Free NMLS Federal Mortgage-Related Laws Questions and Answers — Questions and Answers
Question 1: A borrower is refinancing their primary residence. According to the Truth in Lending Act (TILA), how many copies of the Notice of Right to Rescind must each borrower with an ownership interest in the property receive?
- One copy
- Two copies (Correct answer)
- Three copies
- It depends on the loan amount
Correct answer: Two copies
Regulation Z, which implements TILA, requires that for a transaction that is subject to the right of rescission, each consumer with an ownership interest in the property must be given two copies of the notice of the right to rescind. This ensures the borrower is fully aware of their right to cancel the transaction within three business days.
Question 2: Under the Real Estate Settlement Procedures Act (RESPA), which of the following is NOT a required disclosure to the borrower?
- Loan Estimate
- Closing Disclosure
- Annual Escrow Statement
- Annual Percentage Rate (APR) Disclosure (Correct answer)
Correct answer: Annual Percentage Rate (APR) Disclosure
While RESPA (Regulation X) governs the disclosure of settlement costs and requires the Loan Estimate, Closing Disclosure, and Annual Escrow Statements, the disclosure of the Annual Percentage Rate (APR) is a primary requirement of the Truth in Lending Act (TILA), implemented by Regulation Z.
Question 3: A mortgage loan originator asks a loan applicant about her plans to have more children in the future. This question is a violation of which federal law?
- Real Estate Settlement Procedures Act (RESPA)
- Truth in Lending Act (TILA)
- Equal Credit Opportunity Act (ECOA) (Correct answer)
- Home Mortgage Disclosure Act (HMDA)
Correct answer: Equal Credit Opportunity Act (ECOA)
The Equal Credit Opportunity Act (ECOA), or Regulation B, prohibits discrimination in any aspect of a credit transaction. It is illegal for a creditor to inquire about an applicant's family status or childbearing intentions, as this could be used to discriminate.
Question 4: A borrower applies for a loan on Monday, June 1st. According to the TILA-RESPA Integrated Disclosure (TRID) rule, what is the latest day the lender can provide the Loan Estimate to the borrower?
- Tuesday, June 2nd
- Wednesday, June 3rd
- Thursday, June 4th (Correct answer)
- Friday, June 5th
Correct answer: Thursday, June 4th
The TRID rule requires creditors to deliver or place in the mail the Loan Estimate no later than the third business day after receiving the consumer's application. Counting from Monday (day zero), the third business day would be Thursday.
Question 5: Which of the following is the primary purpose of the Home Mortgage Disclosure Act (HMDA)?
- To ensure consumers receive disclosures about settlement service costs.
- To protect consumers from identity theft and ensure credit report accuracy.
- To require lenders to report data to help identify potential discriminatory lending patterns. (Correct answer)
- To provide borrowers with a three-day right to rescind certain loan transactions.
Correct answer: To require lenders to report data to help identify potential discriminatory lending patterns.
The Home Mortgage Disclosure Act (HMDA), implemented by Regulation C, requires many financial institutions to collect, report, and disclose information about mortgages. This data is used to help determine whether financial institutions are serving the housing needs of their communities and to identify possible discriminatory lending patterns.
Question 6: Under the Fair and Accurate Credit Transactions Act (FACTA), a mortgage loan originator who sees a fraud alert on a borrower's credit report must:
- Immediately deny the loan application.
- Charge the borrower a higher interest rate to compensate for the risk.
- Proceed with the loan as long as the borrower provides a written explanation.
- Take reasonable steps to verify the identity of the applicant before proceeding. (Correct answer)
Correct answer: Take reasonable steps to verify the identity of the applicant before proceeding.
FACTA's Red Flags Rule requires financial institutions and creditors to have an Identity Theft Prevention Program. If a red flag, such as a fraud alert, is detected, the originator must take steps to verify the consumer's identity before continuing with the transaction. Ignoring the alert or immediately denying the loan without further verification would be improper responses.
Free NMLS Federal Mortgage-Related Laws Questions and Answers
A borrower is refinancing their primary residence.
According to the Truth in Lending Act (TILA), how many copies of the Notice of Right to Rescind must each borrower with an ownership interest in the property receive?