Negative amortization on a California covered loan is:
Correct Answer
A) Allowed for a first mortgage if the required negative-amortization disclosure is provided
A California covered loan generally may not contain negative amortization, but section 4973 contains an exception for a first mortgage when the originator discloses that the loan contains a negative-amortization provision that may add principal to the loan balance.
Why This Is the Correct Answer
Allowed for a first mortgage if the required negative-amortization disclosure is provided is correct. A California covered loan generally may not contain negative amortization, but section 4973 contains an exception for a first mortgage when the originator discloses that the loan contains a negative-amortization provision that may add principal to the loan balance. A California covered loan generally may not contain negative amortization, but section 4973 contains an exception for a first mortgage when the originator discloses that the loan contains a negative-amortization provision that may add principal to the loan balance.
Why the Other Options Are Wrong
Option B: Allowed for the first 5 years only
California’s covered-loan negative-amortization rule is not a simple five-year allowance.
Option C: Prohibited in all circumstances
The statute is not an absolute ban in all circumstances because it includes a first-mortgage disclosure exception.
Option D: Allowed if the loan has a fixed rate
A fixed rate alone does not make negative amortization permissible.
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