Before the team acts on a production meeting, a risk reviewer must address HOEPA Points and Fees. Which response is most defensible?
Correct Answer
C) Test the loan against HOEPA high-cost triggers
Why this is correct: The Home Ownership and Equity Protection Act (HOEPA) defines high-cost mortgages based on specific triggers: a high APR (exceeding the Average Prime Offer Rate by a set margin) or high points and fees (exceeding a percentage of the total loan amount). The defensible action is to test the loan's terms against these numerical triggers to determine if HOEPA's strict requirements apply. Why the other choices are wrong: "Use an internal exception instead of the required federal disclosure or timing rule" is wrong because HOEPA's high-cost mortgage rules are federal mandates that cannot be overridden by internal policy exceptions. "Use prior advertising disclosure approval as a substitute for the current HOEPA Points and Fees requirement" is wrong because advertising disclosures are separate from the HOEPA points-and-fees test; prior approval for advertising does not satisfy the HOEPA coverage analysis. "Rely on oral agreement when the rule requires documented compliance" is wrong because HOEPA requires specific written disclosures and prohibits certain terms; oral agreements are insufficient. Exam tip: HOEPA is triggered by numbers: test the APR against APOR and points/fees against the loan amount. Know the thresholds.
Why This Is the Correct Answer
The correct response is "Test the loan against HOEPA high-cost triggers" 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: 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: Use prior advertising disclosure approval as a substitute for the current HOEPA Points and Fees requirement.
This distractor shifts the issue to a different trigger, product, or timing rule instead of applying the rule tested in the stem.
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
More Federal Laws Questions
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