MLO NMLS Mortgage Loan Origination (SAFE MLO) Exam Free Practice Exam Questions (2025 Updated)

An individual who had their MLO license application denied, or had a license revoked or suspended in any governmental jurisdiction, is not eligible for temporary authority to act as a mortgage loan originator (MLO) under the SAFE Act. Temporary authority allows registered MLOs who move to a state-licensed mortgage company to act as MLOs while their application for a state license is being processed. However, individuals with disqualifying events, such as prior license denial or revocation, lose this privilege.

Other options:

Court orders for child support (B) and being a witness in a trial (A) do not disqualify individuals from obtaining temporary authority.

The Fair Housing Act prohibits discrimination in housing based on disability. Federal courts and HUD have consistently ruled that HIV/AIDS qualifies as a disability under the Act.

“The Fair Housing Act prohibits discrimination in housing based on disability, including HIV/AIDS.”

— U.S. Department of Justice; HUD Fair Housing Act Overview

Temporary authority to originate loans applies to registered MLOs (from a depository institution) who become employed by a state-licensed mortgage company, as well as to state-licensed MLOs seeking licensure in another state, provided they meet all SAFE Act requirements.

“Temporary authority to originate loans applies to… registered mortgage loan originators seeking state licensure and state-licensed MLOs seeking licensure in a new state.”

— SAFE Act, 12 U.S.C. § 5117; NMLS Temporary Authority Guidelines

It does not apply to real estate brokers or those who have not passed required testing/background checks.

If an MLO suspects fraud, they have an obligation to report it to the company’s compliance officer or appropriate supervisor for investigation. Ignoring, failing to report, or handling it informally is not acceptable.

“If an MLO suspects fraud, the MLO must report it to their company's compliance officer or other responsible person as required by company policy and law.”

— SAFE MLO National Test Study Guide; FFIEC, Guidance on Mortgage Fraud Detection

The only ethical and legal option for an MLO is to ask the borrowers if they have any additional, previously undisclosed assets that can be documented. All assets used for closing must be sourced and verified.

Editing documents to show false contributions or facilitating undisclosed loans/fake deposits constitutes fraud.

“All assets used for closing must be verified and properly documented… Any undisclosed assets must be evaluated and properly sourced.”

— Fannie Mae Selling Guide B3-4.2-01; SAFE MLO National Test Study Guide

A 2-1 buydown provides for a reduced interest rate for the first two years:

Year 1: Note rate minus 2% (6% - 2% = 4%)

Year 2: Note rate minus 1% (6% - 1% = 5%)

Years 3–30: Note rate (6%)

“In a 2-1 buydown, the interest rate is reduced by 2% the first year and 1% the second year. The third and subsequent years, the rate is the note rate.”

— SAFE MLO National Test Study Guide; CFPB Mortgage Glossary

Regulation Z (TILA) and the SAFE Act require that all mortgage loan applications include the MLO's unique identifier, which allows regulators and consumers to identify the MLO involved in the transaction.

“Each loan application must include the mortgage loan originator’s name and unique identifier.”

— 12 CFR § 1026.36(g); SAFE Act

Other listed information is not federally required on every mortgage application.

The Real Estate Settlement Procedures Act (RESPA) prohibits payment of fees or kickbacks to any party unless that party performs actual, legitimate services related to the origination or processing of a loan. In this case, the MLO did not perform any actual origination services for the borrower, so the fee paid by Bank XYZ to the MLO is not permitted.

RESPA Section 8 prohibits referral fees or any unearned fees. The MLO did not originate the loan or perform any substantive services related to the HELOC, which makes the payment illegal.

The MLO must advise the borrower that if they plan to purchase a new home shortly after refinancing, they must disclose this information upfront. Since the terms of the refinance loan require that the borrower occupy the property for 12 months, the MLO should suggest refinancing the current property as a non-owner-occupied loan if the borrower does not intend to stay in the home. This approach ensures compliance with the loan terms and avoids potential mortgage fraud.

Other options (A, B, C) involve potential conflicts of interest or violations of the loan terms.

According to the SAFE Act, state-licensed MLOs must complete at least eight hours of approved continuing education annually, including three hours of federal law and regulations, two hours of ethics (which includes instruction on fraud, consumer protection, and fair lending), and two hours of training on nontraditional mortgage products.

“The annual continuing education requirement must include at least—(A) 3 hours of Federal law and regulations; (B) 2 hours of ethics, including instruction on fraud, consumer protection, and fair lending issues; (C) 2 hours of training related to lending standards for the nontraditional mortgage product marketplace.”

