In a file escalation meeting, a quality-control reviewer sees facts tied to TILA Right of Rescission. What should the file reflect?
Correct Answer
A) Explain draw-period and repayment-period risk
Why this is correct: For a HELOC secured by a principal dwelling, TILA's Right of Rescission rules require specific disclosures about the loan's terms and risks. The original explanation notes HELOCs have special disclosures and rescission rules. The file should reflect an explanation of draw-period and repayment-period risk because these are key borrower risks that must be disclosed under TILA for open-end plans, impacting the right to rescind. Why the other choices are wrong: "Apply a different loan-program rule without checking the file facts" is wrong because it disregards the need to apply HELOC-specific TILA rules based on the actual file. "Ignore product, occupancy, LTV, or eligibility limits because the borrower prefers the loan" is wrong because borrower preference cannot override TILA disclosure requirements. "Use the same treatment for all mortgage products without comparing program requirements" is wrong because HELOCs have distinct rules compared to closed-end mortgages. Exam tip: When TILA Right of Rescission is involved for a principal dwelling, think HELOC-specific disclosures—especially explaining draw/repayment period risks.
Why This Is the Correct Answer
The correct response is "Explain draw-period and repayment-period risk" because HELOCs are open-end credit plans secured by a dwelling with special disclosures and rescission rules when secured by a principal dwelling.
Why the Other Options Are Wrong
Option B: 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 C: 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: Use the same treatment for all mortgage products without comparing program requirements.
Use the same treatment for all mortgage products without comparing program requirements. is not correct because it does not apply the rule tested by this file scenario.
Memory Technique
HELOC and open-end credit 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 HELOC and open-end credit 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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