Correct Answer B: The Commissioner is appointed by the Governor with the advice and consent of the Senate.

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1 California SAFE Comprehensive Supplement Activities Answer Key Chapter 1 Activities 1.1 Knowledge Check 1. The Commissioner of the California Department of Business Oversight is a. appointed by the Banking Board. b. appointed by the Governor. c. appointed by the State Legislature. d. elected by the voters of California. Correct Answer B: The Commissioner is appointed by the Governor with the advice and consent of the Senate. 2. Which division of the California Department of Corporations handles violations of the California Financial Code and the California Code of Regulations? a. Enforcement b. Executive c. Financial Services d. Securities Regulation Correct Answer A: The Enforcement Division is responsible for enforcing the laws under the Investment and Lender-Fiduciary Programs administered by the Department of Corporations. 3. An individual who takes a mortgage loan application or negotiates the terms of mortgage loan for compensation is a mortgage a. lender. b. loan correspondent. c. loan originator. d. mortgage broker. Correct Answer C: An individual who takes a mortgage loan application or negotiates the terms of mortgage loan for compensation is a mortgage loan originator. 1.2 Knowledge Check 1. Loan originator applicants must complete 20 hours of pre-licensing instruction in a course or program of study reviewed and approved by the NMLSR. 2. The written test can be retaken three consecutive times, provided the period between taking the tests is at least 30 days. 3. If an individual fails the third consecutive written test, the individual must wait at least 6 months before taking the test again.

2 4. A mortgage loan originator must complete at least 8 hours of continuing education every calendar year. 5. The annual continuing education course or program of study for mortgage loan originators must include 2 hours on training related to lending standards for the nontraditional mortgage product marketplace. 6. The operations manager of a mortgage broker business must take a written test and achieve a score of at least 75% to pass. Chapter 1 Quiz 1. In the state of California, which of the following provides protection to consumers and services to businesses that are engaged in financial transactions? a. California Bureau of Real Estate b. California Department of Business Oversight c. California Department of Finance and Lending d. California Mortgage Lending Institute Correct Answer B: The California Department of Business Oversight (DBO) provides protection to consumers and services to businesses engaged in financial transactions. 2. The Financial Services Division (FSD) is responsible for the regulation all of the following laws EXCEPT the a. Administrative Procedures Act. b. California Finance Lenders Law. c. California Residential Mortgage Lending Act. d. Check Sellers, Bill Payers and Prorates Law. Correct Answer A: The Financial Services Division (FSD) is not responsible for the regulation of the Administrative Procedures Act. 3. Under California law, a broker is defined as a. an attorney at law acting within the normal course of business. b. an employer who provides residential mortgage loans to his employees as a benefit. c. a person who negotiates or offers to place loans made by a finance lender. d. a person who offers or negotiates the terms of a residential mortgage loan on the behalf of an immediate family member. Correct Answer C: Under California law, a broker is defined as any person engaged in the business of negotiating or performing any act as a broker in connection with loans made by a finance lender. 4. Under the California Finance Lenders Law, which of the following is considered a loan transaction and therefore subject to the rules and regulations of the law? a. automobile sales finance contract b. bona fide lease c. home equity line of credit

3 d. retail installment sales loan Correct Answer C: Home equity lines of credit are considered a loan transaction and subject to the rules and regulations of the California Finance Lenders law. 5. A licensed finance lender or broker shall continuously maintain a minimum net worth of at least a. $20,000. b. $25,000. c. $50,000. d. 100,000. Correct Answer B: A licensed finance lender or broker shall continuously maintain a minimum net worth of at least $25, All of the following personal information must be included as part of an MLO license application EXCEPT a. authorization to obtain a credit report. b. authorization to obtain criminal findings from any governmental jurisdiction. c. a copy of licenses issued by other states. d. fingerprints for submission to a criminal background check. Correct Answer C: An applicant is not required to submit copies of other licenses, but the other elements are required to be included. 7. For a mortgage loan originator applicant, how many hours of pre-licensing education must be taken? a. 8 b. 10 c. 20 d. 24 Correct Answer C: For a loan originator applicant, 20 hours of approved pre-licensing education is required. 8. Which statement about the MLO written test is FALSE? a. After failing the test the first time, an applicant must wait 30 days before retaking it. b. After failing three consecutive tests, the applicant must wait 3 months before retaking it. c. A formerly licensed MLO who has been inactive for two years is not required to retake the test when applying for a license. d. The required pass rate is 75%. Correct Answer B: The applicant must wait 6 months to retake a test after failing three consecutive times. The other statements are true.

