Mortgage Federal Laws and Regulations — Questions and Answers
Question 1: Under RESPA, which practice is prohibited between settlement service providers?
- Sharing client contact information
- Paying or receiving kickbacks for referrals (Correct answer)
- Advertising joint services
- Offering bundled closing packages
Correct answer: Paying or receiving kickbacks for referrals
RESPA Section 8 prohibits kickbacks and fee-splitting arrangements between settlement service providers for referrals.
Question 2: The Home Mortgage Disclosure Act (HMDA) requires lenders to collect and report data primarily to:
- Calculate default risk scores
- Identify possible discriminatory lending patterns (Correct answer)
- Verify borrower income accuracy
- Determine maximum loan limits
Correct answer: Identify possible discriminatory lending patterns
HMDA data is used by regulators and the public to identify and address discriminatory or predatory lending practices.
Question 3: Which federal law establishes the right of rescission for certain mortgage transactions?
- RESPA
- HMDA
- TILA (Correct answer)
- ECOA
Correct answer: TILA
The Truth in Lending Act (TILA) grants borrowers a three-business-day right to rescind certain non-purchase mortgage transactions.
Question 4: A lender denies a loan application citing the applicant's receipt of public assistance income as the reason. This most likely violates:
- RESPA
- ECOA (Correct answer)
- TILA
- FIRREA
Correct answer: ECOA
ECOA prohibits discrimination based on the fact that income derives from a public assistance program.
Question 5: Under Dodd-Frank, which agency has primary supervisory authority over large non-bank mortgage servicers?
- OCC
- FDIC
- CFPB (Correct answer)
- HUD
Correct answer: CFPB
The Consumer Financial Protection Bureau (CFPB) has supervisory and enforcement authority over large non-bank mortgage servicers under Dodd-Frank.
Question 6: The Homeowners Protection Act requires automatic cancellation of PMI when the loan balance reaches what percentage of the original property value?
- 85%
- 80%
- 78% (Correct answer)
- 75%
Correct answer: 78%
The HPA mandates automatic PMI cancellation when the loan-to-value ratio drops to 78% of the original purchase price based on the amortization schedule.
Question 7: Which federal regulation implements ECOA's requirements as they apply to mortgage lending?
- Regulation B (Correct answer)
- Regulation C
- Regulation X
- Regulation Z
Correct answer: Regulation B
Regulation B implements ECOA, which prohibits discrimination in credit transactions including mortgage lending.
Question 8: Under the SAFE Act, a mortgage loan originator who moves from a bank to a non-bank entity must:
- Reapply for a new Social Security number
- Pass a new background check only
- Obtain a state MLO license through NMLS (Correct answer)
- File a dual registration with the OCC
Correct answer: Obtain a state MLO license through NMLS
Bank employees are federally registered, but when moving to a non-bank, they must obtain a state license through the NMLS under the SAFE Act.
Question 9: Which rule requires lenders to provide a Loan Estimate within three business days of receiving a completed mortgage application?
- RESPA standalone
- TILA-RESPA Integrated Disclosure (TRID) (Correct answer)
- HMDA
- ECOA
Correct answer: TILA-RESPA Integrated Disclosure (TRID)
TRID, effective 2015, requires a Loan Estimate to be delivered within three business days of a completed application.
Question 10: A mortgage servicer must acknowledge a borrower's written qualified written request (QWR) within how many business days?
- 3 business days
- 5 business days (Correct answer)
- 10 business days
- 30 business days
Correct answer: 5 business days
Under RESPA, servicers must acknowledge a QWR within 5 business days and resolve it within 30 business days.
Question 11: The Community Reinvestment Act (CRA) was enacted primarily to address:
- Predatory lending by payday lenders
- Redlining and exclusion of low-income communities from credit (Correct answer)
- Appraisal fraud in high-cost markets
- Excess fees charged at mortgage closing
Correct answer: Redlining and exclusion of low-income communities from credit
The CRA was passed in 1977 to combat redlining and encourage banks to serve low- and moderate-income areas.
