NMLS/ SAFE TEST REVIEW 2025/2026
SOLVED 100% CORRECT.
When ordering an appraisal, it is illegal to- Correct Answer -Request that the
appraiser return a minimum or specific value. Mortgage professionals are permitted
to communicate their own or the borrower's opinion when ordering an appraisal;
however, requesting a specific or minimum value is considered improper influence of
an appraiserand is a serious ethical and legal violation.
Borrower credit is- Correct Answer -An amount paid by the lender to borrower for
locking aninterest rate at a rate higher than the par rate. The borrower credit is used to
help the borrower subsidize closing costs in exchange for taking the higher rate.
MAP Rule implementing regulations- Correct Answer -Regulation N
Equity stripping is- Correct Answer -The unethical practice of basing a loan approval on
onlythe appraised value of the property. The practice does not consider repayment
ability.
Some states have passed regulations aimed at prohibiting the practice.
Three conditions that an affiliated business must meet to satisfy referral requirements...
- Correct Answer -Disclosure of the relationship, No required use of the referred entity,
Limitations on the "things of value" resulting from the arrangement
Regulation Z prohibits advertising- Correct Answer -An attractive interest rate or loan
termthat is not actually available. TILA and Regulation Z include a number of
prohibitions and requirements against deceptive advertising practices.
The Safeguards Rule and Disposal Rule are concerned with- Correct Answer -
Preservingthe confidentiality of personal financial information. The FTC's Disposal
Rule and the Gramm-Leach-Bliley Act Safeguards Rule outline the manner in which
financial information must be protected while being maintained by an entity and
during the process of record disposal.
"Fiduciary duty" means- Correct Answer -One person (agent) is acting in the best
interests of another. It requires loyalty, good faith, and an obligation of the agent to
consider theinterests of the other person before their own.
An air loan is- Correct Answer -A fraudulent transaction where a fictitious borrower
obtains amortgage and secures it with fictitious property. Air loans may also include
fictitious employers, appraisers, and credit agencies in order to obtain verifications
necessary to process the loan application.
,Equity-based lending occurs when- Correct Answer -A lending decision is based on
the equity available in the borrower's home rather than creditworthiness and ability to
repay.
Yield spread premiums are now known as- Correct Answer -Borrower credits.
What are the penalties for violation of RESPA/Section 8? - Correct Answer -
Section 8 of RESPA prohibits referral fees and other forms of kickbacks/fee
splitting. Penaltiesinclude fines of up to $10,000 and up to one year in prison.
Disclosures due within three business days of loan application- Correct Answer -Loan
Estimate, Your Home Loan Toolkit: A Step-by-Step Guide, CHARM Booklet, Variable-
rate program disclosures, Home equity plan disclosures, Notice of Right to Receive an
Appraisal Report
What can result in a $1,000,000 fine and 30 years in prison? - Correct Answer -Acts of
mortgage fraud.
Definition of the term "creditor" - Correct Answer -The Equal Credit Opportunity Act
(ECOA), the Fair Credit Reporting Act (FCRA), and the Fair and Accurate Credit
Transactions Act(FACTA) all use the same definition of creditor. A creditor is any
person who regularly extends, renews, or continues credit. Loan originators, lenders,
and other mortgage professionals are included in this definition.
Transactions reported under HMDA- Correct Answer -Purchases, Refinances, Home
improvement loans, Pre-qualifications must also be reported, along with their
disposition
When a borrower's LTV reaches 80%- Correct Answer -He/she is permitted to request
cancellation of PMI. The Homeowners Protection Act sets the requirements for
cancellation of PMI. It is at the lender's discretion to permit cancellation - the borrower
must be current on payments.
An initial privacy notice is due- Correct Answer -At the time that a customer
relationship isestablished. The Gramm-Leach-Bliley Act requires financial institutions
(including mortgage brokers) to provide an initial privacy notice "...not later than when
you establish a customer relationship..." The initial privacy notice should also be
accompanied by the opt-out notice.
HMDA requires loan originators to- Correct Answer -Request information on an
applicant'srace, ethnicity, and sex. The applicant may decline to answer, in which case
the loan originator must make a best guess based on visual observation. This
information is necessary to meet the reporting requirements of HMDA.
A permissible purpose is required- Correct Answer -When obtaining a credit report.
UnderFCRA, lenders and mortgage professionals must provide the consumer
reporting agency with a certification of permissible purpose in order to pull credit.
