Which of the following practices is PROHIBITED on California covered loans?
Correct Answer
B) Financing single-premium credit insurance
Financing single-premium credit life or disability insurance into a covered loan is prohibited under CFL §4973 because it inflates the loan amount with costly insurance the borrower may not need.
Why This Is the Correct Answer
Financing single-premium credit life or disability insurance into a covered loan is prohibited under CFL §4973 because it inflates the loan amount with costly insurance the borrower may not need.
Why the Other Options Are Wrong
Option A: Charging origination fees
Origination fees are allowed on covered loans, subject to the 6% total points and fees cap.
Option C: Requiring hazard insurance
Requiring ordinary hazard insurance is not the covered-loan prohibited practice; the statute targets practices such as improper financing of certain credit insurance and other substantive abuses.
Option D: Offering fixed interest rates
Fixed interest rates are not prohibited. Lenders can offer any rate structure that meets regulatory requirements.
Memory Technique
CA -> ca-covered-loans-high-cost-consumer-protections
Exam Tip
Covered-loan questions often test the 8-point APR trigger, 6 percent points-and-fees trigger, principal-dwelling scope, Consumer Caution notice timing, ATR, prepayment penalty limits, prohibited loan terms, and remedies.
Common Mistakes to Avoid
- -Using a national baseline answer when California has agency-specific DFPI or DRE requirements
- -Confusing CFL, CRMLA, covered-loan, usury, servicing, and DRE endorsement rules
- -Relying on legacy California state-exam or education assumptions instead of current NMLS source pages
More UST Questions
In a pricing desk question, an audit analyst sees facts tied to Prohibited Misrepresentation. What should the file reflect?
An applicant previously had an MLO license revoked by a state regulator. Under the SAFE Act minimum standards for a new state-licensed MLO license, which statement is correct?
Which statement correctly distinguishes a license suspension from a license revocation?
A state regulator has issued an order suspending an MLO's authority effective immediately. The MLO has filed an appeal, but no stay has been granted. What should the MLO do?
An MLO license application asks whether the applicant has been the subject of a regulatory order. The applicant has a recent consent order that falls within the question. What is the proper response?
Why does NMLS maintain licensing and enforcement information that participating regulators can access?
A regulator issues a final license suspension without giving the MLO notice of the alleged violation or any opportunity to respond, even though applicable law requires both. What issue is presented?
A regulator finds that an MLO charged consumers prohibited fees. Which set of actions is consistent with the enforcement tools contemplated by Regulation H?
An MLO's license status in NMLS changes to suspended, with no stay or reinstatement shown. What is the immediate operational effect?
Which fact most directly supports disciplinary action against an MLO rather than merely a request for additional application information?
People Also Study
Federal Mortgage-Related Laws
24% of exam
General Mortgage Knowledge
20% of exam
Mortgage Loan Origination Activities
27% of exam
Ethics, Fraud & Consumer Protection
18% of exam