NMLS SAFE ACT MLO -Ethics and Fraud
Exam UPDATED ACTUAL QUESTIONS
AND CORRECT ANSWERS
A lender provides a borrower with an initial amortization schedule for Private Mortgage
Insurance (PMI) disclosure at loan closing for an adjustable-rate mortgage. The lender MUST
also provide a written notice stating the
A. Lender's right to increase the monthly payment amount for PMI
B. Borrower's right to refuse a PMI
C. Lender's right to extend the time for monthly payments for a PMI
D. Borrower's right to cancel PMI - CORRECT ANSWER D. Borrower's right to
cancel PMI
The Privacy Rule of the Gramm-Leach-Bliley Act requires that financial institutions provide
the consumer with a Consumer Privacy Policy disclosure
A. each time the servicing is transferred.
B. each time the policy is revised.
C. annually as long as the relationship continues.
D. at closing only. - CORRECT ANSWER C. annually as long as the relationship
continues.
Which of the following is true of a dual contract?
A. It deprives the seller of receipt of the full price of the property.
B. It deprives third parties of their proper fees.
C. It defrauds the lender providing the funds for the purchase of the property.
D. It is usually used so the real estate agent may earn a higher commission. - CORRECT
ANSWER C. It defrauds the lender providing the funds for the purchase of the
property.
,Explanation:
A dual contract is an instrument that states a sales price higher than the actual sales price in
an effort to obtain a larger loan from a lender or lending institution or for the purpose of
misinforming a governmental agency or some other reason.
Which law ensures that some borrowers have the right of rescission for three business days
after a loan contract is signed?
A. Regulation Z
B. Regulation X
C. Title VIII
D. Equal Credit Opportunity Act - CORRECT ANSWER A. Regulation Z
Explanation:
The Truth in Lending Act (TILA) of 1968 is a United States federal law and designed to
protect Consumers in credit by requiring clear key terms of the lending arrangement and all
costs. is legal in Title I of the Consumer Credit Protection Act, as amended. The regulations
implementing the statute, which are known as "Regulation Z", are codified at 12 CFR Part
226. Most of the specific requirements imposed by TILA are found in Regulation Z, so a
reference to the requirements of TILA usually refers to the requirements contained in
Regulation Z, as well as the statute itself.
Which is LEAST LIKELY to be an example of illegal flipping?
A. an inflated appraisal
B. a series of sales and quick resales
C. a group of sellers and buyers changing ownership of one property among them
D. purchasing and remodeling a house and selling it for quick profit - CORRECT
ANSWER D. purchasing and remodeling a house and selling it for quick profit
Explanation:
,Purchasing and remodeling a house and then selling it for a quick profit is the good side of
flipping, which is perfectly legal. The illegal side of flipping is when colluding parties profit
from the sale of property with an inflated appraisal that supports a loan. It may involve a
series of sales and quick resales, with one property and a group of sellers and buyers
changing ownership among them.
Under the USA Patriot Act, which of the following is NOT obtained by a mortgage broker
from a borrower for customer identification purposes?
A. Alien identification number
B. Passport number
C. Taxpayer identification number
D. Credit card number - CORRECT ANSWER D. Credit card number
Which of the following is true of property flipping?
A. It is illegal.
B. It does not apply to a situation where the owner fixes up a property and sells it shortly after
acquiring it.
C. It involves making a purchase and a quick resale at a profit.
D. It is illegal when used to take advantage of a seller who had to sell below market price
because he was facing foreclosure. - CORRECT ANSWER C. It involves making a
purchase and a quick resale at a profit.
Explanation:
Property flipping occurs when a buyer resells (flips) a property, shortly after he has purchased
it, for a much higher price than he paid. Flipping is legal when it is the result of making a
wise investment, purchasing a property in need of work and then fixing it up, or being able to
take advantage of a seller who had to sell at a below market price, perhaps because he was
facing foreclosure.
Being convicted of a crime demonstrates
, A. A lack of competency to act as a mortgage banker
B. Standard practice for a mortgage banker.
C. None of the other options are correct
D. An honest mistake.
Yo - CORRECT ANSWER A. A lack of competency to act as a mortgage banker
Which of the following statements is true regarding a broker's relationship with a borrower?
A. A broker is obligated to reveal material facts which might affect the borrower so long as
they do not conflict with his own interests.
B. A broker can collect fees for services so long as they are disclosed to the borrower before
being provided.
C. A broker is obligated to carry out all of a borrower's instructions, regardless of legality.
D. A mortgage broker creates an agency relationship with a borrower only if the contract
between them explicitly states this. - CORRECT ANSWER B. A broker can collect
fees for services so long as they are disclosed to the borrower before being provided.
A mortgage broker creates an agency relationship with the borrower in all cases and, as a
result, must carry out all lawful instructions given by borrowers and disclose to borrowers all
material facts of which it has knowledge, which might reasonably affect the borrower's rights,
interests, or ability to receive intended benefits from the residential mortgage loan. A
mortgage broker can contract for and collect fees for services rendered that are disclosed to
the borrower before providing the services.
