NMLS practice test: 30 questions, weighted by area

In a rescindable refinance, how many copies of the notice of the right to rescind must each consumer entitled to rescind receive?

1. Two

   Regulation Z requires two copies of the rescission notice for each consumer with the right to rescind: one to send back, one to keep.
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2. One per household

   Each owner who uses the dwelling as a principal residence holds the right separately, so one notice per household shortchanges co-owners.
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3. One

   One copy leaves the consumer nothing to keep after mailing back the cancellation; paper delivery calls for two.
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4. Three

   Three appears to come from the three-business-day rescission period, not from the number of copies.
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Select an answer to record it. The card then marks the key and opens the reasoning under every choice.

Which of the following is a stated purpose of the Home Mortgage Disclosure Act?

1. Guarantee credit for first-time buyers

   HMDA guarantees credit to no one, first-time buyers included; it is a reporting statute.
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2. Help reveal possible discriminatory lending

   Reg C lists helping to identify possible discriminatory lending patterns among HMDA's purposes, which is why lenders report applicant demographics and loan outcomes.
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3. Require lending in every neighborhood

   HMDA sets no lending quotas; it requires reporting, not making loans in particular areas.
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4. Set maximum mortgage interest rates

   HMDA collects pricing data but sets no maximum rates; usury limits on mortgage interest come from state law.
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An auditor finds copies of a borrower's driver's license and SSN card in the file, yet flags the CIP record as deficient. What is most likely missing?

1. The SAR filing number

   A SAR filing number has no place in a CIP record; a SAR is filed only for suspicious activity.
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2. How identity was verified

   CIP records must describe the document relied on (type, number, place of issuance, dates) or the non-documentary method and how discrepancies were resolved; photocopies alone do not.
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3. A second government photo ID

   CIP does not require two photo IDs; the gap is in the verification record, not the number of documents.
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4. A notarized identity affidavit

   No CIP rule calls for a notarized affidavit; notarization does not document the verification steps.
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Since the FAST Act amended GLBA, a lender may skip the annual privacy notice when it:

1. Is a non-bank lender rather than a chartered bank

   GLBA privacy rules apply to non-bank financial institutions too, so charter type creates no exemption.
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2. Delivers all of its privacy notices electronically

   Electronic delivery is a way to give the notice, not a reason to skip it.
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3. Shares only under exceptions and keeps its policies

   The annual-notice exception applies when the institution shares only under exceptions that need no opt-out and keeps its disclosed policies unchanged.
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4. Has fewer than 100 active mortgage customers on file

   There is no customer-count threshold for the annual notice; a small portfolio still triggers it.
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A borrower owes $170,000 on a home that appraised at $200,000 when the loan closed. A new appraisal shows $260,000. Does the Homeowners Protection Act give the borrower a right to cancel PMI now?

1. No, HPA uses the original value

   HPA cancellation rights are measured against the value at origination: $170,000 ÷ $200,000 = 85%, still above the 80% request point.
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2. No, only at the loan's midpoint

   The loan's midpoint is only the final backstop; a borrower can also request cancellation at 80% of original value.
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3. Yes, the current LTV is under 80%

   The current LTV ($170,000 ÷ $260,000, about 65%) is under 80%, but the statute ignores current value; cancellation on a new appraisal is investor policy, not an HPA right.
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4. Yes, equity now exceeds 20%

   Equity above 20% from appreciation does not count toward HPA rights, which compare the balance with the original value.
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The TRID ('Know Before You Owe') rule replaced which disclosures with the Closing Disclosure?

1. The GFE and the initial TIL

   The GFE and the initial TIL were replaced by the Loan Estimate, the disclosure given after application.
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2. The URLA and the HUD-1

   The URLA is the application form, which TRID did not replace.
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3. The HUD-1 and the final TIL

   The Closing Disclosure took over from the HUD-1 settlement statement and the final Truth in Lending disclosure.
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4. The GFE and the HUD-1

   This mixes the two new forms: the GFE went into the Loan Estimate, while the HUD-1 went into the Closing Disclosure together with the final TIL.
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A borrower deposits $9,500 in cash on three consecutive days, apparently to stay under reporting thresholds. What is this activity called?

