SAFE Federal Mortgage-Related Laws 3 — Questions and Answers
Question 1: The Community Reinvestment Act (CRA) was enacted primarily to address which practice?
- Predatory lending in subprime markets
- Redlining and disinvestment in low- and moderate-income communities (Correct answer)
- Excessive mortgage fees charged to first-time homebuyers
- Discrimination against protected classes in commercial real estate
Correct answer: Redlining and disinvestment in low- and moderate-income communities
The CRA was enacted in 1977 to encourage depository institutions to meet the credit needs of all communities, particularly addressing the practice of redlining in low- and moderate-income neighborhoods.
Question 2: Under TILA's high-cost mortgage (HOEPA) provisions, which of the following triggers HOEPA coverage for a closed-end mortgage?
- APR exceeds APOR by more than 2.5 percentage points for a first-lien loan
- APR exceeds APOR by more than 6.5 percentage points for a first-lien loan (Correct answer)
- Total points and fees exceed 3% of the total loan amount
- Loan term exceeds 30 years
Correct answer: APR exceeds APOR by more than 6.5 percentage points for a first-lien loan
A closed-end first-lien mortgage triggers HOEPA coverage if the APR exceeds the Average Prime Offer Rate (APOR) by more than 6.5 percentage points.
Question 3: Under the SAFE Act, which category of mortgage loan originator is subject to state licensing requirements?
- MLOs employed by federally chartered depository institutions
- MLOs employed by HUD-approved nonprofits
- MLOs employed by state-licensed mortgage companies (Correct answer)
- MLOs employed by federal credit unions
Correct answer: MLOs employed by state-licensed mortgage companies
MLOs employed by state-licensed mortgage companies must be individually licensed under state law per the SAFE Act; those at federally regulated institutions register instead.
Question 4: Which disclosure required under RESPA must be provided to the borrower within 3 business days of loan application and reflects estimated settlement charges?
- Good Faith Estimate (GFE)
- Loan Estimate (Correct answer)
- HUD-1 Settlement Statement
- Closing Disclosure
Correct answer: Loan Estimate
The TRID-integrated Loan Estimate replaced the GFE and must be delivered within 3 business days of receiving a complete application for most closed-end mortgage loans.
Question 5: A lender engages in 'steering' under the Dodd-Frank Act when it directs a consumer to a loan product that:
- Has a higher interest rate than products from competing lenders
- Is not in the consumer's interest but results in greater compensation for the MLO (Correct answer)
- Does not include a prepayment penalty
- Requires private mortgage insurance
Correct answer: Is not in the consumer's interest but results in greater compensation for the MLO
Steering is the prohibited practice of directing consumers to loan products that generate higher compensation for the originator but are not in the consumer's best interest.
Question 6: Under Dodd-Frank's Ability-to-Repay (ATR) rule, which type of loan provides the strongest legal safe harbor for lenders?
- Standard mortgage
- Qualified Mortgage (QM) (Correct answer)
- Interest-only mortgage
- Balloon payment mortgage
Correct answer: Qualified Mortgage (QM)
Qualified Mortgages receive a safe harbor or rebuttable presumption of compliance with the ATR rule, with higher-priced QMs getting rebuttable presumption and others getting a conclusive safe harbor.
Question 7: The Fair Debt Collection Practices Act (FDCPA) generally applies to mortgage servicers when they:
- Service loans they originated themselves
- Acquire loans that were already in default at the time of acquisition (Correct answer)
- Conduct routine payment processing for performing loans
- Issue initial mortgage disclosures at origination
Correct answer: Acquire loans that were already in default at the time of acquisition
The FDCPA applies to third-party debt collectors and servicers who acquire a mortgage that was already in default, making them 'debt collectors' under the statute.
SAFE Federal Mortgage-Related Laws 3
The Community Reinvestment Act (CRA) was enacted primarily to address which practice?