- PITI
- The four parts of a typical monthly mortgage payment: Principal, Interest, Taxes, and Insurance.
- LTV ratio
- Loan-to-Value — the loan amount divided by the lesser of the property's appraised value or sales price, expressed as a percentage. Higher LTV means higher lender risk.
- DTI ratio
- Debt-to-Income — a borrower's monthly debt payments divided by gross monthly income; a key capacity measure in underwriting.
- Discount points
- Fees paid at closing to lower the interest rate; one point equals 1% of the loan amount.
- Promissory note
- The document in which the borrower legally promises to repay the loan according to its terms; it creates the debt obligation.
- Mortgage vs. deed of trust
- Both secure a loan with real property; a mortgage involves two parties, while a deed of trust adds a neutral third-party trustee that holds title until the loan is repaid.
- Conventional loan
- A mortgage not insured or guaranteed by a government agency; it may be conforming or non-conforming.
- Conforming loan
- A conventional loan that meets Fannie Mae/Freddie Mac standards, including the conforming loan limit, making it eligible for purchase by the GSEs.
- Jumbo loan
- A loan that exceeds the conforming loan limit and therefore cannot be purchased by Fannie Mae or Freddie Mac.
- FHA loan
- A mortgage insured by the Federal Housing Administration, allowing lower down payments and more flexible credit, with required mortgage insurance premiums (MIP).
- VA loan
- A mortgage guaranteed by the U.S. Department of Veterans Affairs for eligible veterans and service members — often no down payment and no monthly mortgage insurance.
- USDA loan
- A mortgage guaranteed by the U.S. Department of Agriculture for eligible rural and suburban buyers, often with no down payment.
- Fixed-rate mortgage
- A loan whose interest rate and principal-and-interest payment stay the same for the entire term.
- Adjustable-rate mortgage (ARM)
- A loan whose interest rate can change periodically based on an index plus a margin, after an initial fixed period.
- ARM index and margin
- The index is the benchmark rate the ARM follows; the margin is the fixed amount the lender adds to the index to set the new rate.
- ARM adjustment period
- The interval (e.g., every 6 or 12 months) at which an ARM's interest rate can change after the initial fixed period.
- Interest-rate caps
- Limits on how much an ARM rate can rise — per adjustment, per period, and over the life of the loan.
- Balloon payment
- A large lump-sum payment of the remaining balance due at the end of a loan whose regular payments did not fully amortize it.
- Negative amortization
- When the monthly payment is less than the interest due, so the unpaid interest is added to the balance and the loan grows.
- Amortization
- The gradual repayment of a loan through scheduled payments of principal and interest until the balance reaches zero.
- Private mortgage insurance (PMI)
- Insurance a conventional borrower pays when the down payment is less than 20% (LTV over 80%), protecting the lender against default.
- PMI cancellation
- Under the Homeowners Protection Act, PMI automatically terminates at 78% LTV (of original value) and may be requested at 80%.
- Prepayment penalty
- A fee charged for paying off a loan early; restricted on many loan types and barred on high-cost and certain QM loans.
- Underwriting
- The process of evaluating a borrower's and property's risk to decide whether — and on what terms — to approve a loan.
- The 4 Cs of credit
- Capacity (ability to repay), Capital (assets/reserves), Collateral (the property's value), and Credit (repayment history).
- Front-end (housing) ratio
- Monthly housing expense (PITI) divided by gross monthly income — measures how much income goes to the housing payment.
- Back-end (total debt) ratio
- Total monthly debt payments (housing plus other debts) divided by gross monthly income.
- Non-conforming mortgage
- A loan that does not meet Fannie Mae/Freddie Mac standards (e.g., a jumbo loan or one with non-standard features).
- Fannie Mae
- The Federal National Mortgage Association, a government-sponsored enterprise (GSE) that buys conforming loans on the secondary market.
- Freddie Mac
- The Federal Home Loan Mortgage Corporation, a GSE that, like Fannie Mae, purchases conforming loans on the secondary market.
- Secondary mortgage market
- Where originated loans are bought, sold, and securitized (by GSEs and investors), giving lenders capital to make new loans.
- Lien priority
- The order in which liens are paid from a foreclosure sale; a first mortgage generally has priority over later (junior) liens.
- Title insurance
- Insurance protecting the lender (and optionally the owner) against losses from defects in the property's title.
- Appraisal
- An independent, professional opinion of a property's market value, used to support the loan amount and LTV.