1. Check kiting

   Check kiting exploits the float between accounts with checks, not cash deposits kept under a threshold.
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2. Equity skimming

   Equity skimming drains a property's equity, typically by collecting rent while not paying the mortgage.
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3. Layering

   Layering moves funds through transactions to hide their origin, a later money-laundering stage than splitting cash.
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4. Structuring

   Splitting cash into amounts under the $10,000 currency-reporting threshold to avoid a report is structuring, a crime in itself.
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The SAFE Act was enacted primarily to:

1. Create a federal license for nonbank MLOs

   The SAFE Act left licensing to the states and set minimum standards; there is no federal MLO license.
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2. Expand access to credit for first-time buyers

   Expanding credit access is a goal of other programs, not the stated aim of a licensing statute.
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3. Standardize closing-cost disclosure forms

   Standard disclosure forms come from TILA and RESPA, now through the TRID rule, not from the SAFE Act.
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4. Protect consumers and reduce mortgage fraud

   The SAFE Act of 2008 set minimum licensing and registration standards and created the NMLS framework to protect consumers and reduce fraud.
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Which NMLS form is used to submit the biographical information of a mortgage company's control persons, such as officers and owners?

1. Form MU2

   The MU2 carries the biographical information of each control person, such as officers and owners, of a filing company.
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2. Form MU4

   The MU4 is the individual MLO's own filing, the form most often confused with the MU2.
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3. Form MU1

   The MU1 is the company's own license filing, which lists control persons but does not hold their biographies.
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4. Form MU3

   The MU3 is used for a branch office.
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An examination finds that an MLO missed a required disclosure on a single file because of a clerical error, with no consumer harm or intent. What response is most proportionate?

1. Suspension of the employing company

   Suspending the whole company is far beyond a single clerical lapse by one MLO.
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2. Corrective action on the affected loan

   Requiring corrective action on the affected loan matches an isolated, harmless clerical miss; regulators scale the response to the violation.
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3. Closing the finding with no action

   Closing the finding with no action ignores that a violation without harm is still a violation; the missed disclosure needs correcting.
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4. Revocation of the MLO's license

   Revocation is reserved for willful, fraudulent or repeated violations, not one clerical error.
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A veteran has a 44% DTI on a VA loan application. Which additional test does the VA use to judge whether enough money remains for the family's living expenses?

1. Asset depletion

   Asset depletion turns assets into qualifying income in some non-agency programs; VA does not use it to test family support.
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2. Minimum net worth

   VA sets no minimum net worth for a veteran borrower.
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3. Residual income

   VA's residual income test compares the money left after the mortgage, debts and estimated living costs with a table by family size and region.
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4. Months of reserves

   Reserve requirements belong to other programs; they measure savings, not monthly money left for living expenses.
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A loan amount exceeds the FHFA conforming loan limit. What is the main reason such a jumbo loan often carries a higher rate or tighter underwriting?

1. It must be held with mandatory mortgage insurance

   No rule requires mortgage insurance because a loan is jumbo; many jumbos carry none.
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2. It must be priced under HOEPA high-cost rules

   HOEPA status depends on price and fees, not on loan size, so a jumbo is not automatically high-cost.
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3. It must carry a federal government loan guarantee

   Jumbo loans carry no federal government loan guarantee; that is a feature of FHA, VA and USDA loans.
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4. It must be kept by lenders or sold privately

   Fannie Mae and Freddie Mac cannot buy loans above the conforming limit, so a jumbo must be kept in the lender's portfolio or sold to private investors, a thinner market priced for that risk.
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During the construction phase of a construction-to-permanent loan, interest is typically charged on which amount?

1. The funds drawn and disbursed to date

   Interest runs on the funds drawn and disbursed to date, because construction money is released in draws as stages are inspected.
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2. The permanent loan balance after conversion

   The permanent balance applies only after conversion, not during construction.
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3. The full loan amount from closing

   Charging interest on the full loan amount from closing ignores the draw schedule; most of the money is not yet out.
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4. The projected appraised value

   Interest is never charged on a property's value, only on the money lent.
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A self-employed borrower does not want to use tax returns because they show heavy write-offs. Which option can still satisfy the ability-to-repay rule?

1. A QM based on a self-signed income estimate

   A self-signed income estimate is not a third-party record, so it cannot satisfy ATR verification, QM or not.
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2. A non-QM loan using bank statements

   The ATR rule accepts reasonably reliable third-party records, and bank statements qualify, though such loans are usually made outside the QM definition.
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3. A stated-income loan with no verification

   Unverified stated income is exactly what the ATR rule eliminated for residential mortgages.
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4. Any loan below the conforming loan limit

   Being below the conforming loan limit has no bearing on ATR; every covered loan must verify income, whatever its size.
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Which loan receives a conclusive presumption (safe harbor) of compliance with the ability-to-repay rule?

1. Any loan below the HOEPA limits

   Staying under HOEPA triggers does not make a loan a QM, and only QMs receive any presumption.
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2. Any loan with DTI under 43%

   A DTI figure alone confers no QM status, and the General QM now relies on price limits rather than a 43% cap.
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3. A QM that is not higher-priced

   A qualified mortgage priced below the higher-priced thresholds gets the conclusive presumption of ATR compliance.
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4. A QM that is higher-priced

   A higher-priced QM keeps its status but gets only a rebuttable presumption, which a borrower can challenge.
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An appraiser reports that a home is legal nonconforming under current zoning. What does this mean?

