Mortgage Federal Lending Regulations 4 — Questions and Answers
Question 1: Under Regulation Z, a refinance on a primary residence gives the borrower a right of rescission period of:
- 3 business days (Correct answer)
- 1 business day
- 5 calendar days
- 10 business days
Correct answer: 3 business days
Borrowers have three business days after closing, delivery of the Notice of Right to Rescind, or delivery of the required disclosures — whichever is latest — to rescind a non-purchase mortgage on their primary home.
Question 2: A mortgage loan originator who takes a loan application and offers or negotiates terms without holding a license is violating which federal law?
- The SAFE Mortgage Licensing Act (Correct answer)
- RESPA
- TILA
- HMDA
Correct answer: The SAFE Mortgage Licensing Act
The SAFE Act requires all MLOs who take applications and negotiate loan terms to be either state-licensed or federally registered.
Question 3: Under the Gramm-Leach-Bliley Act (GLBA), mortgage lenders must provide a privacy notice to consumers:
- At account opening and annually thereafter (Correct answer)
- Only when information is shared with third parties
- Every five years
- Only upon written consumer request
Correct answer: At account opening and annually thereafter
GLBA requires financial institutions to deliver an initial privacy notice when a customer relationship is established and annually every year the relationship continues.
Question 4: RESPA Section 8 prohibits which of the following practices?
- Paying or receiving kickbacks for referrals of settlement services (Correct answer)
- Charging origination fees on conforming loans
- Requiring escrow accounts for all FHA loans
- Disclosing affiliated business arrangements
Correct answer: Paying or receiving kickbacks for referrals of settlement services
RESPA Section 8 specifically prohibits giving or accepting anything of value in exchange for referrals of federally related mortgage settlement services.
Question 5: Under the ATR/QM rule, a Qualified Mortgage generally cannot have a debt-to-income ratio exceeding:
- 43% (Correct answer)
- 50%
- 36%
- 45%
Correct answer: 43%
Under the original QM rule, a maximum DTI of 43% was the general limit, though GSE-eligible loans had a temporary safe harbor; new price-based QM rules replaced DTI caps in 2021.
Question 6: Which federal regulation specifically prohibits a lender from requiring a borrower to purchase credit life insurance as a condition of obtaining a mortgage?
- Regulation Z (TILA) (Correct answer)
- Regulation X (RESPA)
- Regulation B (ECOA)
- Regulation C (HMDA)
Correct answer: Regulation Z (TILA)
TILA/Regulation Z prohibits tying the granting of credit to the purchase of credit insurance, and requires disclosure when such insurance is voluntarily chosen.
Question 7: A lender discovers an APR error after closing and the disclosed APR was understated by 0.20% on a regular mortgage. Under TILA, the lender must:
- Refund the overcharge because the error exceeds the 1/8% tolerance (Correct answer)
- Do nothing because the error is within the 1/4% tolerance
- Void the entire loan transaction
- Report the error to the CFPB within 30 days
Correct answer: Refund the overcharge because the error exceeds the 1/8% tolerance
An understatement of 0.20% exceeds the 1/8% (0.125%) regular mortgage tolerance, requiring the lender to cure the error by refunding the amount overcharged.
Mortgage Federal Lending Regulations 4
Under Regulation Z, a refinance on a primary residence gives the borrower a right of rescission period of: