an investigation.
B. Place a third party in charge of documents and records.
C. Control the documents and records of the person under examination.
D. All of the above.
A. Seize documents and regards essential to an investigation.
B. Place a third party in charge of documents and records.
C. Control the documents and records of the person under examination.
D. All of the above.
answer
The correct answer is D. The owner of the documents and person under investigation shall have access to the documents unless the examiner has reason to believe in the likelihood of the documents being altered or destroyed.
22. State regulatory agencies may do which of the following:
A. Retain attorneys, accountants, and other professionals to act as investigators and examiners.
B. Employ public or privately available analytical systems, methods, or software.
C. Accept audit reports made by an independent CPA employed by the MLO under investigation.
D. All of the above.
A. Retain attorneys, accountants, and other professionals to act as investigators and examiners.
B. Employ public or privately available analytical systems, methods, or software.
C. Accept audit reports made by an independent CPA employed by the MLO under investigation.
D. All of the above.
answer
The correct answer is D. The state regulatory authorities have carte blanche to effect the enforcement of the SAFE Act.
23. What further action may state regulatory agencies take in the enforcement of the SAFE Act?
A. Order restitution against persons subject to the SAFE Act for violation of the Act.
B. Impose fines on persons subject to the SAFE Act.
C. Issue a Cease and Desist Order against persons subject to the SAFE Act.
D. All of the above.
A. Order restitution against persons subject to the SAFE Act for violation of the Act.
B. Impose fines on persons subject to the SAFE Act.
C. Issue a Cease and Desist Order against persons subject to the SAFE Act.
D. All of the above.
answer
The correct answer is D. Yes, the state regulatory agencies can do all of this and more to effect the enforcement of the SAFE Act, including issuing orders affecting the individual’s license and ability to continue in business.
24. If a state regulatory agency imposed a penalty for violation of the SAFE Act or any regulation imposed by the agency, which of the following is the limit of such penalty:
A. $10,000.
B. $25,000 in gross for all violations.
C. $25,000 for each and every violation or omission.
D. The agency cannot impose a penalty with due process in court.
A. $10,000.
B. $25,000 in gross for all violations.
C. $25,000 for each and every violation or omission.
D. The agency cannot impose a penalty with due process in court.
answer
The correct answer is C. Each violation or failure to comply with any directive or order of the state regulatory authority is regarded as a separate and distinct violation.
25. Which of the following sets the dates for the setting or changing renewal or reporting dates in a particular state:
A. The NMLS.
B. The CFPB.
C. The state regulatory agency.
D. These are set by HUD.
A. The NMLS.
B. The CFPB.
C. The state regulatory agency.
D. These are set by HUD.
answer
The correct answer is C. Yes, this is a state issue and is controlled at that level.
26. Based on the SAFE Act, a model state law was written by which of the following:
A. The Conference of State Bank Supervisors (CSBS).
B. The American Association of Residential Mortgage Regulators (AARMR).
C. HUD.
D. A & B.
A. The Conference of State Bank Supervisors (CSBS).
B. The American Association of Residential Mortgage Regulators (AARMR).
C. HUD.
D. A & B.
answer
The correct answer is D. HUD approved the model state law as written by the CSBS and AARMR as meeting the minimum standards for the SAFE Act. The other accomplishment of note by the CSBS and AARMR was starting the NMLS in 2004.
27. According to the definitions in the model state law, all of the following would meet the definition of a depository institution, except:
A. Bank.
B. Savings & Loan.
C. Mortgage Broker.
D. Credit union.
A. Bank.
B. Savings & Loan.
C. Mortgage Broker.
D. Credit union.
answer
The correct answer is C. Consumers do not make deposits with a mortgage broker.
28. According to the definitions in the model state law, all of the following would be included as a federal banking agency, except:
A. The Board of Governors of the Federal Reserve System.
B. The Federal National Mortgage Association.
C. The Comptroller of the Currency.
D. The Federal Deposit Insurance Corporation.
A. The Board of Governors of the Federal Reserve System.
B. The Federal National Mortgage Association.
C. The Comptroller of the Currency.
D. The Federal Deposit Insurance Corporation.
answer
The correct answer is B. Fannie Mae is part of the secondary market, not a federal banking agency with supervisory duties. Others included on the list of federal banking agencies would be The Director of the Office of Thrift Supervision, and the National Credit Union Administration.