Loan qualification is considered a permissible purpose.
,The Gramm-Leach-Bliley Act does not protect- Correct Answer -Publicly-available
information. This includes information that can be found in government real estate
records, information available from the phonebook, and information included on a
public, unrestricted website.
The Loan Estimate must be provided- Correct Answer -No later than three business
daysafter receiving a completed application, No later than seven business days prior
to consummation
The Closing Disclosure must be provided- Correct Answer -At least three business
daysprior to consummation
Exceptions to ECOA prohibited inquiries- Correct Answer -Although ECOA prohibits
inquiries about protected personal characteristics, mortgage professionals are
permittedto ask about race, ethnicity, and sex for the purposes of compliance with
government monitoring programs (such as HMDA). Inquiries about protected
characteristics may also be used to determine eligibility for special-purpose credit,
such as assistance programs through non-profits.
The purpose of the Homeowners Protection Act is to- Correct Answer -Facilitate the
cancellation of private mortgage insurance (PMI). Borrowers can request cancellation
when their loan reaches 80% loan-to-value (20% equity), but the law requires
automatictermination of PMI at 78% LTV (22% equity).
Advertising trigger terms for closed-end loans under TILA include- Correct Answer -
Amountor percentage of any down payment, Number of payments or period of
repayment, Amount of any payment, Amount of any finance charge
Use of trigger terms in advertisements requires disclosure of: - Correct Answer -
Amount andpercentage of the down payment, Terms of repayment, such as inclusion
of a balloonpayment, Annual percentage rate
The TRID Rule does not apply to- Correct Answer -HELOCs, Reverse
mortgages,Mortgages secured by a mobile home or dwelling not attached to
real property
Fee splitting is illegal when- Correct Answer -One or both settlement service providers
fail toperform enough work to earn the fee.
"Low monthly payments" is an example of- Correct Answer -An advertising trigger
term under Regulation Z. TILA/Regulation Z requires additional information to be
provided inan advertisement that contains trigger terms. Most commonly, APR must be
provided ifthe advertisement includes the note rate.
Regulation B- Correct Answer -Is the regulation that issues the rules for the Equal
CreditOpportunity Act.
, Credit not covered by TILA- Correct Answer -Business or agricultural credit, Credit in
excess of $25,000, unless it is secured by a dwelling/real property, Public utility credit,
Student loans, Home fuel budget plans
When a borrower reaches a 20% equity position- Correct Answer -He/she is permitted
to request cancellation of PMI (private mortgage insurance). The Homeowners
Protection Act sets the requirements for cancellation of PMI. It is at the lender's
discretion to permitthe cancellation at 80% LTV - the borrower must be current on
payments.
The PATRIOT Act requires- Correct Answer -Financial institutions to verify the identity of
a person applying for a loan, maintain a record of the information used for verification,
anddetermine whether a potential borrower appears on known terrorist lists.
Nonpublic personal information is- Correct Answer -Information derived from a credit
reportor provided with respect to loan application. Examples might include loan
balances, account numbers, unlisted phone numbers, etc. Nonpublic personal
information is protected by the provisions of the Gramm-Leach-Bliley Act.
Where is borrower credit disclosed? - Correct Answer -Borrower credit - an amount
paid to amortgage loan originator by a lender for locking a loan in at an interest rate
above thepar rate - must be disclosed on the Loan Estimate and Closing Disclosure.
Updated versions of the forms are intended to make disclosure of borrower credit
clearer to borrowers.
What purpose does escrow analysis serve? - Correct Answer -An aggregate escrow
analysis (Annual Escrow Statement) is provided to borrowers annually, pursuant to
Section 10 ofRESPA. Its purpose is to prevent escrow overages. According to Section
10, the cushion of funds maintained in the escrow account cannot exceed one sixth
(two months) of the annual cost of taxes and insurance.
Regulation X- Correct Answer -Is the regulation that issues the rules for the Real
EstateSettlement Procedures Act.
Who issues and enforces regulations for TILA? - Correct Answer -The CFPB
When must APR be initially disclosed? - Correct Answer -APR must be initially
disclosedwithin three business days of application.
Following initial disclosure of APR, when can the transaction proceed to closing?
- Correct Answer -The transaction can proceed to closing after seven business
days haveelapsed from issuance of the initial Loan Estimate.
Protected characteristics under ECOA include- Correct Answer -Race, Color, Religion,
National origin, Sex, Marital status, Age, Receipt of income from a public assistance
