TILA-Prep Xl Flashcards
The stated purpose of the Truth-in-Lending Act is to:
A.Protect consumers from unethical mortgage lenders by requiring use of the Good Faith Estimate for all mortgage loans
B.Assist consumers in comparing credit to avoid the uninformed use of credit
C.Restrict the interest rates charged by lenders
D.Prevent discrimination based on protected class distinctions
The answer is assist consumers in comparing credit to avoid the uninformed use of credit. The Truth-in-Lending Act promotes the informed use of credit and protects borrowers from unethical lenders by requiring the clear and conspicuous disclosure of the terms and conditions of consumer loans offered.
What is a trigger term
In mortgage loan terms, a trigger term is a specific phrase or word used in advertising that, under the Truth in Lending Act (TILA) and Regulation Z, requires the disclosure of additional information about the loan. Trigger terms are designed to ensure consumers have a clear understanding of the loan costs and terms being advertised. If an advertisement includes a trigger term, the advertiser must also provide further key details about the loan.
Common Trigger Terms Include:
- Interest Rate - Any mention of a specific interest rate (other than the annual percentage rate) requires full disclosure of the terms of repayment.
- Down Payment - If the ad mentions a specific down payment amount or percentage, it must disclose all terms related to it.
- Monthly Payment - Stating a specific monthly payment amount triggers the need to disclose more about the loan, such as the total cost of financing.
- Number of Payments - Mentioning the total number of payments required over the loan term requires additional disclosure.
- Finance Charge - Discussing a specific amount of finance charges also requires further details to be disclosed.
Required Disclosures Include:
- The amount or percentage of the down payment.
- The terms of repayment over the life of the loan.
- The annual percentage rate (APR), which is a broader measure of the cost of borrowing than just the interest rate.
These disclosures are necessary to provide consumers with a more comprehensive understanding of the loan’s costs and to prevent misleading or deceptive advertising practices.
Which of the following is NOT required to be disclosed in an advertisement which contains a trigger term as set forth in the Truth-in-Lending Act?
A.The number of payments for the loan
B.The amount of principal covered in each payment
C.The annual percentage rate
D.The amount or percentage of down payment
The answer is the amount of principal covered in each payment. If an advertisement contains a trigger term, the following additional disclosures must be made: the amount or percentage of the down payment, the payment schedule, including the number, timing, and amount of the payments (principal and interest), and the annual percentage rate.
Which of the following does not apply to a high-cost home loan?
A.Section 32 of Regulation Z
B.TILA
C.Home Ownership and Equity Protection Act
D.Section 32 of RESPA
The answer is section 32 of RESPA. The Home Ownership and Equity Protection Act, the Truth-in-Lending Act, and 12 C.F.R. 1026.32 (Section 32 of Regulation Z) all pertain to high-cost home loans.
Which of the following advertisements contains a term that would require additional disclosures under the Truth-in-Lending Act?
A.”Buy for less than rent!”
B.”Interest rates as low as 5.65% APR!”
C.”Own for $700 per month!”
D.”No origination fee charged!”
The answer is “own for $700 per month!” Each of the following is a trigger term, requiring additional disclosures to the applicant: the amount or percentage of a down payment, the number of payments or term of the loan, the amount of any periodic payment, or the amount of any finance charge. Stating that a loan will have payments of $700 per month would require additional disclosures under the Truth-in-Lending Act.
The correct answer is C. “Own for $700 per month!” because it contains a trigger term that requires additional disclosures under the Truth in Lending Act (TILA). Here’s why this is the right answer and the others are not:
- Reason for Additional Disclosure: The advertisement specifies a monthly payment amount, which is considered a trigger term under TILA. When a specific monthly payment is mentioned, the advertiser must disclose more information about the loan, such as the amount or percentage of the down payment, the terms of repayment, and the annual percentage rate (APR).
- Reason for No Additional Disclosure: This statement is a general claim that does not mention specific terms of the loan such as interest rate, payment amount, or fees. Therefore, it does not trigger additional disclosures under TILA.
- Reason for No Additional Disclosure: While this statement includes an interest rate, it specifies the APR (Annual Percentage Rate). Under TILA, the mention of an APR does not trigger additional disclosures because the APR is already a comprehensive measure that includes the interest rate and other costs associated with the loan.
- Reason for No Additional Disclosure: This statement refers to the absence of a specific fee. It does not mention specific terms like the interest rate, payment amount, or other costs that would require additional disclosure.
Which of the following was enacted to ensure meaningful disclosure of credit terms so that the consumer will be able to compare the various credit terms available and avoid the uninformed use of credit?
A.Real Estate Settlement Procedures Act
B.Equal Credit Opportunity Act
C.Truth-in-Lending Act
D.Fair Housing Act
The answer is Truth-in-Lending Act. The Truth-in-Lending Act was enacted to ensure meaningful disclosure of credit terms so that the consumer will be able to compare the various credit terms available and avoid the uninformed use of credit. The Truth-in-Lending Act is implemented by Regulation Z.
Which of the following would be considered to be a high-cost home loan if the average prime offer rate is 3%?
