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

Under the Ability-to-Repay (ATR) Rule and Qualified Mortgage (QM) standards, mortgages with adjustable rates can be considered qualified mortgages if they meet certain criteria, such as having fully amortizing payments and adhering to limits on points and fees. Adjustable-rate mortgages (ARMs) are qualified as long as the borrower’s ability to repay is assessed using the maximum rate that could apply in the first five years.

Loans like interest-only mortgages (A), balloon payment loans (B), and negative amortization loans (C) are not typically considered qualified mortgages because they carry higher risks of default.

In an Adjustable-Rate Mortgage (ARM), the components that adjust periodically are the index and the interest rate. Here’s how it works:

The index is the benchmark interest rate that fluctuates with market conditions (e.g., LIBOR, SOFR).

The interest rate adjusts based on changes in the index, but the margin (the fixed percentage added to the index) remains constant throughout the life of the loan.

Thus, the index and interest rate are the variables that change periodically, while the margin remains fixed.

The Equal Credit Opportunity Act (ECOA) Valuations Rule (Regulation B) requires creditors to provide a written notice to applicants within three business days of application stating their right to receive a copy of any appraisal report developed in connection with their application.

“A creditor must deliver or mail a notice of the applicant’s right to receive a copy of all appraisals or valuations developed in connection with the application within three business days of receiving an application.”

— 12 CFR § 1002.14(a)(2), Regulation B

Applicants do not have the right to select their appraiser.

A red flag is a pattern, practice, or specific activity that indicates the possible existence of identity theft. The Red Flags Rule requires financial institutions and creditors to develop and implement programs to detect, prevent, and mitigate identity theft.

“Red flags are patterns, practices, or specific activities that indicate the possible existence of identity theft.”

— FTC, Red Flags Rule: Identity Theft Prevention Program

A salaried W-2 position is an example of non-fluctuating income because the borrower receives a consistent, fixed salary each pay period. This type of income is easy to verify and predict, making it ideal for mortgage qualification.

Other types of fluctuating income:

Self-employed income (B) and commission-based income (C) vary based on the nature of work and can fluctuate month to month.

Part-time work with irregular hours (D) also fluctuates due to varying work hours, making it inconsistent.

Under HMDA (Regulation C), lenders must collect and report applicant data including race, ethnicity, and sex, but not religion. Collecting data on an applicant’s religion would be prohibited by the Equal Credit Opportunity Act (ECOA).

“The data reported under HMDA includes the applicant’s ethnicity, race, sex, and income… religion is not collected or reported.”

— 12 CFR § 1003.4(a); Regulation C

When an MLO suspects that a borrower, such as the mother in this case, may be under duress or being coerced into a transaction, they have a duty to ensure that all parties are willingly participating. The ethical approach would be to ask to speak privately with the mother to verify her intentions and comfort level with the transaction. This ensures that the loan is compliant with consumer protection laws such as the Truth in Lending Act (TILA) and the Equal Credit Opportunity Act (ECOA), which protect against unfair lending practices.

Ignoring the situation (Option B) could lead to participation in a coerced or fraudulent transaction.

Suggesting that the son be a co-borrower (Option C) or signing a power of attorney (Option D) are inappropriate if the mother is unwilling to proceed.

Verifying her willingness safeguards the integrity of the loan process and ensures compliance with fair lending practices.

A lock-in agreement (rate lock) is a written commitment by a lender to hold a specific interest rate for a borrower for a certain period, usually prior to closing.

“A lock-in agreement is a written agreement guaranteeing the applicant a specified interest rate for a designated period.”

— SAFE MLO National Test Study Guide; CFPB Mortgage Glossary