☑️ Chapter 9: Federal Probibition of Predatory Lending

Question 1

Home Ownership and Equity
Protection Act (HOEPA):
The Home Ownership and Equity Protection Act (HOEPA), a 1994 amendment to the Truth in Lending Act, establishes DISCLOSURE requirements and PROHIBITS _____ and unfair practices in lending. HOEPA also establishes requirements for loans with high interest rates and/or fees termed _____ Loans. The rules for these loans are contained in Regulation Z, which implements the Truth in Lending Act. [Requirements for certain closed-end home mortgages]

Answer 1

A. Deceptive
B. High-Cost

Question 2

Home Ownership and Equity
Protection Act (HOEPA):
This Act is enforced by the ______ for non-depository lenders and by each state’s attorney general. The CFPB enforces the Act for federally-regulated depository institutions. The rule making and enforcement authority for TILA and HOEPA were transferred to the ______ in July 2011. HOEPA also gives the ______ broad regulatory authority to prohibit additional practices it finds to be unfair or deceptive, NOT JUST for high-cost loans, but all consumer mortgage loans.

Answer 2

A. Federal Trade Commission (FTC)
B. CFPB
C. Federal Reserve Board

Question 3

Home Ownership and Equity
Protection Act (HOEPA):
A lender who violates HOEPA may be SUED by the consumer, who may be able to recover statutory and actual damages, court costs, and attorney’s fees. In addition, a violation of HOEPA may enable a consumer to rescind the loan for up to _____ years following loan consummation.

Answer 3

A. Three

Question 4

Home Ownership and Equity
Protection Act (HOEPA):
High-Cost Loans:
_____ Mortgage and Homeownership Counseling
Amendments to the Truth in Lending Act (TILA) [Regulation
Z] and Homeownership Counseling Amendments to the Real Estate Settlement Procedures Act (RESPA) [Regulation X] Summary.

Answer 4

A. High-Cost

Question 5

Home Ownership and Equity
Protection Act (HOEPA):
High-Cost Loans:
HOEPA provisions must be complied with after the triggers for a “high-cost loan” have been met. A _____ loan, (also known as a Section ____loan), according to HOEPA, is a closed-end loan or open-end credit plan secured by a borrower’s principal residence.
This includes purchase-money mortgages, refinances, closed-end home equity loans and open-end home equity lines of credit (HELOC). With some exceptions, _____, ______, _____, and ____ loans are EXEMPT from HOEPA coverage, as are loans made on ______ homes and vacation homes.

Answer 5

A. High-Cost Loan
B. Section 32
C.
a. Reverse Mortgages b. construction loans
c. HFA
d. USDA
e. Second

Question 6

Home Ownership and Equity
Protection Act (HOEPA):
High-Cost Loans:
A loan is considered a High-Cost Loan if any of these thresholds are met:
• The first lien on the property has an APR that exceeds the value of the APOR Index (as of the loan lock-in date) by more than _____ percentage points.
• A second mortgage has an APR that exceeds the value of the APOR Index as of the loan lock-in date) by more than _____ percentage points.
• When the total loan amount for a transaction is $22,969 or more and the points and fees amount exceeds 5% of the total loan amount. Note: The loan amount border changes each year. $22,969 is the border for 2022.
• When the total loan amount for a transaction is less than $_____ and the points and fees amount exceeds the lesser of the adjusted points and fees dollar trigger of $_____ or ____% of the total loan amount, the transaction is a high-cost loan. NOTE: The loan amount border changes each year. $_____
is the border for 2022.

Answer 6

A. 6.5 percentage points
B. 8.5 percentage points
C. $22,969
D. $1,148
E. 8%
F. $22,969

Question 7

Home Ownership and Equity
Protection Act (HOEPA):
High-Cost Loans:
HOEPA does NOT regulate _____ loans or _____ mortgages.
NOTE: The ______ is defined as the annual percentage rate derived from average annual percentage rates currently offered to consumers by a representative sample of lenders for prime mortgage transactions. A representative example of the prime offer rate tables follow.

Answer 7

A. average prime offer rate (APOR)
B. Construction
C. Reverse

Question 8

Home Ownership and Equity
Protection Act (HOEPA): Required Disclosures:
Creditors granting loans hitting HOEPA thresholds must disclose certain facts about the loan as part of the loan package at least ______ business days prior to _____ of a mortgage transaction. The disclosure notice generally follows a certain format.

Answer 8

A. three
B. consummation

Question 9

Home Ownership and Equity
Protection Act (HOEPA): Required Disclosures:
This notice is intended to protect consumers from pressure tactics that imply the consumer is already locked into the agreement, or that canceling will be prohibitively complex or expensive.
In addition, the creditor must disclose:
• The ____.
• The regular _____ amount (including any BALLOON payment where the law permits BALLOON payments).
• The loan ______ (when the amount borrowed includes credit insurance premiums).
• For variable rate loans, the amount of the ____ monthly payment and the fact that the rate and monthly payment may increase.
• For a mortgage ______, the total amount borrowed as reflected by the face amount of the note.
When the amount borrowed includes premiums or other charges for optional credit insurance or debt-cancellation coverage, that fact must also be stated.
To be considered accurate, the amount disclosed cannot vary by more than $_____ above or below the amount required to be disclosed.
These disclosures are in addition to the other required
Truth in Lending disclosures.

Answer 9

A. APR
B. payment
C. amount
D. maximum
E. refinancing
F. $100

Question 10

Home Ownership and Equity
Protection Act (HOEPA):
Higher-Priced Mortgage Loans:
TILA Regulation Z has been amended with rules that affect ________ mortgage loans, which were part of the Housing and Economic Recovery Act of 2008, which amended Regulation Z and the Truth In Lending Act. Regulation Z sets forth the specific requirements for higher-priced mortgage loans.

