Loan Products & Mortgage Terms: practice questions

Servicing of a loan transferred on 1 March. On 20 March the borrower sends her on-time payment to the old servicer by mistake. How must it be treated?

1. It is late, since it went to the wrong servicer
2. It is late unless she resends it within 5 days
3. It may not be treated as late for any purpose ✓
4. It is late but no late fee may be charged

Why: 12 CFR 1024.33(c)(1): during the 60-day period beginning on the effective date of transfer, a payment received by the transferor servicer on or before the due date "may not be treated as late for any purpose." Under (c)(2) the old servicer must forward or return it promptly.

Source: 12 CFR 1024.33(c)

A buyer takes over a seller's mortgage on the home she will live in, and the creditor agrees in writing to accept her as a primary obligor. What does Regulation Z require?

1. New disclosures to the buyer, based on the remaining obligation, before it occurs ✓
2. Nothing, since the seller already received disclosures when the loan was first made
3. A fresh Loan Estimate within three days, then a Closing Disclosure a week later
4. Disclosures to the seller only, confirming release from all further liability

Why: 12 CFR 1026.20(b): an assumption occurs when a creditor "expressly agrees in writing with a subsequent consumer to accept that consumer as a primary obligor on an existing residential mortgage transaction. Before the assumption occurs, the creditor shall make new disclosures to the subsequent consumer, based on the remaining obligation."

Source: 12 CFR 1026.20(b)

In 2026, a consumer borrows $90,000 secured by her home. Does Regulation Z's exemption for credit above the annual threshold apply?

1. Yes; any credit above $73,400 in 2026 is outside Regulation Z altogether
2. Yes, unless the loan is a high-cost mortgage under HOEPA
3. No, but only because the loan is also a first-lien loan
4. No; credit secured by real property or a home is covered ✓

Why: 12 CFR 1026.3(b)(1)(i) exempts credit above the annual threshold ($73,400 for 2026, FR Doc. 2025-22814) "unless the extension of credit is: (A) Secured by any real property, or by personal property used or expected to be used as the principal dwelling of the consumer".

Source: 12 CFR 1026.3(b); FR Doc. 2025-22814

A lender defers two of a borrower's installments by agreement, without cancelling the note or writing a new one. Is this a refinancing that needs new disclosures?

1. Yes; any change to the payment schedule is a refinancing needing new disclosures
2. Yes, but only if the deferral lasts longer than six months from the first missed payment
3. No; changing terms is not a refinancing unless a new obligation replaces the old ✓
4. No, because a refinancing can only happen with a different creditor from the first

Why: 12 CFR 1026.20(a): a refinancing occurs when an existing obligation "is satisfied and replaced by a new obligation". Supplement I comment 20(a)-1.i: "Changes in the terms of an existing obligation, such as the deferral of individual installments, will not constitute a refinancing unless accomplished by the cancellation of that obligation and the substitution of a new obligation."

Source: 12 CFR 1026.20(a); Supplement I comment 20(a)-1

A consumer borrows from a federally insured bank to buy a six-unit apartment building she will live in. Is it a federally related mortgage loan under RESPA?

1. Yes; any loan from an insured bank on housing is covered
2. Yes, because the borrower will occupy one of the units
3. No; the property must be designed for one to four families ✓
4. No, unless the loan is also insured by the FHA

Why: 12 CFR 1024.2 defines a federally related mortgage loan as one secured by residential real property on which there is "a structure or structures designed principally for occupancy of from one to four families" (or a manufactured home), and which meets one of the federal-connection tests.

Source: 12 CFR 1024.2

When does a person who makes high-cost (HOEPA) mortgages count as regularly extending consumer credit?

1. Only after more than five high-cost loans in the whole of the preceding calendar year
2. More than one in any 12 months, or one or more through a mortgage broker ✓
3. Only after more than 25 high-cost loans in any two-year period
4. Never, since high-cost loans are counted as business-purpose credit

Why: 12 CFR 1026.2(a)(17)(v): "A person regularly extends consumer credit if, in any 12-month period, the person originates more than one credit extension that is subject to the requirements of § 1026.32 or one or more such credit extensions through a mortgage broker."

Source: 12 CFR 1026.2(a)(17)

For which kind of mortgage application does Regulation X still require a separate servicing disclosure statement within three business days?

1. A fixed-rate purchase loan
2. A reverse mortgage ✓
3. An FHA refinance
4. A home equity loan

Why: 12 CFR 1024.33(a): "Within three days (excluding legal public holidays, Saturdays, and Sundays) after a person applies for a reverse mortgage transaction", the lender must say whether servicing may be transferred. For loans that get a Loan Estimate, the servicing statement is part of it; HELOCs get none.

Source: 12 CFR 1024.33(a)

An ARM program starts with a discounted rate below index plus margin. What must the program disclosure say about this?

1. That it is discounted, and the consumer should ask by how much ✓
2. The exact discount in basis points and the date on which it ends
3. Nothing, since discounts are shown only on the Loan Estimate
4. That the discount will be recaptured at the first adjustment

Why: 12 CFR 1026.19(b)(2)(v) requires "The fact that the interest rate will be discounted, and a statement that the consumer should ask about the amount of the interest rate discount."

Source: 12 CFR 1026.19(b)(2)(v)

Which of these must appear in the table in a 1026.20(c) notice of an ARM rate adjustment that changes the payment?

1. Current and new rates and payments, and the new payment's due date ✓
2. The borrower's current credit score and the score used at origination
3. The lender's margin history over the past fifteen years of the loan program
4. A list of other lenders offering refinance loans at current market rates

Why: 12 CFR 1026.20(c)(2)(ii) requires a table with "(A) The current and new interest rates; (B) The current and new payments and the date the first new payment is due" and, for interest-only or negatively amortizing payments, the allocation of each payment.

Source: 12 CFR 1026.20(c)(2)(ii)

Under Regulation Z, which feature defines a reverse mortgage transaction?

1. It is a first-lien loan to a borrower aged 62 or older, insured by FHA
2. Its payments are interest-only for the first ten years of the term
3. It must be set up as an open-end line of credit, never as a closed-end loan
4. Nonrecourse; due, barring default, only on death, transfer or move-out ✓

Why: 12 CFR 1026.33(a) defines a reverse mortgage as "a nonrecourse consumer credit obligation" secured by the principal dwelling, under which amounts are due (other than on default) only after the consumer dies, the dwelling is transferred, or the consumer ceases to occupy it as a principal dwelling.

Source: 12 CFR 1026.33(a)

Which of these does the CFPB's ARM handbook name as a common ARM index?

1. The lender's own margin on the loan
2. The Constant Maturity Treasury (CMT) rate ✓
3. The borrower's debt-to-income ratio
4. The property's current appraised value

Why: CHARM: "Common indexes include the U.S. prime rate and the Constant Maturity Treasury (CMT) rate." The margin is the extra percentage the lender adds to the index.

Source: CFPB Consumer Handbook on Adjustable-Rate Mortgages (CHARM), p. 4

Which adjustable-rate mortgages are exempt from the initial rate adjustment notice in 12 CFR 1026.20(d)?

1. ARMs with a fixed period of five years or more
2. ARMs with terms of one year or less ✓
3. ARMs held in portfolio by the originating bank
4. ARMs whose rate is capped at 2 points a year

Why: 12 CFR 1026.20(d)(1)(ii): "The requirements of this paragraph (d) do not apply to ARMs with terms of one year or less."

Source: 12 CFR 1026.20(d)(1)(ii)

A consumer applies by telephone for an adjustable-rate mortgage on her principal dwelling. By when must the creditor deliver or mail the CHARM booklet and program disclosure?

1. At the same time as the Closing Disclosure is given
2. Before she pays any fee, even if that is during the telephone call
3. Within seven business days before consummation
4. Within three business days of receiving the application ✓

Why: 12 CFR 1026.19(b) requires the disclosures when an application form is provided or before a non-refundable fee, whichever is earlier, "except that the disclosures may be delivered or placed in the mail not later than three business days following receipt of a consumer's application when the application reaches the creditor by telephone, or through an intermediary agent or broker".

Source: 12 CFR 1026.19(b)

Which of these loans triggers the adjustable-rate program disclosures under 12 CFR 1026.19(b)?

1. A 30-year ARM secured by the borrower's principal dwelling ✓
2. A fixed-rate 30-year loan on the borrower's principal dwelling
3. A 9-month ARM bridge loan on the borrower's principal dwelling
4. A 30-year ARM secured only by the borrower's vacation home

Why: 12 CFR 1026.19(b) applies "if the annual percentage rate may increase after consummation in a transaction secured by the consumer's principal dwelling with a term greater than one year". A fixed rate, a term of a year or less, or a second home each takes a loan outside the rule; a 30-year ARM on the principal dwelling is inside it.

Source: 12 CFR 1026.19(b)

A loan is guaranteed by a state housing agency. How is the Loan Type shown on the Loan Estimate?

1. As Conventional, as no federal agency backs it
2. As Other, with a brief description ✓
3. As FHA
4. As VA

Why: 12 CFR 1026.37(a)(11)(iv): for federally insured or guaranteed loans other than FHA and VA, "and for loans insured or guaranteed by a State agency, the creditor shall disclose the loan type as 'Other', and provide a brief description".

Source: 12 CFR 1026.37(a)(11)