Federal Laws Practice Exam

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Federal Laws Practice Exam
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2010-05-23 19:59:28
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Federal Laws Practice Exam
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  1. What law sets a time limit on how long you can have a complete application before it must be dispositioned?
    A)The Fair and Accurate Credit Transaction Act
    B)The Truth in Lending Act
    C)The Equal Credit Opportunity Act
    D)The Real Estate Settlement Procedures Act
    C)The Equal Credit Opportunity Act
    (this multiple choice question has been scrambled)
  2. What types of transactions are generally not covered by RESPA?
    a) All cash sale
    b) A sale where the individual home seller takes back the mortgage
    c) A rental property transaction or other business purpose transaction.
    d) All of the above
    d) All of the above
  3. HOEPA:
    a) Amended the TIL Act, known as section 32
    b) Has an 8% points and fees trigger
    c) Has a 8 point APR trigger (over like minded indexes)
    d) All of the above
    • The correct answer is "D"
    • The Home Ownership and Equity Protection Act of 1994 (HOEPA) addresses certain deceptive and unfair practices in home equity lending when refinancing a mortgage or applying for a home equity installment loan. It amends the Truth in Lending Act (TILA) and establishes requirements for certain loans with high rates and/or high fees. The rules for these loans are contained in Section 32 of Regulation Z, which implements TILA, so the loans are sometimes called “Section 32 Mortgages.” A loan is “covered” by the Act if it is a first mortgage and the annual percentage rate (APR) is more than 8 points higher than the rates on Treasury securities of comparable maturity (10% if the loan is a second mortgage) OR if the total fees and points payable by the consumer at or before closing equal the larger of $579 (for 2010) or 8% of the total loan amount.
  4. The GFE is a requirement of:
    a) TILA
    b) HOEPA
    c) HMDA
    d) RESPA
    • The correct answer is "D"
    • The Real Estate Settlement Procedures Act (RESPA) is about closing costs and settlement procedures. It requires that consumers receive disclosures at various times from the time the application is received throughout the life of the mortgage. A standard Good Faith Estimate (GFE) that discloses key loan terms and the closing costs a consumer is likely to pay at settlement. It is to be given to the applicant at the time of the application or within three business day of receiving the application.
  5. The law that prohibits discrimination:
    a) FCRA
    b) ECOA
    c) HSPT
    d) EPPDE
    • The correct answer is "B"
    • The Equal Credit Opportunity Act (ECOA) prohibits discrimination in the granting of credit based on race, color, religion, national origin, sex, marital status, age or receipt of public assistance.
  6. The law that says how to correct errors in your credit file is:
    a) FNMA
    b) FEMA
    c) FCRA
    d) GNMA
    • The correct answer is "C"
    • Under the Fair Credit Reporting Act (FCRA), both the consumer reporting company and the information provider are responsible for correcting inaccurate or incomplete information in a consumer’s credit report. Certain rights are granted, including the right for a consumer to dispute inaccurate or incomplete information in his or her report.
  7. The statement that tells a borrower what the "actual" cost of the loan is going to be is the:
    a) HUD-1
    b) GFE
    c) VOM
    d) GSE
    • The correct answer is "A"
    • The HUD-1 is to be used as a statement of actual charges and adjustments to be given to the parties in connection with the settlement.
  8. RESPA dictates that the "Notice of Transfer" be delivered to the borrower:
    a) At application
    b) Before closing
    c) At closing
    d) After closing
    • The correct answer is "D"
    • This question is misleading. There is no “Servicing Transfer Statement” that I can find. RESPA requires that a “Servicing Disclosure Statement” be given at the time an application for a mortgage servicing loan is submitted or within 3 business days. It must indicate whether the servicing of the loan may be assigned, sold or transferred to any other person at any time while the loan is outstanding. A “Notice of Transfer” is required whenever the servicing is to be transferred
  9. ECOA prohibits discrimination in giving credit based on:
    a) Age, sex & marital status
    b) Religion, race & color
    c) National origin & the receipt of public assistance
    d) All of the above
    • The correct answer is "D"
    • The Equal Credit Opportunity Act (ECOA) prohibits discrimination in the granting of credit based on race, color, religion, national origin, sex, marital status, age or receipt of public assistance.
  10. Under the Equal Credit Opportunity Act you must notify an applicant of a credit denial:
    a) Within 3 business days
    b) Within 30 days
    c) Within 45 days
    d) Within 60 days
    • The correct answer is "B"
    • ECOA requires that notification of action taken be provided within 30 days after receiving a completed application concerning the creditor’s approval of, counteroffer to or adverse action (which would include denial) on the application.
