A mortgage file is paused during a policy refresh meeting because of ARM Rate Caps. Which answer should resolve the issue before the file moves forward?
Correct Answer
C) Update rate-dependent terms after the lock
Why this is correct: For an Adjustable-Rate Mortgage (ARM), the rate caps (periodic and lifetime) are critical loan terms. If a file is paused due to an ARM Rate Caps issue, the compliant action is to ensure all rate-dependent terms, which are calculated based on the capped rates, are accurate and updated in the disclosures. "Update rate-dependent terms after the lock" ensures that the payment schedule and other disclosures reflect the correct parameters, including the effects of the caps. Why the other choices are wrong: "Change locked terms without documenting the lock agreement and borrower authorization" violates requirements for clear documentation and consumer consent. "Treat a float-down as automatic when the lock agreement does not provide it" is incorrect; float-downs are not automatic and must be contractually provided. "Apply the servicing transfer timing rule even though the file is testing ARM Rate Caps" is irrelevant; servicing rules do not resolve ARM cap issues. Exam tip: ARM disclosures must clearly show the initial rate, adjustment periods, index, margin, and all applicable rate caps. Any lock change affecting these requires updated disclosures.
Why This Is the Correct Answer
The correct response is "Update rate-dependent terms after the lock" because Rate locks can require revised Loan Estimates and accurate interest-rate-dependent disclosures.
Why the Other Options Are Wrong
Option A: Change locked terms without documenting the lock agreement and borrower authorization.
This choice is a tempting shortcut, but it conflicts with rate-lock documentation because the file still needs the required documentation, timing, or rule-based review before the action is taken.
Option B: Treat a float-down as automatic when the lock agreement does not provide it.
This choice is not the best answer because it applies the wrong file step for rate-lock documentation; the governing rule is tested by the correct option.
Option D: Apply the servicing transfer timing rule even though the file is testing ARM Rate Caps.
This distractor shifts the issue to a different trigger, product, or timing rule instead of applying the rule tested in the stem.
Memory Technique
rate-lock agreements: identify the rule being tested, then choose the action that documents or applies that rule before the file moves forward.
Exam Tip
For rate-lock documentation questions, separate the required file step from plausible sales, timing, or documentation shortcuts.
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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