Section 1 Lesson 3

A mortgage company is reviewing its compliance training materials for Truth-in-Lending Act requirements. A new loan officer asks which federal regulatory agency oversees Truth-in-Lending compliance.

Which agency oversees the Truth-in-Lending Act?

A borrower applies for credit to finance a property that will be used primarily as a personal residence. The loan officer must determine whether Truth-in-Lending requirements apply.

Which statement best describes when Truth-in-Lending requirements apply?

An applicant requests credit to acquire and maintain a rental property that the owner will occupy during the coming year. The property contains more than two housing units. The lender must determine whether Truth-in-Lending requirements apply.

How is this loan generally treated under the Truth-in-Lending rules described on this page?

A borrower applies for a mortgage loan covered by RESPA. The loan officer prepares the required early disclosures and confirms that the Truth-in-Lending Disclosure is now incorporated into the Loan Estimate form.

When must this disclosure generally be given for RESPA-related loans?

A compliance manager is updating the company’s document retention schedule for mortgage disclosures. The manager needs to confirm how long Truth-in-Lending documents must be retained.

What is the record retention requirement for Truth-in-Lending documents?

A lender receives a completed mortgage application for a refinance transaction secured by the borrower’s principal residence. During a compliance audit, regulators review whether the lender provided the required early Loan Estimate disclosures within the proper timeframe.

Under the TILA-RESPA Integrated Disclosure rules, when must the initial Loan Estimate generally be provided?

A mortgage loan originator tells a borrower that the TILA-RESPA disclosure requirements apply only to home purchase transactions and not refinances. During a later training session, the compliance manager corrects the statement.

Which transaction types are generally covered by the final TILA-RESPA Integrated Disclosure rule?

A borrower completes a mortgage application for a home-secured closed-end loan. Immediately afterward, the lender attempts to collect several upfront charges before providing the borrower with the Loan Estimate disclosures.

Under TILA-RESPA Integrated Disclosure rules, which statement is correct regarding fee collection before the borrower receives the Loan Estimate?

A borrower refinances the mortgage loan secured by the borrower’s principal residence. At closing, the lender explains that the borrower has a legal right to cancel the transaction within a specified time period because the transaction is subject to rescission.

Which transaction is generally subject to the right of rescission under Truth-in-Lending?

A lender closes a refinance transaction secured by a married couple’s principal residence. During a compliance audit, regulators review whether the lender properly delivered rescission disclosures to all required parties.

Under Truth-in-Lending rescission rules, who must receive the Notice of Right to Cancel?

A borrower refinances a principal residence loan subject to rescission. During closing, the settlement agent asks how many copies of the Notice of Right to Cancel each owner must receive.

Under Truth-in-Lending requirements, how many copies must be provided to each owner?

A lender closes a rescindable refinance transaction on a borrower’s principal residence. The borrower later asks how long the right of rescission remains available following closing.

Under Truth-in-Lending, until when may the consumer generally rescind the transaction?

A refinance transaction closes on Thursday and is subject to the right of rescission. During compliance training, a loan processor asks whether Saturday counts as a business day when calculating the rescission period.

Under Truth-in-Lending rescission rules, how is Saturday treated for purposes of rescission timing?

A married couple refinances their principal residence. One borrower mails a rescission notice shortly before midnight on the final business day of the rescission period, but the lender does not receive the notice until the following day after loan proceeds have already been disbursed to the other borrower.

Under Truth-in-Lending rescission rules, when is rescission considered to occur?

A borrower refinances a mortgage loan secured by the borrower’s principal residence. Two years later, the borrower discovers that the APR disclosed at closing was understated beyond the tolerance permitted under Truth-in-Lending requirements.

Under what circumstance could the borrower have a three-year right of rescission?

During a post-closing audit, a lender discovers that the total of payments disclosed on a refinance transaction was incorrect. The borrower later seeks rescission rights under Truth-in-Lending.

