Section 1 Lesson 4

A lender originates a high-cost mortgage loan containing a clause requiring the borrower to pay a substantial fee if the loan is paid off early.

Why could this provision violate HOEPA requirements?

A borrower intentionally provides false income documentation during the origination of a high-cost mortgage loan.

Why is acceleration generally permitted?

A borrower with a high-cost mortgage stops making required monthly payments for several consecutive months.

Why is acceleration generally permitted?

A borrower allows hazardous waste contamination to occur on a property securing a high-cost mortgage loan.

Why is acceleration generally permitted?

A mortgage broker encourages a borrower who is current on an existing mortgage to intentionally stop making payments in order to qualify for a new high-cost refinance transaction.

Why could this recommendation violate federal regulations?

A loan servicer charges a borrower a fee to extend and modify the terms of an existing high-cost mortgage loan.

Why could this fee violate federal regulations?

A borrower with a high-cost mortgage misses a payment and later resumes making payments. The lender charges multiple compounding late fees exceeding four percent of the overdue amount.

Why could these charges violate federal rules?

A creditor charges a borrower a fee each time the borrower requests a payoff statement for a high-cost mortgage loan.

Why could this practice violate federal regulations?

A lender finances points and fees associated with a high-cost mortgage by rolling the charges directly into the principal loan balance.

Why could this practice violate HOEPA restrictions?

A lender refinances a borrower’s existing high-cost mortgage into another high-cost mortgage only six months after the original transaction closed.

Under what circumstance may this refinancing generally be permitted?

A creditor originates a high-cost mortgage loan and evaluates whether the borrower satisfies underwriting standards required under federal Ability-to-Repay rules.

Which statement is correct?

A borrower submits an application for a high-cost mortgage loan.

When must the list of HUD-approved counseling agencies generally be provided?

A lender prepares a list of HUD-approved counseling agencies for a borrower applying for a high-cost mortgage loan.

Which item must be included on the list?

A compliance auditor reviews a lender’s counseling agency disclosure provided to a borrower during the mortgage application process.

Which information must appear on the counseling agency list?

A lender provides a borrower with a list of HUD-approved counseling agencies but omits all internet contact information from the disclosure.

Which required information was missing?

A mortgage company provides a borrower with a list of HUD-approved counseling agencies but fails to identify the type of assistance offered by each agency.

Which required disclosure item was omitted?

A loan originator provides a borrower with a HUD-approved counseling agency list but never obtains proof that the borrower received the disclosure.

What documentation requirement applies?

At least three business days prior to closing, a lender provides a borrower with a notice warning that failure to meet loan obligations could result in loss of the home.

Why is this notice required?

A lender reviews a mortgage loan with an annual percentage rate that exceeds the Average Prime Offer Rate by the applicable threshold. The property securing the loan was recently acquired by the seller and has been held for less than 180 days.

Which statement correctly describes this type of loan and appraisal requirement?

A borrower applies for a higher-priced mortgage loan. During application processing, the lender prepares the required homeownership counseling disclosure.

What must the lender provide within three business days of application?

A mortgage company pays loan originators larger bonuses based on the profitability generated from pools of mortgage transactions they originate.

Why could this compensation method violate Regulation Z?

A mortgage company establishes a compensation plan that includes employer contributions to a 401(k) plan, limited non-deferred bonuses for loan originators with fewer than ten transactions during the prior 12 months, and bonuses capped at less than 10 percent of total compensation.

How are these compensation arrangements generally treated under the final rule?

A mortgage broker receives additional compensation for placing a borrower into a loan with a higher interest rate and requiring the borrower to purchase title insurance from an affiliated company.

Why could this compensation arrangement violate Regulation Z?

A lender reduces a loan originator’s compensation to cover the cost of lowering the borrower’s interest rate during processing.

Why could this practice violate the final rule?

A mortgage company pays loan originators higher bonuses based on the profitability of a pool of loans originated during the quarter.

Why could this compensation structure violate Regulation Z?

A mortgage lender contributes funds into a loan originator’s 401(k) retirement account as part of the company’s compensation program.

How is this arrangement generally treated under the final rule?

A mortgage company pays a non-deferred profits-based bonus to a loan originator who originated eight mortgage transactions during the previous 12 months.

Why could this compensation arrangement be permitted?

