Mortgage Federal Lending Regulations — Questions and Answers
Question 1: Under RESPA, what is the maximum tolerance for increases in third-party settlement charges in the 'zero tolerance' category?
- 0% (Correct answer)
- 10%
- 15%
- 25%
Correct answer: 0%
Zero tolerance charges cannot increase at all from the Loan Estimate to the Closing Disclosure; any increase is a tolerance violation requiring a cure.
Question 2: The Home Mortgage Disclosure Act (HMDA) primarily requires lenders to collect and report data to:
- Identify possible discriminatory lending patterns (Correct answer)
- Calculate average mortgage interest rates nationally
- Set conforming loan limits annually
- License mortgage loan originators
Correct answer: Identify possible discriminatory lending patterns
HMDA data is used by regulators and the public to identify fair lending issues and discriminatory patterns in mortgage lending.
Question 3: Which federal law prohibits a lender from discriminating based on race, color, religion, national origin, sex, familial status, or disability in residential mortgage lending?
- Fair Housing Act (Correct answer)
- Equal Credit Opportunity Act
- Community Reinvestment Act
- Home Ownership and Equity Protection Act
Correct answer: Fair Housing Act
The Fair Housing Act (Title VIII of the Civil Rights Act of 1968) prohibits discrimination in residential real estate transactions including mortgage lending.
Question 4: A lender charges a borrower a fee not disclosed on the Loan Estimate for a service the lender controls. Under TRID, this is most likely a violation of which tolerance category?
- Zero tolerance — lender-controlled fees cannot increase (Correct answer)
- 10% tolerance — aggregate limit applies
- Unlimited tolerance — lender fees are exempt
- 5% tolerance — applies to all third-party fees
Correct answer: Zero tolerance — lender-controlled fees cannot increase
Fees for services provided by the lender or required services where the borrower cannot shop fall in the zero-tolerance category.
Question 5: Under ECOA, within how many days must a creditor notify an applicant of action taken on a completed credit application?
- 30 days (Correct answer)
- 3 business days
- 7 business days
- 60 days
Correct answer: 30 days
ECOA requires creditors to notify applicants of the credit decision within 30 days of receiving a completed application.
Question 6: The Dodd-Frank Act created which agency specifically to protect consumers in financial transactions, including mortgages?
- Consumer Financial Protection Bureau (CFPB) (Correct answer)
- Federal Housing Finance Agency (FHFA)
- Office of the Comptroller of the Currency (OCC)
- Federal Deposit Insurance Corporation (FDIC)
Correct answer: Consumer Financial Protection Bureau (CFPB)
The CFPB was established by the Dodd-Frank Act of 2010 and has primary authority to enforce federal consumer financial protection laws including mortgage regulations.
Question 7: Under the Ability-to-Repay (ATR) rule, which of the following is NOT one of the eight underwriting factors a lender must consider?
- Borrower's credit score tier preference (Correct answer)
- Current income and assets
- Monthly payment on the covered transaction
- Monthly debt obligations
Correct answer: Borrower's credit score tier preference
The eight ATR factors include income, assets, employment, payment amounts, debts, DTI, credit history, and alimony/child support — not a borrower's preferred credit score tier.
Question 8: Under TILA, the Annual Percentage Rate (APR) must be disclosed to within how many basis points for a regular mortgage transaction?
- 1/8 of 1% (12.5 bps) (Correct answer)
- 1/4 of 1% (25 bps)
- 1/2 of 1% (50 bps)
- 1% (100 bps)
Correct answer: 1/8 of 1% (12.5 bps)
For regular mortgage transactions, TILA requires the APR to be accurate within 1/8 of 1 percentage point (0.125%).
Question 9: Which regulation implements the Real Estate Settlement Procedures Act (RESPA)?
- Regulation X (Correct answer)
- Regulation Z
- Regulation B
- Regulation C
Correct answer: Regulation X
Regulation X is the Federal Reserve/CFPB regulation that implements RESPA, governing settlement services and disclosures.
Question 10: A lender requires a borrower to use a specific title company affiliated with the lender without disclosing the relationship. This most likely violates:
- RESPA's affiliated business arrangement disclosure requirements (Correct answer)
- TILA's APR disclosure rules
- ECOA's anti-discrimination provisions
- HMDA's data reporting requirements
Correct answer: RESPA's affiliated business arrangement disclosure requirements
RESPA requires lenders to disclose affiliated business arrangements and prohibits mandatory use of affiliated settlement service providers.
Question 11: Under the SAFE Act, a state-licensed mortgage loan originator must pass a national test with a minimum score of:
- 75% (Correct answer)
- 70%
- 80%
- 65%
Correct answer: 75%
The SAFE Act requires MLOs to pass the NMLS national test with a minimum score of 75% to obtain licensure.