4 9. The license of a mortgage loan originator failing to satisfy the minimum standards for license renewal will expire at midnight on a. January 1. b. the date the license was initially issued. c. the date the application was submitted. d. December 31. Correct Answer D: The license of a mortgage loan originator failing to satisfy the minimum standards for license renewal will expire at midnight on December Under California law, what is the minimum assessment a finance lender/broker licensee will pay to the commissioner? a. $1,000 b. $750 c. $500 d. $250 Correct Answer D: In the levying and collection of the assessment, a licensee shall neither be assessed for nor be permitted to pay less than two hundred fifty dollars ($250) per licensed location per year. Chapter 2 Activities 2.1 Knowledge Check 1. Will is employed with a federally chartered bank. To take residential mortgage loan applications for his employer, Will must be a a. certified loan processor. b. licensed mortgage lender. c. registered licensed mortgage broker. d. registered mortgage loan originator. Correct Answer D: Will is employed with a federally chartered bank. To take residential mortgage loan applications for his employer, Will must be a registered mortgage loan originator. 2. A California residential mortgage lender applicant must pay an application fee of a. $200. b. $350. c. $500. d. $900. Correct Answer D: A California residential mortgage lender applicant must pay an application fee of $900.

5 3. Which one of the following is required to take a written exam developed by NMLSR? a. attorneys at law who provide legal advice to buyers purchasing a home b. mortgage lending business applicants c. mortgage loan originator applicants d. mortgage underwriters Correct Answer C: The mortgage loan originator applicant must take a written exam. 4. The commissioner can deny an application for a MLO license if the applicant has been convicted of a felony during the -year period preceding the date of the application for licensing. a. 4 b. 5 c. 7 d. 10 Correct Answer C: The commissioner can deny an application for a MLO license if the applicant has been convicted of a felony during the seven-year period preceding the date of the application for licensing. 5. Which of the following statements is FALSE? a. If the licensee is a partnership, the license shall state the names of its general partners. b. If the licensee is a residential mortgage lender or servicer, the license shall state the address of the licensee s principal business location. c. The license shall state whether the licensee is licensed as a residential mortgage loan lender or servicer or as a mortgage loan originator. d. A license is transferable and assignable. Correct Answer D: A license is not transferable or assignable. 2.2 Knowledge Check 1. A licensee issued a license for purposes of making or servicing residential mortgage loans, including a licensee employing one or more mortgage loan originators, shall continuously maintain a minimum tangible net worth at all times of a. $25,000. b. $100,000. c. $250,000. d. $500,000. Correct Answer C: A licensee issued a license for purposes of making or servicing residential mortgage loans, including a licensee employing one or more mortgage loan originators, shall continuously maintain a minimum tangible net worth at all times of $250,000.

6 2. The commissioner may require licensees to maintain a file of all advertising copy for a period of how long from the date of its use? a. 60 days b. 90 days c. 6 months d. 1 year Correct Answer B: The commissioner may require licensees to maintain a file of all advertising copy for a period of 90 days from the date of its use. 3. Which situation would LEAST LIKELY allow the California DBO commissioner to suspend the MLO s license immediately without notice or hearing? a. Bob submitted a loan application without including her NMLS unique ID b. Jane s MLO license in New Jersey was revoked. c. Lynn is 40 days late in filing a required report. d. Paul s surety bond is no longer in effect. Correct Answer A: Bob s situation could just have been a simple oversight that would not merit suspension, especially since this error is not likely to cause substantial harm to the consumer. The other situations are explicitly named as reasonable causes for suspension without a hearing. 4. All of the following are considered trust funds EXCEPT for a. cash for earnest money. b. a check given as partial earnest money. c. commission paid up front. d. a promissory note given to the seller. Correct Answer D: Cash for earnest money, a check given as partial earnest money, a promissory note given to the seller are all considered to be trust funds. A commission paid up front is not. Chapter 2 Case Study San Diego Funding, LLC is a mortgage broker, licensed by the California Finance Lenders Law.(CFFL) San Diego Funding LLC has operated from an office located at 1234 N. Garnett, San Diego, Ca , since they commenced operations. They make residential mortgages and have 3 licensed mortgage loan originators: Joe Brown, Bob Black, and Steve White. Joe Brown occasionally does business in an office inside of Trende Title Company located at 3344 Grand Avenue, San Diego, Ca., where he oftentimes meets clients. He prefers to go to the Trende Title Company office to do business, as he is introduced to many real estate agents who use Trende Title.

