Mortgage Federal Mortgage-Related Laws 4 — Questions and Answers
Question 1: Under HOEPA, a mortgage is classified as a 'high-cost mortgage' if the APR exceeds the Average Prime Offer Rate (APOR) by more than how many percentage points for a first-lien loan?
- 1.5 percentage points
- 3.5 percentage points
- 6.5 percentage points (Correct answer)
- 8 percentage points
Correct answer: 6.5 percentage points
Under HOEPA as amended by Dodd-Frank, a first-lien loan is high-cost if its APR exceeds APOR by more than 6.5 percentage points.
Question 2: The Dodd-Frank Act's Ability-to-Repay (ATR) rule requires lenders to make a reasonable, good-faith determination that borrowers can repay their loans based on how many underwriting factors?
- 4 factors
- 6 factors
- 8 factors (Correct answer)
- 12 factors
Correct answer: 8 factors
The ATR rule specifies eight underwriting factors lenders must consider, including income, assets, employment, credit history, and monthly debt obligations.
Question 3: A Qualified Mortgage (QM) under Dodd-Frank generally prohibits a debt-to-income (DTI) ratio exceeding what threshold (under the General QM standard)?
- 36%
- 41%
- 43% (Correct answer)
- 50%
Correct answer: 43%
The original General QM definition capped borrower DTI at 43%; later amendments shifted to a price-based threshold, but 43% remains a foundational benchmark.
Question 4: Which feature is expressly prohibited in a Qualified Mortgage under the Dodd-Frank ATR/QM rule?
- Fixed interest rate
- Balloon payment (for most QMs) (Correct answer)
- Private mortgage insurance (PMI)
- Escrow account for taxes
Correct answer: Balloon payment (for most QMs)
QMs generally cannot contain balloon payments (except for certain small creditor and rural/underserved area loans), negative amortization, or interest-only features.
Question 5: Under the Homeowners Protection Act (PMI Cancellation Act), a borrower may request cancellation of PMI once the loan-to-value ratio reaches:
- 90%
- 85%
- 80% (Correct answer)
- 75%
Correct answer: 80%
The Homeowners Protection Act allows borrowers to request PMI cancellation when LTV reaches 80% based on the original property value.
Question 6: Under the Homeowners Protection Act, lenders must automatically terminate PMI when the LTV ratio reaches what level, based on original amortization schedule?
- 80%
- 78% (Correct answer)
- 75%
- 70%
Correct answer: 78%
The Homeowners Protection Act requires automatic PMI termination when the loan balance reaches 78% LTV based on the original amortization schedule.
Question 7: HOEPA's high-cost mortgage provisions apply to which type of transaction?
- Purchase money mortgages for primary residences only
- All residential mortgage transactions including purchases and refinances
- Refinances and home equity loans, not purchase money mortgages (Correct answer)
- Only subordinate-lien loans and HELOCs
Correct answer: Refinances and home equity loans, not purchase money mortgages
HOEPA (as amended by Dodd-Frank) covers refinances, closed-end home equity loans, and HELOCs — but not purchase money mortgages.
Mortgage Federal Mortgage-Related Laws 4
Under HOEPA, a mortgage is classified as a 'high-cost mortgage' if the APR exceeds the Average Prime Offer Rate (APOR) by more than how many percentage points for a first-lien loan?