Question 12: Under Regulation Z, which disclosure must be provided at least three business days before consummation of a mortgage loan?
- Good Faith Estimate
- Loan Estimate
- Closing Disclosure (Correct answer)
- Servicing Transfer Notice
Correct answer: Closing Disclosure
The Closing Disclosure must be provided at least three business days before the loan closes, giving borrowers time to review final terms.
Question 13: Which federal rule limits prepayment penalty periods for qualified mortgages?
- Dodd-Frank ATR/QM rule (Correct answer)
- RESPA Section 8
- FIRREA
- Equal Credit Opportunity Act
Correct answer: Dodd-Frank ATR/QM rule
The Dodd-Frank ATR/QM rule restricts prepayment penalties on qualified mortgages to the first three years and caps their amount.
Question 14: A lender charges a borrower a fee for a credit report but keeps the overage rather than applying it toward costs. This most likely violates:
- TILA
- RESPA Section 9
- RESPA Section 8 (Correct answer)
- ECOA
Correct answer: RESPA Section 8
RESPA Section 8 prohibits unearned fee arrangements, which includes pocketing overages from third-party service charges.
Question 15: Under the Ability-to-Repay (ATR) rule, a lender must verify a borrower's income using:
- Only the borrower's stated income
- Reasonably reliable third-party records (Correct answer)
- The automated underwriting system output alone
- The borrower's credit score only
Correct answer: Reasonably reliable third-party records
The ATR rule requires lenders to verify financial information using reasonably reliable third-party records such as tax returns, W-2s, and bank statements.
Question 16: The Servicemembers Civil Relief Act (SCRA) limits mortgage interest rates for active-duty servicemembers to a maximum of:
- 3%
- 4%
- 6% (Correct answer)
- 8%
Correct answer: 6%
The SCRA caps mortgage interest rates at 6% per year for obligations incurred before active-duty military service.
Question 17: A lender requires a borrower to use a specific title company owned by the lender's affiliate. Under RESPA, this is permissible only if:
- The title company provides a discount
- An affiliated business arrangement (AfBA) disclosure is provided and use is not required (Correct answer)
- The loan is a jumbo loan
- The borrower signs a written waiver
Correct answer: An affiliated business arrangement (AfBA) disclosure is provided and use is not required
RESPA allows affiliated business arrangements only when the lender provides a written disclosure and does not require use of the affiliate.
Question 18: Under TILA, the Annual Percentage Rate (APR) differs from the interest rate because it includes:
- Homeowner's insurance premiums
- Property tax escrow amounts
- Certain fees and costs of credit (Correct answer)
- Principal reduction payments
Correct answer: Certain fees and costs of credit
The APR reflects the true cost of borrowing by incorporating the interest rate plus certain fees such as points and origination charges.
Question 19: Which act prohibits lenders from discriminating based on a neighborhood's racial composition, a practice known as redlining?
- RESPA
- Fair Housing Act (Correct answer)
- TILA
- FIRREA
Correct answer: Fair Housing Act
The Fair Housing Act of 1968 prohibits discrimination in residential real estate transactions, including redlining based on neighborhood racial composition.
Question 20: FIRREA was enacted primarily in response to:
- The 2008 mortgage crisis
- The savings and loan crisis of the 1980s (Correct answer)
- Predatory subprime lending in the 1990s
- The Great Depression bank failures
Correct answer: The savings and loan crisis of the 1980s
FIRREA (Financial Institutions Reform, Recovery, and Enforcement Act) was passed in 1989 to address widespread savings and loan association failures.
Question 21: Under HMDA, which institution is generally required to report mortgage data?
- Any business that accepts deposits
- Covered financial institutions meeting asset and location thresholds (Correct answer)
- Only federally chartered banks
- All real estate brokerages nationwide
Correct answer: Covered financial institutions meeting asset and location thresholds
HMDA applies to covered financial institutions that meet certain asset size, location, and loan volume thresholds established by the CFPB.
Mortgage Federal Laws and Regulations
Under RESPA, which practice is prohibited between settlement service providers?
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