7 Steve White goes into the San Diego Funding, LLC office every day, but the commute is over an hour each way, so the LLC decided to open a branch located at 5544 Chico Street, Pacific Beach, which is much closer to his home. He is a large producer and they want to accommodate his book of business. San Diego Funding, LLC submitted an application, along with the required fee, for a branch office license to the Commissioner of Business Oversight two weeks ago. They are still waiting on the approval, but Steve has a seminar planned this weekend, and has sent out invitations with the new address to all of his clients. Case Study Discussion Questions 1. What is the dollar amount of the surety bond San Diego Funding, LLC need to maintain? Do they need more than one surety bond? Suggested Response: San Diego Funding LLC needs to maintain one surety bond in the amount of $25,000. They would only need one, even though they will have a branch office location. Per California Finance Lenders Law (CFLL) and California Financial code division (a) A licensee shall maintain a surety bond in accordance with this subdivision in a minimum amount of twenty-five thousand dollars ($25,000). The bond shall be payable to the commissioner and issued by an insurer authorized to do business in this state. An original surety bond, including any and all riders and endorsements executed subsequent to the effective date of the bond, shall be filed with the commissioner within 10 days of execution. For licensees with multiple licensed locations, only one surety bond is required. The bond shall be used for the recovery of expenses, fines, and fees levied by the commissioner in accordance with this division or for losses or damages incurred by borrowers or consumers as the result of a licensee s noncompliance with the requirements of this division. 2. What amount of net worth does San Diego Funding, LLC need to maintain? Suggested Response: $250,000, as they have more than one originator and they make residential mortgage loans. CFLW 22104:(a) The applicant shall file with the application for a finance lender or broker license financial statements prepared in accordance with generally accepted accounting principles and acceptable to the commissioner that indicate a net worth of at least twenty-five thousand dollars ($25,000). Except as provided in subdivisions (b) and (c), a licensee shall maintain a net worth of at least twenty-five thousand dollars ($25,000) at all times. (b) A licensed finance lender or broker, that employs one or more mortgage loan originators and that makes residential mortgage loans, shall continuously maintain a minimum net worth of at least two hundred fifty thousand dollars ($250,000).

8 (c) A licensed finance broker, that employs one or more mortgage loan originators and that arranges, but does not make, residential mortgage loans, shall continuously maintain a minimum net worth of at least fifty thousand dollars ($50,000). 3. How long does the commissioner have to advise San Diego Funding LLC whether or not the application for the branch office is approved? Would they be in violation of any code if San Diego Funding, LLC allowed Steve to have his seminar at the new location? Suggested Response: The commissioner actually has 90 days to inform if the branch application has been approved. San Diego Funding LLC would not be in any violation, as they applied for the license 10 days before engaging in business at the new location, and they would have meet the 10 days requirement to do business at the new location after filing for the application. CFLW (a) A finance lender or broker licensee seeking to engage in business at a new location shall submit an application for a branch office license to the commissioner at least 10 days before engaging in business at a new location and pay the fee required by Section The commissioner may require an applicant seeking to engage in business at a new location to submit its application, or parts thereof, through the Nationwide Mortgage Licensing System and Registry. (b) The licensee may engage in business at the new location 10 days after the date of submission of a branch office application. 4. Occasionally Joe works out of the Trende Title Company office. Is this in violation of any California regulation? Suggested Response: Yes, they would be in violation of 22154(a), they cannot conduct business in offices that other businesses are engaged. In this case, Trende Title Company is another business, and San Diego Funding LLC was not authorized by the Commissioner. The fact the company is a title company and Joe receives referrals, it is not likely this location would be authorized. CFLL Financial code (a) No licensee shall conduct the business of making loans under this division within any office, room, or place of business in which any other business is solicited or engaged in, or in association or conjunction therewith, except as is authorized in writing by the commissioner upon the commissioner s finding that the character of the other business is such that the granting of the authority would not facilitate evasions of this division or of the rules and regulations made pursuant to this division. An authorization once granted remains in effect until revoked by the commissioner. The commissioner may authorize the other business through the Nationwide Mortgage Licensing System and Registry.