Answer 10

A. Higher-Priced

Question 11

Home Ownership and Equity
Protection Act (HOEPA):
Higher-Priced Mortgage Loans:
Higher-priced mortgage loans (HPML) are closed-end mortgage loans that are secured by the borrower’s principal dwelling. A _____ mortgage loan is defined as a loan where the APR of a mortgage loan exceeds the average prime offer rate by:
1. 1.5% for a ____ mortgage lien
2. 2.5% for a first lien ____ loan (loan amount over $_______)
3. 3.5% for any ______ mortgage lien

Answer 11

A. Higher-Priced
B. First
C. Jumbo
D. $647,200
E. Subordinate
F. Additional

Question 12

Home Ownership and Equity
Protection Act (HOEPA):
Higher-Priced Mortgage Loans:
A loan originator may verify if a prospective loan is a high-cost or higher-priced mortgage loan by determining the loan APR and entering the data at the ______ Calculator website. The APR calculation is based on the locked interest rate of the prospective loan. This site will calculate the rate spread between the _____ and the _____ in effect.

Answer 12

A. FFIEC Rate Spread
B. APR
C. APOR

Question 13

Home Ownership and Equity
Protection Act (HOEPA):
Higher-Priced Mortgage Loans:
If the loan being made is a _____ mortgage loan, the originator must establish:
a. The borrower’s ability to _____ the mortgage loan,
b. An escrow account for property taxes, homeowner’s insurance, private mortgage insurance, etc. for a _____-year term. COOPERATIVES, CONSTRUCTION loans, BRIDGE loans and REVERSE mortgages are EXEMPT from the ESCROW requirement and other exceptions do exists, and
c. A full ____ with a physical visit of the interior of the property has been performed by a certified or licensed appraiser. An additional appraisal may be required if the property was acquired less than ____ days prior to the sales contract.

Answer 13

A. Higher-Priced
B. Repay
C. 5
D. Appraisal
E. 180 Days

Question 14

Home Ownership and Equity
Protection Act (HOEPA): Prohibited Loan Terms Per Regulation Z of TILA:
A loan that is subject to HOEPA may NOT include:
• A payment schedule that provides for regular periodic payments that do NOT fully amortize and RESULT in a _____ payment on high-cost loans having terms of less than _____ years, unless it is a bridge loan of less than _____ year used by consumers to buy or build a home.

Answer 14

A. Balloon
B. 5 Years
C. 1 Year

Question 15

Home Ownership and Equity
Protection Act (HOEPA): Prohibited Loan Terms Per Regulation Z of TILA:
_______, which involves monthly pavments that do not fully pav the interest due on the loan and that cause an increase in the borrower’s total principal debt. Any interest rate changes and payment schedule caps must be coordinated to avoid this situation.

Answer 15

A. Negative Amortization

Question 16

Home Ownership and Equity
Protection Act (HOEPA): Prohibited Loan Terms Per Regulation Z of TILA:
A ________ that consolidates more than two periodic payments that are to be paid in advance from the proceeds of the loan. The borrower should get the maximum use of the funds and have a legitimate opportunity to use the loan proceeds.

Answer 16

A. Repayment Schedule

Question 17

Home Ownership and Equity
Protection Act (HOEPA): Prohibited Loan Terms Per Regulation Z of TILA:
________ that are higher than pre-default note rates and increase due to a default of the borrower.

Answer 17

A. Default Interest Rates

Question 18

Home Ownership and Equity
Protection Act (HOEPA): Prohibited Loan Terms Per Regulation Z of TILA:
A loan that is subject to HOEPA may NOT include:
______, is a refund calculated by a method less favorable than the actuarial method for rebates of interest arising from a loan acceleration due to default.

Answer 18

A. Rebating

Question 19

Home Ownership and Equity
Protection Act (HOEPA): Prohibited Loan Terms Per Regulation Z of TILA:
Prepayment penalties, although there are exceptions. ______ are allowed if LIMITED to the first ____ years of the loan or if the source of the prepayment funds is a refinancing by the lender or lender affiliate. They are also allowed if the amount of the periodic payment of principal, interest, or BOTH will NOT change at any time during the first _____ years of the loan. NOTE: Prepayment penalties may also be ALLOWED in cases where the borrower’s debt-to-income ratio does NOT exceed ____%.

Answer 19

A. Prepayment Penalties
B. Two
C. Four
D. 50%

Question 20

Home Ownership and Equity
Protection Act (HOEPA): Prohibited Loan Terms Per Regulation Z of TILA:
________, including any provision that enables the creditor to call the loan due before maturity. Only certain behavior of the consumer would permit the lender to call the loan; for example, fraud, material misrepresentation, default, or damage to the security property.

Answer 20

A. Demand Clauses

Question 21

Home Ownership and Equity
Protection Act (HOEPA): Prohibited Acts and Practices Per Regulation Z of TILA:
Prohibited acts or practices for high-cost loans], creditors granting loans meeting HOEPA criteria may NOT:
______ proceeds from home improvement loans to ANYONE other than the borrower, jointly to the borrower and the home improvement contractor, or, in some instances, to a third-party escrow agent as established by written agreement between the borrower, the creditor, and the contractor.

Answer 21

A. Disburse

Question 22

Home Ownership and Equity
Protection Act (HOEPA): Prohibited Acts and Practices Per Regulation Z of TILA:
Prohibited acts or practices for high-cost loans], creditors granting loans meeting HOEPA criteria may NOT:
Sell or otherwise _____ the loan without furnishing the following statement to the purchaser or assignee:
“Notice: This is a mortgage subject to special rules under the federal Truth in Lending Act. Purchasers or assignees of this mortgage could be LIABLE for all claims and defenses with respect to the mortgage that the borrower could ASSERT against the creditor.”

