Application, Disclosures & Tolerances: practice questions

Which of these applicants must receive the special information booklet?

1. A homeowner taking a closed-end second mortgage
2. A homeowner refinancing to a lower interest rate
3. A buyer taking a first mortgage to purchase a duplex ✓
4. A 72-year-old homeowner taking a reverse mortgage

Why: 12 CFR 1026.19(g)(1) requires the booklet for consumers applying for credit secured by real property, and 1026.19(g)(1)(iii) exempts transactions whose purpose is not the purchase of a one-to-four family residential property, including refinancings, closed-end subordinate-lien loans and reverse mortgages. A duplex purchase is a one-to-four family purchase.

Source: 12 CFR 1026.19(g)(1)

Which of these may a creditor use to cure a zero-tolerance violation, according to the CFPB's TRID guide?

1. Only a cash refund; no other form is permitted
2. A refund, a principal reduction or a lender credit ✓
3. A lower interest rate on the next loan it makes her
4. A written apology placed in the loan file

Why: The CFPB TRID guide, section 7.14, citing comment 19(f)(2)(v)-1, says the refund need not be cash: a cure may be a refund to the consumer, a principal reduction, or specific or general lender credits, with a corrected Closing Disclosure within 60 calendar days after consummation (12 CFR 1026.19(f)(2)(v)).

Source: 12 CFR 1026.19(f)(2)(v); CFPB TRID guide 7.14

The applicant's interest rate is locked until 5 pm Eastern on 20 October. What must the Loan Estimate show about the lock?

1. Only that the rate is locked, without any end date given
2. Nothing, since rate locks appear only on the Closing Disclosure
3. The fee charged for the lock and the name of the investor
4. That the rate is locked and the date and time the lock ends ✓

Why: 12 CFR 1026.37(a)(13)(i) requires a "Rate Lock" statement and, where the rate is locked for a specific period, the date and time, including time zone, when that period ends. Paragraph (a)(13)(ii) adds the date and time at which estimated closing costs expire.

Source: 12 CFR 1026.37(a)(13)

Before issuing a Loan Estimate, a loan officer tells the applicant he will not prepare one until she emails her last two pay stubs and bank statements. What does Regulation Z say?

1. He may not require verifying documents before the estimate ✓
2. He may require them, as long as the request is in writing
3. He may require pay stubs, but not the bank statements
4. He may require them if the applicant is self-employed

Why: 12 CFR 1026.19(e)(2)(iii) bars a creditor or other person from requiring a consumer to submit documents verifying information related to the application before providing the Loan Estimate. The CFPB TRID guide, section 6.8, gives the examples of a purchase contract and bank statements: the facts may be asked for orally, the documents may not be required.

Source: 12 CFR 1026.19(e)(2)(iii); CFPB TRID guide 6.8

A borrower takes a cash-out loan that pays off the existing mortgage on her home. Which purpose does the Loan Estimate show?

1. Home Equity Loan
2. Purchase
3. Construction
4. Refinance ✓

Why: 12 CFR 1026.37(a)(9)(ii): if the credit is not for a purchase and "will be used to refinance an existing obligation ... that is secured by the property", the purpose is "Refinance", whether or not cash is taken out and whatever the original creditor.

Source: 12 CFR 1026.37(a)(9)

A consumer fills in all six application items on a lender's website, saves the form and logs off without pressing submit. Must the lender send a Loan Estimate?

1. Yes; the lender holds all six pieces of information
2. Yes, within 7 business days of the form being saved
3. No; saved information is not submitted for credit ✓
4. No, unless she saved the form twice or more

Why: The CFPB TRID guide, section 6.10, explains that the obligation is triggered only when the six pieces are submitted for the purpose of obtaining credit; information is not deemed submitted just because it exists on the creditor's system (guide sections 6.6 and 6.10, applying 12 CFR 1026.2(a)(3)). Its example is exactly an online form completed and saved but not submitted.

Source: 12 CFR 1026.2(a)(3); CFPB TRID guide 6.10

When must a Loan Estimate include a Liability after Foreclosure statement?

1. On every loan disclosed as a Refinance, whatever the state law ✓
2. Only where state anti-deficiency laws would be lost by refinancing
3. Only when the borrower is already behind on the old loan
4. Only when the new loan is a higher-priced mortgage loan

Why: 12 CFR 1026.37(m)(7) and comment 37(m)(7)-1: the statement is required whenever the purpose is a refinance under 1026.37(a)(9)(ii), and may not appear otherwise. It warns that certain State law protections against deficiency liability may be lost and that the consumer should consult an attorney.

Source: 12 CFR 1026.37(m)(7); Supplement I comment 37(m)(7)-1

A fixed-rate loan has an interest-only period, after which the payment rises. Which extra table must the Loan Estimate include?

1. An Adjustable Payment (AP) Table, as payments change without a rate change ✓
2. An Adjustable Interest Rate (AIR) Table, as the payment amount will change
3. No extra table; the payment change appears only in the Loan Terms section
4. A Balloon Payment table, as interest-only loans all end in a lump sum

Why: 12 CFR 1026.37(i): an Adjustable Payment (AP) Table is required "If the periodic principal and interest payment may change after consummation but not based on an adjustment to the interest rate"; (i)(1) asks "Interest Only Payments?". The AIR Table under 1026.37(j) applies only if the rate may increase.

Source: 12 CFR 1026.37(i), (j)