Mortgage Federal Mortgage-Related Laws Questions and Answers — Questions and Answers
Question 1: A title company hosts a free dinner for a group of real estate agents. During the dinner, the title company's representative implies that they expect future business referrals in return for the meal. Which federal law is MOST LIKELY violated by this arrangement?
- Truth in Lending Act (TILA)
- Equal Credit Opportunity Act (ECOA)
- Real Estate Settlement Procedures Act (RESPA) (Correct answer)
- Home Mortgage Disclosure Act (HMDA)
Correct answer: Real Estate Settlement Procedures Act (RESPA)
Section 8 of the Real Estate Settlement Procedures Act (RESPA) prohibits giving or accepting a 'thing of value' in exchange for the referral of settlement service business. A free dinner is considered a 'thing of value,' and conditioning it on future referrals is a form of illegal kickback.
Question 2: Under the Truth in Lending Act (TILA), which of the following advertisement phrases is a 'trigger term' that would require additional disclosures, such as the APR and terms of repayment?
- "Easy monthly payments"
- "Low down payment of only $5,000" (Correct answer)
- "FHA and VA loans available"
- "Great rates available"
Correct answer: "Low down payment of only $5,000"
According to TILA (Regulation Z), a trigger term is any specific credit term stated in an advertisement. Stating the specific amount of a down payment (e.g., "$5,000") is a trigger term. Vague phrases like "easy monthly payments" or "great rates" are not trigger terms, and stating loan program availability is also not a trigger term.
Question 3: The Equal Credit Opportunity Act (ECOA) prohibits discrimination in any aspect of a credit transaction. Which of the following is NOT a protected class under ECOA?
- Marital Status
- Age
- Occupation (Correct answer)
- Receipt of public assistance income
Correct answer: Occupation
The Equal Credit Opportunity Act (ECOA) and its implementing Regulation B prohibit discrimination based on race, color, religion, national origin, sex, marital status, age (provided the applicant can contract), receipt of public assistance income, or the good faith exercise of any right under the Consumer Credit Protection Act. Occupation is not a protected class, although lenders use it to assess creditworthiness and ability to repay.
Question 4: A lender approves a mortgage for a borrower based solely on the borrower's high credit score and the property's appraised value, without verifying the borrower's income or current debt obligations. This practice most directly violates the principles of which rule?
- The Ability-to-Repay (ATR) Rule (Correct answer)
- The Homeowners Protection Act (HPA)
- The Fair Credit Reporting Act (FCRA)
- The SAFE Act
Correct answer: The Ability-to-Repay (ATR) Rule
The Ability-to-Repay (ATR) Rule, implemented by the CFPB under TILA, requires creditors to make a reasonable, good-faith determination that a consumer has the ability to repay a mortgage before the loan is made. This determination must include verification of factors like income, assets, and debt obligations using reliable third-party records, which was not done in this scenario.
Question 5: What is the primary purpose of the Home Mortgage Disclosure Act (HMDA)?
- To set maximum interest rates for high-cost mortgages.
- To require lenders to report data to help identify potential discriminatory lending patterns. (Correct answer)
- To provide borrowers with a 3-day right to cancel certain mortgage transactions.
- To regulate the compensation of mortgage loan originators.
Correct answer: To require lenders to report data to help identify potential discriminatory lending patterns.
The primary purpose of HMDA (implemented by Regulation C) is to require financial institutions to collect, report, and disclose data about their mortgage lending activity. This data is used by the public and regulators to help determine if lenders are serving the housing needs of their communities and to identify potentially discriminatory lending patterns.
Question 6: A borrower is refinancing the mortgage on their primary residence with a new lender. According to the Truth in Lending Act (TILA), they are entitled to a three-day right of rescission. This right of rescission would NOT apply if the borrower was:
- Taking out a Home Equity Line of Credit (HELOC).
- Refinancing their loan with their current lender.
- Purchasing a new primary residence. (Correct answer)
- Obtaining a reverse mortgage.
Correct answer: Purchasing a new primary residence.
The TILA Right of Rescission provides a three-day cooling-off period for certain transactions secured by a consumer's principal dwelling, such as a refinance or a home equity loan. However, this right explicitly does not apply to residential mortgage transactions for the purchase or initial construction of a home.
Mortgage Federal Mortgage-Related Laws Questions and Answers
A title company hosts a free dinner for a group of real estate agents.
During the dinner, the title company's representative implies that they expect future business referrals in return for the meal.
Which federal law is MOST LIKELY violated by this arrangement?