Answer 22

A. Assign

Question 23

Home Ownership and Equity
Protection Act (HOEPA): Prohibited Acts and Practices Per Regulation Z of TILA:
Prohibited acts or practices for high-cost loans], creditors granting loans meeting HOEPA criteria may NOT:
Refinance a high-cost loan into another high-cost loan within the first ____ months of origination unless the new loan is in the borrower’s best interest. The prohibition ALSO applies to assignees holding or servicing the loan.

Answer 23

A. 12 Months

Question 24

Home Ownership and Equity
Protection Act (HOEPA): Prohibited Acts and Practices Per Regulation Z of TILA:
Prohibited acts or practices for high-cost loans], creditors granting loans meeting HOEPA criteria may NOT:
Grant loans solely on the collateral value of the borrower’s property WITHOUT regard to the borrower’s ability to _____ the loan.

Answer 24

A. Repay

Question 25

Home Ownership and Equity
Protection Act (HOEPA): Prohibited Acts and Practices Per Regulation Z of TILA:
Prohibited acts or practices for high-cost loans], creditors granting loans meeting HOEPA criteria may NOT:
Extend credit without REQUIRED certification of pre-loan ______.

Answer 25

A. Counseling

Question 26

Home Ownership and Equity
Protection Act (HOEPA): Prohibited Acts and Practices Per Regulation Z of TILA:
Prohibited acts or practices for high-cost loans], creditors granting loans meeting HOEPA criteria may NOT:
Recommend _______ on an existing loan to be refinanced by a high-cost mortgage loan.

Answer 26

A. Defaulting

Question 27

Home Ownership and Equity
Protection Act (HOEPA): Prohibited Acts and Practices Per Regulation Z of TILA:
Prohibited acts or practices for high-cost loans], creditors granting loans meeting HOEPA criteria may NOT:
Charge any FEES to modify, defer, renew, _______, or amend a high-cost mortgage.

Answer 27

A. Extend

Question 28

Home Ownership and Equity
Protection Act (HOEPA): Prohibited Acts and Practices Per Regulation Z of TILA:
Prohibited acts or practices for high-cost loans], creditors granting loans meeting HOEPA criteria may NOT:
Assess late FEES in EXCESS of _____ percent of past due payments or pyramid late fees.

Answer 28

A. 4%

Question 29

Home Ownership and Equity
Protection Act (HOEPA): Prohibited Acts and Practices Per Regulation Z of TILA:
Prohibited acts or practices for high-cost loans], creditors granting loans meeting HOEPA criteria may NOT:
______ a FEE for generating payoff statements, with limited exceptions.

Answer 29

A. Charge

Question 30

Home Ownership and Equity
Protection Act (HOEPA): Prohibited Acts and Practices Per Regulation Z of TILA:
Prohibited acts or practices for high-cost loans], creditors granting loans meeting HOEPA criteria may NOT:
_____ lender points and fees into the loan; however, bona fide ______ charges may be financed into the loan.

Answer 30

A. Finance
B. Third-Party

Question 31

Home Ownership and Equity
Protection Act (HOEPA):
Per Regulation Z of TILA:
Verifying Repayment Ability:
Creditors may _____ grant loans solely based on the collateral value of the borrower’s property without regard to the borrower’s ability to repay the loan, including the consumer’s current and reasonably expected income, employment, assets other than the collateral, current obligations, and mortgage-related obligations, which include expected property taxes, premiums for mortgage-related insurance required by the creditor, and similar expenses.

Answer 31

A. NOT

Question 32

Home Ownership and Equity
Protection Act (HOEPA):
Per Regulation Z of TILA:
Verifying Repayment Ability:
Although HOEPA’s ability to repay rules have similar requirements to the Dodd-Frank Act ability to repay requirements for Qualified Mortgages, they are _______ the same.
Income and assets can include:
• Expected income or assets
• Tax returns and W-2s
• Payroll receipts
• Financial institution records
• Other third-party documents that provide reasonably reliable evidence of the consumer’s income or assets

The amounts the creditor uses to verify the repayment ability cannot be materially greater than the amounts the creditor could have verified when the loan was consummated.

Answer 32

A. NOT

Question 33

Home Ownership and Equity
Protection Act (HOEPA):
Per Regulation Z of TILA:
Verifying Repayment Ability:
The lender must determine the borrower’s repayment ability using the largest payment of principal and interest scheduled in the FIRST ____ years following consummation. The creditor must also consider the current obligations and mortgage-related obligations and assess the borrower’s repayment ability, taking into account at least _____ of the following:
• The ratio of total debt obligations to _____
• The income the consumer will ____ AFTER paying debt obligations

Answer 33

A. Five
B. One
C. Income
D. Have

Question 34

Home Ownership and Equity
Protection Act (HOEPA):
Per Regulation Z of TILA:
Verifying Repayment Ability:
A creditor is NOT presumed to be in COMPLIANCE if the regular periodic payments for the FIRST ______ years of the transaction would cause the principal balance to INCREASE or if the term of the loan is LESS THAN _____ years and the regular periodic payments when aggregated do NOT fully AMORTIZE the outstanding principal balance.

Answer 34

A. Five
B. Five

Question 35

Home Ownership and Equity
Protection Act (HOEPA):
Per Regulation Z of TILA:
Verifying Repayment Ability:
The requirement to prove ability to repay does NOT apply to TEMPORARY or “_____” loans with terms of _____ months or less, such as a loan to purchase a new dwelling where the borrower plans to sell a current dwelling within _____ months. In contrast to the Dodd-Frank AT rules, where HELOCs are NOT required to comply, HOEPA does require _______ to meet its ATR rules.

