TILA, HOEPA & Higher-Priced Loans: practice questions

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)

How does Regulation Z define the finance charge?

1. The dollar cost of credit, imposed as an incident to the loan ✓
2. The interest charged over the loan term, excluding all other fees
3. Every closing cost the consumer pays, whoever it is paid to
4. The annual percentage rate multiplied by the amount financed

Why: 12 CFR 1026.4(a): the finance charge is the cost of consumer credit as a dollar amount, including any charge payable by the consumer and imposed by the creditor as an incident to or condition of the extension of credit. It excludes charges of a type payable in a comparable cash transaction, so not every closing cost is in it.

Source: 12 CFR 1026.4(a)

Before extending a high-cost mortgage, what must the creditor receive regarding counseling?

1. A statement from the loan officer that the risks were explained
2. The consumer's signed waiver of the counseling requirement
3. Nothing, as counseling is optional for high-cost mortgages
4. Written certification of counseling by an approved counselor ✓

Why: 12 CFR 1026.34(a)(5)(i) bars extending a high-cost mortgage unless the creditor receives written certification that the consumer obtained counseling on the advisability of the mortgage from a counselor approved by HUD (or, if HUD permits, a state housing finance authority). There is no waiver.

Source: 12 CFR 1026.34(a)(5)(i)

On a mortgage secured by real property, which of these charges is excluded from the finance charge if it is bona fide and reasonable?

1. Discount points paid to buy down the rate
2. An appraisal fee for pre-closing value ✓
3. The lender's own loan origination fee
4. A mortgage broker fee paid by the consumer

Why: 12 CFR 1026.4(c)(7) excludes real-estate related fees if bona fide and reasonable, including title fees, document preparation, notary and credit-report fees, and property appraisal fees for services performed before closing. Points, origination fees and broker fees are charges imposed as an incident to the credit and stay in the finance charge (1026.4(a), (b)).

Source: 12 CFR 1026.4(c)(7)

A consumer signs a home equity loan on Tuesday and receives the rescission notice and all material disclosures that day. When does her right to rescind end, assuming no holidays?

1. At midnight on the following Thursday
2. At close of business on the Tuesday after
3. At midnight 30 days after the signing
4. At midnight on the following Friday ✓

Why: 12 CFR 1026.23(a)(3)(i) allows rescission until midnight of the third business day following consummation, delivery of the notice, or delivery of all material disclosures, whichever occurs last. With all three on Tuesday, the three business days are Wednesday, Thursday and Friday.

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