A mortgage broker realizes that his customer will not qualify for the loan, so he convinces her
to apply using her mother's identity and financial data. Even though the mother does not
know that her information was used, she could be considered a
A. co-mortgagor.
B. mock purchaser.
C. secret signer.
D. Straw buyer - CORRECT ANSWER D. Straw buyer
Exam UPDATED ACTUAL QUESTIONS
AND CORRECT ANSWERS
A lender provides a borrower with an initial amortization schedule for Private Mortgage
Insurance (PMI) disclosure at loan closing for an adjustable-rate mortgage. The lender MUST
also provide a written notice stating the
A. Lender's right to increase the monthly payment amount for PMI
B. Borrower's right to refuse a PMI
C. Lender's right to extend the time for monthly payments for a PMI
D. Borrower's right to cancel PMI - CORRECT ANSWER D. Borrower's right to
cancel PMI
The Privacy Rule of the Gramm-Leach-Bliley Act requires that financial institutions provide
the consumer with a Consumer Privacy Policy disclosure
A. each time the servicing is transferred.
B. each time the policy is revised.
C. annually as long as the relationship continues.
D. at closing only. - CORRECT ANSWER C. annually as long as the relationship
continues.
Which of the following is true of a dual contract?
A. It deprives the seller of receipt of the full price of the property.
B. It deprives third parties of their proper fees.
C. It defrauds the lender providing the funds for the purchase of the property.
D. It is usually used so the real estate agent may earn a higher commission. - CORRECT
ANSWER C. It defrauds the lender providing the funds for the purchase of the
property.
,Explanation:
A dual contract is an instrument that states a sales price higher than the actual sales price in
an effort to obtain a larger loan from a lender or lending institution or for the purpose of
misinforming a governmental agency or some other reason.
Which law ensures that some borrowers have the right of rescission for three business days
after a loan contract is signed?
A. Regulation Z
B. Regulation X
C. Title VIII
D. Equal Credit Opportunity Act - CORRECT ANSWER A. Regulation Z
Explanation:
The Truth in Lending Act (TILA) of 1968 is a United States federal law and designed to
protect Consumers in credit by requiring clear key terms of the lending arrangement and all
costs. is legal in Title I of the Consumer Credit Protection Act, as amended. The regulations
implementing the statute, which are known as "Regulation Z", are codified at 12 CFR Part
226. Most of the specific requirements imposed by TILA are found in Regulation Z, so a
reference to the requirements of TILA usually refers to the requirements contained in
Regulation Z, as well as the statute itself.
Which is LEAST LIKELY to be an example of illegal flipping?
A. an inflated appraisal
B. a series of sales and quick resales
C. a group of sellers and buyers changing ownership of one property among them
D. purchasing and remodeling a house and selling it for quick profit - CORRECT
ANSWER D. purchasing and remodeling a house and selling it for quick profit
Explanation:
,Purchasing and remodeling a house and then selling it for a quick profit is the good side of
flipping, which is perfectly legal. The illegal side of flipping is when colluding parties profit
from the sale of property with an inflated appraisal that supports a loan. It may involve a
series of sales and quick resales, with one property and a group of sellers and buyers
changing ownership among them.
Under the USA Patriot Act, which of the following is NOT obtained by a mortgage broker
from a borrower for customer identification purposes?
A. Alien identification number
B. Passport number
C. Taxpayer identification number
D. Credit card number - CORRECT ANSWER D. Credit card number
Which of the following is true of property flipping?
A. It is illegal.
B. It does not apply to a situation where the owner fixes up a property and sells it shortly after
acquiring it.
C. It involves making a purchase and a quick resale at a profit.
D. It is illegal when used to take advantage of a seller who had to sell below market price
because he was facing foreclosure. - CORRECT ANSWER C. It involves making a
purchase and a quick resale at a profit.
Explanation:
Property flipping occurs when a buyer resells (flips) a property, shortly after he has purchased
it, for a much higher price than he paid. Flipping is legal when it is the result of making a
wise investment, purchasing a property in need of work and then fixing it up, or being able to
take advantage of a seller who had to sell at a below market price, perhaps because he was
facing foreclosure.
Being convicted of a crime demonstrates
, A. A lack of competency to act as a mortgage banker
B. Standard practice for a mortgage banker.
C. None of the other options are correct
D. An honest mistake.
Yo - CORRECT ANSWER A. A lack of competency to act as a mortgage banker
Which of the following statements is true regarding a broker's relationship with a borrower?
A. A broker is obligated to reveal material facts which might affect the borrower so long as
they do not conflict with his own interests.
B. A broker can collect fees for services so long as they are disclosed to the borrower before
being provided.
C. A broker is obligated to carry out all of a borrower's instructions, regardless of legality.
D. A mortgage broker creates an agency relationship with a borrower only if the contract
between them explicitly states this. - CORRECT ANSWER B. A broker can collect
fees for services so long as they are disclosed to the borrower before being provided.
A mortgage broker creates an agency relationship with the borrower in all cases and, as a
result, must carry out all lawful instructions given by borrowers and disclose to borrowers all
material facts of which it has knowledge, which might reasonably affect the borrower's rights,
interests, or ability to receive intended benefits from the residential mortgage loan. A
mortgage broker can contract for and collect fees for services rendered that are disclosed to
the borrower before providing the services.
A mortgage broker realizes that his customer will not qualify for the loan, so he convinces her
to apply using her mother's identity and financial data. Even though the mother does not
know that her information was used, she could be considered a
A. co-mortgagor.
B. mock purchaser.
C. secret signer.
D. Straw buyer - CORRECT ANSWER D. Straw buyer
