TILA, HOEPA & Higher-Priced Loans: practice questions

How must a consumer exercise the right to rescind, and when is the notice treated as given?

1. By telephone; when the lender's staff take the call
2. In person; only at the office where the loan closed
3. In writing; when mailed or delivered to the creditor ✓
4. In writing; only when the creditor has signed receipt

Why: 12 CFR 1026.23(a)(2) requires the consumer to notify the creditor by mail, telegram or other written means. Notice is considered given when mailed, when filed for telegraphic transmission or, if sent by other means, when delivered to the creditor's designated place of business.

Source: 12 CFR 1026.23(a)(2)

A creditor never gave the borrower the required rescission notice on a loan secured by his principal dwelling. How long does the right to rescind last?

1. Up to 3 years, or until a sale or transfer ✓
2. Up to 1 year from the date the loan consummated
3. Up to 3 business days, whatever was delivered
4. Indefinitely, until the notice is finally given

Why: 12 CFR 1026.23(a)(3)(i) provides that if the notice or material disclosures are not delivered, the right expires 3 years after consummation, upon transfer of all the consumer's interest in the property, or upon its sale, whichever occurs first.

Source: 12 CFR 1026.23(a)(3)(i)

A higher-priced mortgage loan secured by a first lien on the principal dwelling must have an escrow account. When may the borrower's request to cancel it be honoured, in the ordinary case?

1. After 5 years, below 80% of value and not delinquent ✓
2. After 2 years, below 90% of value and not delinquent
3. After 1 year, once 12 on-time payments have been made
4. At any time, as the escrow is purely the borrower's choice

Why: 12 CFR 1026.35(b)(3) allows cancellation on the earlier of termination of the debt or a consumer request received no earlier than five years after consummation, and then only if the unpaid principal balance is less than 80 percent of the original value and the consumer is not delinquent or in default.

Source: 12 CFR 1026.35(b)(3)

What does Congress say is the purpose of the Truth in Lending Act?

1. Meaningful disclosure so consumers can compare terms ✓
2. Setting the highest interest rate a lender may charge
3. Guaranteeing credit to borrowers with low incomes
4. Requiring lenders to verify every borrower's income

Why: 15 U.S.C. 1601(a) states that the purpose is "to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit", and to protect against inaccurate and unfair billing and card practices. TILA does not cap rates.

Source: 15 U.S.C. 1601(a)

To use the anti-steering safe harbor, which loan options must a broker present for each type of transaction the consumer is interested in?

1. The three loans that pay the broker the highest compensation
2. Any three loans, provided each comes from a different creditor
3. The lowest-rate loan and the loan with the shortest term
4. Lowest rate; lowest with no risky terms; lowest points/fees ✓

Why: 12 CFR 1026.36(e)(3)(i) requires options from a significant number of the creditors the originator regularly uses, including the loan with the lowest interest rate; the lowest rate without negative amortization, a prepayment penalty, interest-only payments, a balloon payment in the first 7 years, a demand feature, shared equity or shared appreciation; and the lowest total dollar amount of discount points, origination points or fees.

Source: 12 CFR 1026.36(e)(3)

A first-lien loan within the Freddie Mac loan limit, secured by the principal dwelling, has an APR 1.7 percentage points above the APOR. How is it classified under Regulation Z?

1. A high-cost mortgage under HOEPA
2. Neither, being under 2.5 points
3. Neither, being under 3.5 points
4. A higher-priced mortgage loan ✓

Why: 12 CFR 1026.35(a)(1)(i) makes a closed-end first-lien loan on the principal dwelling, at or under the Freddie Mac limit, a higher-priced mortgage loan when its APR exceeds the APOR by 1.5 or more percentage points. The 2.5 figure applies to jumbo first liens and 3.5 to subordinate liens. HOEPA's first-lien trigger is more than 6.5.

Source: 12 CFR 1026.35(a)(1)

A mortgage company pays its loan officers a higher commission on loans that close at higher interest rates. What does Regulation Z's loan originator rule say?

1. It is allowed if disclosed to each borrower in advance
2. Pay based on a term of the transaction is prohibited ✓
3. It is allowed if the borrower chose the rate freely
4. It is allowed as long as the rate is below the APOR

Why: 12 CFR 1026.36(d)(1)(i) bars paying a loan originator compensation based on a term of a transaction, or of multiple transactions, in a dwelling-secured consumer credit transaction. The interest rate is a term. Disclosure or consent does not cure it.

Source: 12 CFR 1026.36(d)(1)(i)

A loan officer is paid 1 percent of the loan amount on every loan she closes. How does the loan originator compensation rule treat this?

1. Prohibited, since pay rises with the loan's size
2. Allowed only on loans at or above the Freddie Mac limit
3. Allowed; the amount of credit is not a term or proxy ✓
4. Prohibited unless the percentage is under 0.5 percent

Why: Under 12 CFR 1026.36(d)(1)(ii) "the amount of credit extended is not a term of a transaction or a proxy for a term of a transaction", so compensation expressed as a fixed percentage of the loan amount is permitted. What is prohibited is pay tied to rate, fees or other terms, or to a proxy for them.

Source: 12 CFR 1026.36(d)(1)(ii)