SAFE TILA and RESPA Regulations 3 — Questions and Answers
Question 1: Under RESPA, what is the maximum cushion a lender may maintain in an escrow account?
- 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 limits escrow cushions to a maximum of two months' worth of escrow payments to prevent over-collection by servicers.
Question 2: A borrower receives a Closing Disclosure with a higher interest rate than shown on the Loan Estimate. This change triggers a new waiting period if the APR increases by more than:
- 0.125% for fixed-rate loans
- 0.25% for fixed-rate loans (Correct answer)
- 0.5% for all loans
- 1% for adjustable-rate loans
Correct answer: 0.25% for fixed-rate loans
A Closing Disclosure re-disclosure and new three-day waiting period are required if the APR increases by more than 0.25% for fixed-rate loans (or 0.25% for irregular transactions).
Question 3: Which RESPA provision requires lenders to provide borrowers with an Annual Escrow Account Disclosure Statement?
- Section 5
- Section 8
- Section 9
- Section 10 (Correct answer)
Correct answer: Section 10
RESPA Section 10 governs escrow accounts and requires servicers to provide annual escrow account statements to borrowers.
Question 4: Under TILA, which of the following is included in the Finance Charge calculation?
- Appraisal fee paid to an unaffiliated third party
- Credit life insurance premium when required by the lender (Correct answer)
- Title insurance premium
- Recording fees
Correct answer: Credit life insurance premium when required by the lender
If the lender requires credit life insurance as a condition of the loan, its premium must be included in the Finance Charge under TILA.
Question 5: A settlement service provider gives a MLO a referral fee for sending clients their way. Under RESPA, this is:
- Permitted if disclosed in writing
- Permitted up to $50 per referral
- Prohibited regardless of disclosure (Correct answer)
- Permitted if state law allows it
Correct answer: Prohibited regardless of disclosure
RESPA Section 8 prohibits kickbacks and referral fees for the referral of settlement services regardless of disclosure or state law.
Question 6: Under TILA's right of rescission, which of the following transactions does NOT give borrowers the right to rescind?
- Home equity loan on a primary residence
- Refinance with a new lender on a primary residence
- Purchase money mortgage on a primary residence (Correct answer)
- Home equity line of credit on a primary residence
Correct answer: Purchase money mortgage on a primary residence
The right of rescission under TILA does not apply to residential purchase money mortgages; it applies only to non-purchase credit transactions secured by the borrower's primary home.
Question 7: Under RESPA, a lender may require a borrower to use a particular title company only if:
- The lender discloses this requirement on the Loan Estimate
- The lender has an affiliated business arrangement disclosed to the borrower
- The lender passes 100% of any discount to the borrower
- A lender may never require use of a specific title company (Correct answer)
Correct answer: A lender may never require use of a specific title company
RESPA Section 9 prohibits a seller or lender from requiring the buyer to use a particular title company as a condition of the sale.
SAFE TILA and RESPA Regulations 3
Under RESPA, what is the maximum cushion a lender may maintain in an escrow account?