A.A ten-year second mortgage with an annual percentage rate of 5.25%
B.A first lien mortgage with an annual percentage rate of 7.5%
C.A 15-year first lien mortgage loan with an annual percentage rate of 10%
D.A reverse mortgage with an annual percentage rate of 5.5%
The answer is a 15-year mortgage loan with an annual percentage rate of 10%. A high-cost home loan is a consumer credit transaction that is secured by the borrower’s principal dwelling, the terms of which exceed certain statutory thresholds. Under the rate threshold, a loan is a high-cost home loan if the annual percentage rate exceeds the average prime offer rate by more than 6.5 percentage points for a first lien loan; or 8.5 percentage points for a subordinate lien loan [10% (APR) − 3% (APOR) = 7%; 7% exceeds the 6.5% threshold].
Which of the following would be considered a “dwelling” under the Truth-in-Lending Act?
A.Residential apartment building
B.Residential fiveplex
C.Office building
D.Residential condominium
The answer is residential condominium. Under the Truth-in-Lending Act, a dwelling is defined as a residential structure that contains one to four units, whether or not it is attached to real property. A dwelling includes an individual condominium unit, cooperative unit, mobile home, and trailer, if it is used as a residence.
Which of the following is true if a borrower effectively rescinds on a refinance transaction on their primary residence?
A.Borrowers can only rescind on investment properties and second homes
B.The borrower is entitled to damages from the lender
C.The borrower must reimburse the lender for third-party fees spent
D.The borrower is entitled to a refund of their prepaid appraisal fee
The answer is the borrower is entitled to a refund of their prepaid appraisal fee. Within 20 days after a borrower properly rescinds a credit transaction, the creditor must return any money or property received by any person in connection with the transaction and take appropriate steps to show that the mortgage or trust deed is voided and the consumer has no responsibility for the loan or any finance charges associated with it.
The correct answer is D. “The borrower is entitled to a refund of their prepaid appraisal fee.” Here’s why this is the correct answer and why the others are not:
- Explanation: Under the Truth in Lending Act (TILA), if a borrower rescinds a refinance transaction on their primary residence within the three-day rescission period, the lender must return any fees or charges paid by the borrower. This includes the refund of prepaid appraisal fees, as well as any other fees associated with the transaction.
- Explanation: This statement is false. The right to rescind applies only to refinance transactions on a borrower’s primary residence, not on investment properties or second homes. TILA provides this protection specifically for primary residences to allow borrowers to reconsider their decision without financial penalty.
- Explanation: While borrowers have the right to rescind and get their fees refunded, rescinding does not entitle them to damages from the lender unless there are specific violations of TILA or other consumer protection laws that would warrant such damages.
- Explanation: This statement is incorrect. Upon rescission, the borrower is not required to reimburse the lender for third-party fees or any other costs incurred as part of the transaction. Instead, the lender is required to refund any amounts paid by the borrower.
True
A first lien higher-priced mortgage loan (HPML) is defined as a loan with an annual percentage rate which exceeds the average prime offer rate by:
A.1%
B.1.5%
C.8%
D.0.13%
The answer is 1.5%. A higher-priced mortgage loan is a consumer credit transaction that has an annual percentage rate that exceeds the average prime offer rate for a comparable transaction by 1.5% for a first lien loan or 3.5% for a subordinate lien loan.
Which of the following advertisements contains a term that would require additional disclosures under the Truth-in-Lending Act?
A.”Buy for less than rent!”
B.”Interest rates as low as 5.65% APR!”
C.”Own for $700 per month!”
D.”No origination fee charged!”
The answer is “own for $700 per month!” Each of the following is a trigger term, requiring additional disclosures to the applicant: the amount or percentage of a down payment, the number of payments or term of the loan, the amount of any periodic payment, or the amount of any finance charge. Stating that a loan will have payments of $700 per month would require additional disclosures under the Truth-in-Lending Act.
Which of the following would be considered a “dwelling” under the Truth-in-Lending Act?
A.Residential apartment building
B.Residential fiveplex
C.Office building
D.Residential condominium
The answer is residential condominium. Under the Truth-in-Lending Act, a dwelling is defined as a residential structure that contains one to four units, whether or not it is attached to real property. A dwelling includes an individual condominium unit, cooperative unit, mobile home, and trailer, if it is used as a residence.
Which of the following is true if a borrower effectively rescinds on a refinance transaction on their primary residence?
A.Borrowers can only rescind on investment properties and second homes
B.The borrower is entitled to damages from the lender
C.The borrower must reimburse the lender for third-party fees spent
D.The borrower is entitled to a refund of their prepaid appraisal fee
The answer is the borrower is entitled to a refund of their prepaid appraisal fee. Within 20 days after a borrower properly rescinds a credit transaction, the creditor must return any money or property received by any person in connection with the transaction and take appropriate steps to show that the mortgage or trust deed is voided and the consumer has no responsibility for the loan or any finance charges associated with it.
Which of the following is NOT required to be disclosed in an advertisement which contains a trigger term as set forth in the Truth-in-Lending Act?
A.The number of payments for the loan
B.The amount of principal covered in each payment
C.The annual percentage rate
D.The amount or percentage of down payment
The answer is the amount of principal covered in each payment. If an advertisement contains a trigger term, the following additional disclosures must be made: the amount or percentage of the down payment, the payment schedule, including the number, timing, and amount of the payments (principal and interest), and the annual percentage rate.