  11. If inaccurate information has been discovered in the credit file:
    a) it must be corrected or deleted
    b) it must be corrected within 30 days of dispute
    c) the customer may ask that anyone who recently received their report be notified
    d) all of the above
    • The correct answer is "D"
    • The Fair Credit reporting Act was a sweeping piece of consumer protection legislation which gave borrowers the rights listed above (among others). For more on the Fair
  12. Under the FCRA law:
    a) negative information more than 7 years old may not be reported
    b) employers must obtain consent from the customer before receiving the report
    c) access to the credit file is limited to those recognized by FCRA
    d) all of the above
    • The correct answer is "D"
    • The Fair Credit reporting Act gave broad and sweeping powers to consumers to access, correct and protect their credit information. For the full text of the Fair Credit reporting Act
  13. What Act requires that you provide the applicant with a copy of the appraisal?
    a) FCRA
    b) FHA
    c) FACTA
    d) ECOA
    • The correct answer is "D"
    • ECOA requires a lender or mortgage broker to inform the applicant that they have a right to get a copy of the appraisal report. The notice will also tell the applicant how and when they can ask for a copy.
  14. Which law forbids the imposition of different standards for approval that could have a disparate effect on different groups of borrowers?
    a) FHA
    b) HMDA
    c) FCRA
    d) ECOA
    • The correct answer is "A"
    • The Fair Housing Act (also known as FHAct) forbids the imposition of different lending standards which could have a negative effect on different groups of borrowers.
  15. The law that was part of the 1968 Civil Rights Act is:
    a) HOEPA
    b) PATRIOT Act
    c) FHA
    d) ECOA
    • The correct answer is "C"
    • The Fair Housing Act (FHAct) was a part of the Civil Rights Act of 1968.
  16. What act requires a borrower to properly identify themselves?
    a) USAPA
    b) Anti-Terrorism Act
    c) Civil Rights Act
    d) US Identification Act
    • The correct answer is "A"
    • The USA PATRIOT Act requires borrowers to identify themselves in a manner in which their identity can be verified.
  17. Which of the following agencies is the primary Federal regulator for non-depository mortgage originators?
    a) The Department of Housing and Urban Development
    b) The Federal Reserve Board
    c) The Federal Trade Commission
    d) The Treasury Department (The OCC)
    • The correct answer is "C"
    • Even though non depository mortgage lenders and mortgage brokers may be examined by other Federal Regulators, non depository mortgage lenders are primarily regulated by the Federal Trade Commission on a Federal level.
  18. Jane applied for a mortgage with NBS Lending. In her original disclosures she was quoted an Annual Percentage Rate of 6%. Before closing, the rate changed to 6.237% Annual Percentage Rate.
    a) The originator has to redisclose with the correct Annual Percentage Rate at closing.
    b) The originator has to redisclose with the correct Annual Percentage Rate before closing.
    c) The originator has to redisclose with the correct Annual Percentage Rate when it becomes clear the rate has changed.
    d) No redisclosure is necessary
    • The correct answer is "C"
    • The rate has changed more that the one eighth (.00125) tolerance allowed by the Truth in Lending Act. If your figures change, it is always a good idea to redisclose to the borrower, even if the changes are within tolerance. No one has ever been sued or gotten into trouble with a regulator for being accurate. And accuracy is just good business.
  19. Which of the following are exempt from Section 32 provisions of the Truth in Lending Act?
    a) Second and third Mortgages
    b) Refinance Transactions and Investment properties
    c) Reverse Mortgages and HELOCs
    d) None of the above
    • The correct answer is "C"
    • The Truth in Lending Act Section 32 exempts Reverse Mortgages and Open Ended credit plans, including HELOCS. The OCC's Comptroller Handbook on the Truth in Lending Act states that ...the statute [Section B] applies to both variable and fixed rate HELOCs. Section E of the Truth in Lending Act states that Open-end credit plans subject to Subpart B of Regulation Z are exempt. HELOCS are, therefore, also exempt from the Section 32 high cost statute.
  20. Under which circumstances is a written adverse action notice not required?
    a) When a consumer withdraws an application
    b) When the creditor turns the application down within 3 days
    c) When there is an incomplete application
    d) All of the above
    • The correct answer is "A"
    • The Equal Credit Opportunity Act says,
    • Withdrawal of approved application. When an applicant submits an application and the parties contemplate that the applicant will inquire about its status, if the creditor approves the application and the applicant has not inquired within 30 days after applying, the creditor may treat the application as withdrawn and need not comply with paragraph (a)(1) [requirement for written notification] of this section.
