Mortgage Federal Laws and Regulations 4 — Questions and Answers
Question 1: Under the Ability-to-Repay (ATR) rule, a lender must verify a borrower's income using:
- Only the borrower's stated income
- Reasonably reliable third-party records (Correct answer)
- The automated underwriting system output alone
- The borrower's credit score only
Correct answer: Reasonably reliable third-party records
The ATR rule requires lenders to verify financial information using reasonably reliable third-party records such as tax returns, W-2s, and bank statements.
Question 2: The Servicemembers Civil Relief Act (SCRA) limits mortgage interest rates for active-duty servicemembers to a maximum of:
- 3%
- 4%
- 6% (Correct answer)
- 8%
Correct answer: 6%
The SCRA caps mortgage interest rates at 6% per year for obligations incurred before active-duty military service.
Question 3: A lender requires a borrower to use a specific title company owned by the lender's affiliate. Under RESPA, this is permissible only if:
- The title company provides a discount
- An affiliated business arrangement (AfBA) disclosure is provided and use is not required (Correct answer)
- The loan is a jumbo loan
- The borrower signs a written waiver
Correct answer: An affiliated business arrangement (AfBA) disclosure is provided and use is not required
RESPA allows affiliated business arrangements only when the lender provides a written disclosure and does not require use of the affiliate.
Question 4: Under TILA, the Annual Percentage Rate (APR) differs from the interest rate because it includes:
- Homeowner's insurance premiums
- Property tax escrow amounts
- Certain fees and costs of credit (Correct answer)
- Principal reduction payments
Correct answer: Certain fees and costs of credit
The APR reflects the true cost of borrowing by incorporating the interest rate plus certain fees such as points and origination charges.
Question 5: Which act prohibits lenders from discriminating based on a neighborhood's racial composition, a practice known as redlining?
- RESPA
- Fair Housing Act (Correct answer)
- TILA
- FIRREA
Correct answer: Fair Housing Act
The Fair Housing Act of 1968 prohibits discrimination in residential real estate transactions, including redlining based on neighborhood racial composition.
Question 6: FIRREA was enacted primarily in response to:
- The 2008 mortgage crisis
- The savings and loan crisis of the 1980s (Correct answer)
- Predatory subprime lending in the 1990s
- The Great Depression bank failures
Correct answer: The savings and loan crisis of the 1980s
FIRREA (Financial Institutions Reform, Recovery, and Enforcement Act) was passed in 1989 to address widespread savings and loan association failures.
Question 7: Under HMDA, which institution is generally required to report mortgage data?
- Any business that accepts deposits
- Covered financial institutions meeting asset and location thresholds (Correct answer)
- Only federally chartered banks
- All real estate brokerages nationwide
Correct answer: Covered financial institutions meeting asset and location thresholds
HMDA applies to covered financial institutions that meet certain asset size, location, and loan volume thresholds established by the CFPB.
Mortgage Federal Laws and Regulations 4
Under the Ability-to-Repay (ATR) rule, a lender must verify a borrower's income using: