A team member asks about TILA Right of Rescission in a compliance desk review while trying to resolve the issue before the file moves forward. Which response should the MLO use?
Correct Answer
D) Recognize rescission applies to covered principal-dwelling security interests
Why this is correct: The Truth in Lending Act (TILA) grants borrowers a right to rescind (cancel) certain mortgage transactions. This right applies specifically to loans that create a security interest (like a lien) in the borrower's principal dwelling. The correct choice, "Recognize rescission applies to covered principal-dwelling security interests," accurately identifies this key scope requirement. Why the other choices are wrong: "Resolve the TILA Right of Rescission issue with the TRID timing exception that does not fit the facts" is wrong because TRID (TILA-RESPA Integrated Disclosure) rules govern different timing requirements and do not eliminate rescission rights. "Wait until a regulator asks for the file before applying the federal requirement" is wrong because rescission rights and procedures must be followed at closing, not delayed. "Rely on oral agreement when the rule requires documented compliance" is wrong because TILA rescission requires specific written disclosures and a formal three-day waiting period. Exam tip: Remember the three key words for rescission: principal dwelling, security interest, and three business days.
Why This Is the Correct Answer
The correct response is "Recognize rescission applies to covered principal-dwelling security interests" because TILA rescission rights protect consumers with ownership interests in a principal dwelling.
Why the Other Options Are Wrong
Option A: Resolve the TILA Right of Rescission issue with the TRID timing 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 B: 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 C: 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
TILA right of rescission: 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 TILA right of rescission; 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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