A team member asks about HOEPA High Cost Mortgage Thresholds in a compliance desk review while trying to choose the compliant next step. Which response should an audit analyst use?
Correct Answer
A) Apply high-cost mortgage restrictions before consummation
Why this is correct: HOEPA (the Home Ownership and Equity Protection Act) designates certain mortgages as "high-cost" based on specific APR and points-and-fees thresholds. Once a loan is identified as high-cost, numerous restrictions apply, including bans on certain risky features like balloon payments and prepayment penalties. These restrictions must be applied before the loan is consummated. The correct answer, "Apply high-cost mortgage restrictions before consummation," states this mandatory timing. Why the other choices are wrong: "Use an internal exception instead of the required federal disclosure or timing rule" is wrong because HOEPA is a federal law; internal policies cannot override its requirements. "Wait until a regulator asks for the file before applying the federal requirement" is wrong because compliance is required at origination. "Treat the HOEPA High Cost Mortgage Thresholds review as complete because the file contains a related credit underwriting note" is wrong because a separate note does not confirm a proper HOEPA analysis was performed. Exam tip: HOEPA triggers are based on the APR exceeding the Average Prime Offer Rate (APOR) by a set margin, or on total points and fees exceeding a percentage of the total loan amount.
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 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: Treat the HOEPA High Cost Mortgage Thresholds review as complete because the file contains a related credit underwriting note.
This distractor shifts the issue to a different trigger, product, or timing rule instead of applying the rule tested in the stem.
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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