Before the team acts on a supervisory file review, a processor must address TILA HPML Escrow Requirements. Which response is most defensible?
Correct Answer
A) Compare APR to APOR as of the rate-set date
Why this is correct: A loan is classified as a Higher-Priced Mortgage Loan (HPML) under TILA rules by comparing the loan's Annual Percentage Rate (APR) to the Average Prime Offer Rate (APOR) for a comparable transaction. This comparison must be made as of the date the interest rate is set (the "rate-set date"). If the APR exceeds the APOR by a specified threshold, the loan is an HPML and triggers additional requirements like escrow accounts. The correct answer directly states this necessary first step, aligning with the original explanation. Why the other choices are wrong: "Use an internal exception instead of the required federal disclosure or timing rule" is wrong because HPML escrow requirements are federal mandates; internal exceptions are not valid. "Wait until a regulator asks for the file before applying the federal requirement" is wrong because HPML status must be determined and complied with at the time of origination, not in response to a regulator. "Delay the TILA HPML Escrow Requirements step until a later rate-lock review instead of acting now" is wrong because the determination (comparing APR to APOR) is based on the rate-set date and must be done to ensure timely compliance; delaying could lead to a violation. Exam tip: To determine HPML status, remember the key test: compare the loan's APR to the APOR as of the date the rate is set.
Why This Is the Correct Answer
The correct response is "Compare APR to APOR as of the rate-set date" because HPML coverage depends on APR-over-APOR thresholds and carries escrow or appraisal duties.
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: Delay the TILA HPML Escrow Requirements step until a later rate-lock 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.
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
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