The branch manager is resolving Discount Points during a quality-control sample. Which action best fits the rule?
Correct Answer
C) Separate discount points from ordinary fees when the rule requires it
Why this is correct: The correct action is to "Separate discount points from ordinary fees when the rule requires it." Discount points are upfront interest payments that buy down the interest rate and are treated differently from standard loan fees under key regulations like the Truth in Lending Act (TILA) and the Qualified Mortgage (QM) rule. Points and fees affect critical calculations for the Annual Percentage Rate (APR), Home Ownership and Equity Protection Act (HOEPA) coverage, and QM status. Properly separating them is essential for accurate disclosure and compliance. Why the other choices are wrong: The choice to "Assume the Discount Points condition is met because the borrower satisfied the separate ability-to-repay requirement" is wrong because ability-to-repay and points-and-fees calculations are distinct legal requirements; meeting one does not satisfy the other. The choice to "Ignore product, occupancy, LTV, or eligibility limits because the borrower prefers the loan" is wrong because borrower preference does not override specific program rules that govern discount points. The choice to "Use the same treatment for all mortgage products without comparing program requirements" is wrong because different loan products (e.g., conventional, FHA, VA) have different rules for how points and fees are counted. Exam tip: Remember that discount points are for rate reduction, while fees are for services. Their separation is a core compliance step for APR, HOEPA, and QM tests.
Why This Is the Correct Answer
The correct response is "Separate discount points from ordinary fees when the rule requires it" because Points and fees can affect APR, HOEPA, QM, and borrower cost calculations.
Why the Other Options Are Wrong
Option A: Assume the Discount Points condition is met because the borrower satisfied the separate ability-to-repay requirement.
This distractor shifts the issue to a different trigger, product, or timing rule instead of applying the rule tested in the stem.
Option B: 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
points and fee calculations: 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 points and fee calculations; 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 Mortgage Knowledge Questions
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In a training scenario, a trainee asks which official source controls FHA single-family origination policy. What action best follows the rule?
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A branch manager asks about a loan file because a trainee asks which official source controls FHA single-family origination policy. What should happen?
The loan team compares the file facts with ARM Cap Structures during a borrower follow-up call. Which conclusion is accurate?
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An annual escrow analysis for a current borrower shows a $780 shortage. One month's escrow payment is $600. The servicer elects to require repayment over the shortest installment period permitted by Regulation X for this shortage. What schedule is permitted?
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A monthly principal-and-interest payment is $1,800, of which $1,250 is interest. How much principal is paid that month?
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