Before the team acts on a supervisory file review, a quality-control reviewer must address TILA Higher Priced Mortgage Loans. Which response is most defensible?
Correct Answer
B) Use points-and-fees totals before classifying the loan
Why this is correct: The governing concept is that a loan is classified as a Higher-Priced Mortgage Loan (HPML) under TILA based on its APR compared to a benchmark rate. A critical component in calculating the APR is the loan's total "points and fees." As the original explanation states, points and fees affect APR and classifications like HPMLA, HOEPA, and QM. The correct, defensible action is to accurately calculate the points-and-fees total before making any classification, as this is a foundational step. Why the other choices are wrong: "Apply a different loan-program rule without checking the file facts" is wrong because HPML status is a factual determination, not a matter of choosing a different rule. "Ignore product, occupancy, LTV, or eligibility limits because the borrower prefers the loan" is wrong because HPML triggers are legal thresholds, not subject to borrower preference. "Use prior licensing approval as a substitute for the current TILA Higher Priced Mortgage Loans requirement" is wrong because prior approval for a different purpose (e.g., state licensing) does not satisfy the specific, ongoing TILA compliance requirement for each loan. Exam tip: For HPML, always calculate points and fees first, as this amount directly impacts the APR, which is then compared to the Average Prime Offer Rate (APOR).
Why This Is the Correct Answer
The correct response is "Use points-and-fees totals before classifying the loan" because Points and fees can affect APR, HOEPA, QM, and borrower cost calculations.
Why the Other Options Are Wrong
Option A: Apply a different loan-program rule without checking the file facts.
Apply a different loan-program rule without checking the file facts. is not correct because it does not apply the rule tested by this file scenario.
Option C: Ignore product, occupancy, LTV, or eligibility limits because the borrower prefers the loan.
Ignore product, occupancy, LTV, or eligibility limits because the borrower prefers the loan. is not correct because it does not apply the rule tested by this file scenario.
Option D: Use prior licensing approval as a substitute for the current TILA Higher Priced Mortgage Loans 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
points and fee calculations: 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 points and fee calculations; 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 Mortgage Knowledge Questions
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