Under California Financial Code section 4970, which points-and-fees threshold can cause a mortgage loan to be classified as a California covered loan?
Correct Answer
C) More than 6% of the total loan amount
California defines a covered loan to include a qualifying consumer loan where total points and fees payable by the consumer at or before closing exceed 6% of the total loan amount. The 6% figure is the covered-loan trigger, not a blanket maximum fee for every covered loan.
Why This Is the Correct Answer
More than 6% of the total loan amount is correct. California defines a covered loan to include a qualifying consumer loan where total points and fees payable by the consumer at or before closing exceed 6% of the total loan amount. The 6% figure is the covered-loan trigger, not a blanket maximum fee for every covered loan. California defines a covered loan to include a qualifying consumer loan where total points and fees payable by the consumer at or before closing exceed 6% of the total loan amount. The 6% figure is the covered-loan trigger, not a blanket maximum fee for every covered loan.
Why the Other Options Are Wrong
Option A: More than 3% of the total loan amount
Three percent is associated with other federal mortgage thresholds, not California’s covered-loan points-and-fees trigger.
Option B: More than 5% of the total loan amount
Five percent is below California’s 6% covered-loan trigger.
Option D: More than 8% of the total loan amount
Eight percentage points is associated with the APR trigger, not the points-and-fees trigger.
Memory Technique
CA -> ca-covered-loans-high-cost-consumer-protections
Exam Tip
Covered-loan questions often test the 8-point APR trigger, 6 percent points-and-fees trigger, principal-dwelling scope, Consumer Caution notice timing, ATR, prepayment penalty limits, prohibited loan terms, and remedies.
Common Mistakes to Avoid
- -Using a national baseline answer when California has agency-specific DFPI or DRE requirements
- -Confusing CFL, CRMLA, covered-loan, usury, servicing, and DRE endorsement rules
- -Relying on legacy California state-exam or education assumptions instead of current NMLS source pages
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