NMLS Updated MLO Exam Questions and Answers by qasim

A second (subordinate) mortgage loan refers to a mortgage taken out after the primary mortgage and is subordinate to the first in priority of claims on the property in case of default or foreclosure. One of the most common types of subordinate mortgages is a home equity line of credit (HELOC).

HELOC allows homeowners to borrow against the equity in their home, typically after the first mortgage, making it a subordinate loan.

Other options:

Government home purchase loans (A) and conventional home purchase loans (B) are typically first mortgages.

A home equity conversion mortgage (C) is a type of reverse mortgage, which is also typically a primary loan, not a subordinate one.

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

A fixed-rate mortgage is characterized by a fixed interest rate that remains constant throughout the life of the loan, ensuring that the borrower’s monthly principal and interest payments remain the same over time. This is the defining feature of a fixed-rate mortgage.

Other options:

A fixed margin (A) applies to adjustable-rate mortgages (ARMs).

Mandatory 30-year terms (C) and balloon payments (D) are not characteristics of a fixed-rate mortgage, as fixed-rate loans can have varying term lengths (15, 20, or 30 years) without balloon payments.

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.