In a pricing desk question, a compliance analyst sees facts tied to TILA HELOC Disclosures. What should the file reflect?
Correct Answer
C) Recognize rescission if the HELOC is secured by a principal dwelling
Why this is correct: Per the original explanation, HELOCs are open-end credit plans with special TILA rules. A key requirement is recognizing the right of rescission if the HELOC is secured by the borrower's principal dwelling. This three-day right to cancel is a core TILA/Regulation Z consumer protection for dwelling-secured credit that is not for purchase or construction. Why the other choices are wrong: "Apply a different loan-program rule without checking the file facts" is wrong because it suggests a non-compliant, arbitrary approach. "Ignore product, occupancy, LTV, or eligibility limits because the borrower prefers the loan" is wrong because HELOC terms and borrower eligibility are subject to underwriting standards, not just preference. "Use the same treatment for all mortgage products without comparing program requirements" is wrong because HELOC disclosure and rescission rules differ from those for closed-end mortgages; they cannot be treated identically. Exam tip: For TILA questions, immediately associate "principal dwelling" with potential rescission rights for non-purchase money loans, including HELOCs and refinances.
Why This Is the Correct Answer
The correct response is "Recognize rescission if the HELOC is secured by a principal dwelling" because HELOCs are open-end credit plans secured by a dwelling with special disclosures and rescission rules when secured by a principal dwelling.
Why the Other Options Are Wrong
Option A: Apply a different loan-program rule without checking the file facts.
Apply a different loan-program rule without checking the file facts. is not correct because it does not apply the rule tested by this file scenario.
Option B: Ignore product, occupancy, LTV, or eligibility limits because the borrower prefers the loan.
Ignore product, occupancy, LTV, or eligibility limits because the borrower prefers the loan. is not correct because it does not apply the rule tested by this file scenario.
Option D: Use the same treatment for all mortgage products without comparing program requirements.
Use the same treatment for all mortgage products without comparing program requirements. is not correct because it does not apply the rule tested by this file scenario.
Memory Technique
HELOC and open-end credit rules: 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 HELOC and open-end credit rules; 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
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