Which disclosure error could give the borrower a three-year right to rescind?

A borrower exercises a three-year rescission right after discovering a Truth-in-Lending disclosure error that actually resulted in slightly lower disclosed costs than required. The lender argues that rescission should not apply because the borrower was not financially harmed.

Under Truth-in-Lending rescission rules, which statement is correct?

A borrower successfully rescinds a mortgage transaction under Truth-in-Lending nearly three years after closing. The borrower asks what amounts the lender must refund as part of the rescission process.

Under rescission rules, what must the lender generally refund to the borrower?

A borrower asks a lender to waive the standard three-business-day rescission waiting period so loan proceeds can be disbursed immediately after closing. The borrower states that receiving the funds quickly would simply be more convenient.

Under Truth-in-Lending rules, when may the three-business-day rescission period be waived?

A borrower requests that a lender waive the three-business-day rescission period because emergency medical expenses require immediate access to loan proceeds. The lender explains that additional documentation is required before determining whether the rescission period may be waived.

What is required before a lender may determine whether a rescission waiver is permitted?

A mortgage loan originator quotes a borrower a 6.25% interest rate during a telephone inquiry but does not mention the APR.

Under federal Truth-in-Lending rules, what must occur whenever a note rate is quoted to a consumer?

A lender places a newspaper advertisement promoting mortgage financing. The ad prominently displays the note interest rate in large print while the APR appears in very small print at the bottom corner of the advertisement.

Why could this advertisement violate Truth-in-Lending advertising requirements?

A lender distributes a social media advertisement promoting residential mortgage financing.

Under the federal definition, how is advertising defined for Truth-in-Lending purposes?

A borrower telephones a lender and asks about current mortgage interest rates.

How is a verbal rate inquiry treated under Truth-in-Lending rules?

A lender advertises ‘Only 5% down!’ in a mortgage advertisement.

Why does this phrase create triggering language under Truth-in-Lending rules?

A mortgage advertisement states ‘Monthly payments as low as $1,250.’

Why could this advertisement trigger additional disclosure requirements?

A lender uses triggering language in a mortgage advertisement by disclosing repayment terms and monthly payment amounts.

Which disclosure must also appear if triggering terms are used?

A lender advertisement promotes a 5.75% interest rate but fails to identify the APR separately.

What is required whenever a simple interest rate appears in an advertisement?

A lender advertises an adjustable-rate mortgage using a discounted introductory interest rate but does not disclose how long the reduced rate will remain in effect.

Why could this advertisement violate Truth-in-Lending advertising requirements?

A lender creates an advertisement illustrating how an introductory reduced rate temporarily lowers monthly payments on an adjustable-rate mortgage.

Which statement is correct under Truth-in-Lending advertising rules?

A lender creates an advertisement for a closed-end mortgage loan that highlights unusually low monthly payments but fails to clearly explain important loan terms and limitations. During a CFPB review, regulators determine the advertisement may be misleading to consumers.

Under the final Truth-in-Lending advertising rules effective January 1, 2009, what is the primary purpose of these requirements?

A mortgage company advertises both open-end and closed-end mortgage products online. Regulators later review whether the advertisements properly disclosed information relating to rates, monthly payments, and fees.

How must this information generally be presented under the final advertising rules?

A lender advertises a variable-rate mortgage using the phrase “Fixed Payment Loan” without clearly disclosing that the payment amount may later change. During a regulatory examination, auditors determine the advertisement violates Truth-in-Lending advertising standards.

Why could this advertisement be considered misleading?

A lender advertises an adjustable-rate mortgage and repeatedly uses the word “fixed” to describe the introductory payment period. Regulators review whether the advertisement properly identifies the loan as an adjustable-rate transaction.

Under the Truth-in-Lending advertising rule, what must occur before the first use of the word “fixed” in the advertisement?