- Loan-to-value vs. combined LTV
- LTV uses the first mortgage; combined LTV (CLTV) adds all loans secured by the property divided by its value.
- Home equity
- The difference between a property's value and the amount owed on loans secured by it.
- Underwater / upside-down
- When the amount owed on the mortgage is greater than the property's current market value (negative equity).
- Rate lock
- An agreement fixing the interest rate for a set period while the loan is processed, protecting the borrower from rate increases.
- Origination fee
- A fee charged by the lender for processing and originating the loan, typically a percentage of the loan amount.
- Buydown
- Paying points or funds up front to temporarily or permanently reduce the loan's interest rate.
- Refinance
- Replacing an existing mortgage with a new loan, usually to lower the rate, change the term, or take cash out.
- Cash-out refinance
- A refinance for more than the balance owed, where the borrower receives the difference in cash, using home equity.
- Reverse mortgage
- A loan for older homeowners (e.g., FHA's HECM) that converts equity into payments, repaid when the home is sold or the borrower leaves.
- Conforming loan limit
- The maximum loan amount the GSEs will buy, set annually by FHFA; loans above it are jumbo.
- Federal Reserve and mortgage rates
- The Fed influences mortgage rates indirectly through monetary policy and the federal funds rate; it does not set mortgage rates directly.
- Fully indexed rate
- On an ARM, the index value plus the margin — the rate the loan would carry without caps or introductory discounts.
- Construction loan
- Short-term financing that funds building a home in draws, often converting to permanent financing at completion.
- Bridge loan
- Short-term financing that lets a borrower buy a new home before selling the current one.
- HELOC
- A home equity line of credit — a revolving credit line secured by the borrower's home equity.
- Acceleration clause
- A loan provision letting the lender demand the full balance immediately if the borrower defaults.
- Due-on-sale clause
- A provision letting the lender require full repayment if the property is sold or transferred.
- Truth in Lending Act (TILA)
- The federal law (Regulation Z) requiring lenders to disclose the cost of credit — the finance charge and the APR — so consumers can compare loans.
- Regulation Z
- The Federal Reserve/CFPB regulation that implements the Truth in Lending Act (TILA).
- Annual Percentage Rate (APR)
- The total yearly cost of a mortgage expressed as a rate — interest plus points and most finance-charge fees. It lets borrowers compare loans on equal terms.
- Finance charge
- Under TILA, the total dollar cost of credit to the borrower — interest plus most loan fees (origination, points, mortgage insurance, etc.).
- Right of rescission
- Under TILA, the borrower's right to cancel certain transactions secured by their principal dwelling (e.g., a refinance or home-equity loan) within three business days, with no penalty.
- Rescission period length
- Three business days, counting Saturdays but not Sundays or federal holidays. It does not apply to a purchase-money loan on the home.
- Real Estate Settlement Procedures Act (RESPA)
- The federal law (Regulation X) governing settlement services — it bans kickbacks and unearned fees and requires certain mortgage disclosures.
- Regulation X
- The CFPB regulation that implements RESPA, covering settlement disclosures, servicing, and the kickback prohibition (Section 8).
- RESPA Section 8
- Prohibits kickbacks, referral fees, and unearned fees for the referral of settlement-service business in a federally related mortgage loan.
- Equal Credit Opportunity Act (ECOA)
- The federal fair-lending law (Regulation B) prohibiting credit discrimination based on a protected class.
- ECOA prohibited bases
- Race, color, religion, national origin, sex, marital status, age, receipt of public assistance income, and exercising rights under consumer-credit laws.
- Regulation B
- The CFPB regulation implementing ECOA — it bars discrimination and requires an adverse-action notice when credit is denied.
- Adverse-action notice
- Under ECOA/Reg B, the notice a creditor must give when it denies, terminates, or changes credit terms — stating the reasons or how to get them.
- Home Mortgage Disclosure Act (HMDA)
- The federal law (Regulation C) requiring lenders to collect and report data on mortgage applications and loans to help detect discriminatory lending.
- Regulation C
- The CFPB regulation implementing HMDA, governing the loan/application register (LAR) data lenders report.
- HMDA data reported
- Applicant/borrower demographics (race, ethnicity, sex), income, loan amount, property location, and the action taken on the application.
- Fair Credit Reporting Act (FCRA)
- The federal law (Regulation V) governing consumer-report accuracy, privacy, and use — including credit reports used in underwriting.