Answer 35

A. Bridge
B. 12 Months
C. 12 Months
D. HELOCs

Question 36

Home Ownership and Equity
Protection Act (HOEPA):
Per Regulation Z of TILA:
Escrow Account Restriction:
Regulation Z imposes the following restriction on loans that meet the definition of a HIGHER-PRICED mortgage loan:
Escrow Account - The rule REQUIRES the originating lender to establish and maintain an ____ account for property taxes and insurance (hazard, flood, mortgage, etc.). Cooperatives, construction loans, bridge loans with terms of ____ months or less, and reverse mortgages are completely EXEMPTED.
Condominiums, PUDs, and other communities with master insurance policies are EXEMPTED from escrowing _______ premiums but still must escrow property _____. Additionally, creditors that meet certain requirements may be exempt from these rules.

Answer 36

A. Escrow (Impound)
B. Insurance
C. 12 Months
D. Taxes

Question 37

Home Ownership and Equity
Protection Act (HOEPA):
Per Regulation Z of TILA:
Regulation Z imposes the following restriction on loans that meet the definition of a higher-priced mortgage loan:
Escrow Account _______ - Once established for higher-priced mortgage loans, a creditor or servicer may cancel an escrow account under the following circumstances:
• _______ of the underlying debt, or
• At least _____ years after consummation upon receiving a REQUEST to cancel from the consumer as long as the principal balance has been reduced to ____% of the original value of the property and the consumer is not currently in default or delinquent on the loan.

Answer 37

A. Cancellation
B. Termination
C. 80%

Question 38

Appraisal Requirements for
Home Ownership and Equity
Protection Act (HOEPA):
Per Regulation Z of TILA:
Certain Higher-Priced Mortgage Loans (HPML):
For higher-priced mortgage loans, the rule REQUIRES creditors to:
• Use a licensed or certified ______ who prepares a written appraisal report based on a physical inspection of the interior of the property. The rule is designed to help make sure that a homebuyer does NOT borrow more than the home is worth and that the lender is using an ACCURATE value when determining whether to lend money and at what RATE.

Answer 38

A. Appraiser

Question 39

Appraisal Requirements for
Home Ownership and Equity
Protection Act (HOEPA):
Per Regulation Z of TILA:
Certain Higher-Priced Mortgage Loans (HPML):
For higher-priced mortgage loans, the rule requires creditors to:
• Disclose to applicants information about the purpose of the appraisal and provide consumers with a free copy of any appraisal report. The creditor has the right to be ______ for the bona fide cost of the appraisal and must provide the borrower a copy of the appraisal a minimum of ____ days PRIOR to close of ______.

Answer 39

A. Reimbursed
B. 3
C. Escrow

Question 40

Appraisal Requirements for
Home Ownership and Equity
Protection Act (HOEPA):
Per Regulation Z of TILA:
Certain Higher-Priced Mortgage Loans (HPML):
For HIGHER-PRICED mortgage loans, the rule requires creditors to:
• If the seller acquired the property for a lower price during the prior six months, this is considered a “_____” sale. A second appraisal may be required at _____ cost to the consumer.

Answer 40

A. Flip
B. NO

Question 41

Home Ownership and Equity
Protection Act (HOEPA):
Per Regulation Z of TILA:
Certain Higher-Priced Mortgage Loans (HPML):
For HIGHER-PRICED mortgage loans, the rule requires creditors to:
• If the price reflected in the consumer’s purchase agreement is more than ____% higher than the seller’s acquisition price during the first ____ days or more than _____% higher than the seller’s acquisition price during the first ____-____ days, creditors are REQUIRED to obtain a _____ appraisal. This requirement for next home purchase mortgage loans is intended to address FRAUDULENT property flipping by seeking to ensure that the value of the property legitimately INCREASED. The borrower ______ pay for the cost of this second appraisal report.

Answer 41

A. 10%
B. 90 Days
C. 20%
D. 91-180 Days
E. Second
F. Cannot

Question 42

Home Ownership and Equity
Protection Act (HOEPA):
Per Regulation Z of TILA:
HPML Special Appraisal Exemptions:
The rule EXEMPTS several types of loans, such as _______ mortgages; temporary _____ loans (12-month term or less); ______ loans; ______ mortgages; loans for new manufactured homes; loans for mobile homes, trailers, and boats that are dwellings; and loans below the $______ loan amount threshold for HPML. The rule also EXEMPTS certain refinances where the existing creditor retains the loan or, if currently a government insured/guaranteed loan, it remains a government loan, the loan balance does NOT increase, and the loan is not interest-only or negatively amortizing.
The rule also has exemptions from the second appraisal requirement to facilitate loans in rural areas, government, and non-profit sales and other transactions.

Answer 42

A. Qualified
B. Bridge
C. Construction
D. Reverse
E. $28,500

Question 43

Loan Originator Compensation Rule Per The Dodd-Frank Act:
After the national mortgage meltdown, the Federal Reserve implemented the _____ Rule that took effect April 1, 2011. The Dodd-Frank Act expanded on previous efforts by lawmakers and regulators to strengthen loan originator qualification requirements and regulate industry compensation practices.

Answer 43

A. Loan Originator Compensation

Question 44

Loan Originator Compensation Rule Per The Dodd-Frank Act:
One of the objectives of the Dodd-Frank Act was to address perceived unfair practices by MLOs related to compensation paid by consumers.
This rule applies to transactions involving closed-end extensions of credit secured by a consumer’s principal dwelling and must be followed by ____ persons who originate loans, including mortgage brokers and their employees, as well as mortgage loan officers employed by depository institutions and other lenders.

