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Questions and Answers
What is the stated purpose of the Truth-in-Lending Act?
What is the stated purpose of the Truth-in-Lending Act?
- Restrict the interest rates charged by lenders
- Assist consumers in comparing credit to avoid the uninformed use of credit (correct)
- Protect consumers from unethical mortgage lenders by requiring use of the Good Faith Estimate for all mortgage loans
- Prevent discrimination based on protected class distinctions
Which of the following advertisements contains a term that would require additional disclosures under the Truth-in-Lending Act?
Which of the following advertisements contains a term that would require additional disclosures under the Truth-in-Lending Act?
- Buy for less than rent!
- Own for $700 per month! (correct)
- Interest rates as low as 5.65% APR!
- No origination fee charged!
Which of the following would be considered a 'dwelling' under the Truth-in-Lending Act?
Which of the following would be considered a 'dwelling' under the Truth-in-Lending Act?
- Residential condominium (correct)
- Residential apartment building
- Office building
- Residential fiveplex
A first lien higher-priced mortgage loan (HPML) is defined as a loan with an annual percentage rate which exceeds the average prime offer rate by?
A first lien higher-priced mortgage loan (HPML) is defined as a loan with an annual percentage rate which exceeds the average prime offer rate by?
Which of the following is true if a borrower effectively rescinds on a refinance transaction on their primary residence?
Which of the following is true if a borrower effectively rescinds on a refinance transaction on their primary residence?
Which of the following is NOT required to be disclosed in an advertisement which contains a trigger term as set forth in the Truth-in-Lending Act?
Which of the following is NOT required to be disclosed in an advertisement which contains a trigger term as set forth in the Truth-in-Lending Act?
Which of the following would be considered to be a high-cost home loan if the average prime offer rate is 3%?
Which of the following would be considered to be a high-cost home loan if the average prime offer rate is 3%?
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Study Notes
Truth-in-Lending Act (TILA) Overview
- Aims to assist consumers in comparing credit options to prevent uninformed use of credit.
- Requires lenders to disclose clear and conspicuous terms of consumer loans, protecting borrowers from unethical practices.
Trigger Terms in Advertisements
- The advertisement stating "Own for $700 per month!" qualifies as a trigger term.
- Trigger terms necessitate additional disclosures regarding down payments, loan terms, payment amounts, or finance charges.
Definition of Dwelling
- Under TILA, a "dwelling" consists of residential structures with one to four units.
- Includes various types like condominiums, cooperatives, mobile homes, and trailers when used as residences.
Definition of Higher-Priced Mortgage Loan (HPML)
- A first lien HPML is defined by an APR exceeding the average prime offer rate by 1.5%.
- Subordinate lien loans exceed the average prime offer by 3.5% to be considered HPMLs.
Rights upon Rescinding a Refinance Transaction
- When a borrower rescinds on a refinance transaction for their primary residence, they are entitled to a refund of prepaid appraisal fees.
- Creditors must return funds and void any mortgage or trust deed, eliminating consumer responsibility for the loan.
Disclosure Requirements for Trigger Terms
- Disclosures that must be made if trigger terms are present include down payment amounts, payment schedules, and annual percentage rates.
- The specific amount of principal covered in each payment does not require disclosure under TILA.
High-Cost Home Loan Identification
- A loan is classified as high-cost if its APR exceeds the average prime offer rate by over 6.5 percentage points for first lien loans.
- For a loan with a 3% average prime offer rate, a 15-year mortgage at 10% APR qualifies as a high-cost home loan.
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