- FCRA free credit report
- Consumers are entitled to one free credit report every 12 months from each of the three nationwide bureaus (Equifax, Experian, TransUnion).
- Gramm-Leach-Bliley Act (GLBA)
- The federal law requiring financial institutions to explain their information-sharing practices and safeguard customers' nonpublic personal information.
- GLBA Privacy Notice
- The disclosure GLBA requires institutions to give customers describing how their nonpublic personal information is collected, shared, and protected.
- Home Ownership and Equity Protection Act (HOEPA)
- An amendment to TILA targeting high-cost mortgages — it triggers extra disclosures and bans certain predatory terms when APR or points-and-fees exceed thresholds.
- High-cost mortgage
- A loan whose APR or points-and-fees exceed HOEPA thresholds; it requires special disclosures and prohibits balloon payments, prepayment penalties, and other abusive terms.
- Dodd-Frank Act
- The 2010 reform law that created the CFPB and added the Ability-to-Repay rule, loan-originator compensation limits, and anti-predatory-lending protections.
- Consumer Financial Protection Bureau (CFPB)
- The federal agency created by Dodd-Frank that writes and enforces most federal mortgage rules (TILA, RESPA, ECOA, HMDA, etc.).
- Ability-to-Repay (ATR) rule
- A Reg Z rule requiring lenders to make a reasonable, good-faith determination that a borrower can repay a mortgage before extending it.
- ATR eight factors
- Income/assets, employment, the monthly mortgage payment, payments on other loans on the property, taxes/insurance/assessments, other debts, the DTI ratio, and credit history.
- Qualified Mortgage (QM)
- A loan that meets Ability-to-Repay standards and product-feature limits, giving the lender liability protection; QM caps points and fees at 3% of the loan amount.
- QM points-and-fees cap
- Generally 3% of the loan amount (for loans of $100,000 or more); lower-balance loans use a tiered, higher percentage.
- TILA-RESPA Integrated Disclosure (TRID)
- The rule that merged TILA and RESPA disclosures into the Loan Estimate and Closing Disclosure (the 'Know Before You Owe' forms).
- Loan Estimate (LE)
- The TRID disclosure given within three business days of application, showing estimated interest rate, monthly payment, closing costs, and key loan terms.
- Closing Disclosure (CD)
- The TRID disclosure of final loan terms and costs that the borrower must receive at least three business days before consummation (closing).
- Know Before You Owe
- The CFPB initiative behind TRID — designed to make mortgage costs clearer and easier to compare via the Loan Estimate and Closing Disclosure.
- Flood Disaster Protection Act
- Requires flood insurance for a mortgage secured by improved property in a FEMA Special Flood Hazard Area within a participating community.
- Special Flood Hazard Area (SFHA)
- A FEMA-designated high-risk flood zone; federally related loans on property there require flood insurance.
- Mortgage Acts and Practices Rule (Reg N)
- A rule prohibiting deceptive claims in mortgage advertising (e.g., misrepresenting rates, fees, or government affiliation).
- ECOA spousal-signature rule
- A creditor generally may not require a spouse's signature if the applicant qualifies individually under the creditor's standards.
- Servicing transfer notice
- Under RESPA, the servicer must notify the borrower in advance when servicing of the loan is sold or transferred to another company.
- Escrow / impound account
- An account the servicer holds to pay the borrower's property taxes and insurance; RESPA limits how much cushion a servicer may collect.
- MDIA (Mortgage Disclosure Improvement Act)
- Amended TILA to require early disclosures and waiting periods before closing — now carried out through the TRID timing rules.
- Loan originator compensation rule
- A Reg Z rule barring an originator's pay from being based on a loan's terms (like the interest rate) and barring 'dual compensation.'
- RESPA Affiliated Business Arrangement (AfBA)
- When a settlement provider refers business to an affiliate it has an interest in; allowed only with written disclosure, no required use, and no illegal fee.
- Truth in Lending finance-charge tolerance
- The dollar amount by which a disclosed APR or finance charge may differ from the actual figure before the disclosure is considered inaccurate.
- Regulation P
- The privacy rule (under GLBA) governing how financial institutions share consumers' nonpublic personal information and provide opt-out rights.
- Higher-priced mortgage loan (HPML)
- A loan whose APR exceeds the average prime offer rate by a set margin; it triggers an escrow requirement and an appraisal rule under Reg Z.
- Negative-amortization limits (Dodd-Frank)
- Dodd-Frank restricts negative-amortization features and requires consumer disclosure and, for first-time buyers, homeownership counseling.