Answer 44

A. ALL

Question 45

Loan Originator Compensation Rule Per The Dodd-Frank Act:
For the purposes of this rule, loan originator is defined in Regulation Z as:
. a person who, in expectation of direct or indirect compensation or other monetary gain or for direct or indirect compensation or other monetary gain, performs any of the following activities: takes an application, offers, arranges, assists a consumer in obtaining or applying to obtain, negotiates, or otherwise obtains or makes an extension of consumer credit for another person; or through advertising or other means of communication represents to the public that such person can or will perform any of these activities. The term “______” includes an employee, agent, or contractor of the creditor or loan originator organization if the employee, agent, or contractor meets this definition.
The term “loan originator” includes a ______ that engages in loan origination activities if the creditor does NOT finance the transaction at consummation out of the creditor’s own _____, including by drawing on a bona fide warehouse line of credit or out of deposits held by the creditor. All creditors that ENGADE in any of the foregoing loan origination activities ARE loan originators for purposes of paragraphs (f) and (g) of this section..”

Answer 45

A. Loan Originator
B. Creditor
C. Resources

Question 46

Loan Originator Compensation Rule Per The Dodd-Frank Act: The rule prohibits creditors from compensating MLOs based on the loan’s INTEREST rate or other TERMS or ______–such as the APR, LOAN-to-VALUE, LOAN program, or PROVISIONS(such as a prepayment penalty) selected. Therefore, a loan originator offering a loan of the same dollar amount utilizing different loan programs (i.e., FHA-insured, conventional, VA, fixed-rate, ARM) receives the ____ compensation - NO matter which PROGRAM the borrower chooses.

Answer 46

A. Conditions
B. Same

Question 47

Loan Originator Compensation Rule Per The Dodd-Frank Act: This prohibition also applies to compensation from a mortgage broker to an employee who originates loans. For example, a mortgage broker CANNOT pay an employee more for a transaction with a ____% interest rate than a ____% interest rate. Compensation CAN be based on any of the following triggers:
• Flat fee _____ in advance
• Hourly rate for time ______
• Overall loan _____
• Long-term loan ______
• Existing/new _____
• “______” rate; i.e., quality of loan files

Answer 47

A. 6%
B. 5%
C. Fixed
D. Worked
E. Volume
F. Performance
G. Customer
H. Pull-Through

Question 48

Loan Originator Compensation Rule Per The Dodd-Frank Act: Creditors can also set a minimum and a maximum compensation-such as paying ____% for ALL LOANS the
MLO originates, with a minimum of $_______ and a maximum of $_____ as long as the amount is the SAME for every transaction.

Answer 48

A. 1%
B. $1,000
C. $5,000

Question 49

Loan Originator Compensation Rule Per The Dodd-Frank Act: Note that “compensation” does not include any amounts an MLO receives as payment for bona fide and reasonable non-affiliated third-party charges, such as an appraisal fee, escrow fees, or insurance premiums.
However, fees that are paid to affiliated third-parties would be considered part of MLO compensation.
NOTE: An MLO CANNOT be COMPENSATED for loan
origination activities based on any other loan term other than the loan ______.

Answer 49

A. Amount

Question 50

Loan Originator Compensation Rule Per The Dodd-Frank Act: and Regulation Z of TILA: Prohibition Against Dual Compensation:
When a loan originator receives compensation directly from a consumer in connection with a mortgage loan, Regulation Z provides that no loan originator may receive compensation from ANOTHER person in ______ with the SAME transaction. The Dodd-Frank Act codifies this prohibition, which was designed to address consumer confusion over mortgage broker loyalties in which brokers were receiving payments from the consumer and the creditor. The FINAL rule implements this restriction, but provides an EXCEPTION to ALLOW mortgage brokers to pay their employees or contractors_____, although they CANNOT be based on the TERMS of the loans they originate.

Answer 50

A. Connection
B. Commissions

Question 51

Loan Originator Compensation Rule Per The Dodd-Frank Act: and Regulation Z of TILA: Prohibition Against Dual Compensation:
The rule does NOT PROHIBIT a consumer from accepting a _____ interest rate in return for _____ closing costs, known as the _____. This shows as a ____ to the borrower on the Loan Estimate and is NOT considered compensation paid by the consumer to the MLO.
The FINAL rule also requires creditors to retain evidence of COMPLIANCE with the RULE for ______ years after a covered loan is _______.

Answer 51

A. Higher
B. Reducing
C. Yield Spread Premium (YSP)
D. CREDIT
E. Three
F. Consummated

Question 52

Loan Originator Compensation Rule Per The Dodd-Frank Act: and Regulation Z of TILA: Prohibition Against Dual Compensation:
To prevent evasion, the final rule also probibits compensation:
• _______: The rule also further clarifies the definition of a proxy to focus on whether:
(1) the factor consistently varies with a transaction term over a _______ number of transactions.
(2) the loan originator has the ability, directly or indirectly, to add, drop, or change the factor in originating the transaction. If a loan originator’s compensation is based in whole or in part on a factor that is a _______ for a term of a transaction, the loan originator’s compensation is based on a term of a transaction. A factor that is NOT itself a term of a transaction is a proxy for a term of the transaction if the factor consistently _____ with that term over a SIGNIFICANT number of TRANSACTIONS, and the loan originator has the ability, directly or indirectly, to add, drop, or change the factor in originating the transaction.

Answer 52

A. Based on a proxy for a term of a transaction
B. Significant
C. Proxy
D. Varies

Question 53

Loan Originator Compensation Rule Per The Dodd-Frank Act: and Regulation Z of TILA: Prohibition Against Dual Compensation:
To prevent evasion, the final rule also probibits compensation:
From being _____ terms (often called a “______”). However, the final rule ALLOWS loan originators to REDUCE their compensation to defray certain unexpected ______ in estimated settlement costs.

