A conforming first lien comes in 1.4 percentage points above the average prime offer rate. A second file the same week comes in 1.9 points above. A reviewer has to say which of them is a higher-priced mortgage loan.
Correct Answer
D) Apply HPML rules when APR exceeds the applicable APOR threshold
Why this is correct: A loan is classified as a High-Priced Mortgage Loan (HPML) under TILA if its Annual Percentage Rate (APR) exceeds the Average Prime Offer Rate (APOR) by a specified threshold (e.g., 1.5 percentage points for first-lien loans, 2.5 percentage points for subordinate liens, or 3.5 percentage points for certain loans). Determining HPML status is a mathematical test: you must calculate the APR and compare it to the applicable APOR threshold. If it exceeds the threshold, HPML rules (like escrow requirements and appraisal protections) apply. The correct action is to "Apply HPML rules when APR exceeds the applicable APOR threshold." Why the other choices are wrong: "Use an internal exception instead of the required federal disclosure or timing rule" is wrong because HPML status is a legal definition based on APR, not an internal policy choice. "Wait until a regulator asks for the file before applying the federal requirement" is wrong because HPML protections must be applied at origination. "Rely on oral agreement when the rule requires documented compliance" is wrong because HPML status and related disclosures are based on calculated numbers, not agreements. Exam tip: Remember the HPML trigger is APR > APOR + threshold. Know the common thresholds for first-lien (1.5%) and subordinate-lien (2.5%) loans.
Why This Is the Correct Answer
The correct response is "Apply HPML rules when APR exceeds the applicable APOR threshold" because HPML coverage depends on APR-over-APOR thresholds and carries escrow or appraisal duties.
Why the Other Options Are Wrong
Option A: 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 B: 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 C: 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
HPML 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 HPML 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 Federal Laws Questions
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