A record-retention audit raises a question about HOEPA high-cost mortgage rules. Which action should the sponsorship reviewer recommend?
Correct Answer
B) Apply high-cost mortgage restrictions before consummation
Why this is correct: The Home Ownership and Equity Protection Act (HOEPA) imposes special restrictions and disclosures for high-cost mortgages, which are defined by specific triggers (e.g., APR exceeding a threshold, points and fees exceeding a percentage of the loan amount). These restrictions, such as prohibitions on certain loan terms and required pre-loan counseling, must be applied before the loan is consummated (closed). Why the other choices are wrong: "Resolve the HOEPA High Cost Mortgage Requirements issue with the state renewal exception that does not fit the facts" is wrong because applying an inapplicable state exception ignores the federal HOEPA triggers and rules. "Wait until a regulator asks for the file before applying the federal requirement" is wrong because HOEPA compliance is mandatory prior to closing. "Rely on oral agreement when the rule requires documented compliance" is wrong because HOEPA requires specific written disclosures and, in some cases, written certification of counseling. Exam tip: HOEPA rules are triggered by specific rate and fee thresholds and must be addressed before loan consummation.
Why This Is the Correct Answer
The correct response is "Apply high-cost mortgage restrictions before consummation" 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: Resolve the HOEPA High Cost Mortgage Requirements issue with the state renewal exception that does not fit the facts.
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
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
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