- Appraisal Independence Requirements
- TILA/Reg Z rules prohibiting coercion of appraisers and requiring valuations be free from improper influence.
- Loan application (Form 1003 / URLA)
- The Uniform Residential Loan Application — the standard form collecting the borrower's income, assets, debts, and property information.
- The six items that trigger an 'application'
- Name, income, Social Security number, property address, estimated property value, and loan amount sought — once received, TRID timing clocks start.
- Loan Estimate timing
- The lender must provide the Loan Estimate within three business days of receiving a complete application.
- Closing Disclosure timing
- The borrower must receive the Closing Disclosure at least three business days before consummation (closing).
- Pre-qualification vs. pre-approval
- Pre-qualification is an informal estimate based on stated information; pre-approval is a documented, underwritten commitment subject to conditions.
- Verification of income
- Confirming a borrower's income with pay stubs, W-2s, tax returns, or other documentation during processing.
- Verification of assets
- Confirming the borrower's funds for down payment, closing, and reserves via bank statements and similar records.
- Conditional approval
- An underwriting approval contingent on the borrower satisfying specified conditions before closing.
- Clear to close
- The status indicating all underwriting conditions are met and the loan is ready to fund and close.
- Gross monthly income
- A borrower's total monthly income before taxes and deductions — the denominator for DTI ratios.
- Calculating a DTI ratio
- Divide total monthly debt payments by gross monthly income, then multiply by 100 to get a percentage.
- Calculating an LTV ratio
- Divide the loan amount by the lesser of the appraised value or sales price, then multiply by 100.
- Loan processing
- Gathering and verifying documentation, ordering the appraisal and title work, and preparing a complete file for underwriting.
- Closing / settlement
- The final step where documents are signed, funds are disbursed, and the loan is consummated and recorded.
- Consummation
- The point at which the borrower becomes contractually obligated on the loan — it triggers the rescission period on applicable loans.
- Good-faith estimate of costs
- The Loan Estimate's purpose: to give the borrower a good-faith estimate of rates and closing costs early so they can shop and compare.
- Tolerance categories on TRID
- Zero-tolerance, 10%-tolerance, and no-tolerance (good-faith) buckets that limit how much certain fees may increase from the LE to the CD.
- Changed circumstance
- A valid reason (e.g., new information or a borrower-requested change) that allows a lender to issue a revised Loan Estimate.
- Reserves
- Liquid assets a borrower retains after closing, often measured in months of payments, that strengthen an application.
- Compensating factors
- Strengths (large reserves, low LTV, strong credit) that can offset a higher DTI or other weakness in underwriting.
- Subordination
- Adjusting lien priority so a refinanced first mortgage stays senior to an existing junior lien (like a HELOC).
- Right-of-rescission delivery
- On a rescindable loan, the lender must give each owner two copies of the notice of the right to rescind and the required disclosures.
- Initial disclosures
- The package (Loan Estimate and other notices) delivered shortly after application explaining the loan's estimated terms and the borrower's rights.
- Closing costs
- Fees due at closing — origination, appraisal, title, recording, prepaid taxes/insurance, and similar charges.
- Seller concessions
- Closing-cost contributions a seller makes on the buyer's behalf, limited by loan program and occupancy type.
- Occupancy types
- Primary residence, second home, and investment property — they carry different LTV, rate, and reserve requirements.
- Maximum back-end DTI guidance
- Many loan programs target a back-end DTI at or below about 43% for a Qualified Mortgage, though program limits vary.
- Appraisal contingency
- A purchase-contract condition allowing renegotiation or cancellation if the appraised value is below the contract price.
- Loan estimate vs. closing disclosure
- The LE gives early estimates within three business days of application; the CD gives final figures at least three business days before closing.
- Notice of intent to proceed
- The borrower's expression of intent to continue after receiving the Loan Estimate; a lender may not charge most fees before receiving it.
- Flood insurance requirement at origination
- If the property sits in a Special Flood Hazard Area, the originator must require flood insurance before closing the loan.
- Funding the loan
- Disbursing loan proceeds to complete the transaction, after the rescission period on applicable refinances.
- Loan-level documentation
- The file evidence — income, assets, credit, appraisal, title — underwriters rely on to support the lending decision.
- Adverse action at origination
- If an application is denied, ECOA/Reg B requires a timely adverse-action notice stating the reasons or how to obtain them.