A lender advertises a variable-rate mortgage using the phrase “Fixed Rate Loan” in large bold print. The advertisement does not clearly disclose how long the rate remains fixed or that the rate may later increase.

Why could this advertisement violate Truth-in-Lending advertising rules?

A lender advertises a fixed-rate mortgage product with an introductory payment amount that later increases even though the loan itself is not an adjustable-rate mortgage.

Under the final advertising rule, why could this advertisement be misleading?

A mortgage advertisement promotes both fixed-rate loans and adjustable-rate mortgage products within the same advertisement.

What disclosure is required when advertisements promote both fixed-rate and variable-rate transactions?

A lender advertises a variable-rate mortgage product and uses the term “fixed” to describe the introductory interest rate period.

Under the final advertising rule, what must accompany the use of the term “fixed” for a variable-rate transaction?

A lender advertises a traditional 30-year fixed-rate mortgage in which both the interest rate and payment remain unchanged for the full term of the loan.

Under the final advertising rule, is this use of the word “fixed” generally permitted?

A lender advertises a mortgage product containing a preferred-rate conversion feature that may later cause the payment or interest rate to increase.

Under the final advertising rule, when may the use of the term “fixed” still be appropriate?

A lender advertises a home-secured mortgage loan and prominently states “Fixed Closing Costs Guaranteed.”

Under the final advertising rule, why is this use of the word “fixed” generally permitted?

A lender advertises a low introductory “teaser” payment for a mortgage loan but fails to disclose the higher payments that will apply later during the loan term.

Why could this advertisement be considered misleading?

A mortgage advertisement prominently displays a discounted introductory payment amount for the first year of the loan.

Under the final advertising rule, what disclosure requirement applies?

A lender advertises a low monthly mortgage payment but fails to disclose that taxes and insurance are not included in the payment amount.

What additional disclosure was required?

A lender advertises a variable-rate mortgage using a low introductory interest rate derived from the index and margin that will later determine future payment adjustments.

What must the advertisement clearly disclose?

A mortgage company advertises a 5.25% simple interest rate in large bold print but places the APR in much smaller print at the bottom of the advertisement.

What disclosure standard applies to APR presentation?

A private mortgage lender advertises its loan products as “Government-Supported Mortgage Programs” even though the loans are not backed or sponsored by any governmental agency.

Why could this advertisement violate Truth-in-Lending advertising rules?

A lender advertises a VA mortgage loan and describes the product as a “government-supported loan.”

When is this type of description generally permitted?

A mortgage company mails a solicitation letter to a homeowner and prominently displays the name of the homeowner’s current mortgage lender.

What must the advertisement prominently disclose?

A lender sends a refinance solicitation using the name of the borrower’s current mortgage company.

What additional disclosure is required?

A lender advertises a refinance loan with the headline “Refinance today and wipe your debt clean!”

Why is this advertisement prohibited?

A for-profit mortgage broker advertises itself as a “mortgage counselor.”

Why could this advertisement violate the final rule?

A lender publishes a Spanish-language advertisement for a home-secured loan. The ad provides the initial rate and payment in Spanish, but gives the fully indexed rate and fully amortizing payment only in English.

Why could this advertisement violate Truth-in-Lending advertising rules?

A lender originates a closed-end consumer mortgage loan secured by a condominium unit occupied by the borrower as a primary residence.

Which statement correctly describes the scope of the ATR/QM Rule?

A lender originates a Qualified Mortgage that is not considered higher-priced under federal regulations.

Which status applies to Qualified Mortgages that are not higher-priced?

A lender structures a mortgage loan with an interest-only payment feature and later attempts to classify the loan as a Qualified Mortgage under the ATR/QM Rule.

Why could this loan fail to qualify as a QM?

A creditor originates a Qualified Mortgage with a 35-year repayment term.

Why could the loan fail QM eligibility requirements?

A lender charges points and fees equal to 5 percent of the loan balance on a standard mortgage loan exceeding $100,000.