A mortgage company offers a non-deferred profits-based bonus plan where a loan originator’s annual bonus equals eight percent of the originator’s total compensation for the year.

Why could this compensation structure comply with the final rule?

A loan originator receives compensation based on a fixed percentage of the amount of credit extended on each mortgage transaction.

Under Regulation Z, when is this compensation structure generally permitted?

A loan originator receives direct compensation from a borrower and also accepts additional compensation from a creditor involved in the same transaction.

Why could this arrangement violate Regulation Z?

A creditor knows that a borrower directly compensated the loan originator for a mortgage transaction. Despite this, the creditor also pays compensation to the same loan originator for the transaction.

Why could this practice violate Regulation Z?

During a regulatory audit, a lender is asked to produce records showing compensation paid to a loan originator and the compensation agreement in effect when the interest rate was set.

Why must these records be maintained?

A borrower agrees to pay upfront discount points and lender fees at closing on a residential mortgage loan.

How does Regulation Z generally treat this practice?

A loan originator recommends a mortgage loan primarily because the creditor will pay the originator higher compensation than other available loan options.

Why could this conduct violate federal steering rules?

A borrower expresses interest in a specific type of mortgage transaction. The loan originator presents loan options from several creditors with whom the originator regularly conducts business.

Why is this generally required under steering rules?

PROHIBITION IN STEERING

A loan originator presents several mortgage options even though the borrower is unlikely to qualify for most of them. Why could this violate federal steering rules?

PROHIBITION IN STEERING

A loan originator presents five mortgage options but fails to identify which loans satisfy the required criteria. Why could this violate the rule?

PROHIBITION IN STEERING

A borrower requests only two loan options and the originator provides two qualifying products. How does federal law generally treat this situation?

PROHIBITION IN STEERING

Which transaction is exempt from this steering rule?

PAYMENTS MADE BY MORTGAGE BROKERS TO THEIR LOAN ORIGINATORS

A mortgage broker pays higher commissions for loans with higher interest rates. Why could this violate federal law?

PAYMENTS MADE BY MORTGAGE BROKERS TO THEIR LOAN ORIGINATORS

A loan originator charges a processing fee and personally keeps the money. How is this fee treated under federal compensation rules?

PAYMENTS MADE BY MORTGAGE BROKERS TO THEIR LOAN ORIGINATORS

A mortgage company pays annual bonuses tied to mortgage production. How are these bonuses generally treated under Regulation Z?

PAYMENTS MADE BY MORTGAGE BROKERS TO THEIR LOAN ORIGINATORS

A mortgage broker rewards loan originators with trips and merchandise tied to mortgage production. How are these incentives treated?

An applicant applies for a mortgage loan through a company that employs mortgage loan originators. During a compliance review, regulators determine that one originator failed to satisfy required qualification standards.

Why could this create a regulatory violation?

A mortgage company allows a newly hired loan originator to begin originating residential mortgage loans before obtaining the required state license.

Why could this violate federal and state law?

A federally regulated depository institution hires an employee to originate residential mortgage loans and assumes federal registration requirements do not apply because the institution is a bank.

Which statement is correct?

A state regulator discovers that a mortgage company allowed a loan originator to begin work before completing the required criminal background review.

Why could this violate mortgage licensing requirements?

A licensing authority denies an MLO application after determining the applicant failed to meet minimum ethical conduct and trustworthiness standards.

Which requirement is most directly involved in this decision?

An applicant completes mortgage loan originator education but fails the required licensing examination. The applicant nevertheless attempts to begin originating residential mortgage loans.

Why could this violate licensing regulations?

A non-depository mortgage company hires loan originators but does not require them to obtain state-issued mortgage licenses.

Why could this create a regulatory problem?

An underwriter tells an appraiser that future appraisal assignments will depend on whether the appraiser’s valuation supports higher property values needed for loan approvals.

Why could this violate appraisal independence rules?

A lender removes an appraiser from its approved vendor list after the appraiser submits a valuation below the lender’s preferred minimum amount.

Why could this violate appraisal independence rules?

A loan officer tells an appraiser that the property must appraise for at least $450,000 in order for the mortgage loan to be approved.

Why could this conduct violate federal appraisal rules?

A creditor refuses to pay an appraiser because the appraised value came in lower than expected and did not support the requested loan amount.

Why could this violate appraisal independence requirements?

A mortgage broker agrees to pay an appraiser only if the loan closes successfully.

Why could this arrangement violate federal appraisal rules?

A lender provides an appraiser with additional information regarding comparable neighborhood sales and property improvements for consideration during the valuation process.

How is this action generally treated under appraisal independence rules?

A creditor asks an appraiser to explain how the final valuation amount was determined and to provide additional support for certain adjustments used in the appraisal report.

How is this request generally treated under federal appraisal rules?

An underwriter identifies several factual mistakes in an appraisal report and asks the appraiser to correct the errors before loan approval.

How is this action generally treated under appraisal independence requirements?

A lender orders two appraisals on the same property and selects the appraisal determined to be the most reliable based on established company policy rather than choosing the highest value.

How is this practice generally treated under federal appraisal rules?

A lender is audited four years after a mortgage loan closed. During the examination, regulators request copies of the Loan Estimate, Closing Disclosure, and Escrow Closing Notice.

Which statement correctly describes the applicable federal record retention requirements?

A borrower submits a completed mortgage application on Monday. The lender waits until Friday of the following week to mail the Loan Estimate.

Why could this violate federal disclosure timing rules?

A lender issues a Loan Estimate to a borrower and then increases the quoted fees three business days later without a valid changed circumstance.

Why could this violate federal disclosure rules?

Before providing the Loan Estimate, a lender charges the borrower application fees, underwriting fees, and processing fees.

Why could this violate federal disclosure requirements?

A creditor determines within three business days after receiving a loan application that the borrower cannot qualify for the loan terms requested.

Under federal disclosure rules, what may the creditor do regarding the Loan Estimate?

A borrower withdraws a mortgage application two business days after submission and before the lender issues a Loan Estimate.

How do federal disclosure rules generally apply?

A lender compares the estimated fees disclosed on the Loan Estimate with the final charges listed on the Closing Disclosure to determine compliance with federal disclosure requirements.

Why is this comparison important?

After issuing a Loan Estimate, a creditor later discovers that several disclosed fees were underestimated because of an internal calculation error. The borrower ultimately pays more than the amount originally disclosed.

How do federal good faith standards generally apply?

A lender issues a Loan Estimate disclosing total settlement charges of $5,800. At consummation, the borrower actually pays $5,200.

How is this situation generally treated under federal good faith rules?

A lender increases a disclosed fee above the amount originally listed on the Loan Estimate after a valid changed circumstance occurs and issues a revised disclosure reflecting the updated charge.

Why may this increase be permitted under federal rules?

A disclosed settlement charge slightly exceeds the original amount listed on the Loan Estimate but remains within the tolerance limits permitted under the TILA-RESPA rule.

How is this situation generally treated?

Which of the following charges may increase above the amount originally disclosed on the Loan Estimate without any tolerance limitation?

A creditor permits the consumer to shop for a required settlement service, but the consumer chooses a provider not on the creditor’s written list. How is the charge treated?

Which of the following charges may exceed the Loan Estimate amount without any tolerance limitation because the service is not required by the creditor?

When may a creditor charge more than the amount originally disclosed on the Loan Estimate for a service with no tolerance limitation?

When a creditor allows a consumer to shop for settlement services, what must be provided separately from the Loan Estimate?

Within what time period must the written list of service providers be provided?

What must the written list of service providers include for each service for which the consumer may shop?

How may a creditor list services for which the consumer is not permitted to shop?

How are recording fees and certain third-party service charges treated under the TILA-RESPA tolerance rules?

Under the 10% cumulative tolerance rule, when may the creditor charge more than the amount disclosed on the Loan Estimate?

Which of the following conditions must exist for a third-party service charge to fall into the 10% tolerance category?

When does a third-party charge fall into the 10% cumulative tolerance category when the borrower is allowed to shop?

What happens if a consumer selects a settlement service provider not on the creditor’s written list?

If a consumer selects a provider not on the creditor’s written list, how is that charge treated in the 10% tolerance calculation?

When calculating the 10% cumulative tolerance, how should the creditor compare the Loan Estimate and Closing Disclosure?

A creditor issues a Loan Estimate based on the borrower’s stated annual income of $90,000. During underwriting, verified documentation shows the borrower’s actual income is only $80,000, making the borrower ineligible for the originally disclosed loan terms.