- Front-end ratio in qualifying
- Compares the proposed housing payment (PITI) to gross monthly income to judge whether the payment is affordable.
- Back-end ratio in qualifying
- Compares all monthly debt obligations, including the new housing payment, to gross monthly income.
- Qualifying ratios
- The front-end and back-end DTI limits a loan program sets to determine whether a borrower qualifies.
- Verification of employment (VOE)
- Confirming a borrower's job, position, and income stability directly with the employer.
- Credit report in underwriting
- A tri-merge report showing the borrower's payment history and scores, used to assess the 'credit' C.
- Loan commitment
- The lender's written promise to make the loan, often subject to conditions, after underwriting approval.
- Settlement agent
- The neutral party (title/escrow company or attorney) that conducts the closing and disburses funds.
- Recording
- Entering the mortgage or deed of trust in the public land records to establish lien priority.
- Power of attorney at closing
- A legal authorization allowing someone to sign closing documents on a borrower's behalf, subject to lender and program rules.
- Owner's vs. lender's title policy
- The lender's policy protects the loan amount; the owner's policy protects the buyer's equity — usually optional for the buyer.
- Loan estimate revisions
- A new Loan Estimate may be issued only for a valid changed circumstance, generally within three business days of learning of it.
- Prepaids and escrows at closing
- Up-front collection of property taxes, homeowners insurance, and per-diem interest to fund the escrow account and cover the period to first payment.
- SAFE Act
- The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 — the federal law creating a nationwide system for licensing and registering mortgage loan originators.
- Purpose of the SAFE Act
- To increase accountability and consumer protection by setting minimum standards for licensing/registering MLOs and creating a national database (NMLS).
- NMLS
- The Nationwide Multistate Licensing System and Registry — the system of record for licensing and registering mortgage loan originators, operated by CSBS.
- Conference of State Bank Supervisors (CSBS)
- The organization that, with state regulators, operates the NMLS.
- NMLS unique identifier
- The permanent ID number assigned to each MLO; it must appear on loan documents and lets consumers look the originator up.
- NMLS Consumer Access
- The free public website where a borrower can verify an MLO's or company's license status and history using the NMLS unique identifier.
- Licensed vs. registered MLO
- State-licensed MLOs (at non-depository lenders) must pass the test and meet state requirements; registered MLOs (at federally insured depositories) register in NMLS but are exempt from the test/state license.
- Definition of an MLO
- An individual who, for compensation or gain, takes a residential mortgage loan application or offers/negotiates terms of a residential mortgage loan.
- 20-hour pre-licensing education
- The federal minimum SAFE pre-licensing course: 3 hrs federal law, 3 hrs ethics, 2 hrs nontraditional mortgage lending, and 12 hrs of electives.
- Pre-licensing ethics requirement
- The 3-hour ethics portion of the SAFE course must cover fraud, consumer protection, and fair-lending issues.
- SAFE national test requirement
- To be licensed, an MLO must pass the SAFE MLO National Test with a score of at least 75%.
- Annual continuing education (CE)
- Eight hours each year: 3 hrs federal law, 2 hrs ethics (fraud/consumer protection/fair lending), 2 hrs nontraditional mortgage lending, and 1 hr elective.
- License renewal window
- Licenses are renewed through NMLS each year during the November 1 – December 31 renewal period; an unrenewed license expires.
- Test retake rule
- After failing, a candidate must wait 30 days before each of the first three retakes; after three consecutive failures, the wait is 180 days.
- Successful-completion score
- A passing score on the SAFE MLO National Test is 75% or higher (a candidate must answer at least 75% of scored questions correctly).
- Material change notice
- An MLO must update the NMLS record (e.g., a new conviction, address, or employment change) — significant changes generally within 30 days.
- Background check requirements
- SAFE licensing requires fingerprints for an FBI criminal background check and a credit report review of financial responsibility.
- Disqualifying convictions
- An applicant is barred if convicted of a felony in the prior 7 years, or ever for a felony involving fraud, dishonesty, breach of trust, or money laundering.
- Surety bond / recovery fund
- States require licensed MLOs/companies to maintain a surety bond or contribute to a recovery fund to cover consumer harm.
- Mortgage Call Report (MCR)
- A report filed quarterly through NMLS detailing a company's residential mortgage loan activity and financial condition.
- Net worth / financial responsibility
- Licensing requires the applicant demonstrate financial responsibility, character, and general fitness to command consumer confidence.
