Free MLO Questions Attempt

Interest-only mortgages are considered higher risk compared to traditional mortgages because the borrower’s scheduled payments only cover the interest on the loan, and none of the principal balance is reduced during the interest-only period. As a result, the loan balance remains unchanged, which increases the risk for both the borrower and lender if the value of the home decreases or if the borrower cannot make larger payments when the principal becomes due.

Other risks, such as exceeding the APOR (Average Prime Offer Rate) by a certain margin (C, D), apply to high-cost mortgages, not specifically interest-only loans.

References:

CFPB Qualified Mortgage and Ability-to-Repay Rule

Fannie Mae Guidelines on interest-only mortgages

The Real Estate Settlement Procedures Act (RESPA) prohibits kickbacks, referral fees, and unearned fees in any transaction involving a federally related mortgage loan. If a real estate broker offers the MLO $500 to obtain a purchase-money mortgage for the broker's client, the MLO must decline the money. Accepting payment for a referral is illegal under Section 8 of RESPA.

Options such as applying the money toward the down payment (B) or including it on the Closing Disclosure (C)** do not make the payment legal, as it would still violate RESPA.

References:

RESPA Section 8 – Prohibition on kickbacks and referral fees

CFPB Guidelines on RESPA compliance

Under Regulation Z (TILA), when mortgage loan originators (MLOs) advertise mortgage services, including payment amounts, they must disclose the Annual Percentage Rate (APR). The APR reflects the total cost of the loan, including interest and certain fees, and provides a clear picture of the loan's true cost over time.

Failure to include the APR in an advertisement that mentions payment amounts, interest rates, or other specific loan terms is considered a violation of TILA’s advertising requirements.

Other details (B, C, D), such as the MLO's website or the number of days the rate is available, are not mandatory in all advertisements, but the APR is required.

References:

Truth in Lending Act (TILA), 12 CFR Part 1026 (Regulation Z)

CFPB Advertising Rules for Mortgage Services

The statement "Current interest rates as low as 3.50% with an APR of 3.99%. Contact us today!" is permissible under TILA and Regulation Z, provided it accurately reflects the current rates and corresponding Annual Percentage Rate (APR).

Regulation Z requires that if an advertisement states an interest rate, it must also disclose the APR to ensure consumers understand the true cost of the loan, including fees and other finance charges.

The other statements are prohibited due to potential misrepresentation:

B (affiliation with the VA) could be misleading unless it is an actual endorsement, which is rare.

C (no payments with a reverse mortgage) could mislead consumers about the conditions of a reverse mortgage.

D (guaranteed refinancing) could be misleading as future refinancing depends on market conditions and the borrower's qualifications.

References:

Truth in Lending Act (TILA)

Regulation Z Advertising Rules