Mortgage Loan Originator (MLO) Licensing Practice Test

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What is the primary concern of an underwriter when reviewing a sales contract?

Ensuring compliance with state regulations
Detecting any pre-existing liens on the property
Identifying credits or personal property affecting collateral value
Assessing the seller's financial history

The correct answer is: Identifying credits or personal property affecting collateral value

The primary concern of an underwriter when reviewing a sales contract is to identify credits or personal property that may affect the collateral value. This is crucial because the collateral's value directly impacts the loan's risk and the lender's ability to recover their loan amount in case of default. The underwriter needs to ensure that the property being financed is accurately valued and that any credits or personal property included in the sale do not inflate the value of the collateral improperly. In this context, while compliance with state regulations, the presence of pre-existing liens, and the seller's financial history are all important considerations during the mortgage process, they do not directly focus on the specific valuation and condition of the property as it relates to the sale contract. Weighing the value and terms of the collateral is essential for determining the appropriateness of the loan request and its associated risk.