The branch manager compares the file facts with TILA Right of Rescission during a licensing team review. Which conclusion is accurate?
Correct Answer
C) Use the principal-dwelling security interest to analyze rescission
Why this is correct: The Truth in Lending Act (TILA) right of rescission applies to certain credit transactions secured by the borrower's principal dwelling. For a Home Equity Line of Credit (HELOC), which is open-end credit, analyzing whether the right of rescission applies starts with determining if the security interest is in the borrower's principal dwelling. This is the foundational fact for applying TILA's rescission rules. 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 analyze the specific security interest. "Ignore product, occupancy, LTV, or eligibility limits because the borrower prefers the loan" is wrong because rescission rights are a statutory consumer protection, not subject to borrower waiver. "Use the same treatment for all mortgage products without comparing program requirements" is wrong because rescission rules differ for open-end (HELOC) vs. closed-end credit and for principal dwelling vs. second home or investment property. Exam tip: The right of rescission generally applies for three business days after closing on a refinance or HELOC secured by a principal dwelling, with exceptions for purchase-money mortgages.
Why This Is the Correct Answer
The correct response is "Use the principal-dwelling security interest to analyze rescission" 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 B: 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 the same treatment for all mortgage products without comparing program requirements.
Use the same treatment for all mortgage products without comparing program requirements. is not correct because it does not apply the rule tested by this file scenario.
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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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?
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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?
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