Answer 53

A. Reduced to offset the cost of a change in transaction
B. Pricing Concession
C. Increases

Question 54

Loan Originator Compensation Rule Per The Dodd-Frank Act: and Regulation Z of TILA: Prohibition Against Dual Compensation:
To prevent evasion, the final rule also probibits compensation:
From the _____ provider. This typically is regulated by Section 8 of RESPA, but the CFPB made it very clear that if a mortgage entity ____ any interest in another settlement service provider and a loan originator refers a borrower to the provider, the loan originator may NOT receive additional compensation for the referral.

Answer 54

A. mortgage entity organization for referring a borrower to a service
B. Owns

Question 55

Loan Originator Compensation Rule Per The Dodd-Frank Act: and Regulation Z of TILA: Prohibition Against Dual Compensation:
To prevent evasion, the final rule also probibits compensation:
Based upon the _____ transactions. Lenders are prohibited from establishing “________” under this regulation. However, the final rule clarifies the application of this prohibition to various kinds of retirement and profit-sharing plans. For example, mortgage-related business profits CAN be used to contribute to certain TAX-advantaged retirement plans, such as a 401(k) plan, and to make BONUSES and CONTRIBUTIONS to other plans that do NOT EXCEED _____% of the individual loan originator’s total compensation.

Answer 55

A. Profitability of a transaction or a pool of
B. Point banks or pools
C. 10%

Question 56

Loan Originator Compensation Rule Per The Dodd-Frank Act: and Regulation Z of TILA: Prohibition Against Dual Compensation:
To prevent evasion, the final rule also probibits compensation:
Originators may NOT be paid by the consumer and another person or entity in _____ with a mortgage loan closing, except an MLO may receive compensation from the loan ____ organization.
Consumers may pay bona fide discount points and creditors may pay an OVERAGE for higher note yield, but NONE of these additional fees may be paid to the loan originator.

Answer 56

A. Connection
B. Originator

Question 57

Loan Originator Compensation Rule Per The Dodd-Frank Act: and Regulation Z of TILA:
Bonus Compensation and
Non-Deferred Compensation Plans:
Mortgage-related business profits can be used to contribute to certain tax-advantaged retirement plans, such as a 401(k) plan, as well as to make bonuses and contributions to other plans that do NOT EXCEED _____% of the individual loan originator’s total compensation.
If compensation is paid through a ______ compensation plan that is not based on profits from a mortgage-related business, this compensation is NOTconsidered to be based on terms of multiple _______ conducted by multiple loan originators.

Answer 57

A. 10%
B. Profits Based
C. Transactions

Question 58

Loan Originator Compensation Rule Per The Dodd-Frank Act: and Regulation Z of TILA:
Bonus Compensation and
Non-Deferred Compensation Plans:
Using mortgage-related business profits as described above would still be prohibited, however, if it otherwise violates the rule, such as where the amount of money that is paid to a loan originator depends on the transaction terms originated by that loan originator.
Thus, even if a profits-based bonus is unrelated to profits on mortgage loans, the bonus must NOT vary based on whether the loan originator is making ______ mortgage loans.

Answer 58

A. Higher-Rate

Question 59

Loan Originator Compensation Rule:
Tax-Advantaged Deferred Compensation:
A loan originator organization may structure TAX-ADVANTAGE DEFERRED compensation that is based on mortgage-related profits in TWO ways:
1. As a contribution to a defined contribution plan that is a _____ tax-advantaged plan
2. As a _____ under a defined benefit plan that is a designated tax-advantaged plan
If an employer contributes to a DEFINED contribution plan for an individual loan originator, they may NOT base the contribution on the terms of that originator’s transactions.

Answer 59

A. Designated
B. Benefit

Question 60

Loan Originator Compensation Rule:
Compensation Direct Payment:
A _____ compensation plan is any non-deferred compensation ARRANGEMENT where an individual loan originator may be paid VARIABLE, ADDITIONAL compensation based in whole or in part on the mortgage-related business profits of the person paying the compensation, any affiliate, or a business unit in the person’s or the affiliate’s organization.

Answer 60

A. non-deferred profits-based

Question 61

Loan Originator Compensation Rule:
Defined Contribution and
Defined Benefit Plan:
A defined _____ plan is a plan which provides for an individual account for each participant and for benefits based solely on the amount contributed to the participant’s account, and any income, expenses, gains and losses, and forfeitures of accounts of other participants which may be allocated to such participant’s account.

Answer 61

A. Contribution

Question 62

Loan Originator Compensation Rule:
Defined Contribution and
Defined Benefit Plan:
A Defined Benefit Plan is defined, in the Internal Revenue Code Section 414(), 26 U.S.C. 414() Defined Benefit Plan, as any plan which is not a defined contribution plan.
An easy way to think of the difference between the two plans follows:
• A _____ plan is based on contributions made by the EMPLOYEE, and possibly by the employer (as a company matching contribution) and the plan is controlled by the EMPLOYEE.
• A defined ______ plan is a PENSION plan with SOLE contributions and control coming from the EMPLOYER.

Answer 62

A. Contribution
B. Benefit

Question 63

Loan Originator Compensation Rule:
Compensation Direct Payment:
The ______ compensation plans include, but are not limited to, the following types of compensation IF they are determined based on the mortgage-related PROFITS of the person paying the compensation, its business unit, or its affiliate:
• Bonus POOLS
• Bonus PLANS
• PROFITS pools
• Profit-SHARING plans
• AWARDS of merchandise, services, trips, or similar prizes or incentives

Answer 63

A. Non-Deferred Profits-Based

Question 64

Loan Originator Compensation Rule:
Compensation Direct Payment: For example, if you are a creditor, you have APPROPRIATELY set up a non-deferred profits-based compensation plan if you pay your individual loan originators bonuses at the _____ of a calendar year based on your average net RETURN on ASSETS for the calendar year.

