NMLS Laws And Regulations Practice Test

Which definition describes packing in the context of mortgage lending?

Including unrelated and unwanted insurance in the loan and making the borrower pay for it Bundling only mortgage-related insurance with the loan at no extra cost Providing insurance that the borrower explicitly requests Reducing insurance coverage included in the loan

Correct Answer:

Including unrelated and unwanted insurance in the loan and making the borrower pay for it

Explanation:

Packing is the practice of loading a mortgage with additional, unrelated insurance products and charging the borrower for them, effectively increasing the loan amount and the borrower’s payments without a clear, voluntary request for those products. In real-world terms, it means you’re paying for insurance you didn’t ask for, and the costs are folded into the loan balance and monthly payments, often hidden in the closing costs or finance charges. This is undesirable because it inflates the loan and obscures true costs, and regulators emphasize that borrowers should consent to and clearly see the costs of any added products. The other options describe scenarios where insurance is either not added without consent or is directly requested, which is not what packing entails.

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