9 Chapter 2 Quiz 1. Which of the following is best defined as a natural person employed by a depository institution that is regulated by a federal banking agency and is exempt from state licensing regulation? a. mortgage servicer b. mortgage underwriter c. registered mortgage broker d. registered mortgage loan originator Correct Answer D: A registered loan originator is best defined as a natural person who is employed by a depository institution that is regulated by a federal banking agency and is exempt from state licensing regulation. 2. Lucy works for ABC Resort and negotiates credit terms for people buying timeshare plans in the resort. What type of individual license must she have in order to do this job? a. loan originator b. mortgage broker c. no license is required d. registered loan originator Correct Answer C: If all Lucy does is negotiate the terms for timeshares, she is not required to be licensed. 3. A residential mortgage lender is to keep and maintain business records for months from the date of final entry. a. 36 b. 24 c. 18 d. 12 Correct Answer A: A residential mortgage lender is to keep and maintain business records for 36 months from the date of final entry. 4. Which statement regarding the education requirements for a mortgage loan originator is FALSE? a. An MLO applicant who consecutively fails three consecutive retests must wait three months before retesting. b. An MLO whose license has been expired for five or more years must start over and meet all education requirements. c. MLOs who are instructors may receive credit for their own continuing education at the rate of two hours of credit for every hour taught. d. Most continuing education programs completed for another state and approved by the NMLSR will be accepted by the commissioner to meet requirements for California. Correct Answer A: An MLO applicant who consecutively fails three consecutive retests must wait six (not three) months before retesting.

10 5. A licensee may not disburse the mortgage loan proceeds in a form other than to the borrower s designee s account. a. cash b. cashier s check c. credit card d. direct deposit Correct Answer D: A licensee may not disburse the mortgage loan proceeds in a form other than direct deposit to the borrower s designee s account. 6. Mortgage loan originator pre-license education must be completed a. before taking the national examination component. b. before taking the state examination component. c. through a NMLS approved provider d. within five years after submission of application. Correct Answer C: Mortgage loan originator pre-license education must be completed through a NMLS approved provider. 7. Under the California Financial Code section 50302(a), the commissioner is authorized to examine the affairs of each residential mortgage lender and servicer licensee for compliance at least every a. 1 year. b. 48 months. c. 2 years. d. 60 months. Correct Answer B: Under the California Financial Code section 50302(a) the commissioner is authorized to examine the affairs of each residential mortgage lender and servicer licensee for compliance at least every 48 months. 8. Which conduct would NOT be prohibited? a. accepting any fees at closing which were not disclosed as required b. disbursing the mortgage loan proceeds into a customer s account via direct deposit c. failing to disburse funds in accordance with a commitment to make a mortgage loan which is accepted by the applicant d. imposing an undisclosed charge on a borrower for establishing an escrow account Correct Answer B: Disbursing the mortgage loan proceeds via direct deposit to customer s account is certainly allowable. 9. A residential mortgage lender who fails to file a new bond within days after notification by the commissioner that a new bond is required constitutes sufficient

11 grounds for the suspension or revocation of the license. a. 30 b. 20 c. 15 d. 10 Correct Answer D: Failure to file a new bond within 10 days of the recovery on a bond, or within 10 days after notification by the commissioner that a new bond is required constitutes sufficient grounds for the suspension or revocation of the license. 10. Mortgage loan originator requirements for individuals under the California Residential Mortgage Lending Act include all of the following EXCEPT a. completion of pre-licensure education. b. satisfactory criminal background check, including fingerprints. c. sponsorship in the NMLS by a licensed company. d. a statement of all taxes previously paid to the federal government. Correct Answer D: Mortgage loan originator requirements for individuals under the California Residential Mortgage Lending Act include all of the following except a statement of all taxes previously paid to the federal government.