1. It violates current zoning and must be torn down

   Nothing must be torn down: a legal nonconforming use is grandfathered and continues lawfully despite current zoning.
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2. It is zoned for commercial use only

   Commercial-only zoning is a different matter; the term describes a residential use that predates the current rules.
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3. It complied when built but current rules bar it

   A legal nonconforming property complied with zoning when built, but current rules would not allow it; lenders generally accept it when rebuilding is permitted.
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4. It lacks a certificate of occupancy

   A missing certificate of occupancy is a separate permitting issue; zoning status says nothing about it.
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While reviewing the purchase contract, the MLO sees that the seller will pay $10,000 toward the buyer's closing costs. Why does this matter for the loan?

1. It must fit within the concession limit

   Seller-paid costs are interested-party contributions that must fit within each program's concession limit, such as 6% of the price for FHA; any excess reduces the price used for LTV.
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2. It must be documented as a seller gift

   A seller is an interested party, so the money cannot be a gift.
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3. It must be counted as borrower income

   A seller credit is not income; it simply offsets closing costs.
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4. It raises the maximum allowable loan amount

   Seller contributions do not increase the loan amount; excess concessions lower the value basis instead.
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A home appraises at $400,000. The borrower has a $250,000 first mortgage and applies for a $50,000 closed-end second. What is the CLTV?

1. 62.5%

   62.5% is the first mortgage alone ($250,000 ÷ $400,000), the plain LTV rather than the combined figure.
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2. 12.5%

   12.5% is the new second lien alone ($50,000 ÷ $400,000); CLTV adds every lien.
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3. 83.3%

   83.3% divides the first mortgage by the total liens ($250,000 ÷ $300,000) instead of dividing all liens by the value.
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4. 75.0%

   CLTV adds all liens and divides by value: ($250,000 + $50,000) ÷ $400,000 = 75.0%.
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An applicant is paid $1,850 every two weeks. What gross monthly income is used for qualifying, rounded to the nearest dollar?

1. $8,017

   $8,017 treats the check as weekly ($1,850 × 52 ÷ 12) instead of every two weeks.
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2. $4,008

   Paid every two weeks means 26 checks a year: $1,850 × 26 ÷ 12 = $4,008.
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3. $1,850

   $1,850 reads one biweekly check as a full month's income.
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4. $3,700

   $3,700 assumes exactly two checks a month, which drops two pay periods a year.
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Which of the following appears on page 1 of the Loan Estimate?

1. The prepayment penalty disclosure

   Page 1's Loan Terms table carries the prepayment penalty disclosure (yes or no, and the maximum amount), next to the projected payments and costs at closing.
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2. The Total Interest Percentage

   The Total Interest Percentage sits in the Comparisons section on page 3, not on page 1.
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3. The appraiser's name and license number

   The LE carries no appraiser details; page 3 has only a general statement about the appraisal.
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4. The consumer's credit score

   Credit scores go on separate notices, never on the Loan Estimate.
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A commissioned borrower earned $18,000 in commissions from January through June this year and $32,000 in all of last year. Using year-to-date plus the prior year, what monthly commission income is used?

1. $2,833.33

   $2,833.33 annualizes year-to-date pay to $36,000 and then averages it with last year, which counts January–June twice.
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2. $2,777.78

   Combine the documented periods and divide by the months covered: ($18,000 + $32,000) ÷ 18 = $2,777.78.
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3. $4,166.67

   $4,166.67 divides 18 months of commissions by 12, which inflates income by half.
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4. $3,000.00

   $3,000.00 uses only the year-to-date figure ($18,000 ÷ 6), ignoring the prior year that the stem asks to include.
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A landscaper earned $42,000 and $45,000 in the last two years plus $4,000 of seasonal unemployment compensation each winter, which is documented and likely to recur. What is the monthly qualifying income?

1. $3,958.33

   Count the documented, recurring unemployment pay with earnings and average 24 months: ($46,000 + $49,000) ÷ 24 = $3,958.33.
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2. $3,833.33

   $3,833.33 uses only the lower, earlier year with its compensation ($46,000 ÷ 12) instead of the two-year average.
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3. $3,625.00

   $3,625.00 averages the two years of earnings but leaves out the recurring unemployment compensation.
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4. $3,750.00

   $3,750.00 takes only the latest year's earnings ($45,000 ÷ 12) and drops the unemployment compensation.
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A consumer receives a Loan Estimate and does not indicate intent to proceed for 12 business days. What is the effect?