29. The term immediate family member, as used in the model state law refers to all of the following, except:
A. Spouses.
B. Children.
C. In-laws.
D. Parents.
A. Spouses.
B. Children.
C. In-laws.
D. Parents.
answer
The correct answer is C. Also included in immediate family member are siblings, grandparents, grandchildren, adoptive relationships, and step relationships.
30. According to the model state law, the term individual means which of the following:
A. A person.
B. A natural person.
C. A company.
D. A partnership.
A. A person.
B. A natural person.
C. A company.
D. A partnership.
answer
The correct answer is B. Not to be confused with the term person.
31. Clerical or support duties in mortgage loan origination include all of the following, except:
A. Receiving information needed for the processing of a residential mortgage loan.
B. Distributing information needed for the processing of a residential mortgage loan.
C. Negotiating loan rates or terms with the consumer.
D. Analysis of information needed for the processing of a residential mortgage loan.
A. Receiving information needed for the processing of a residential mortgage loan.
B. Distributing information needed for the processing of a residential mortgage loan.
C. Negotiating loan rates or terms with the consumer.
D. Analysis of information needed for the processing of a residential mortgage loan.
answer
The correct answer is C. Clerical and support duties are performed under the supervision of a licensed individual, and do not involve negotiating with the consumer.
32. A loan processor or underwriter should never represent to the public which of the following:
A. Their professional training.
B. Their level of competence.
C. That they perform any activities of an MLO.
D. Their honesty.
A. Their professional training.
B. Their level of competence.
C. That they perform any activities of an MLO.
D. Their honesty.
answer
The correct answer is C. Activities of an MLO require a license.
33. Which of the following would best define what a mortgage loan originator is:
A. An individual who, in expectation of compensation or gain, takes a mortgage loan application.
B. A company in the business of originating mortgage loans for compensation or gain.
C. An individual who, in expectation of compensation or gain, offers or negotiates terms of a residential mortgage loan.
D. A and C.
A. An individual who, in expectation of compensation or gain, takes a mortgage loan application.
B. A company in the business of originating mortgage loans for compensation or gain.
C. An individual who, in expectation of compensation or gain, offers or negotiates terms of a residential mortgage loan.
D. A and C.
answer
The correct answer is D.
34. None of the following is considered an MLO, except:
A. A loan agent at Bank of America.
B. A loan processor or underwriter.
C. A real estate broker engaged exclusively in listing and selling homes.
D. An individual solely involved in extending credit for timeshare plans.
A. A loan agent at Bank of America.
B. A loan processor or underwriter.
C. A real estate broker engaged exclusively in listing and selling homes.
D. An individual solely involved in extending credit for timeshare plans.
answer
The correct answer is A. Yes, this person is an MLO working for Bank of America and is registered as an MLO but not licensed.
35. According to the model state law, the term person refers to which of the following:
A. A natural person.
B. A corporation.
C. A partnership.
D. Any of the above.
A. A natural person.
B. A corporation.
C. A partnership.
D. Any of the above.
answer
The correct answer is D. Person could also refer to company, limited liability company, or association.
36. Which of the following is true of a registered MLO:
A. They work for a depository institution.
B. They are employed by a subsidiary that is owned or controlled by a depository institution and regulated by a Federal Banking Agency.
C. They are employed by the Farm Credit Administration.
D. All of the above.
A. They work for a depository institution.
B. They are employed by a subsidiary that is owned or controlled by a depository institution and regulated by a Federal Banking Agency.
C. They are employed by the Farm Credit Administration.
D. All of the above.
answer
The correct answer is D. These MLOs are not required to pass the test and are therefore not licensed, but are registered with the NMLS-R and maintain a unique identifier number and a level of accountability for their work.
