Mortgage Loan Originator (MLO) Licensing Practice Test

What does the term 'good faith' refer to in the context of corrected disclosures?

1. Acting in the borrower's best interest

2. Being honest in all dealings

3. Refunds paid within 60 days of consummation

4. Providing lower interest rates

The correct answer is: Refunds paid within 60 days of consummation

The term 'good faith' in the context of corrected disclosures primarily refers to the obligations and practices that lenders must adhere to in ensuring that borrowers are properly informed and treated fairly throughout the mortgage process. The correct answer focuses on the specific requirement regarding refunds when errors in disclosures occur. When a lender provides corrected disclosures that affect the terms of the loan, 'good faith' implies that they are required to make adjustments, including the obligation to refund certain fees or charges within a specified period, typically 60 days after the loan is consummated. This demonstrates the lender's commitment to rectifying any mistakes to protect the borrower’s interests and maintain transparency. In contrast, other options emphasize different facets of ethical practices in lending but do not directly align with the technical legal requirements surrounding corrected disclosures. While acting in the borrower's best interest and being honest in all dealings are essential principles of ethical lending practices, they are broader concepts that do not specifically address the procedural obligations linked to corrected disclosures. Similarly, providing lower interest rates can be seen as a competitive strategy but does not encapsulate the specific criteria implied by the term 'good faith' in this regulatory context.