In a pricing desk question, a risk reviewer sees facts tied to HOEPA Triggers. What should the file reflect?
Correct Answer
A) Apply high-cost mortgage restrictions before consummation
Why this is correct: The Home Ownership and Equity Protection Act (HOEPA) imposes special restrictions on high-cost mortgages. If a loan's APR or points and fees exceed HOEPA's triggers, the lender must apply the required protections, such as specific disclosures and restrictions on loan terms, before the loan is consummated (i.e., before the borrower becomes legally obligated). Why the other choices are wrong: Using an internal exception instead of the required federal disclosure or timing rule is wrong because HOEPA requirements are federal law and cannot be overridden by internal policies. Waiting until a regulator asks for the file before applying the federal requirement is wrong because compliance must be proactive and timely, not reactive. Relying on oral agreement when the rule requires documented compliance is wrong because HOEPA mandates specific written disclosures and cannot be satisfied orally. Exam tip: HOEPA triggers require action before consummation. Think: high-cost = high restrictions, and they must be in place before the loan closes.
Why This Is the Correct Answer
The correct response is "Apply high-cost mortgage restrictions before consummation" because HOEPA/high-cost mortgage rules use rate, points-and-fees, and prepayment-penalty triggers and restrict risky terms.
Why the Other Options Are Wrong
Option B: 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 C: 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 D: 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
HOEPA high-cost mortgage 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 HOEPA high-cost mortgage 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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