Chapter 26 — Self-Check Quiz

Twenty-five questions in the style of the SAFE MLO test where the material is exam-relevant. Answer key in the collapsed block at the bottom. All dollar figures are illustrative.

1. Under Regulation Z's loan originator compensation rule, compensation to a loan originator may not be based on:

• A. The amount of credit extended
• B. A term of a transaction, or a proxy for a term
• C. The number of loans the originator closed
• D. The hours the originator actually worked

2. A basis point is:

• A. One percent
• B. One tenth of one percent
• C. One one-hundredth of one percent
• D. One one-thousandth of one percent

3. One basis point of a \$365,750 loan is closest to:

• A. \$3.66
• B. \$36.58
• C. \$365.75
• D. \$3,657.50

4. A factor that is not itself a loan term is a proxy for a term only if:

• A. It varies with a term in any single transaction
• B. The originator can change it
• C. It consistently varies with a term over a significant number of transactions and the originator can add, drop, or change it
• D. The creditor intended it to substitute for a term

5. Which of the following is expressly permitted as a basis for loan originator compensation?

• A. The interest rate
• B. The number of discount points
• C. The amount of credit extended
• D. Whether the loan is held in portfolio

6. A comp plan pays 15 additional basis points when the representative credit score is 760 or higher. The most likely conclusion is that the factor is:

• A. Permitted, because a credit score is not a loan term
• B. A prohibited proxy, because score consistently varies with pricing and the originator can influence which score applies
• C. Permitted, because the originator cannot change a consumer's credit history
• D. Prohibited as a term of the transaction

7. The dual compensation prohibition means that:

• A. An originator may never be paid by a creditor
• B. An originator paid directly by the consumer may not also be paid by another person on that transaction
• C. Two originators may not work the same file
• D. A borrower may not pay both origination and discount points

8. A mortgage brokerage is paid directly by the consumer on a transaction. May the brokerage pay its own W-2 loan officer on that transaction?

• A. No — that would be dual compensation
• B. Yes — a loan originator organization may compensate its individual originators, subject to the other requirements of the rule
• C. Only if the consumer consents in writing
• D. Only if the loan officer is a 1099 contractor

9. Under lender-paid compensation, who ultimately bears the cost of the originator's compensation?

• A. The creditor, permanently
• B. The consumer, through the interest rate
• C. The investor
• D. Nobody; it is a marketing expense

10. Compared with a lender-paid transaction at the same creditor on the same day, a borrower-paid transaction generally offers:

• A. A higher rate and lower cash to close
• B. A lower rate and higher cash to close
• C. The same rate and the same cash to close
• D. A lower rate and lower cash to close

11. The anti-steering safe harbor requires that, for each type of transaction in which the consumer expressed an interest, the originator present the loan with the lowest interest rate, the loan with the lowest total dollar amount of points and origination fees, and:

• A. The loan with the shortest term
• B. The loan with the lowest interest rate that has no negative amortization, prepayment penalty, interest-only payments, balloon in the first seven years, demand feature, or shared equity or appreciation
• C. The loan with the lowest annual percentage rate
• D. The loan the originator recommends

12. Anti-steering under the compensation rule and steering under fair lending are:

• A. The same prohibition stated in two statutes
• B. Different prohibitions — one concerns the originator's own compensation, the other concerns protected characteristics
• C. Both enforced only by state regulators
• D. Both satisfied by the same safe harbor

13. A borrower is \$500 short at the closing table. The loan officer offers to reduce their own compensation on this file. This is:

• A. Permitted, because reducing compensation cannot harm the consumer
• B. Generally prohibited, because compensation would then vary on a specific transaction
• C. Permitted with the branch manager's approval
• D. Permitted only on purchase transactions

14. The narrow exception in the rule allowing a reduction in compensation concerns:

• A. Any pricing concession made to keep a deal together
• B. Bearing the cost of an increase in an actual settlement charge above the applicable tolerance
• C. Lock extensions
• D. Appraisal re-inspection fees

15. Regulation Z's definition of "loan originator" differs from the S.A.F.E. Act's definition of "mortgage loan originator" in that Regulation Z's:

• A. Requires both taking an application and negotiating terms
• B. Covers only individuals
• C. Is disjunctive, reaches referrals, and covers organizations as well as individuals
• D. Applies only to brokers

16. An originator is paid 125 basis points. Compensation on a \$365,750 loan is:

• A. \$3,657.50
• B. \$4,571.88
• C. \$5,486.25
• D. \$9,143.75

17. An originator on a 50/50 split of 150 basis points closes a \$365,750 loan. The originator receives approximately:

• A. \$1,828.75
• B. \$2,285.94
• C. \$2,743.13
• D. \$5,486.25

18. A recoverable draw differs from a non-recoverable draw in that:

• A. It is paid quarterly
• B. It is offset against later compensation and an unrecovered balance is generally repayable
• C. It is exempt from the compensation rule
• D. It may vary with loan terms

19. Under a retroactive volume tier, the file that crosses a tier threshold is worth:

• A. The same as any other file
• B. Less, because the rate resets
• C. Substantially more, because all of the month's volume reprices at the higher rate
• D. Nothing until the following month

20. A tiered compensation plan based on the originator's monthly funded volume is:

• A. Prohibited, because volume is a proxy for the interest rate
• B. Generally permitted, because volume is not a term of any individual transaction
• C. Permitted only for brokers
• D. Permitted only if disclosed to the consumer

21. A 1099 independent contractor originator is:

• A. Outside the compensation rule
• B. Inside the compensation rule, and subject to state law that may restrict the arrangement entirely
• C. Exempt from licensing
• D. Permitted to be paid based on the interest rate

22. A commissioned W-2 loan officer applying for their own mortgage earned \$150,000 two years ago and \$118,000 last year. The underwriter will most likely use monthly qualifying income of:

• A. \$12,500.00
• B. \$11,166.67
• C. \$9,833.33
• D. \$22,333.33

23. On a branch profit and loss statement, discount points paid by the borrower to buy down the rate are:

• A. Branch revenue
• B. Not branch revenue; they are the price of the below-market coupon and go into the loan's sale price
• C. Loan officer compensation
• D. An offset to the origination charge

24. A branch's net revenue on a file is \$8,229.37 and its total cost to make the loan, including \$4,571.88 of loan officer compensation, is \$9,491.88. Which statement is true?

• A. The originator lost money on the file
• B. The branch made \$1,262.51
• C. The originator earned \$4,571.88 and the branch lost \$1,262.51
• D. The figures cannot both be correct

25. An income model's three inputs are:

• A. Rate, points, and term
• B. Closings, average loan amount, and basis points
• C. Leads, marketing spend, and referral partners
• D. Draw, split, and tier

Short answer

26. In two sentences, state what the yield spread premium was and why disclosing it did not solve the problem.

27. Name the four paragraphs of a compensation plan that matter more than the basis-point number, and say what each one can cost you.

28. Explain, in one sentence a borrower would understand, why your compensation does not change when their rate changes.

29. A branch is losing money on every file at its current average loan size. Name the four levers available, and say which one a loan officer controls completely.

30. Give one reason a comp plan that pays on the total loan amount pays more on FHA loans than on conventional loans for the same house, and state why the rule permits it anyway.