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NMLS Safe Exam Pt 8
RESPA Section 8, Mortgage Fraud, HOEPA/HPML/HPCT, Case Scenarios
| Question | Answer |
|---|---|
| What does RESPA Section 8 prohibit? | Kickbacks, referral fees, and unearned fees in connection with federally related mortgage loans. |
| What is considered a “thing of value” under RESPA Section 8? | Anything of monetary worth, including gifts, trips, discounts, or services. |
| What are allowable exceptions under RESPA Section 8? | Payments for actual services rendered, salaries, and normal promotional activities not tied to referrals. |
| What is the penalty for violating RESPA Section 8? | $10,000 fine and/or 1 year in prison per violation. |
| What is a sham affiliated business arrangement? | A fake partnership used to disguise referral compensation. |
| What must be disclosed in an Affiliated Business Arrangement Disclosure (ABAD)? | Nature of relationship, estimated costs, and borrower’s right to shop elsewhere. |
| How long must RESPA-related documents be retained? | 5 years from execution date. |
| What is mortgage fraud? | Any misrepresentation or omission on a mortgage application to obtain a loan fraudulently. |
| What is income fraud? | Misstating income to qualify for a loan (e.g., inflating or falsifying income documents). |
| What is occupancy fraud? | Claiming to live in a property that will actually be rented or left vacant. |
| What is employment fraud? | Lying about your job, employer, or length of employment on a loan application. |
| What is asset fraud? | Fabricating or inflating savings, investments, or gift funds. |
| What is appraisal fraud? | Manipulating or misrepresenting a property’s value to influence loan approval. |
| What is identity theft fraud? | Using another person’s information to apply for a loan without their consent. |
| What is straw buyer fraud? | When someone uses another person to obtain a loan they don’t qualify for. |
| What is air loan fraud? | A completely fake loan where the borrower, property, or both don’t exist. |
| What is silent second fraud? | Getting an undisclosed second loan to cover a down payment. |
| What is property flipping fraud? | Buying and quickly reselling a home at an inflated value with a false appraisal. |
| What is a red flag for fraud in loan docs? | Altered pay stubs, unverifiable employment, or inconsistent information. |
| What is a high-cost mortgage (HOEPA loan)? | A loan that exceeds APR or fee thresholds under Section 32 of TILA. |
| What regulation implements HOEPA? | Regulation Z (TILA). |
| What are prohibited features in HOEPA loans? | Balloon payments, negative amortization, prepayment penalties (with few exceptions). |
| What are HOEPA disclosure requirements? | Special disclosure at least 3 business days before closing. |
| Who must receive HOEPA counseling? | The borrower must receive counseling from an approved housing counselor. |
| What does HPML stand for? | Higher-Priced Mortgage Loan. |
| What regulation covers HPML? | Regulation Z under TILA. |
| What triggers an HPML? | APR exceeds APOR by 1.5% (first lien), 2.5% (jumbo first lien), or 3.5% (subordinate lien). |
| What is APOR? | Average Prime Offer Rate — used as the benchmark to identify higher-cost loans. |
| What are the requirements for HPML loans? | Escrow for 5 years, ATR (Ability to Repay), and no prepayment penalties after 36 months. |
| When is an escrow account required under HPML? | At least 5 years from loan consummation. |
| When can escrow be canceled on an HPML? | After 5 years and when LTV is below 80%. |
| What is an HPCT? | Higher-Priced Covered Transaction — another term used for HPML under ATR/QM rules. |
| What is a prepayment penalty? | A fee charged for paying off a loan early, limited under TILA/HOEPA rules. |
| What is a balloon payment? | A large final payment due at the end of a loan’s term. |
| What is the rule on balloon payments for QM loans? | Generally prohibited except for small creditors in rural/underserved areas. |
| What is the purpose of Ability-to-Repay (ATR) Rule? | To ensure lenders verify the borrower can repay the loan. |
| What 8 factors must be considered under ATR? | Income/assets, employment, monthly payment, other loans, obligations, DTI, credit history, and mortgage features. |
| What is a small creditor under TILA? | A creditor with ≤ $2 billion in assets and ≤ 2,000 loans originated per year. |
| What are examples of deceptive lending practices? | Bait-and-switch, hidden fees, and misleading rate advertisements. |
| What is predatory lending? | Unscrupulous lending practices targeting vulnerable borrowers with unfair terms. |
| What is equity stripping? | Repeated refinancing to extract home equity, often harming the borrower financially. |
| What is loan flipping? | Unnecessarily refinancing a loan solely to earn fees. |
| What is steering in the context of lending? | Guiding borrowers toward loans that benefit the lender more than the borrower. |
| What is churning? | Excessive refinancing of a loan to generate fees. |
| What is an example of a RESPA violation? | A real estate agent getting a referral fee from a lender. |
| Is it legal to give a gift card for referrals? | No, any exchange of value for a referral violates RESPA Section 8. |
| Can a lender host a lunch for real estate agents? | Yes, if it's open to the public and not conditioned on referrals. |
| Can you pay a realtor for marketing your company? | Yes, if it’s a fair market value service not tied to referrals. |
| What happens if a borrower pays upfront fees before receiving the LE? | It's a violation of TRID; only credit report fee is allowed before LE and intent to proceed. |
| What is the primary penalty for violating HOEPA? | Civil liability, damages, and potential rescission of the loan. |
| How long does a borrower have to rescind a HOEPA loan if disclosures were not provided? | Up to 3 years from consummation. |