    • NOTE WELL: The Equal Credit Opportunity Act does not have a 3-day adverse action waiver. Incomplete applications require two notifications ñ one that the application is incomplete and the other an adverse action based upon an incomplete application (if no further information is forthcoming). See 12 CFR Section 202.9
  21. The Red Flags Rule is based on which law?
    a) The Fair and Accurate Credit Transactions Act
    b) Equal Credit Opportunity Act
    c) The Gramm-Leach-Bliley Act
    d) The Truth in Lending Act
    • The correct answer is "A"
    • The Red Flags Rule is based on The Fair and Accurate Credit Transactions Act, which was a 2003 amendment to the Fair Credit Reporting Act.
  22. Fred is a Mortgage Loan Originator with XYZ Mortgage Brokers. He was originating a loan for the Lathan family. When he pulled credit, there was a discrepancy in the address on their application and the one listed in their credit report. The Lathans found a better rate and withdrew the application. Which of the following is true?
    a) Fred must notify the new lender of the problem.
    b) Even though the application was withdrawn, Fred has to clear the address discrepancy.
    c) Since they withdrew the application, Fred does not have to do anything to clear the address discrepancy.
    d) Fred needs to notify the credit bureau of possible identity theft
    • The correct answer is "C"
    • According to The Fair and Accurate Credit Transactions Act, The Red Flags Rule, and the Address Discrepancy Rule, Fred is only required to correct the address (under the FACT Act) if he makes the loan.
  23. Which agency/agencies regulate the Fair Credit Reporting Act?
    a) The Federal Reserve Board
    b) The Department of Housing and Urban Development
    c) The Federal Trade Commission and state agencies
    d) The Department of Justice and the FBI
    • The correct answer is "C"
    • The Federal Trade Commission is the primary regulator of the Fair Credit Reporting Act. However, the Fair Credit Reporting Act also specifically gives states the right to enforce the act. Many states have laws regarding credit and credit reporting which give their citizens additional rights. You should be familiar with your state laws too.
  24. What is the penalty for violating The Real Estate Settlement Procedures Act's Section 8, which prohibits giving kickbacks, fee splitting, or paying unearned fees?
    a) One year in jail and up to $10,000 in fines.
    b) Up to one year in jail and up to $10,000 in fines plus civil liabilities of up to three times the amount of the improper fees.
    c) A $3,000 fine per occurrence plus unspecified civil liabilities.
    d) None of the above
    The correct answer is "B" The Department of Housing and Urban Development says: "Section 8 of RESPA prohibits anyone from giving or accepting a fee, kickback or any thing of value in exchange for referrals of settlement service business involving a federally related mortgage loan. In addition, RESPA prohibits fee splitting and receiving unearned fees for services not actually performed. Violations of Section 8's anti-kickback, referral fees and unearned fees provisions of RESPA are subject to criminal and civil penalties. In a criminal case a person who violates Section 8 may be fined up to $10,000 and imprisoned up to one year. In a private law suit a person who violates Section 8 may be liable to the person charged for the settlement service an amount equal to three times the amount of the charge paid for the service." For more on The Real Estate Settlement Procedures Act. see http://www.hud.gov/offices/hsg/ramh/res/respamor.cfm
  25. Settlement providers are regulated by which agency?
    a) The Department of Housing and Urban Development
    b) Federal Reserve Board
    c) Federal Trade Commission
    d) None of the above
    • The correct answer is "D"
    • Settlement service providers are regulated by the state in which they operate, not by a Federal agency.
  26. Which of the following are always excluded from the computation of the Finance Charge as determined by Regulation Z?
    a) Charges absorbed by the creditor as a cost of doing business
    b) Seller's points
    c) Charges payable in a comparable cash transaction
    d) All of the above
    • The correct answer is "D"
    • All of these types of charges are excluded from the Finance Charge since they are not a cost of credit to the consumer.
  27. A prepaid Finance Charge is:
    a) Any Finance Charge that is paid separately to the financial institution or to a third party, in cash or by check, before or at closing, settlement, or consummation of a transaction
    b) A discount point or points paid by the borrower
    c) An application fee collected at the time of application
    d) All of the above
    • The correct answer is "D"
    • A Finance Charge is any charge in a finance transaction, which would not be in a comparable cash transaction. A is the definition of a Finance Charge from the Truth in Lending Act. B and C are examples of prepaid Finance Charges.
  28. What is the tolerance for a prepaid Finance Charge in dollars and cents?
    a) Any amount under disclosed by the greater of $5 or 1/8th of 1% of the total amount financed has to be refunded.
    b) Any amount under disclosed by the greater of $10 or 1/8th of 1% of the total amount financed has to be refunded.
    c) Any amount under disclosed by the greater of $100 or ? of 1% of the total amount financed has to be refunded.
    d) As long as the Annual Percentage Rate is within 1/8th of a point, no refund is necessary.
    • The correct answer is "C"
    • The 1/8th of a point is an Annual Percentage Rate tolerance. If the Finance Charge is under disclosed by over $100, the customer must be given the money back.
