Mortgage Federal Mortgage-Related Laws — Questions and Answers

Question 1: Under RESPA, within how many business days must a lender provide a Loan Estimate to a borrower after receiving a completed loan application?

1 business day
3 business days (Correct answer)
5 business days
7 business days

Correct answer: 3 business days

RESPA (as implemented by TRID) requires lenders to deliver the Loan Estimate within 3 business days of receiving a completed loan application.

Question 2: Which federal law prohibits lenders from paying referral fees or kickbacks to settlement service providers for referring business?

TILA
ECOA
RESPA (Correct answer)
HMDA

Correct answer: RESPA

RESPA Section 8 specifically prohibits kickbacks and unearned fee arrangements between settlement service providers.

Question 3: The Closing Disclosure required under TRID must be provided to the borrower no later than how many business days before consummation?

1 business day
2 business days
3 business days (Correct answer)
5 business days

Correct answer: 3 business days

TRID rules require the Closing Disclosure to be received by the borrower at least 3 business days before loan consummation.

Question 4: RESPA's Section 10 limits the amount a lender can require a borrower to deposit into an escrow account. What is the maximum cushion allowed?

One month's escrow payments
Two months' escrow payments (Correct answer)
Three months' escrow payments
Six months' escrow payments

Correct answer: Two months' escrow payments

RESPA Section 10 allows a maximum escrow cushion of two months' worth of escrow payments.

Question 5: Under TILA, what is the right of rescission period for a refinance of a primary residence with a new lender?

24 hours
3 business days (Correct answer)
5 business days
10 calendar days

Correct answer: 3 business days

TILA grants borrowers a 3-business-day right of rescission for non-purchase refinance transactions secured by their primary residence.

Question 6: Which statement about RESPA's affiliated business arrangement (AfBA) disclosure is correct?

AfBA disclosures are only required for commercial loans
Lenders may require borrowers to use an affiliated provider without any restrictions
Lenders must provide an AfBA disclosure and cannot mandate use of the affiliated provider (Correct answer)
AfBA disclosures must be included in the Closing Disclosure only

Correct answer: Lenders must provide an AfBA disclosure and cannot mandate use of the affiliated provider

RESPA requires an AfBA disclosure when referring to affiliated settlement service providers, and lenders may not compel the borrower to use them.

Question 7: A borrower's annual percentage rate (APR) exceeds the stated interest rate on a fixed-rate mortgage primarily because the APR includes:

Only the principal and interest payment
Prepayment penalty estimates but not closing costs
Certain fees and costs in addition to the interest rate (Correct answer)
The escrow payment for taxes and insurance

Correct answer: Certain fees and costs in addition to the interest rate

APR, as disclosed under TILA, incorporates the interest rate plus certain fees and costs, giving a broader measure of borrowing cost.

Question 8: Under ECOA, a creditor must notify a loan applicant of an adverse action within how many days of receiving a completed application?

15 days
30 days (Correct answer)
45 days
60 days

Correct answer: 30 days

ECOA and Regulation B require creditors to provide an adverse action notice within 30 days of receiving a completed application.

Question 9: Which protected class was added to the Fair Housing Act by the 1988 amendments?

Race and national origin
Sex and religion
Familial status and disability (Correct answer)
Marital status and age

Correct answer: Familial status and disability

The Fair Housing Amendments Act of 1988 added familial status and disability (handicap) to the original protected classes.

Question 10: HMDA requires covered lenders to collect and report data on mortgage applications primarily to:

Calculate the lender's Community Reinvestment Act rating
Detect and deter discriminatory lending patterns (Correct answer)
Set maximum allowable interest rates by geography
Verify borrower income for underwriting purposes

Correct answer: Detect and deter discriminatory lending patterns

HMDA data is used by regulators and the public to identify potential discriminatory or predatory lending practices across geographic areas.

Question 11: Under the Fair Housing Act, which of the following lender actions is considered illegal steering?

Offering a higher rate to a borrower with a low credit score
Directing minority applicants toward higher-cost loan products without objective basis (Correct answer)
Declining a loan based on insufficient income documentation
Requiring a larger down payment due to a low appraisal

Correct answer: Directing minority applicants toward higher-cost loan products without objective basis

Steering occurs when lenders direct borrowers to less favorable loan products based on a protected characteristic rather than creditworthiness.

