Before the team acts on a branch training session, a risk reviewer must address TILA Loan Estimate Disclosure. Which response is most defensible?
Correct Answer
D) Include mortgage-insurance costs in product comparison
Why this is correct: A Loan Estimate must provide a complete and accurate picture of loan costs to facilitate comparison. Mortgage insurance (MI) is a significant borrower cost that varies by product. The correct choice, "Include mortgage-insurance costs in product comparison," ensures the borrower can make an informed decision by seeing the full financial impact of different loan options, including upfront premiums, monthly premiums, and how they affect the APR. Why the other choices are wrong: "Use the purchase price as the only factor when PMI depends on LTV and program terms" is wrong because the cost of Private Mortgage Insurance (PMI) is primarily driven by Loan-to-Value (LTV) ratio and credit score, not just the purchase price. Ignoring these factors leads to an inaccurate cost estimate. "Assume lender-paid MI has no cost because it is not shown as a separate monthly premium" is wrong because lender-paid MI is typically exchanged for a higher interest rate. The cost is built into the rate and payment, and must be disclosed and compared against other MI options. "Compare MI options without considering rate, payment, and cancellation treatment" is wrong because a meaningful comparison requires evaluating all cost components: the interest rate, the total monthly payment (including any MI premium), and the potential for MI cancellation, which affects long-term cost. Exam tip: For MI questions, always consider the total cost to the borrower: upfront fees, monthly premium, interest rate, and duration of the coverage.
Why This Is the Correct Answer
The correct response is "Include mortgage-insurance costs in product comparison" because PMI options affect borrower cost and depend on loan type, LTV, and mortgage-insurance rules.
Why the Other Options Are Wrong
Option A: Use the purchase price as the only factor when PMI depends on LTV and program terms.
This choice is a tempting shortcut, but it conflicts with PMI and mortgage-insurance options because the file still needs the required documentation, timing, or rule-based review before the action is taken.
Option B: Assume lender-paid MI has no cost because it is not shown as a separate monthly premium.
This choice is not the best answer because it applies the wrong file step for PMI and mortgage-insurance options; the governing rule is tested by the correct option.
Option C: Compare MI options without considering rate, payment, and cancellation treatment.
This choice is a tempting shortcut, but it conflicts with PMI and mortgage-insurance options because the file still needs the required documentation, timing, or rule-based review before the action is taken.
Memory Technique
PMI options and mortgage-insurance costs: identify the rule being tested, then choose the action that documents or applies that rule before the file moves forward.
Exam Tip
For PMI and mortgage-insurance options questions, separate the required file step from plausible sales, timing, or documentation shortcuts.
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 Origination Questions
Before the team acts on a servicing handoff check, a closing coordinator must address Asset Verification and Reserves. Which response is most defensible?
An MLO is reviewing procedures for a case where a cost changes after the Closing Disclosure has already been provided. What is the proper handling?
During a post-application update, a quality-control reviewer encounters a Credit Analysis and Evaluation issue. Which response should avoid a shortcut that would misapply the rule?
A construction-to-permanent loan will disburse in 5 draws over 11 months before the permanent phase begins. Which Regulation Z appendix provides a disclosure method for multiple-advance construction transactions?
Before closing, the team discovers that a borrower asks which upfront charge can be collected before intent to proceed. What is the safest compliant answer?
A construction loan agreement allows advances only after documented completion of specified work. A builder requests the next draw, but no completion evidence has been provided. What should occur?
Before releasing the final construction draw, which combination most directly supports project completion and clear collateral?
A construction-to-permanent loan will convert to a substantially higher fully amortizing payment. Which payment is especially important when assessing the borrower's long-term repayment capacity?
A construction-to-permanent note states that conversion requires completion, a certificate of occupancy, and no unresolved liens. Construction is finished, but a mechanic's lien remains. What should happen?
A branch manager asks about a loan file because a processor wants to omit known monthly obligations from underwriting. What should happen?
People Also Study
Federal Mortgage-Related Laws
24% of exam
General Mortgage Knowledge
20% of exam
Ethics, Fraud & Consumer Protection
18% of exam
Uniform State Test Content
11% of exam