  29. Don originates for XYZ Mortgage Bankers. John regularly under discloses the Finance Charge and the Annual Percentage Rate on loans he originates because he doesn't want the competition to beat him in pricing. Does the Truth in Lending Act provide a criminal penalty for that behavior and what is it?
    a) No. There are no criminal penalties for willfully violating the Truth in Lending Act.
    b) No. The penalties for violating the Truth in Lending Act are severe, but they are all civil.
    c) Yes. Don is subject to one year in jail and a $5000 fine for each occurrence.
    d) Yes. Don is subject to one year in jail and a $25,000 fine for each occurrence.
    • The correct answer is "C"
    • § 112. Criminal liability for willful and knowing violation --

    • Whoever willfully and knowingly
    • (1) gives false or inaccurate information or fails to provide information which he is required to disclose under the provisions of this title or any regulation issued thereunder,
    • (2) uses any chart or table authorized by the Board under section 107 in such a manner as to consistently understate the annual percentage rate determined under section 107(a)(1)(A), or
    • (3) otherwise fails to comply with any requirement imposed under this title, shall be fined not more than $5,000 or imprisoned not more than one year, or both.
  30. The GPM or Graduated Payment Mortgage is a mortgage, which starts at a lower rate than a fixed payment mortgage and adjusts at predetermined intervals to a predetermined rate. Which of the following is not true of a GPM?
    a) It usually involves negative amortization
    b) It is tied to an index
    c) It is not considered a variable rate mortgage or Adjustable Rate Mortgage by the Truth in Lending Act
    d) The note increases by a set percent each adjustment period
    • The correct answer is "B"
    • The Graduated Payment Mortgage is not tied to an index. It usually involves negative amortization. And the Truth in Lending Act does not treat it as an Adjustable Rate Mortgage. The Commentary on Regulation Z says, "Graduated-payment mortgages and step-rate transactions without a variable-rate feature are not considered variable-rate transactions." One commentator notes, "The borrower with a GPM knows in advance exactly how and when the payment will change. The ARM borrower, in contrast, is throwing the dice."
  31. What is H-15 and why should you know it?
    a) H-15 is the section of The Real Estate Settlement Procedures Act, which eliminates "fee splitting".
    b) H-15 refers to the Home Ownership and Equity Protection Act, Section 15
    c) H-15 is a publication of the Federal Reserve Board and is used by the Truth in Lending Act to determine High Cost loans
    d) H-15 is an acronym for the Home Mortgage Disclosure Act and refers to the Truth in Lending Act, Section 15
    • The correct answer is "C"
    • H-15 is important to know because the Truth in Lending Act uses data published in H-15 to determine whether the interest rate is "High Cost". The rate is compared to the rates on Treasury securities of comparable maturity. Regulation Z says, "(i) The annual percentage rate at consummation will exceed by more than 8 percentage points for first-lien loans, or by more than 10 percentage points for subordinate-lien loans, the yield on Treasury securities having comparable periods of maturity to the loan maturity as of the fifteenth day of the month immediately preceding the month in which the application for the extension of credit is received by the creditor;". The Commentary on Regulation Z adds, "4. Treasury securities. To determine the yield on comparable Treasury securities for the annual percentage rate test, creditors may use the yield on actively traded issues adjusted to constant maturities published in the Board's "Selected Interest Rates" (statistical release Hñ15)."
  32. If Mortgage Loan Originator Jason originated a refinance loan of $100,000 for the Green family; if Jason had charged $350 for an appraisal, $2000 as an origination fee, and 2 points discount; what would his points be for the purpose of determining the Home Ownership and Equity Protection Act compliance?
    a) 4.55%
    b) 4.17%
    c) 4%
    d) 4.35%
    • The correct answer is "A"
    • If the appraisal is conducted by the lender or an affiliate of the lender. It is B if the appraisal is conducted by "an independently- conducted appraise[er]...[even if it] is financed by the creditor." The Home Ownership and Equity Protection Act uses "The Amount Financed" as the base amount in determining the High Cost points and fees trigger. The Amount Financed is defined in 226.18 (b) which says, Amount financed. The amount financed, using that term, and a brief description such as the amount of credit provided to you or on your behalf. The amount financed is calculated by:
    • (1) Determining the principal loan amount or the cash price (subtracting any down payment);
    • (2) Adding any other amounts that are financed by the creditor and are not part of the finance charge; and
    • (3) Subtracting any prepaid finance charge.
    • Another way of determining the amount financed is to add together all of the fees which are present in the loan transaction which would not be present in a comparable cash transaction, and then add all of the prepaid finance charges. Take that total and subtract it from the total loan amount.

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