A reverse mortgage is being written as a single lump sum at closing with no further draws available. A new originator applies the line-of-credit disclosure set out of habit. What determines which one is right?
Correct Answer
C) Use the correct open-end or closed-end framework
Why this is correct: TILA (Truth in Lending Act) disclosure requirements differ fundamentally based on whether a loan is open-end (like a HELOC) or closed-end (like a standard mortgage). Using the correct framework is essential for providing accurate disclosures like the Loan Estimate and Closing Disclosure. The most compliant response is to "Use the correct open-end or closed-end framework." Why the other choices are wrong: "Apply a different loan-program rule without checking the file facts" is wrong because TILA disclosures are based on the specific product type; applying the wrong rule leads to violations. "Ignore product, occupancy, LTV, or eligibility limits because the borrower prefers the loan" is wrong because borrower preference does not override legal disclosure requirements. "Resolve the TILA Disclosure Requirements issue with the refinance benefit exception that does not fit the facts" is wrong because applying an exception that is factually inapplicable is incorrect and non-compliant. Exam tip: Your first step with any disclosure question should be to classify the loan as open-end or closed-end. This dictates the correct TILA disclosure path.
Why This Is the Correct Answer
The correct response is "Use the correct open-end or closed-end framework" because Specialty products such as HELOCs, reverse mortgages, nontraditional loans, and high-cost loans require product-specific rules.
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: Resolve the TILA Disclosure Requirements issue with the refinance benefit exception that does not fit the facts.
This distractor shifts the issue to a different trigger, product, or timing rule instead of applying the rule tested in the stem.
Memory Technique
TILA Disclosure 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 TILA Disclosure 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 Mortgage Knowledge Questions
A subordinate-lien home equity loan closes at an APR of 9.4% when the average prime offer rate for a comparable transaction is 6.1%.
In a closing-readiness check, a risk reviewer sees facts tied to TILA Truth in Advertising. What should the file reflect?
In a training scenario, a trainee asks which official source controls FHA single-family origination policy. What action best follows the rule?
A compliance analyst compares the file facts with LTV Ratio Calculation during a licensing team review. Which conclusion is accurate?
A branch manager asks about a loan file because a trainee asks which official source controls FHA single-family origination policy. What should happen?
The loan team compares the file facts with ARM Cap Structures during a borrower follow-up call. Which conclusion is accurate?
A borrower has a 30-year fixed-rate mortgage with monthly principal and interest of $1,450. Property taxes increase, and taxes are paid through escrow. What can happen to the total monthly payment?
A loan has an outstanding principal balance of $240,000 and a 6% annual interest rate. Using simple monthly accrual, how much interest accrues for one month?
An annual escrow analysis projects a $780 shortage. The borrower asks how it will be collected.
What does an amortization schedule show for each scheduled payment?
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