- Uniform State Test (UST)
- The state-content component now embedded in the national test — it covers state licensing rules, MLO duties, and prohibited conduct uniformly across states.
- Regulation H (SAFE)
- The CFPB regulation establishing minimum standards for state licensing of MLOs under the SAFE Act.
- Regulation G (SAFE)
- The federal rule requiring registration (in NMLS) of MLOs employed by federally regulated depository institutions.
- MLO sponsorship
- A license is inactive until a licensed company 'sponsors' the MLO in NMLS, authorizing them to originate on the company's behalf.
- Prohibited conduct (state content)
- Acts like fraud, misrepresentation, steering, and failing to disburse funds — grounds for state disciplinary action against a license.
- State regulator authority
- States may investigate, examine, suspend, revoke, or fine licensees and enforce the SAFE Act's minimum standards.
- Temporary authority to operate
- A 2019 provision letting certain MLOs originate temporarily while a new state-license application is pending, if eligibility conditions are met.
- Loan originator vs. processor/underwriter
- A clerical processor or underwriter who does not take applications or negotiate terms for compensation is generally not an MLO requiring a license.
- Pre-licensing education expiration
- SAFE pre-licensing education older than the set expiration period (generally about three years) must be retaken before licensing.
- Mortgage fraud
- Any material misstatement, misrepresentation, or omission relied on by a lender to fund a loan — illegal and a focus of the ethics content area.
- Fraud for housing vs. fraud for profit
- Fraud for housing is misrepresentation by a borrower to obtain a home to live in; fraud for profit is organized schemes to extract money from the process.
- Occupancy fraud
- Misrepresenting that an investment property will be a primary residence to obtain better terms — a form of mortgage fraud.
- Income fraud
- Falsifying or inflating a borrower's income (e.g., fake pay stubs) to qualify for a loan — prohibited.
- Straw buyer
- Someone who applies for a loan on behalf of the true purchaser to hide the real borrower's identity or ineligibility — a fraudulent scheme.
- Appraisal fraud
- Manipulating or coercing a property valuation (inflating or deflating value) to support a fraudulent transaction.
- Fair lending
- Extending credit fairly and consistently without discriminating against a protected class, as required by ECOA and the Fair Housing Act.
- Steering
- Improperly directing a borrower toward (or away from) a loan product for the originator's benefit rather than the borrower's interest — prohibited.
- Redlining
- Illegally denying or pricing credit based on the racial or ethnic makeup of a neighborhood rather than the borrower's qualifications.
- Disparate treatment
- Treating an applicant differently because of a protected characteristic — a form of illegal lending discrimination.
- Disparate impact
- A neutral policy that disproportionately harms a protected class without business justification — a fair-lending violation.
- Conflict of interest
- A situation where an MLO's personal interest could improperly influence professional duties; it must be avoided or disclosed.
- Handling a referral gift
- An MLO should decline a gift offered for referring business and report it, since it can create a conflict and may violate RESPA Section 8.
- Duty to correct misinformation
- If an MLO learns a borrower was given misleading loan information, they should promptly correct it and inform the borrower.
- Reporting suspected fraud
- An MLO who suspects fraud by a colleague or applicant should report it to a supervisor, compliance, or the proper authority — not ignore it.
- Confidentiality of borrower information
- An MLO must protect borrowers' nonpublic personal information and use it only for legitimate, authorized purposes.
- Refusing an unethical request
- An MLO must refuse to alter, omit, or falsify application information, even at a borrower's request, and explain the need for accuracy.
- Acting in the borrower's interest
- Ethical origination means recommending suitable products and giving honest, accurate information rather than maximizing personal compensation.
- Predatory lending
- Abusive practices — excessive fees, loan flipping, equity stripping, or unaffordable terms — that harm borrowers; prohibited and a fair-lending concern.
- Loan flipping
- Repeatedly refinancing a borrower with little benefit to generate fees — a predatory, unethical practice.
- Equity stripping
- Lending based on home equity rather than the borrower's ability to repay, aiming to seize the equity through default — predatory.
- Bait-and-switch
- Advertising terms the lender does not intend to deliver, then substituting worse terms — a deceptive, prohibited practice.
- Suspicious Activity Report (SAR)
- A report a financial institution files when it detects activity suggesting mortgage fraud or money laundering.
- Anti-money laundering (AML) duties
- Mortgage lenders must maintain AML programs and report suspicious activity that may involve laundering through real estate transactions.