Why could the loan fail QM standards?

A lender originates a Home Equity Line of Credit (HELOC) secured by the borrower’s primary residence.

Which statement is correct?

A lender originates a reverse mortgage secured by a borrower’s principal residence.

Which statement is correct?

A lender originates a temporary bridge loan with a maturity term of nine months.

How are temporary bridge loans treated under the rule?

A lender originates a consumer loan secured solely by vacant land.

Which statement is correct?

A compliance officer asks how long a lender must retain evidence demonstrating compliance with the ATR/QM Rule.

What is the required retention period?

A lender reviews a borrower’s mortgage application and verifies the borrower’s current income documentation and employment status before approving the loan.

Why must the lender review and verify these items under the ATR/QM Rule?

A lender evaluates a borrower applying for an adjustable-rate mortgage with a low introductory teaser rate.

Which payment calculation standard applies?

A borrower applies for a first mortgage while simultaneously obtaining a second mortgage secured by the same property.

What must the lender include in the ATR/QM analysis?

A lender calculates a borrower’s ability-to-repay for a mortgage transaction but excludes anticipated property taxes, homeowners insurance, and homeowners association dues from the analysis.

Why could this violate ATR/QM underwriting requirements?

During underwriting, a lender reviews a borrower’s income but ignores existing child support obligations and outstanding consumer debts.

Why could this underwriting approach violate ATR/QM requirements?

A lender calculates a borrower’s debt-to-income ratio by comparing total mortgage and non-mortgage obligations against the borrower’s gross monthly income.

Under the ATR/QM Rule, what is this calculation intended to measure?

A lender approves a mortgage loan with a 52 percent debt-to-income ratio and later faces questions regarding Qualified Mortgage eligibility standards.

What DTI threshold is typically associated with ATR/QM compliance?

A borrower defaults on a mortgage loan and later proves in court that the lender failed to follow prudent ATR underwriting standards when originating the loan.

What potential liability could the lender face?

A lender evaluates a borrower’s repayment history, including past late payments, collection accounts, and prior mortgage performance, before approving a mortgage loan under the ATR/QM Rule.

Which ATR/QM underwriting factor is the lender evaluating?

A lender originates a mortgage loan that meets the Qualified Mortgage standards under the Ability-to-Repay rule. What legal protection may the lender receive if the borrower later challenges the underwriting decision?

A nonprofit housing organization provides mortgage loans to low- and moderate-income borrowers as part of a housing assistance program. Under ATR rules, which organization may qualify for an exemption?

A creditor wants to originate loans under the Small Creditor Portfolio Qualified Mortgage rule. Which condition must generally be satisfied?

A lender offers a mortgage product that does not meet Qualified Mortgage standards but still wishes to originate the loan. What regulatory treatment applies to this type of mortgage?

A lender is determining whether a mortgage loan meets the high-cost mortgage threshold based on points and fees. How is the threshold amount updated each year?

A mortgage loan contract allows a prepayment penalty that can be charged more than 36 months after consummation and could exceed 2 percent of the prepaid amount. What implication may this have under high-cost mortgage rules?

A mortgage company is reviewing its compliance training materials for Truth-in-Lending Act requirements. A new loan officer asks which federal regulatory agency oversees Truth-in-Lending compliance.

Which agency oversees the Truth-in-Lending Act?

A borrower applies for credit to finance a property that will be used primarily as a personal residence. The loan officer must determine whether Truth-in-Lending requirements apply.

Which statement best describes when Truth-in-Lending requirements apply?

An applicant requests credit to acquire and maintain a rental property that the owner will occupy during the coming year. The property contains more than two housing units. The lender must determine whether Truth-in-Lending requirements apply.

How is this loan generally treated under the Truth-in-Lending rules described on this page?

A borrower applies for a mortgage loan covered by RESPA. The loan officer prepares the required early disclosures and confirms that the Truth-in-Lending Disclosure is now incorporated into the Loan Estimate form.

When must this disclosure generally be given for RESPA-related loans?

A compliance manager is updating the company’s document retention schedule for mortgage disclosures. The manager needs to confirm how long Truth-in-Lending documents must be retained.

What is the record retention requirement for Truth-in-Lending documents?

A self-employed borrower cannot fully document stable monthly income using traditional underwriting documentation.

Which type of non-qualified mortgage is the lender offering?

A borrower applying for a mortgage loan is not required to verify liquid assets needed to close the transaction.

Which type of non-qualified mortgage characteristic does this describe?

A lender offers a mortgage program requiring little documentation beyond proof of U.S. citizenship.

Which type of non-qualified mortgage characteristic does this describe?

A lender explains to a borrower that a non-qualified mortgage carries a higher interest rate and additional fees compared to a standard Qualified Mortgage.

Why are higher rates and fees commonly associated with non-qualified mortgages?

A lender reviews whether certain closing charges should be included in the points-and-fees test under Regulation Z.

How are reasonable Section 1026.4(c)(7) charges generally treated if neither the creditor nor affiliate receives compensation?

A lender evaluates whether a prepayment penalty must be included when calculating points and fees for a mortgage transaction.

Which statement correctly describes the treatment of prepayment penalties?

A lender is reviewing whether a loan meets Qualified Mortgage points-and-fees limits. The lender pays a mortgage broker a commission at closing. How must this compensation be treated in the points-and-fees calculation?

A borrower pays third-party fees for title services, appraisal, and a credit report. Under the rule described, when may these real-estate related fees be excluded from the points-and-fees calculation?

A lender uses a document preparation company owned by a sister company under the same parent corporation. In applying the rule, how is that sister company treated?

A self-employed borrower cannot fully document income using standard verification methods. The lender offers a product designed for borrowers who may not be able to completely verify income. Which loan type matches this description?

A borrower wants a loan program where they will not have to verify assets to close. Which loan type best matches this scenario?

A borrower is offered a “No Doc” mortgage product where the borrower will not have to verify anything other than U.S. citizenship. According to the guidance, what should the borrower expect regarding pricing?

A lender includes a clause in a HELOC agreement requiring all disputes relating to the loan transaction to be resolved exclusively through mandatory arbitration.

Why could this provision violate federal mortgage lending rules?

A mortgage contract states that the borrower waives the right to bring any claim in court for alleged violations of federal lending laws.

Why could this contract language violate federal requirements?

After a dispute arises between a borrower and lender involving a dwelling-secured loan, both parties voluntarily agree to use arbitration to resolve the matter instead of proceeding through litigation.

Is this arrangement permitted?

A lender finances the premium for credit life insurance by allowing the borrower to defer payment beyond the monthly billing cycle in which the premium is due.

Why could this practice violate federal lending regulations?

A lender finances premiums for credit disability insurance and debt cancellation coverage as part of a dwelling-secured consumer loan transaction.

Which statement correctly describes how these products are treated under the prohibition?

A lender offers credit unemployment insurance in connection with a mortgage loan. The premiums are reasonable, the creditor receives no compensation from the premiums, and the insurance is provided under a separate contract through a non-affiliated insurer.

How is this arrangement generally treated under federal rules?

A borrower pays credit insurance premiums that are calculated and paid in full on a monthly basis rather than financed over time.

How are these premiums treated under the prohibition against financing credit insurance?

A first-time homebuyer applies for a closed-end mortgage loan secured by a primary residence. The loan contains a negative amortization feature that could increase the principal balance over time if minimum payments are made.

What must the creditor obtain before extending the loan?

A lender offers a negative amortization mortgage loan to a first-time borrower and informs the applicant that loan approval will only be granted if counseling is completed through a specific HUD-approved counseling agency selected by the lender.

Which statement is correct?