Mortgage Loan Originator (MLO) Licensing Practice Test

Under what condition may a fee be charged for loan modification services?

1. If the modification is completed

2. If a material benefit to the borrower is achieved

3. If the borrower agrees to the service

4. If the loan is above a certain amount

The correct answer is: If a material benefit to the borrower is achieved

Charging a fee for loan modification services is permissible when a material benefit to the borrower is achieved. This principle is rooted in the idea that fees should correlate with the value received by the borrower. A modification that provides tangible benefits—such as lower interest rates, reduced monthly payments, or extended loan terms—justifies the fee, as it reflects an improvement in the borrower's financial situation. When assessing the other conditions, simply completing a modification does not automatically justify a fee if no meaningful benefit is provided. The borrower's agreement to the service may be necessary, but it does not independently validate the fee if there is no material benefit. The loan amount itself is irrelevant to the justification for charging a modification fee, as it does not inherently relate to the borrower's actual improvement in circumstances. Thus, the focus on material benefit is key to ensuring ethical and compliant lending practices in the context of loan modifications.