Documentation & Legal Requirements Flashcards

The Dodd-Frank Act's Ability-to-Repay (ATR) rule requires lenders to make a reasonable, good-faith determination of a borrower's ability to repay based on verified information. Which of the following loans is EXEMPT from ATR requirements?

Answer: Home Equity Lines of Credit (HELOCs)

Open-end credit products such as HELOCs are explicitly excluded from the ATR/QM rule's scope under Regulation Z.

Under the Bank Secrecy Act (BSA) and FinCEN rules, when must a lender file a Suspicious Activity Report (SAR) for a mortgage transaction?

Answer: When there is a known or suspected violation of law or suspicious activity involving $5,000 or more

SAR filing is required when a transaction involves $5,000 or more and the institution knows, suspects, or has reason to suspect illegal activity or structuring.

A lender discovers that a power of attorney (POA) was used at closing without prior disclosure. Which risk does this primarily create?

Answer: It may signal occupancy misrepresentation or fraud if the principal was not aware of transaction terms

Undisclosed use of a POA is a common fraud indicator because the principal borrower may not have been aware of the loan terms or may not have intended to close the transaction.

Which URLA section requires disclosure of outstanding judgments, bankruptcy, foreclosure, delinquent federal debt, or lawsuits pending against the borrower?

Answer: Section 6 - Declarations

Section 6 (Declarations) of the URLA is where borrowers must disclose legal and financial history including judgments, bankruptcies, foreclosures, and pending lawsuits.

Under the Fair Housing Act, which underwriting practice is considered illegal when applied to a specific geographic area based on the racial composition of its residents?

Answer: Redlining — refusing to make loans in areas based on racial composition

Redlining is the illegal practice of denying or limiting financial services to specific geographic areas based on the racial or ethnic composition of those neighborhoods.

A lender sells a mortgage loan in the secondary market. Which document legally transfers the promissory note's ownership from the originating lender to the investor?

Answer: An allonge or endorsement on the note

A promissory note is transferred through an endorsement or allonge (a separate attachment) signed by the payee, transferring payment rights to the new holder.

The Truth in Lending Act (TILA) requires disclosure of the Annual Percentage Rate (APR). Which cost is INCLUDED in the APR calculation for a closed-end mortgage?

Answer: Title insurance (lender's policy)

The lender's title insurance premium is a finance charge included in the APR calculation because it is required by the lender as a condition of the loan.