How may the creditor generally respond under TILA-RESPA rules?

Two co-borrowers apply for a mortgage loan using their combined income. After the Loan Estimate is issued, one borrower loses employment, affecting qualification for the disclosed loan terms.

How is this event generally treated under federal disclosure rules?

A borrower originally qualifies for a lower-cost loan program disclosed on the Loan Estimate. Later, a change affecting the borrower’s creditworthiness results in higher settlement service costs that exceed tolerance thresholds.

Why may a revised Loan Estimate be permitted?

After receiving the Loan Estimate, a borrower requests changes to the loan terms that increase settlement charges.

How may the creditor generally respond under TILA-RESPA rules?

A lender issues a revised Loan Estimate after a valid changed circumstance increases disclosed settlement charges.

Why is the revised disclosure important under TILA-RESPA rules?

A creditor issues a Loan Estimate without locking the borrower’s interest rate. Several days later, the borrower locks the rate, causing the amount of discount points and lender credits to change.

What must the creditor generally do under TILA-RESPA rules?

A borrower receives a Loan Estimate but does not indicate an intent to proceed with the transaction until 12 business days later. The creditor then issues revised disclosures with updated settlement charges.

Why may the creditor generally issue a revised Loan Estimate in this situation?

When a creditor determines that a revised Loan Estimate is required due to a changed circumstance, when must the creditor deliver or mail the revised Loan Estimate to the consumer?

What waiting period requirement applies between delivery of the Loan Estimate and consummation of the loan?

If settlement is scheduled during the seven-business-day waiting period after a revised Loan Estimate is issued, what must occur?

When does the seven-business-day waiting period begin for purposes of the Loan Estimate timing rule?

Once the creditor has provided the consumer with the Closing Disclosure, what restriction applies to the Loan Estimate?

Why must a revised Loan Estimate typically be provided earlier than the Closing Disclosure?

Because the Closing Disclosure must be delivered no later than 3 business days before consummation, when must the consumer receive a revised Loan Estimate if one is allowed?

GOOD FAITH TOLERANCE REQUIREMENTS

A changed circumstance occurs between the fourth and third business days before consummation.

When may the creditor reflect revised charges on the Closing Disclosure?

GOOD FAITH TOLERANCE REQUIREMENTS

A triggering event occurs after the first Closing Disclosure has already been provided during the three-business-day waiting period before consummation.

How may the creditor handle revised charges?

CLOSING DISCLOSURE REQUIREMENTS

A creditor is preparing to close a residential mortgage loan that required a Loan Estimate earlier in the application process.

What final disclosure must generally be provided before consummation?

CLOSING DISCLOSURE REQUIREMENTS

A creditor wants to ensure compliance with federal timing rules for delivering the Closing Disclosure.

When must the consumer generally receive the Closing Disclosure?

CLOSING DISCLOSURE DELIVERY REQUIREMENTS

Which method may creditors use to ensure delivery of the Closing Disclosure to the consumer?

CLOSING DISCLOSURE DELIVERY REQUIREMENTS

Why must creditors ensure the consumer receives the Closing Disclosure at least three business days before consummation?

CLOSING DISCLOSURE REQUIREMENTS

A creditor is preparing the Closing Disclosure but does not yet have exact figures for one settlement charge.

How may the creditor handle the disclosure?

CLOSING DISCLOSURE REQUIREMENTS

A creditor relies on information provided by a settlement agent while preparing the Closing Disclosure.

Under federal rules, when must corrected disclosures containing the actual transaction terms generally be provided?

How must the Closing Disclosure be provided to the consumer according to Regulation Z?

If the actual terms or costs of the transaction change prior to consummation, what must the creditor do?

When a creditor provides a corrected Closing Disclosure before consummation, what additional timing requirement may apply?

Under which circumstances must a new three-business-day waiting period occur before consummation due to changes in the Closing Disclosure?

If other changes occur prior to consummation that do not trigger a new waiting period, what must the creditor do?

What must a creditor do if an event related to settlement occurs within 30 calendar days after consummation that makes the Closing Disclosure inaccurate?

When must the creditor deliver or place in the mail the revised Closing Disclosure after discovering an inaccuracy affecting the amount paid by the consumer?