CHAPTER 7: REVIEW OF FEDERAL LAW

Question 1

RESPA does not cover:

Answer 1

• Vacant Land
• Large Tracts of Land (25 acres or more – even if there is a dwelling on it)
• Commercial or business loans
• The government, its agencies or instrumentalities
• Temporary financing (bridge loans or swing loans)

Question 2

RESPA regulates

Answer 2

Escrow Accounts, specifically the amount of money that is in an escrow
account at any given time.

Question 3

RESPA

Section 8 of RESPA was created to

Answer 3

eliminate the payment of referral fees and kickbacks between parties in a real estate transaction

Question 4

RESPA

Affiliated Business Arrangements (ABA).
An ABA is:

Answer 4

• A person who may refer business to a settlement service of a federally related mortgage
loan, or an associate of such person, and has either an affiliate relationship with or a
direct beneficial ownership interest of more than 1 percent in the provider of the
settlement service; and
• Either person directly or indirectly refers business to that provider or influences the
selection of that provider.

Question 5

RESPA

Reg. Z applies to any individual or business that offers or extends credit if the following 4
conditions are met:

Answer 5

• The credit is offered to consumers
• Credit is offered on a regular basis
• The credit is subject to a finance charge (interest) or must be paid in more than 4
installments accord- ing to a written agreement
• The credit is for personal, family or household purposes

Reg. Z does not apply to loans made for business, commercial or agriculture purposes.

Question 6

TILA

Document Retention

Answer 6

A creditor must keep all records of compliance with Reg. Z for at least 2 years after the
disclosure date

Question 7

TILA

Penalties

Answer 7

For anyone who gives false or inaccurate disclosure information, consistently understates the
APR, or otherwise fails to comply with Reg. Z that person can be fined up to $5,000 and be
imprisoned for up to 1 year or both.

Question 8

TILA

If a creditor advertises directly to a borrower they are required to:

Answer 8

• Only terms that can be advertised are the specific terms that the creditor will offer in
credit plans;
• If a finance charge is listed, it must include Annual Percentage Rate or APR;
• If the APR might increase after consummation of the loan, the ad must be specific on this
detail;
• A simple annual or periodic rate applied to an unpaid balance may be advertised in
conjunction with the APR, but not more conspicuous than the APR

Question 9

TILA

If a creditor is advertising an ____________ plan there are additional requirements for
their advertising. The advertisement must say that the APR may increase or is subject to change

Answer 9

adjustable rate credit

Question 10

TILA: ORAL DISCLOSURE

If a borrower asks about a credit plan and the costs associated with it, the MLO must disclose the
__________ AND it must be first!

Answer 10

APR

Question 11

TILA

The right of rescission

Answer 11

is a special protection provided by TILA on owner-occupied refinance transactions (this does not apply to purchases, or refinance transactions on second or investment
properties). The right of rescissions allows anyone with ownership interest to rescind (cancel) the
loan

Question 12

TILA

The ____ copies of the right to rescind notice must be provided to the borrower along with one
copy of the disclosure statement

Answer 12

2

The notice must be on a separate document, identify the rescission period on that specific loan, clearly disclose the retention of a security interest in the
principal dwelling, outline the borrower’s right to rescind, and instruct the borrower how to
exercise their right to rescind. The form must also include the creditor’s place of business as well
as any fax number where the borrower can send the right to rescind notice if they choose to
rescind the loan.

Question 13

TILA

The Homeownership and Equity Protection Act

Answer 13

The Homeownership and Equity Protection Act or HOEPA was an amendment made to TILA in
1994. Its purpose is to protect consumers from predatory lending practices associated with highcost home loans. HOEPA is known as Section 32 of Regulation Z.

Question 14

TILA

The following types of transactions are required to be tested against the HOEPA coverage tests.
If they meet these coverage tests then they are required to comply with restrictions under
HOEPA on loan terms and other protections related to high-cost mortgages. These types of
transactions are:

Answer 14

• Purchase-money loans,
• Refinances,
• Closed-end home equity loans, and
• Open-end credit plans (example: HELOCS).