- Whistleblower / escalation duty
- Ethical conduct includes escalating known violations through proper channels and cooperating with audits and investigations honestly.
- Honesty with regulators
- An MLO must never provide false or misleading information to an examiner or auditor and must cooperate with lawful inquiries.
- Avoiding undisclosed compensation
- An MLO must not accept hidden fees or kickbacks; compensation arrangements must comply with RESPA and the LO compensation rule.
- Treating applicants consistently
- Applying the same standards and offering the same opportunities to all applicants protects against discrimination claims.
- Duty of accurate disclosure
- Providing complete, truthful, and timely disclosures (LE, CD, ARM, and others) is both a legal and ethical obligation.
- Self-dealing
- Using one's position for personal gain at the borrower's or employer's expense — an ethical violation that must be avoided.
- Misrepresentation of loan terms
- Stating loan terms (rate, payment, fees) inaccurately to induce a borrower to proceed — prohibited and potentially fraudulent.
- Identity theft red flags
- Inconsistencies in a borrower's identity documents that an MLO must investigate under the FCRA Red Flags Rule before proceeding.
- Professional competence
- An ethical MLO maintains current knowledge of laws and products through continuing education and applies it accurately.
- Duty when a borrower seeks an illegal purpose
- If a borrower discloses intent to use a loan for an illegal purpose, the MLO should decline the application and report as required.
- Gifts from settlement-service providers
- Accepting things of value from title, appraisal, or real-estate partners in exchange for referrals can violate RESPA — decline and report.
- HOEPA high-cost triggers
- A loan is a HOEPA high-cost mortgage if its APR, points and fees, or prepayment penalty exceed set thresholds; it then requires extra disclosures and bans certain terms.
- Loan originator anti-steering
- The LO compensation rule bars steering a borrower to a loan that pays the originator more; the LO must present competitive options the borrower qualifies for.
- Reg Z dwelling-secured scope
- TILA/Reg Z's mortgage rules apply to consumer credit secured by a dwelling, including the right of rescission and APR/finance-charge disclosure.
- ECOA adverse-action timing
- Under ECOA/Reg B, a creditor must send an adverse-action notice generally within 30 days of receiving a completed application or taking adverse action.
- RESPA servicing disclosure
- RESPA requires a servicing-transfer notice when a loan's servicing is sold or transferred, telling the borrower where to send payments.
- HMDA purpose
- The Home Mortgage Disclosure Act requires lenders to collect and report application data so regulators can detect discriminatory or predatory lending patterns.
- FACTA Red Flags Rule
- An FCRA/FACTA rule requiring financial institutions to have a written program to detect, prevent, and mitigate identity theft 'red flags.'
- E-Sign Act
- The federal law giving electronic signatures and records the same legal effect as paper, provided the consumer consents to electronic delivery.
- Mortgage servicing escrow cushion
- RESPA limits a servicer's escrow cushion to no more than two months of escrow payments (about one-sixth of annual disbursements).
- TILA finance charge components
- The finance charge is the total dollar cost of credit: interest plus most loan fees such as origination, points, and required mortgage insurance.
- Higher-priced vs. high-cost
- An HPML exceeds an APR threshold over the average prime offer rate (escrow + appraisal rules); a high-cost (HOEPA) loan crosses stricter limits with more protections.
- Temporary authority eligibility
- A licensed-state MLO moving to a new state, or a registered MLO becoming licensed, may originate under temporary authority for up to 120 days while the application is pending.
- Sponsorship requirement
- A licensed MLO cannot originate until an employing company that holds the proper state license formally sponsors them in NMLS.
- Continuing-education successive years
- An MLO generally cannot take the same CE course in two successive years (the 'successive-years' rule).
- Felony license bars
- The SAFE Act bars licensure for anyone with a felony in the past 7 years, or ever for a felony involving fraud, dishonesty, breach of trust, or money laundering.
- State examination authority
- State regulators may examine, investigate, and audit licensees, and may issue cease-and-desist orders, fines, suspensions, or revocations.
- Unique-identifier on advertising
- Every MLO must display their NMLS unique identifier on advertisements and key loan documents so consumers can verify them.
- Mortgage Call Report
- A quarterly report licensees file through NMLS detailing loan-origination volume and financial condition.
- FHA mortgage insurance (MIP)
- FHA loans carry both an upfront and an annual mortgage insurance premium (MIP) that protects the lender; on many FHA loans it lasts the life of the loan.
