A reviewer checks whether the loan APR and lien status trigger HPML requirements. Which conclusion is accurate?
Correct Answer
D) Use the subordinate-lien threshold when the loan is junior-lien
Why this is correct: Higher-Priced Mortgage Loan (HPML) rules under TILA have different coverage thresholds based on the loan's lien position. The APR threshold for determining if a loan is an HPML is higher for subordinate-lien (junior-lien) loans than for first-lien loans. Therefore, when reviewing a junior-lien loan, the correct action is to use the appropriate subordinate-lien APR threshold to determine if HPML requirements (like escrow and appraisal rules) apply. Why the other choices are wrong: "Use an internal exception instead of the required federal disclosure or timing rule" is wrong because internal policies cannot alter the federal HPML thresholds. "Wait until a regulator asks for the file before applying the federal requirement" is wrong because HPML status must be determined at origination to apply required protections. "Rely on oral agreement when the rule requires documented compliance" is wrong because lien status and APR calculations must be documented to prove HPML compliance. Exam tip: Remember HPML thresholds differ: compare the loan's APR to the Average Prime Offer Rate (APOR). The threshold is lower for first liens than for subordinate liens.
Why This Is the Correct Answer
The correct response is "Use the subordinate-lien threshold when the loan is junior-lien" because HPML coverage depends on APR-over-APOR thresholds and carries escrow or appraisal duties.
Why the Other Options Are Wrong
Option A: Use an internal exception instead of the required federal disclosure or timing rule.
Use an internal exception instead of the required federal disclosure or timing rule. is not correct because it does not apply the rule tested by this file scenario.
Option B: Wait until a regulator asks for the file before applying the federal requirement.
Wait until a regulator asks for the file before applying the federal requirement. is not correct because it does not apply the rule tested by this file scenario.
Option C: Rely on oral agreement when the rule requires documented compliance.
Rely on oral agreement when the rule requires documented compliance. is not correct because it does not apply the rule tested by this file scenario.
Memory Technique
HPML requirements: identify the rule being tested, then choose the action that documents or applies that rule before the file moves forward.
Exam Tip
Match the file facts to HPML requirements; do not choose an exception or shortcut that skips the required rule.
Common Mistakes to Avoid
- -Choosing an internal exception instead of the governing rule
- -Treating preliminary or informal facts as a substitute for required documentation
- -Answering from a familiar but unrelated mortgage topic
More Federal Laws Questions
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Before the team acts on a production meeting, a training manager must address SCRA Interest Rate Cap. Which response is most defensible?
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During a disclosure desk review, the loan team encounters an RESPA Servicing Transfer issue. Which response should avoid a shortcut that would misapply the rule?
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An MLO is reviewing procedures for a case where a compliance analyst asks why covered mortgage application data is collected. What is the proper handling?
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