Before the team acts on a supervisory file review, a processor must address TILA Higher Priced Mortgage Loans. Which response is most defensible?
Correct Answer
A) Use the subordinate-lien threshold when the loan is junior-lien
Why this is correct: For Higher-Priced Mortgage Loans (HPMLs) under TILA Regulation Z, the APR threshold that triggers coverage (like escrow or appraisal requirements) is higher for subordinate-lien loans than for first-lien loans. Using the correct threshold based on lien position is essential for accurate compliance. Why the other choices are wrong: "Use prior credit underwriting approval as a substitute for the current TILA Higher Priced Mortgage Loans requirement" is wrong because prior approval does not satisfy HPML-specific rules like escrow or appraisal mandates. "Wait until a regulator asks for the file before applying the federal requirement" is wrong because HPML requirements must be applied proactively. "Rely on oral agreement when the rule requires documented compliance" is wrong because HPML rules, such as appraisal reports, require written documentation. Exam tip: HPML thresholds differ for first-lien vs. subordinate-lien loans; always check the lien position to apply the correct APR test.
Why This Is the Correct Answer
The correct response is "Use the subordinate-lien threshold when the loan is junior-lien" because HPML coverage depends on APR-over-APOR thresholds and carries escrow or appraisal duties.
Why the Other Options Are Wrong
Option B: Use prior credit underwriting approval as a substitute for the current TILA Higher Priced Mortgage Loans requirement.
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
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
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