There are some exceptions, these types of transactions are exempt from HOEPA:
• Reverse mortgages,
• Construction loans,
• Loans originated and directly financed by a Housing Finance Agency, or
• Loans originated under the U.S. Department of Agriculture’s Rural Development Section
502 Direct Loan Program.

Question 15

TILA:

Determining if a Loan is High-Cost

There are three separate HOEPA coverage tests they are based on:

Answer 15

• The transactions APR,
• The amount of points and fees paid in connection with the transaction, and
• The prepayment penalties that are charged under the loan or credit agreement.

Question 16

TILA

Higher-priced Mortgage Loans

Answer 16

Higher-priced mortgages (HPML) are covered in Section 35 of TILA and are similar to high-cost
mort- gages (Section 32). (Remember – Section 35 is higher-priced mortgage loans). A mortgage
loan covered by Section 35 is a closed-end consumer credit transaction secured by a consumer’s
principal dwelling with an APR that exceeds the APOR for a comparable transaction by:
• 1.5 percent for loans secured by a first lien loan, or
• 3.5 percent for second lien loans

Question 17

TILA

The Ability to Repay

Answer 17

The Ability to Repay Rule (ATR) is a section of TILA that went into effect in 2014. It was
mandated by the Dodd-Frank Wall Street Reform Act of 2010 and is enforced by the CFPB. The
ATR Rule works hand in hand with the Qualified Mortgage (QM) Rule, covered below. Before
the mortgage crisis in 2008, many mortgages were made to consumers without verifying the
consumer’s ability to repay the mortgage. These loose underwriting practices contributed to a
mortgage crisis that led to the nation’s most serious recession since the Great Depression. The
Ability to Repay Rule aims to remedy the loose underwriting practices and requires entities to
determine whether the consumer has the ability to repay their loan. All loans are required to
comply with the ATR requirements.

Question 18

TILA

The Qualified Mortgage

Answer 18

The Qualified Mortgage (QM) is a section of TILA that went into effect in 2014. It was
mandated by the Dodd-Frank Wall Street Reform Act of 2010 and enforced by the CFPB. The
QM Rule works hand in hand with the Ability to Repay Rule. Unlike the ATR rule, not all loans
have to comply with the QM rule. Loans that do comply or offered extra protections, as
discussed below.

Question 19

TILA

A Qualified Mortgage is a mortgage that has complied with Ability to Repay requirements.
There are four types of qualified mortgages:

Answer 19

1. General QM
2. Temporary QM (available through January 10, 2021 or when Fannie and Freddie exit
   federal conservatorship, whichever is sooner)
3. Small Creditor
4. Balloon-Payment QM

Question 20

TILA

Safe Harbor v. Rebuttable Presumption

Answer 20

A QM loan, that is not higher-priced, creates a safe harbor. If the loan is in a safe harbor then it is
conclusively presumed to comply with the ATR Requirements. Under a safe harbor, if a court
finds that a mortgage a creditor originated was a QM, then that finding conclusively establishes
that the creditor complied with the ATR requirements when they originated the mortgage

Question 21

TILA

To be considered a qualified mortgage, the points and fees on the loan cannot exceed the
following thresholds (as of January 1, 2020):

Answer 21

• 3 percent of the total loan amount for a loan greater than or equal to $109,898
• $3,297 for a loan greater than or equal to $65,939 but less than $109,898
• 5 percent of the total loan amount for a loan greater than or equal to $21,980 but less than
$65,939
• $1,099 for a loan greater than or equal to $13,468 but less than $21,980

Question 22

TILA

Loan Originator Compensation Rule

Answer 22

Loan Originator Compensation is a section of TILA that went into effect in 2014. It was
mandated by the Dodd-Frank Wall Street Reform Act of 2010 and spearheaded by the CFPB.

Question 23

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) looked to
strengthen ______________ and ______________.

Answer 23

1. loan originator qualification requirements
2. regulate industry compensation
   practices.