Loan Officer Federal Laws: TILA Questions and Answers — Questions and Answers
Question 1: Under the Truth in Lending Act (TILA), which of the following fees is generally EXCLUDED from the calculation of the finance charge?
- Loan origination fee
- Third-party appraisal fee (Correct answer)
- Mortgage broker fee
- Discount points
Correct answer: Third-party appraisal fee
The finance charge represents the cost of consumer credit as a dollar amount. While it includes charges like origination fees, broker fees, and points, bona fide third-party fees, such as for an appraisal or credit report, are generally excluded from the finance charge calculation.
Question 2: A loan applicant is refinancing their primary residence. They sign the closing documents on a Monday. According to TILA's right of rescission, what is the deadline for them to cancel the transaction?
- Thursday at midnight (Correct answer)
- Tuesday at 5:00 PM
- Wednesday at midnight
- Friday at the close of business
Correct answer: Thursday at midnight
TILA provides a three-business-day right of rescission for most non-purchase money mortgage transactions on a principal residence. The rescission period begins the day after consummation and includes Saturdays but excludes Sundays and federal holidays. If closing is on Monday, the three days are Tuesday, Wednesday, and Thursday. The right to rescind expires at midnight on the third business day.
Question 3: An advertisement for a mortgage loan prominently features an attractive monthly payment amount. According to TILA (Regulation Z), what additional information MUST be disclosed in the advertisement?
- The loan officer's NMLS ID
- A statement that rates are subject to change
- The Annual Percentage Rate (APR) and the terms of repayment (Correct answer)
- The estimated property taxes and insurance
Correct answer: The Annual Percentage Rate (APR) and the terms of repayment
Stating a specific payment amount in an advertisement is a 'triggering term' under Regulation Z. When a triggering term is used, the advertisement must also clearly and conspicuously disclose other key terms, including the Annual Percentage Rate (APR) and the full terms of repayment.
Question 4: A borrower receives a Closing Disclosure, and three days later, before consummation, the lender adds a prepayment penalty to the loan terms. What is the consequence of this change under the TILA-RESPA Integrated Disclosure (TRID) rules?
- The closing can proceed as scheduled without any change.
- The lender must issue a revised Loan Estimate within one business day.
- A new three-business-day waiting period is required after the borrower receives a corrected Closing Disclosure. (Correct answer)
- The borrower is entitled to a credit for the amount of the penalty.
Correct answer: A new three-business-day waiting period is required after the borrower receives a corrected Closing Disclosure.
Under TRID rules, certain significant changes to the Closing Disclosure require a new three-business-day waiting period before the loan can be consummated. The addition of a prepayment penalty is one of these triggering events, along with a change that makes the APR inaccurate or a change to the loan product.
Question 5: Which of the following scenarios would classify a first-lien mortgage as a Higher-Priced Mortgage Loan (HPML)?
- The APR is 1.0% above the Average Prime Offer Rate (APOR).
- The loan includes a prepayment penalty clause.
- The borrower's down payment is less than 20%.
- The APR is 1.5% or more above the Average Prime Offer Rate (APOR). (Correct answer)
Correct answer: The APR is 1.5% or more above the Average Prime Offer Rate (APOR).
A loan is defined as a Higher-Priced Mortgage Loan (HPML) if its Annual Percentage Rate (APR) exceeds the Average Prime Offer Rate (APOR) by a specific threshold. For a first-lien mortgage, this threshold is 1.5 percentage points or more.
Question 6: The primary purpose of the Truth in Lending Act (TILA) is to:
- Set maximum interest rates that creditors can charge.
- Ensure that credit terms are disclosed in a meaningful and uniform way. (Correct answer)
- Regulate the transfer of loan servicing rights between lenders.
- Prevent discrimination in mortgage lending based on protected characteristics.
Correct answer: Ensure that credit terms are disclosed in a meaningful and uniform way.
TILA was enacted to promote the informed use of consumer credit by requiring disclosures about its terms and cost. It ensures that consumers can compare credit terms from different lenders more readily by standardizing the disclosure of costs like the Annual Percentage Rate (APR) and finance charges.
Loan Officer Federal Laws: TILA Questions and Answers
Under the Truth in Lending Act (TILA), which of the following fees is generally EXCLUDED from the calculation of the finance charge?