1. The good-faith estimate is extended

   No automatic extension exists, and the GFE itself was replaced by the Loan Estimate.
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2. The creditor must deny the application

   Nothing requires the creditor to deny the application; silence for 10 business days only frees it from the LE figures.
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3. The creditor can reissue the LE

   Without an intent to proceed within 10 business days of delivery, the LE stops binding the creditor, which can then reissue it with new charges.
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4. The original LE fees remain binding

   The original LE fees no longer bind the creditor once 10 business days pass without an intent to proceed.
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A borrower tells her MLO she plans to rent the house out right after closing but wants to apply as if it were her primary residence to get a lower rate. If the MLO submits the file that way, the scheme is:

1. A straw buyer scheme

   A straw buyer lends name and credit for someone else; here the real buyer is the one misstating her plans.
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2. Property flopping

   Flopping manipulates a short-sale price for resale, which has nothing to do with how the buyer will use the home.
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3. An air loan

   An air loan involves a borrower or property that does not exist, while both are real here.
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4. Occupancy fraud

   Misrepresenting that a property will be a primary residence to get better terms is occupancy fraud, and an MLO who knowingly submits it takes part.
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A borrower says they live rent-free with a relative, but the credit report links them to a property not listed on the application. What is the best way for the underwriter to resolve this?

1. Rely on the address on bank statements

   Bank statements come from the borrower and show a mailing address, not who owns the linked property.
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2. Rely on the address on the driver's license

   A license address is self-reported and can simply repeat the claim being tested.
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3. Check county ownership and lien records

   County records show independently whether the borrower owns the linked property and whether it carries an undisclosed lien.
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4. Accept the borrower's letter of explanation

   A letter repeats the borrower's own account; the discrepancy needs an independent source first.
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Which of the following most strongly suggests that a buyer does not plan to live in a property financed as a primary residence?

1. A gift letter from the borrower's parent

   A documented gift from a parent is routine and simply gets verified.
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2. A down payment funded by a 401(k) loan

   Borrowing from a 401(k) is a legitimate down-payment source, with the repayment counted in the debts.
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3. A recent job change in the same field

   A same-field job change is ordinary and says nothing about who will live in the home.
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4. A move to a smaller home farther from work

   A move to a smaller home farther from work, while the current home is kept, is a classic sign the new property is really an investment.
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A property is being resold at a 35% profit four months after the seller bought it. The seller says the increase comes from extensive renovations. What should the lender request to test that claim?

1. Itemized improvements with receipts

   An itemized list of work with receipts shows whether real improvements support the higher price.
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2. A letter from the listing agent

   The listing agent profits from the sale price, so the letter is not independent evidence.
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3. An affidavit from the seller on value

   The seller's sworn statement still comes from the party who gains from the markup.
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4. Comparable sales from another area

   Sales from another area do not reflect the subject's market and cannot test the renovation claim.
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A homeowner with a first mortgage and a HELOC refinances the first mortgage and keeps the HELOC open. What must the HELOC lender sign so the new loan takes first position?

1. A partial lien release

   A partial lien release frees part of the collateral from a lien; it does not change which lien comes first.
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2. A subordination agreement

   Recording order would put the new first mortgage behind the existing HELOC, so the HELOC lender signs a subordination agreement accepting second position.
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3. An assumption agreement

   An assumption agreement lets a new borrower take over an existing loan; no one is assuming the HELOC here.
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4. An estoppel certificate

   An estoppel certificate confirms a loan's balance and terms for a third party but leaves lien priority unchanged.
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A lender removes an appraiser from its approved panel. Which reason is permitted under appraiser independence rules?

1. Values that often come in below the contract

   Dropping an appraiser for low values punishes independence, which the appraiser-independence rules forbid.
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2. Declining to raise a value after a request

   Declining a request to raise a value is what independence requires, so removing the appraiser for it is coercion.
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3. Refusing to report a target value in advance

   Asking for a value before the appraisal is itself prohibited, and removing an appraiser for refusing it is retaliation.
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4. Repeated breaches of professional standards

   Removing an appraiser for repeated breaches of professional standards such as USPAP is a legitimate quality decision, not coercion.
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An MLO tells prospective borrowers from a largely Hispanic neighborhood, "You probably won't qualify, so don't bother applying." Under Regulation B, this is:

1. Permitted before an application

   Regulation B reaches statements to prospective applicants, so it does not matter that no application was taken.
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2. Prohibited discouragement

   Regulation B forbids statements that would discourage a reasonable person from applying on a prohibited basis, such as national origin.
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3. Permitted if accurate

   Whether the remark is accurate is beside the point: it prejudges a whole neighborhood without any file review, and discouraging applicants on a prohibited basis is unlawful.
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4. A HMDA reporting issue only

   HMDA covers reporting of applications; discouraging people from applying is a substantive ECOA violation, not a data problem.
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