Answer 64

END

Question 65

Loan Originator Compensation Rule:
Compensation Direct Payment:
Note that this compensation cannot be paid directly to the loan originator unless:
• The bonus does not exceed ____% of the originator’s gross pay for the previous year, or
• The individual loan originator was a loan originator for ____ or FEWER transactions, subject to this paragraph, consummated during the ____-month period preceding the _____ of the compensation determination.

Answer 65

A. 10%
B. 10
C. Consummated
D. 12
E. Date

Question 66

Loan Originator Compensation Rule:
Compensation Direct Payment:
The BONUS may only be _____% of the originator’s TOTAL compensation, INCLUDING the amount of the BONUS.
For example, if the loan originator receives $80,000 in compensation and the employer makes a contribution to a tax-advantaged retirement plan in the amount of $10,000, the employer may ONLY pay a $_____ cash BONUS to the originator. The total compensation to the originator for the year is $100,000, with 80% coming from loan originator functions, 10% to the tax advantaged plan, and 10% from an employer-paid cash bonus.
Caution: The common requirement of either a bonus, tax-deferred, or direct plan is the bonus CANNOT be BASED on the loan originator’s _______.

Answer 66

A. 10%
B. $10,000
C. Transactions

Question 67

Loan Originator Compensation Rule Per Truth In Lending Act (TILA):
Steering and Safe Harbor:
To further protect the interests of the consumer, Regulation Z prohibits MLOs from “_______“-influencing, advising, counseling, directing consumers to accept the terms offered by a particular creditor in order to receive greater compensation than might be available from a different creditor, unless the loan is actually in the borrower’s interest. However, for such actions to constitute steering, the consumer must ACTUALLY ________ the transaction in question.

Answer 67

A. Steering
B. Consummate

Question 68

Loan Originator Compensation Rule Per Truth In Lending Act (TILA):
Steering and Safe Harbor:
In order to facilitate compliance, the rule creates what is referred to as a safe harbor by setting specific requirements for providing loan options to consumers.
Although not a guarantee, if an MLO meets the requirements for providing loan options, it is generally recognized that the loan conditions are legitimate, NOT likely subject to legal disputes, and protect the consumer’s interests - and establish a “______.” In short, under safe harbor, there is greater CONFIDENCE that the consumer will be able to repay the loan, which LOWERS ____ to the lender.

Answer 68

A. Safe Harbor
B. Risk

Question 69

Loan Originator Compensation Rule Per Truth In Lending Act (TILA):
Steering and Safe Harbor:
To stay within the safe harbor, an MLO must obtain loan options from a significant number of the creditors _______ or more with which the originator regularly does business, and the MLO must have a ____ belief that the options presented to the consumer are loans for which the consumer likely qualifies. For each type of transaction in which the consumer has expressed an interest, an MLO must present loan options that include the following:
• Lowest INTEREST rate
• Lowest interest rate WITHOUT RISKY features;
Examples: prepayment penalties, negative amortization, interest-only payments, balloon payments in the first ____ years of the loan, a demand feature, shared equity or shared appreciation; or, in the case of a reverse mortgage, a loan WITHOUT a prepayment penalty or shared equity or appreciation
• Lowest TOTAL dollar amount for origination fees and discount points

Answer 69

A. Three
B. Good faith
C. Seven

Question 70

Loan Originator Compensation Rule Per Truth In Lending Act (TILA):
Steering and Safe Harbor:
The term “______” refers to the following types of loans:
• A loan with an APR that cannot increase after consummation (fixed rate)
• A loan with an APR that may INCREASE after consummation (adjustable rate)
• A REVERSE mortgage
It does NOT apply to a HOME EQUITY LINE OF CREDIT or a loan secured by a consumer’s interest in a _____ plan.

Answer 70

A. Type of Transaction
B. TIMESHARE

Question 71

Loan Originator Compensation Rule Per Truth In Lending Act (TILA):
Steering and Safe Harbor:
For each type of transaction, if an MLO presents to the consumer more than _____ loans, the MLO must HIGHLIGHT the loans that satisfy the criteria specified in the rule. The MLO can present fewer than _____ loans and satisfy the safe harbor if the loans) otherwise meets the criteria in the rule.

Answer 71

A. Three
B. Three

Question 72

Loan Originator Compensation Rule Per Truth In Lending Act (TILA):
Steering and Safe Harbor:
A violation of this _____ prohibition may provide a borrower with an _____ defense in a foreclosure proceeding. The Dodd-Frank Act ensures that such a defense is NOT subject to the STATUTE of limitations that normally impact private action for damages.

Answer 72

A. Steering
B. Affirmative

Question 73

Loan Originator Compensation Rule:
Guidelines for Registered
Loan Originators:
The Loan Officer Compensation Rule also addresses the qualifications for licensed and registered MLOs.
Guidelines REQUIRE that a loan originator organization that is NOT a government agency or state housing agency must:
1. COMPLY with all state law requirements for legal EXISTENCE.
2. Ensure that each individual loan originator IS licensed or registered AS required that is required to be licensed or registered under the SAFE Act and state implementing laws is, in fact, licensed or registered as required.
3. Obtain (for any originator hired after January 10, 2014 who is not licensed or required to be licensed pursuant to CFR $1008.103 or state implementing law):
• A ______ background check through the NMLS.
• A ______ report from a consumer reporting agency.
• A check for information from the Nationwide Mortgage Licensing System and Registry
(NMLSR) about any administrative, civil, or criminal _______ by any government jurisdiction.
• Information that the MLO has NOT been convicted of, or pleaded guilty or nolo contendere, to a _______ in a domestic or military court in the preceding _____-year period or in the case of a felony involving an act of fraud, dishonesty, a breach of trust, or money laundering at any
time.
• Information to demonstrate financial responsibility, character, and general fitness to warrant that the individual loan originator will operate honestly, fairly, and efficiently.
4. Provide _______ training covering federal and state law requirements that apply to the individual loan originator’s loan origination activities.