37. According to the SAFE Act and TILA, a residential mortgage loan could be secured in all of the following situations, except:
A. As a home equity loan.
B. As a subordinate lien on a dwelling.
C. As a timeshare in a residential development.
D. On a mobile home.
A. As a home equity loan.
B. As a subordinate lien on a dwelling.
C. As a timeshare in a residential development.
D. On a mobile home.
answer
The correct answer is C. According to TILA and the SAFE Act, in addition to A, B, and D, a residential mortgage loan could be a home purchase or refi, a first trust deed, a loan secured by a dwelling that is a principal residence, second home, or vacation home, a one-to-four unit residence, cooperative, or manufactured home. In answer A, home equity loan is not to be confused with home equity line of credit.
38. A residential mortgage loan under Dodd-Frank refers to all of the following, except:
A. A purchase money loan on a dwelling that is secured in first position.
B. A home equity line of credit on a dwelling.
C. A loan secured on a dwelling, but in second position.
D. A loan secured on a dwelling that is a second home.
A. A purchase money loan on a dwelling that is secured in first position.
B. A home equity line of credit on a dwelling.
C. A loan secured on a dwelling, but in second position.
D. A loan secured on a dwelling that is a second home.
answer
The correct answer is B. Dodd-Frank includes closed-end loans, not open-end loans. A closed-end loan means the amount borrowed has to be paid back at a certain time. An open-end loan means a borrower can add on to the loan balance without rewriting the loan documents. A HELOC is an open-end loan.
39. Which of the following contributes to the definition of a residential mortgage loan originator:
A. The person is engaged in the business of residential mortgage loan origination.
B. The business is conducted in a commercial environment.
C. The business is conducted with some degree of habitualness and repetition.
D. All of the above.
A. The person is engaged in the business of residential mortgage loan origination.
B. The business is conducted in a commercial environment.
C. The business is conducted with some degree of habitualness and repetition.
D. All of the above.
answer
The correct answer is D. Also, the MLO is engaged in the business with the intent of financial gain.
40. All of the following are activities in the residential loan business that require a license, except:
A. Advising on loan terms.
B. Collecting information on behalf of the consumer pertaining to a residential mortgage loan.
C. Extending credit related to timeshare plans.
D. Preparing loan packages.
A. Advising on loan terms.
B. Collecting information on behalf of the consumer pertaining to a residential mortgage loan.
C. Extending credit related to timeshare plans.
D. Preparing loan packages.
answer
The correct answer is C. Extending credit on timeshare plans is not an activity requiring an MLO license.
41. All of the following are not included in the definition of an MLO, except:
A. An individual performing only administrative tasks.
B. An individual performing only real estate brokerage activities.
C. An individual negotiating terms of a residential mortgage loan.
D. A loan processor or underwriter.
A. An individual performing only administrative tasks.
B. An individual performing only real estate brokerage activities.
C. An individual negotiating terms of a residential mortgage loan.
D. A loan processor or underwriter.
answer
The correct answer is C. Yes, an MLO is an individual who negotiates terms of a residential mortgage.
42. Which of the following would have to be a state-licensed MLO:
A. An MLO working for Wells Fargo Bank.
B. An MLO working for Evergreen Mortgage Bankers.
C. An MLO working for the Los Angeles Federal Credit Union.
D. An MLO working for Western Farm Loans, regulated by the Farm Credit Administration.
A. An MLO working for Wells Fargo Bank.
B. An MLO working for Evergreen Mortgage Bankers.
C. An MLO working for the Los Angeles Federal Credit Union.
D. An MLO working for Western Farm Loans, regulated by the Farm Credit Administration.
answer
The correct answer is B. The other sources of employment would have MLOs that were registered with the NMLS-R, but not licensed.
43. Which of the following is not considered a qualification for the MLO license:
A. 20 hours of pre-licensing education.
B. Financial responsibility, character, and general fitness.
C. Not to be a felon.
D. Provide personal history and experience.
A. 20 hours of pre-licensing education.
B. Financial responsibility, character, and general fitness.
C. Not to be a felon.
D. Provide personal history and experience.