A mortgage file is paused during a secondary-market screen because of Balloon Mortgage Structure. Which answer should avoid a shortcut that would misapply the rule?
Correct Answer
D) Check whether special high-cost or rescission rules apply
Why this is correct: Balloon mortgages, especially if high-cost, may trigger special rules under HOEPA (Section 32 of Regulation Z) or state laws, including additional disclosures and ability-to-repay requirements. Checking for these rules ensures compliance and avoids shortcuts. Why the other choices are wrong: "Apply a different loan-program rule without checking the file facts" could lead to applying an incorrect standard. "Ignore product, occupancy, LTV, or eligibility limits because the borrower prefers the loan" violates underwriting principles. "Assume the Balloon Mortgage Structure condition is met because the borrower satisfied the separate ability-to-repay requirement" is wrong because satisfying one rule (e.g., ATR) does not automatically satisfy all others (e.g., high-cost loan tests). Exam tip: For balloon or non-traditional loans, always consider high-cost loan tests and rescission rules—they are often tested.
Why This Is the Correct Answer
The correct response is "Check whether special high-cost or rescission rules apply" 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 C: Assume the Balloon Mortgage Structure condition is met because the borrower satisfied the separate ability-to-repay requirement.
This distractor shifts the issue to a different trigger, product, or timing rule instead of applying the rule tested in the stem.
Memory Technique
Balloon Mortgage Structure: 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 Balloon Mortgage Structure; 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
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 for a current borrower shows a $780 shortage. One month's escrow payment is $600. The servicer elects to require repayment over the shortest installment period permitted by Regulation X for this shortage. What schedule is permitted?
What does an amortization schedule show for each scheduled payment?
A monthly principal-and-interest payment is $1,800, of which $1,250 is interest. How much principal is paid that month?
People Also Study
Federal Mortgage-Related Laws
24% of exam
Mortgage Loan Origination Activities
27% of exam
Ethics, Fraud & Consumer Protection
18% of exam
Uniform State Test Content
11% of exam
Related Study Resources
Previous Question
A survey shows the neighbor's garage crossing the boundary by 2 feet, and a driveway easement in favor of the property behind. How should the garage intrusion and the driveway right be classified?
Next Question
A processor adds monthly mortgage insurance to a VA file at 100% financing, on the basis that any loan without a down payment needs it. What governs the file instead?