During a post-application update, a disclosure specialist encounters a HOEPA High Cost Mortgage Restrictions issue. Which response should confirm the rule-based response?
Correct Answer
B) Include covered originator compensation in points and fees
Why this is correct: HOEPA (Home Ownership and Equity Protection Act) imposes special restrictions on high-cost mortgages, which are defined by specific triggers: an annual percentage rate (APR) exceeding a certain threshold, total points and fees exceeding a certain percentage of the loan amount, or certain prepayment penalties. A critical component of calculating "points and fees" is including compensation paid to the loan originator, as this is a covered cost under the rule. The correct action is to ensure this compensation is included in the points-and-fees calculation to determine if the loan is a high-cost mortgage and thus subject to HOEPA's restrictions. Why the other choices are wrong: "Resolve the HOEPA High Cost Mortgage Restrictions issue with the HMDA reporting exception that does not fit the facts" is wrong because HMDA (Home Mortgage Disclosure Act) is about data collection and reporting, not about creating exceptions to HOEPA's substantive restrictions. "Wait until a regulator asks for the file before applying the federal requirement" is wrong because compliance with HOEPA is mandatory at the time of loan origination, not contingent on a regulatory inquiry. "Rely on oral agreement when the rule requires documented compliance" is wrong because HOEPA compliance, including the calculation of points and fees, must be documented in the loan file. Exam tip: Remember that HOEPA's high-cost triggers are based on APR, points and fees, and prepayment penalties. Originator compensation is a key element of the points-and-fees test.
Why This Is the Correct Answer
The correct response is "Include covered originator compensation in points and fees" 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 A: Resolve the HOEPA High Cost Mortgage Restrictions issue with the HMDA reporting 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.
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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