- VA funding fee
- A one-time fee on most VA loans (in place of monthly mortgage insurance) that helps sustain the program; some veterans are exempt.
- USDA loan basics
- A government-guaranteed loan for low-to-moderate-income buyers in eligible rural areas, often with no down payment and an income cap.
- Index vs. margin on an ARM
- An ARM's rate equals a market index (e.g., SOFR) plus a fixed margin set by the lender; the margin does not change over the loan's life.
- ARM caps (initial, periodic, lifetime)
- ARM rate caps limit the first adjustment, each later adjustment, and the total increase over the life of the loan.
- Reverse mortgage (HECM)
- An FHA-insured loan letting borrowers 62+ convert home equity to cash with no monthly payment; the balance is due when they leave the home.
- Secondary market purpose
- Selling closed loans to investors (or GSEs) returns capital to lenders so they can fund new loans; conforming standards make loans saleable.
- Ginnie Mae role
- A government corporation that guarantees mortgage-backed securities made up of government-insured loans (FHA, VA, USDA).
- Conforming loan limit setter
- The Federal Housing Finance Agency (FHFA) sets the annual conforming loan limit that separates conforming from jumbo loans.
- Buydown (temporary vs. permanent)
- Paying points to lower the rate: a permanent buydown lowers it for the term; a temporary buydown (e.g., 2-1) lowers it only for the first years.
- Prepayment penalty limits
- Dodd-Frank sharply restricts prepayment penalties; Qualified Mortgages may only include limited penalties on certain fixed-rate, prime loans.
- TRID tolerance categories
- Fees fall into zero-tolerance (cannot increase), 10%-tolerance (cumulative), and no-tolerance (can change) categories; exceeding them requires a cure.
- Three-day CD redisclosure triggers
- A new 3-business-day waiting period restarts if the APR exceeds tolerance, the loan product changes, or a prepayment penalty is added.
- Appraisal independence
- Rules barring anyone with an interest in the transaction from influencing an appraiser's opinion of value.
- Title insurance (owner's vs. lender's)
- Lender's title insurance protects the lender's lien position; the optional owner's policy protects the buyer's equity against title defects.
- Calculating front-end DTI
- Divide the monthly housing payment (PITI) by gross monthly income; it measures how much income the house payment alone consumes.
- Calculating back-end DTI
- Divide total monthly debt (housing plus all other obligations) by gross monthly income; many QM programs target about 43% or below.
- Rescission and funding
- On a rescindable refinance, the lender disburses funds only after the 3-business-day rescission window has expired with no cancellation.
- Disparate treatment vs. disparate impact
- Disparate treatment is intentionally treating applicants differently on a prohibited basis; disparate impact is a neutral policy that harms a protected class.
- Handling nonpublic personal information
- Under GLBA, an MLO must safeguard a borrower's NPI and follow the company's privacy and data-security policies.
- Bait-and-switch advertising
- Advertising terms the lender does not intend to honor to lure applicants, then substituting worse terms — a prohibited, deceptive act.
- CFPB role
- The Consumer Financial Protection Bureau writes and enforces most federal mortgage rules (TILA, RESPA, ECOA, HMDA, TRID) and supervises lenders.
- Homeowners Protection Act (HPA)
- The federal law governing PMI on most loans: automatic termination at 78% LTV of original value, and borrower-requested cancellation at 80%.
- BSA / anti-money-laundering program
- The Bank Secrecy Act requires covered lenders to maintain an AML program and file Suspicious Activity Reports for suspected fraud or laundering.
- MLO definition (SAFE Act)
- An individual who, for compensation or gain, takes a residential mortgage application or offers or negotiates terms of a residential mortgage loan.
- Processor/underwriter exemption
- Loan processors and underwriters who do not take applications or negotiate terms generally are not 'MLOs' and need not be licensed, if supervised by a licensee.
- Record retention
- States require licensees to keep loan and advertising records for a set period (often 3+ years) and make them available to examiners.
- Lien priority ('first in time')
- Generally, the lien recorded first has priority; a purchase-money first mortgage typically holds first position over later liens.
- Discount point cost
- One discount point equals 1% of the loan amount, paid at closing to lower the interest rate.
- Fair lending consistency
- Fair lending requires applying the same standards and pricing to every applicant, based on creditworthiness — not on a prohibited basis.
- Duty to give accurate disclosures
- An MLO must provide truthful, complete, and timely disclosures and never alter or omit application information, even at a borrower's request.
