A quality-control sample of nine higher-priced first-lien loans finds three without escrow accounts and two with valuations from unlicensed reviewers. What does the sample establish?
Correct Answer
A) Check escrow and appraisal duties for a covered HPML
Why this is correct: TILA's High-Priced Mortgage Loan (HPML) rules under Regulation Z impose additional requirements on certain closed-end loans secured by a principal dwelling. A loan is an HPML if its APR exceeds the Average Prime Offer Rate (APOR) by a specified threshold. For covered HPMLs, key requirements include establishing an escrow account for property taxes and insurance for at least five years (with exceptions) and obtaining a written appraisal based on a physical visit to the home's interior. Therefore, the defensible first step is to check if the loan is a covered HPML and then verify compliance with these escrow and appraisal duties. Why the other choices are wrong: "Use an internal exception instead of the required federal disclosure or timing rule" is wrong because TILA HPML rules are federal mandates; internal policies cannot override them. "Wait until a regulator asks for the file before applying the federal requirement" is wrong because HPML requirements must be met before consummation. "Use prior SAFE Act testing approval as a substitute for the current TILA HPML Restrictions requirement" is wrong because SAFE Act licensing and TILA HPML rules are completely separate legal obligations; one does not substitute for the other. Exam tip: HPML triggers are based on APR exceeding APOR thresholds. Always confirm coverage first, then apply the special rules.
Why This Is the Correct Answer
The correct response is "Check escrow and appraisal duties for a covered HPML" because HPML coverage depends on APR-over-APOR thresholds and carries escrow or appraisal duties.
Why the Other Options Are Wrong
Option B: 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 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: Use prior SAFE Act testing approval as a substitute for the current TILA HPML Restrictions requirement.
This distractor shifts the issue to a different trigger, product, or timing rule instead of applying the rule tested in the stem.
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
More Federal Laws Questions
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