A branch treats every loan above 8% APR as higher-priced, regardless of where the market sits that week. A compliance analyst says the test is being applied to the wrong yardstick. What is the right one?
Correct Answer
C) Apply HPML rules when APR exceeds the applicable APOR threshold
Why this is correct: A Higher-Priced Mortgage Loan (HPML) is defined by comparing the loan's Annual Percentage Rate (APR) to the Average Prime Offer Rate (APOR). If the APR exceeds the applicable APOR threshold (e.g., 1.5 percentage points for first-lien loans), the loan is an HPML. This coverage determination is the first and essential step. Once a loan is identified as an HPML, specific rules regarding escrow accounts and appraisals apply, but the trigger is the APR-over-APOR test. Why the other choices are wrong: "Use an internal exception instead of the required federal disclosure or timing rule" is wrong because internal policies cannot override federal HPML requirements. "Delay the TILA HPML Escrow Requirements step until a later servicing transfer review instead of acting now" is wrong because HPML escrow requirements must be established at or before consummation, not delayed. "Rely on oral agreement when the rule requires documented compliance" is wrong because HPML rules, like escrow requirements, require formal, documented actions. Exam tip: The key to HPML is the APR vs. APOR comparison. Know the thresholds: typically 1.5% over APOR for first liens, 2.5% for subordinate liens, and 3.5% for certain jumbo loans.
Why This Is the Correct Answer
The correct response is "Apply HPML rules when APR exceeds the applicable APOR threshold" because HPML coverage depends on APR-over-APOR thresholds and carries escrow or appraisal duties.
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: Delay the TILA HPML Escrow Requirements step until a later servicing transfer review instead of acting now.
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
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
Before the team acts on a production meeting, a training manager must address SCRA Interest Rate Cap. Which response is most defensible?
A team member asks about RESPA Kickbacks and Referrals in an investor-delivery review while trying to confirm the rule-based response. Which response should the loan team use?
During a disclosure desk review, the loan team encounters an RESPA Servicing Transfer issue. Which response should avoid a shortcut that would misapply the rule?
A disciplinary-risk review raises a question about TILA APR and finance-charge rules. Which action should the renewal specialist recommend?
An MLO is reviewing procedures for a case where a compliance analyst asks why covered mortgage application data is collected. What is the proper handling?
A completed application arrives on 4 May. The lender declines it on 20 May and posts the notice on 8 June.
A lender mails the loan estimate on Monday 8 June rather than delivering it in person. Consummation is set for Friday 19 June.
A consumer complaint response raises a question about GLBA privacy requirements. Which action should the state compliance officer recommend?
Before the team acts on a branch training session, a policy analyst must address RESPA Servicing Transfer Notice. Which response is most defensible?
A training manager is resolving RESPA Referral Fees during an internal audit sample. Which action best fits the rule?
People Also Study
General Mortgage Knowledge
20% of exam
Mortgage Loan Origination Activities
27% of exam
Ethics, Fraud & Consumer Protection
18% of exam
Uniform State Test Content
11% of exam
Related Study Resources
Previous Question
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?
Next Question
A borrower pays a $14,000 origination deposit to the mortgage company in cash across 2 visits in the same week.