| What must a lender do before making a HOEPA loan? | Ensure the borrower received counseling from a HUD-approved counselor. |
| What is considered a high-cost mortgage under HOEPA (points & fees threshold)? | Points and fees exceed 5% of loan amount (for loans ≥ $24,866 in 2025). |
| What is considered a high-cost mortgage under HOEPA (APR threshold)? | APR exceeds APOR by 6.5% (first lien) or 8.5% (subordinate lien). |
| What is a covered transaction under HOEPA? | A closed-end consumer credit transaction secured by a consumer's principal dwelling. |
| What does HOEPA prohibit in terms of refinancing? | Refinancing a HOEPA loan into another HOEPA loan within 12 months unless it’s in the borrower’s interest. |
| Which law prohibits unfair, deceptive, or abusive acts or practices? | Dodd-Frank Act (UDAAP provision). |
| What is an example of bait-and-switch? | Advertising one rate, then steering a borrower into a higher-cost loan. |
| What are the consequences of mortgage fraud? | Criminal charges, fines, imprisonment, and license revocation. |
| Why is silent second fraud dangerous? | It misrepresents borrower assets and deceives the primary lender. |
| Can you omit a borrower’s second job to lower DTI? | No — that would be considered mortgage fraud. |
| Why is occupancy fraud taken seriously? | Owner-occupied loans have lower risk and better terms — misrepresenting occupancy is illegal. |
| What is a key red flag of fraud in a purchase transaction? | Gift funds without documentation or conflicting addresses. |
| What is the penalty for knowingly submitting false information on a mortgage application? | Up to 30 years in prison and/or a $1,000,000 fine under federal law. |
| What is a case scenario of steering discrimination? | A broker only showing homes in certain neighborhoods based on race or ethnicity. |
| What is considered a “required use” violation under RESPA? | Forcing a borrower to use a specific title company as a condition of sale. |
| What is the impact of referral compensation on consumers? | It may lead to inflated costs or service providers not acting in the borrower’s best interest. |
| Why does TRID limit changes after issuing a CD? | To protect borrowers from surprises and give time to review final terms. |
| What’s a real-world example of a trigger term requiring full disclosure? | “Only $500/month!” — must include APR and repayment terms. |
| What is an example of a legitimate promotional activity? | Giving out pens or calendars not tied to referrals. |
| Can a lender offer a discount to a borrower for attending a seminar? | Yes, as long as it’s offered to all and not based on referrals. |
| When must loan originators disclose their NMLS ID? | On initial disclosures, advertisements, and written communication with consumers. |
| What should a borrower do if they suspect mortgage fraud? | Report it to the lender, CFPB, or appropriate regulatory authority. |
| What is a case example of redlining? | A lender refuses to make loans in minority neighborhoods regardless of applicant qualifications. |
| What type of loan is most associated with HOEPA? | Subprime loans and high-cost refinance loans. |
| What does it mean to “churn” a borrower? | Repeatedly refinancing loans to collect fees with no borrower benefit. |
| What must be proven for a lender to be liable under UDAAP? | That an act was unfair, deceptive, or abusive, even if unintentional. |
| Can a mortgage broker collect a fee from both borrower and lender? | Only if disclosed clearly and not tied to referral compensation. |
| What is the purpose of TILA Section 32 (HOEPA)? | To protect consumers from high-cost loans and predatory lending practices. |
| What is a “covered loan” under HOEPA? | A loan that exceeds APR or points/fees thresholds, secured by a principal dwelling. |
| Can a lender charge a prepayment penalty on a HOEPA loan? | No — it’s strictly prohibited. |
| What type of lender typically sells loans into the secondary market immediately? | Correspondent lenders. |
| Which mortgage fraud scheme involves using fake buyers and sellers? | Straw buyer or air loan scheme. |
| What’s a red flag in an appraisal for a flip? | The value increases drastically with no substantial improvement to property. |
| Who investigates mortgage fraud at the federal level? | The FBI and HUD-OIG (Office of Inspector General). |
| What must be included in an Affiliated Business Disclosure? | Relationship, ownership interest, estimated costs, and right to shop elsewhere. |
| What must be provided if borrower is referred to affiliate? | ABAD must be provided at time of referral or within 3 days of application. |
| How long must ABAD disclosures be retained? | At least 5 years from the date of execution. |
| What is the goal of the Home Ownership and Equity Protection Act? | To protect consumers from high-cost loans and abuse. |
| What’s one of the most common RESPA violations in practice? | Real estate agents receiving compensation for referrals. |
| Why is the CFPB important for the mortgage industry? | It enforces federal consumer protection laws and investigates misconduct. |
| What is the difference between RESPA Section 8 and Section 9? | Section 8 prohibits referral compensation; Section 9 prohibits seller-required title insurance companies. |
| What are treble damages under RESPA Section 9? | Three times the cost of title insurance if seller violates anti-kickback rule. |
| What law prohibits discrimination based on age, race, religion, and more in lending? | ECOA (Equal Credit Opportunity Act). |
| What’s the required action if loan terms change after CD is issued? | Provide revised CD and restart 3-day review period if major change occurs. |
| Can a referral be compensated if there’s no formal agreement? | No — even informal referrals with value exchange are prohibited. |
Created by:
jenniferhudson
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