SAFE - Certified Secure and Fair Enforcement Mortgage Loan Originator TILA and RESPA Regulations Questions and Answers 1 — Questions and Answers
Question 1: A borrower receives a Closing Disclosure on Tuesday. Two days later, on Thursday, the lender discovers the loan product is changing from a fixed-rate to a variable-rate mortgage. According to TILA/RESPA regulations, what is the impact of this change?
- The loan cannot close until three business days after the borrower receives a revised Closing Disclosure. (Correct answer)
- The loan can close as scheduled as long as the borrower receives a revised Closing Disclosure at the closing table.
- The closing must be delayed by at least one business day to account for the change.
- The loan can proceed as planned because changes in loan product do not require a new waiting period.
Correct answer: The loan cannot close until three business days after the borrower receives a revised Closing Disclosure.
Under the TILA-RESPA Integrated Disclosure (TRID) rule, certain significant changes to the loan terms after the Closing Disclosure is delivered require a new three-business-day waiting period. These changes include: 1) a change that makes the APR inaccurate, 2) a change in the loan product, or 3) the addition of a prepayment penalty. Since the loan product changed, the lender must issue a revised Closing Disclosure, and the closing cannot occur until three business days after the borrower is considered to have received it.
Question 2: Under RESPA Section 10, what is the maximum cushion that a lender can require a borrower to maintain in an escrow account?
- An amount equal to three months of escrow payments.
- An amount equal to one month of escrow payments.
- An amount equal to one-sixth of the total estimated annual disbursements. (Correct answer)
- An amount equal to one-quarter of the total estimated annual disbursements.
Correct answer: An amount equal to one-sixth of the total estimated annual disbursements.
RESPA Section 10 specifies that a lender can require a borrower to pay into an escrow account to cover anticipated disbursements like taxes and insurance. However, it limits the cushion, or reserve, that the lender can hold. This cushion is restricted to an amount equal to one-sixth (which is equivalent to two months) of the total estimated annual disbursements from the account.
Question 3: In a real estate-secured transaction, which of the following is generally EXCLUDED from the finance charge calculation under the Truth in Lending Act (TILA)?
- Loan origination fees paid to the creditor.
- Bona fide and reasonable title insurance fees. (Correct answer)
- Points paid by the borrower to reduce the interest rate.
- Fees charged by a mortgage broker.
Correct answer: Bona fide and reasonable title insurance fees.
TILA requires the disclosure of the finance charge, which is the cost of credit as a dollar amount. While it includes many fees like origination fees, points, and broker fees, TILA provides a special rule for real estate-secured loans. It excludes certain bona fide and reasonable third-party fees, such as those for title examination, title insurance, and credit reports, from the finance charge calculation.
Question 4: A home seller's purchase contract requires the buyer to use a specific title insurance company that is owned by the seller's brother. The buyer will pay for both the owner's and lender's title policies. This practice is a violation of which federal regulation?
- TILA Section 32 (HOEPA)
- RESPA Section 8
- TILA Section 36 (Loan Originator Compensation)
- RESPA Section 9 (Correct answer)
Correct answer: RESPA Section 9
RESPA Section 9 prohibits a seller from requiring a home buyer to use a particular title insurance company, either directly or indirectly, as a condition of sale when the buyer is paying for the coverage. A violation of this section can make the seller liable to the buyer for an amount equal to three times all charges made for the title insurance.
Question 5: For the purposes of the right of rescission under TILA, how is a 'business day' defined?
- Any day the creditor's offices are open for business.
- All calendar days except Sundays and federal legal holidays. (Correct answer)
- Monday through Friday, excluding federal legal holidays.
- All calendar days including Sundays, but excluding federal legal holidays.
Correct answer: All calendar days except Sundays and federal legal holidays.
Regulation Z provides two definitions for 'business day'. The 'general' definition is any day the creditor is open for business. However, for specific purposes, including the right of rescission, a more precise definition applies: all calendar days except for Sundays and the legal public holidays specified in 5 U.S.C. 6103(a). This means Saturday is always counted as a business day for rescission purposes.
Question 6: A loan is determined to be a Higher-Priced Mortgage Loan (HPML) because its APR exceeds the Average Prime Offer Rate by the applicable threshold. Under TILA, what is generally required for this type of loan?
- The borrower must receive special high-cost mortgage counseling from a HUD-approved counselor.
- A second appraisal must be obtained if the property was recently sold at a lower price.
- An escrow account for property taxes and homeowner's insurance must be established and maintained for at least five years. (Correct answer)
- The loan must have a mandatory three-day right of rescission, regardless of property type.
Correct answer: An escrow account for property taxes and homeowner's insurance must be established and maintained for at least five years.
The TILA HPML Escrow Rule generally requires that a creditor establish and maintain an escrow account for property taxes and required insurance premiums for a minimum of five years for any first-lien HPML. While counseling is required for high-cost (HOEPA) loans and second appraisals may be required under certain HPML scenarios, the mandatory escrow account is a primary and general requirement.
SAFE - Certified Secure and Fair Enforcement Mortgage Loan Originator TILA and RESPA Regulations Questions and Answers 1
A borrower receives a Closing Disclosure on Tuesday.
Two days later, on Thursday, the lender discovers the loan product is changing from a fixed-rate to a variable-rate mortgage.
According to TILA/RESPA regulations, what is the impact of this change?