Question 12: The Community Reinvestment Act (CRA) was enacted primarily to address:

Predatory lending in high-cost mortgage markets
Redlining and the failure of banks to serve low- and moderate-income communities (Correct answer)
Excessive mortgage origination fees charged to first-time buyers
Discrimination in the secondary mortgage market

Correct answer: Redlining and the failure of banks to serve low- and moderate-income communities

CRA was enacted in 1977 to encourage depository institutions to help meet the credit needs of the communities they serve, including low- and moderate-income neighborhoods.

Question 13: Which agency is primarily responsible for enforcing ECOA in the context of mortgage lending by non-bank mortgage companies?

Federal Reserve Board
Office of the Comptroller of the Currency
Consumer Financial Protection Bureau (CFPB) (Correct answer)
Federal Housing Finance Agency (FHFA)

Correct answer: Consumer Financial Protection Bureau (CFPB)

The CFPB has primary enforcement authority over ECOA (Regulation B) for non-depository mortgage lenders.

Question 14: Under ECOA, a creditor MAY ask about an applicant's marital status in which situation?

When the applicant is applying for an unsecured personal loan
When state property law directly affects the creditor's rights in the collateral (Correct answer)
Only when the co-applicant requests the information
Never — marital status cannot be collected under any circumstance

Correct answer: When state property law directly affects the creditor's rights in the collateral

Regulation B allows creditors to ask about marital status when it is relevant to state law rights in the collateral securing the loan, such as in community property states.

Question 15: Under HOEPA, a mortgage is classified as a 'high-cost mortgage' if the APR exceeds the Average Prime Offer Rate (APOR) by more than how many percentage points for a first-lien loan?

1.5 percentage points
3.5 percentage points
6.5 percentage points (Correct answer)
8 percentage points

Correct answer: 6.5 percentage points

Under HOEPA as amended by Dodd-Frank, a first-lien loan is high-cost if its APR exceeds APOR by more than 6.5 percentage points.

Question 16: The Dodd-Frank Act's Ability-to-Repay (ATR) rule requires lenders to make a reasonable, good-faith determination that borrowers can repay their loans based on how many underwriting factors?

4 factors
6 factors
8 factors (Correct answer)
12 factors

Correct answer: 8 factors

The ATR rule specifies eight underwriting factors lenders must consider, including income, assets, employment, credit history, and monthly debt obligations.

Question 17: A Qualified Mortgage (QM) under Dodd-Frank generally prohibits a debt-to-income (DTI) ratio exceeding what threshold (under the General QM standard)?

36%
41%
43% (Correct answer)
50%

Correct answer: 43%

The original General QM definition capped borrower DTI at 43%; later amendments shifted to a price-based threshold, but 43% remains a foundational benchmark.

Question 18: Which feature is expressly prohibited in a Qualified Mortgage under the Dodd-Frank ATR/QM rule?

Fixed interest rate
Balloon payment (for most QMs) (Correct answer)
Private mortgage insurance (PMI)
Escrow account for taxes

Correct answer: Balloon payment (for most QMs)

QMs generally cannot contain balloon payments (except for certain small creditor and rural/underserved area loans), negative amortization, or interest-only features.

Question 19: Under the Homeowners Protection Act (PMI Cancellation Act), a borrower may request cancellation of PMI once the loan-to-value ratio reaches:

90%
85%
80% (Correct answer)
75%

Correct answer: 80%

The Homeowners Protection Act allows borrowers to request PMI cancellation when LTV reaches 80% based on the original property value.

Question 20: Under the Homeowners Protection Act, lenders must automatically terminate PMI when the LTV ratio reaches what level, based on original amortization schedule?

80%
78% (Correct answer)
75%
70%

Correct answer: 78%

The Homeowners Protection Act requires automatic PMI termination when the loan balance reaches 78% LTV based on the original amortization schedule.

Question 21: HOEPA's high-cost mortgage provisions apply to which type of transaction?

Purchase money mortgages for primary residences only
All residential mortgage transactions including purchases and refinances
Refinances and home equity loans, not purchase money mortgages (Correct answer)
Only subordinate-lien loans and HELOCs

Correct answer: Refinances and home equity loans, not purchase money mortgages

HOEPA (as amended by Dodd-Frank) covers refinances, closed-end home equity loans, and HELOCs — but not purchase money mortgages.

Mortgage Federal Mortgage-Related Laws

Under RESPA, within how many business days must a lender provide a Loan Estimate to a borrower after receiving a completed loan application?

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