Answer 73

A. Criminal
B. Credit
C. Findings
D. Felony
E. 7 Year
F. Periodic

Question 74

Loan Originator Compensation Rule:
Written Policies and Procedures:
A ______ institution must establish and maintain written policies and procedures to ensure and monitor the compliance of the institution, its employees, its subsidiaries and the subsidiaries’ employees with the requirements of the Loan Officer Compensation Rules. In addition to MLOs engaged by depository institutions, all mortgage lenders and brokers actively engaged in mortgage lending activities in other roles must comply with the Loan Officer Compensation Rules.

Answer 74

A. Depository

Question 75

Chapter Summary: The Home Ownership and Equity Protection Act (HOEPA), a 1994 amendment to the Truth in Lending Act, establishes disclosure requirements and _____ deceptive and unfair practices in lending. HOEPA also establishes requirements for loans with HIGH interest rates and/or fees - termed ______ Loans.

Answer 75

A. Prohibits
B. High-Cost

Question 76

Chapter Summary: A loan is a high-cost loan if:
(1) The original mortgage on the property, as the APR exceeds the value of the APOR Index as of the loan lock-in date) by more than _____ percentage points.
(2) A second mortgage, as the APR EXCEEDS the value of the APOR Index (as of the loan lock-in date) by more than _____ percentage points.
(3) The loan amount hits a loan _______ threshold issued by the Bureau of Consumer Financial Protection.

Answer 76

A. 6.5
B. 8.5
C. Limit

Question 77

Chapter Summary: When a loan is determined to be a ______ loan, it must meet requirements set by Section 32 of HOEPA. For example, the borrower must receive a Section 32 disclosure ____ business days _____ to executing loan documents for the transaction.

Answer 77

A. HIGH-Cost (or Section 32 Loan)
B. Three
C. Prior

Question 78

Chapter Summary: _______ mortgage loans (HPML) are closed-end mortgage loans that are secured by the borrower’s principal dwelling. A higher-priced mortgage loan is defined as a loan where the APR of a mortgage loan exceeds the average prime offer rate by _____% for a first mortgage lien, _____% for a first lien jumbo loan or _____% for a subordinate mortgage lien. If the loan meets the standards of a higher-priced mortgage loan, the creditor must verify the borrower’s ability to repay the loan and an escrow/impound account must be established for a minimum of _____ years, according to TILA Section 35.

Answer 78

A. HIGHER-priced
B. 1.5%
C. 2.5%
D. 3.5%
E. 5 Years

Question 79

Chapter Summary: A loan originator may NEVER be compensated for loan origination activities based on any other loan term other than the loan _____. The interest rate or program type of the loan must NEVER be a basis for compensating an MLO. A creditor may compensate an MLO by contributing to a tax-advantage plan in an amount no greater than _____% of the MLO’s TOTAL gross income for the previous year.

Answer 79

A. Amount
B. 10%

Question 80

A sample of the required HOEPA disclosure language follows (the disclosure statements in brackets are provided to the consumer only when applicable):
Section _____ Disclosure Form:
You are not required to complete this agreement merely because you have received these disclosures or signed a loan application.
If you obtain this loan, the lender will have a mortgage on your home.
You could lose your home, and any money you have put into it, if you do not meet your obligations under the loan.
You are borrowing $
[Optional credit insurance _____ is NOT included in this amount.
The annual percentage rate on your loan will be
% _______.
Your regular frequency payment will be $_______.
[At the end of the loan, you will still owe us $ ______ balloon amount.]
[Your interest rate may rise. Increases in the interest rate could raise your payment. The highest amount your payment could increase is to $ _______.

Answer 80

A. Section 32 Disclosure Form

Question 81

Vocabulary:
An annual percentage rate derived from average interest rates, points, and other loan pricing terms currently offered to consumers by a representative sample of lenders for mortgage transactions that have low-risk pricing characteristics.

Answer 81

A. Average Prime Offer Rate (APOR)

Question 82

Vocabulary:
Any provision in a contract that enables a creditor to call a loan due before maturity.

Answer 82

A. Demand Clause

Question 83

Vocabulary:
Under the Dodd-Frank Act, _____ protections are triggered where a loan’s APR exceeds the average prime offer rate by _____ percentage points for most first-lien mortgages and ____ percentage points for subordinate lien mortgages; where a loan’s points and fees exceed five percent of the total transaction amount, or a higher threshold for loans below $_______; or where the creditor may charge a prepayment penalty more than ____ months after loan consummation or account opening, or penalties exceed more than ____ percent of the amount prepaid.

Answer 83

A. High-Cost Loans
B. HOEPA
C. 6.5%
D. 8.5%
E. $20,000
F. 36 Months
G. 2%

Question 84

Vocabulary:
A loan where the APR exceeds the average prime offer rate by _______% for a conventional first-lien mortgage, ____% for a “jumbo” loan, or ____% for a subordinate-lien mortgage.

Answer 84

A. Higher-Priced Mortgage Loan
B. 1.5%
C. 2.5%
D. 3.5%

Question 85

Vocabulary:
Payments that do not fully pay the interest due on a loan and that cause an increase in the borrower’s total principal debt.

Answer 85

A. Negative Amortization

Question 86

Vocabulary:
A fee paid to the lender if the borrower pays off the entire mortgage in a specified time period before the loan matures.

Answer 86

A. Prepayment Penalty