Question 12: HOEPA (Home Ownership and Equity Protection Act) applies to which type of mortgage loans?
- High-cost home loans exceeding APR and points/fees thresholds (Correct answer)
- All conforming conventional loans
- FHA-insured purchase transactions only
- Loans with LTV ratios above 80%
Correct answer: High-cost home loans exceeding APR and points/fees thresholds
HOEPA triggers when a loan's APR or points and fees exceed specific thresholds, classifying it as a high-cost mortgage with additional consumer protections.
Question 13: Under TRID, the Closing Disclosure must be received by the borrower at least how many business days before consummation?
- 3 business days (Correct answer)
- 1 business day
- 5 business days
- 7 business days
Correct answer: 3 business days
TRID requires borrowers to receive the Closing Disclosure at least three business days before the loan closes.
Question 14: Which act requires federally chartered depository institutions to meet the credit needs of all segments of their communities, including low- and moderate-income neighborhoods?
- Community Reinvestment Act (CRA) (Correct answer)
- Fair Housing Act
- Equal Credit Opportunity Act
- Home Mortgage Disclosure Act
Correct answer: Community Reinvestment Act (CRA)
The CRA of 1977 requires banks to serve the credit needs of entire communities, including LMI areas, and regulators examine and rate CRA performance.
Question 15: Under Regulation Z, a refinance on a primary residence gives the borrower a right of rescission period of:
- 3 business days (Correct answer)
- 1 business day
- 5 calendar days
- 10 business days
Correct answer: 3 business days
Borrowers have three business days after closing, delivery of the Notice of Right to Rescind, or delivery of the required disclosures — whichever is latest — to rescind a non-purchase mortgage on their primary home.
Question 16: A mortgage loan originator who takes a loan application and offers or negotiates terms without holding a license is violating which federal law?
- The SAFE Mortgage Licensing Act (Correct answer)
- RESPA
- TILA
- HMDA
Correct answer: The SAFE Mortgage Licensing Act
The SAFE Act requires all MLOs who take applications and negotiate loan terms to be either state-licensed or federally registered.
Question 17: Under the Gramm-Leach-Bliley Act (GLBA), mortgage lenders must provide a privacy notice to consumers:
- At account opening and annually thereafter (Correct answer)
- Only when information is shared with third parties
- Every five years
- Only upon written consumer request
Correct answer: At account opening and annually thereafter
GLBA requires financial institutions to deliver an initial privacy notice when a customer relationship is established and annually every year the relationship continues.
Question 18: RESPA Section 8 prohibits which of the following practices?
- Paying or receiving kickbacks for referrals of settlement services (Correct answer)
- Charging origination fees on conforming loans
- Requiring escrow accounts for all FHA loans
- Disclosing affiliated business arrangements
Correct answer: Paying or receiving kickbacks for referrals of settlement services
RESPA Section 8 specifically prohibits giving or accepting anything of value in exchange for referrals of federally related mortgage settlement services.
Question 19: Under the ATR/QM rule, a Qualified Mortgage generally cannot have a debt-to-income ratio exceeding:
- 43% (Correct answer)
- 50%
- 36%
- 45%
Correct answer: 43%
Under the original QM rule, a maximum DTI of 43% was the general limit, though GSE-eligible loans had a temporary safe harbor; new price-based QM rules replaced DTI caps in 2021.
Question 20: Which federal regulation specifically prohibits a lender from requiring a borrower to purchase credit life insurance as a condition of obtaining a mortgage?
- Regulation Z (TILA) (Correct answer)
- Regulation X (RESPA)
- Regulation B (ECOA)
- Regulation C (HMDA)
Correct answer: Regulation Z (TILA)
TILA/Regulation Z prohibits tying the granting of credit to the purchase of credit insurance, and requires disclosure when such insurance is voluntarily chosen.
Question 21: A lender discovers an APR error after closing and the disclosed APR was understated by 0.20% on a regular mortgage. Under TILA, the lender must:
- Refund the overcharge because the error exceeds the 1/8% tolerance (Correct answer)
- Do nothing because the error is within the 1/4% tolerance
- Void the entire loan transaction
- Report the error to the CFPB within 30 days
Correct answer: Refund the overcharge because the error exceeds the 1/8% tolerance
An understatement of 0.20% exceeds the 1/8% (0.125%) regular mortgage tolerance, requiring the lender to cure the error by refunding the amount overcharged.
Mortgage Federal Lending Regulations
Under RESPA, what is the maximum tolerance for increases in third-party settlement charges in the 'zero tolerance' category?
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