In a document-cure review, the branch manager sees facts tied to TILA Right of Rescission. What should the file reflect?
Correct Answer
B) Recognize rescission if the HELOC is secured by a principal dwelling
Why this is correct: The Truth in Lending Act (TILA) grants a right of rescission for certain loans secured by the borrower's principal dwelling. For a Home Equity Line of Credit (HELOC), which is an open-end credit plan, this right applies if it is secured by the borrower's principal dwelling. The file must accurately reflect this legal trigger. Why the other choices are wrong: "Apply a different loan-program rule without checking the file facts" is wrong because it ignores the need to verify the specific security interest (principal dwelling) that triggers rescission. "Ignore product, occupancy, LTV, or eligibility limits because the borrower prefers the loan" is wrong because legal rights like rescission are not waived by borrower preference. "Apply the PMI cancellation timing rule even though the file is testing TILA Right of Rescission" is wrong because it substitutes an unrelated rule (Private Mortgage Insurance) for the specific TILA rescission requirement. Exam tip: Remember, TILA rescission applies to principal dwelling-secured loans; for HELOCs, always check if it's secured by the principal dwelling.
Why This Is the Correct Answer
The correct response is "Recognize rescission if the HELOC is secured by a principal dwelling" because HELOCs are open-end credit plans secured by a dwelling with special disclosures and rescission rules when secured by a principal dwelling.
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: Apply the PMI cancellation timing rule even though the file is testing TILA Right of Rescission.
This distractor shifts the issue to a different trigger, product, or timing rule instead of applying the rule tested in the stem.
Memory Technique
HELOC and open-end credit 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 HELOC and open-end credit 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
More Mortgage Knowledge Questions
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In a training scenario, a trainee asks which official source controls FHA single-family origination policy. What action best follows the rule?
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A branch manager asks about a loan file because a trainee asks which official source controls FHA single-family origination policy. What should happen?
The loan team compares the file facts with ARM Cap Structures during a borrower follow-up call. Which conclusion is accurate?
A borrower has a 30-year fixed-rate mortgage with monthly principal and interest of $1,450. Property taxes increase, and taxes are paid through escrow. What can happen to the total monthly payment?
A loan has an outstanding principal balance of $240,000 and a 6% annual interest rate. Using simple monthly accrual, how much interest accrues for one month?
An annual escrow analysis for a current borrower shows a $780 shortage. One month's escrow payment is $600. The servicer elects to require repayment over the shortest installment period permitted by Regulation X for this shortage. What schedule is permitted?
What does an amortization schedule show for each scheduled payment?
A monthly principal-and-interest payment is $1,800, of which $1,250 is interest. How much principal is paid that month?
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