The special appraisal requirements in Regulation Z §1026.35(c), adopted under Dodd-Frank, concern which covered mortgage category?
Correct Answer
C) Covered higher-priced mortgage loans, subject to the specified exemptions.
Regulation Z section 1026.35(c) establishes appraisal requirements for covered higher-priced mortgage loans and specifies exemptions. The coverage category is not identical to all residential loans, government-backed loans or jumbo loans. This provision should not be generalized to mean that every appraisal rule adopted under Dodd-Frank applies only to HPMLs.
Why This Is the Correct Answer
Option C is correct because 12 CFR 1026.35 refers to a higher-priced mortgage loan subject to the appraisal requirements of section 1026.35(c), and that section specifies exemptions. The coverage category is covered higher-priced mortgage loans. It is not all loans, government loans or jumbo loans.
Why the Other Options Are Wrong
Option A: Government-insured or government-guaranteed mortgages, at any price level.
Option A says government-insured or government-guaranteed mortgages at any price level. Section 1026.35(c) is defined by higher-priced mortgage loan status, not by government insurance or guarantees.
Option B: Residential mortgages of any price, with no exemptions.
Option B says residential mortgages of any price, with no exemptions. The requirements are limited to covered higher-priced mortgage loans, and the rule specifies exemptions.
Option D: Jumbo mortgages that exceed the conforming loan limit for the area.
Option D says jumbo mortgages that exceed the conforming loan limit for the area. Loan size relative to conforming limits is not what defines coverage under section 1026.35(c); higher-priced status is.
HPML means higher-priced
Section 1026.35 is the higher-priced mortgage loan section, so its appraisal rules follow the loan's price, not its size or government backing.
How to use: Use this when a question asks which loans the Regulation Z 1026.35(c) appraisal rules cover.
Exam Tip
Do not stretch this provision into a claim that every Dodd-Frank appraisal rule applies only to higher-priced loans.
Common Mistakes to Avoid
- -Confusing higher-priced loans with jumbo loans
- -Assuming the rule covers every residential mortgage
- -Ignoring the specified exemptions
Concept Deep Dive
Analysis
This question tests the coverage of the special appraisal requirements in Regulation Z section 1026.35(c). Those requirements apply to higher-priced mortgage loans, subject to the exemptions the rule specifies. Distinguish that category from broader or different loan types.
Background Knowledge
Regulation Z implements the Truth in Lending Act, and Dodd-Frank added appraisal provisions for higher-priced mortgage loans. These HPML appraisal rules set specific requirements before a creditor extends a covered loan. Other Dodd-Frank appraisal rules exist and are not limited to HPMLs.
Real-World Application
A borrower's mortgage rate is high enough that the loan qualifies as a higher-priced mortgage loan and no exemption applies. The creditor must follow the special appraisal requirements before extending the loan. A lower-priced loan of the same size would not trigger these particular requirements.
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