— SAFE Act, 12 U.S.C. § 5105(b)(2)(A)-(C)

A loan is a Qualified Mortgage (QM) with “safe harbor” legal protection if its APR does not exceed the average prime offer rate (APOR) by more than 100 basis points (1%) for a first-lien transaction.

“A covered transaction is a safe harbor QM if the APR does not exceed the APOR for a comparable transaction by 1.5 or more percentage points for first-lien transactions, or 3.5 percentage points for subordinate-lien transactions. For purposes of safe harbor protection, the threshold is 1 percentage point (100 basis points) above APOR.”

— 12 CFR § 1026.43(e); CFPB QM/ATR Rule Summary

Under TILA, the term finance charge includes any fees related to the cost of borrowing, such as daily or per diem interest paid by the borrower. The finance charge encompasses all charges imposed by the creditor as a condition of extending credit, including interest, points, and loan origination fees.

Seller's points (B) are not part of the finance charge because they are paid by the seller.

Standard application fees (C) and document preparation fees (D) are typically excluded unless they are specifically tied to the cost of obtaining credit.

Under the CFPB mortgage servicing rules, a mortgage company cannot initiate foreclosure proceedings until a borrower’s loan is at least 120 days delinquent. This rule is designed to give borrowers sufficient time to explore loss mitigation options, such as loan modification, forbearance, or repayment plans, before facing foreclosure.

The 120-day delinquency rule applies to all residential mortgage loans, providing a mandatory grace period before foreclosure filing.

This requirement is part of the Dodd-Frank Act and is enforced under Regulation X.

The Truth in Lending Act (TILA) Regulation Z requires that if a mortgage advertisement states a specific payment amount, it must also clearly and conspicuously disclose all required terms such as the APR, loan amount, terms of repayment, and interest rate. An ad that only mentions a monthly payment and loan amount—without these other disclosures—is a violation of TILA advertising requirements.

“If an advertisement states the amount of any payment, the amount of any finance charge, or the number of payments or period of repayment, it must also state all required triggering terms, including the APR.”

— 12 CFR § 1026.24(d); Regulation Z, TILA

An underwriting fee is considered an origination fee because it is a charge for the lender’s services in processing and evaluating the mortgage application. Origination fees include any fees associated with creating and underwriting the loan.

Appraisal fees (A), title insurance fees (C), and prepaid interest fees (D) are not considered origination fees; they are separate charges related to third-party services or pre-paid interest.

According to the SAFE Act, a nontraditional mortgage loan is any loan product other than a 30-year, fixed-rate mortgage. Interest-only mortgage loans are specifically mentioned as an example of nontraditional loans.

“The term ‘nontraditional mortgage product’ means any mortgage product other than a thirty-year fixed-rate mortgage.”

— SAFE Act, 12 U.S.C. § 5102(7)

Under Dodd-Frank Act regulations and Regulation Z (TILA), mortgage loan originators (MLOs) cannot be compensated based on the terms of the loan, such as interest rates, loan amount, or product type. This includes any financial incentives, like bonuses or rewards, tied to loan terms. In this case:

The trip to Hawaii was awarded based on closing loans with an interest rate of 5% or higher, which directly ties the MLO's compensation to a specific loan term (the interest rate).

This violates the Loan Originator Compensation Rule, which prohibits compensating MLOs based on the terms or conditions of a loan, in order to protect borrowers from steering into unfavorable loan products.

Therefore, all forms of compensation—including bonuses, trips, or other rewards—are scrutinized if they are tied to loan terms, making the MLO's trip to Hawaii an illegal incentive under current law.

A servicing transfer is when the responsibility for collecting payments, managing escrow accounts, and handling other aspects of loan servicing is moved from one lender or servicer to another. This is regulated by RESPA, which requires timely notification to borrowers.

“A servicing transfer is the transfer of the right to collect payments and service a mortgage loan from one servicer to another.”

— CFPB, RESPA Servicing Transfer Disclosures

A Qualified Mortgage (QM) is a category of loans that has certain, more stable features that help make it more likely that a borrower will be able to afford their loan. QMs cannot have negative amortization, interest-only payments, or balloon payments (with a few rural lender exceptions). They must provide for regular, substantially equal periodic payments of principal and interest.

“A qualified mortgage provides for regular periodic payments that are substantially equal, does not result in negative amortization, does not allow for interest-only payments, and does not generally include balloon payments.”

— 12 CFR § 1026.43(e), Ability-to-Repay/Qualified Mortgage Rule; CFPB