Achievement Measurement 2 (Electrical Installation) (AM2)

Correct: The scenario describes loan flipping, which is the practice of refinancing a mortgage multiple times within a short timeframe to generate fee income for the lender without providing a tangible net benefit to the borrower. The Home Ownership and Equity Protection Act (HOEPA), which is an amendment to the Truth in Lending Act (TILA), was specifically enacted to address predatory practices in the high-cost mortgage market, including prohibitions against certain types of repeated refinancings that drain consumer equity.

Incorrect: Equity stripping is a broader term for lending based on the value of the home rather than the borrower’s ability to repay, often leading to foreclosure; while flipping is a form of equity stripping, the scenario specifically highlights the repetitive refinancing aspect. RESPA primarily deals with kickbacks and disclosure of settlement costs rather than the frequency of refinancing. Reverse redlining involves targeting specific protected classes for subprime or predatory products, which is an ECOA violation, but the scenario focuses on the mechanics of the loan cycle rather than demographic targeting. Steering involves directing a consumer to a loan that is not in their best interest to increase originator compensation, but the core violation here is the repetitive nature of the transactions without benefit (flipping).

Takeaway: Loan flipping is a predatory tactic involving frequent refinances that deplete equity through financed fees, and it is a primary focus of HOEPA regulations within the high-cost mortgage sector.

Correct: RESPA Section 8 (12 U.S.C. § 2607) prohibits any person from giving or accepting any fee, kickback, or thing of value pursuant to any agreement or understanding that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person. Paying property taxes for a referral source (the real estate agents) is a clear ‘thing of value’ provided in exchange for referrals, regardless of how it is labeled in internal accounting ledgers.

Incorrect: RESPA Section 10 is incorrect because it specifically addresses the limits on escrow account cushions and the timing of escrow disclosures, rather than prohibited referral fees. TILA Advertising Rules are incorrect because they govern the transparency of credit terms in marketing to consumers, not the ethical conduct of referral relationships. The Fair Credit Reporting Act (FCRA) is incorrect as it pertains to the accuracy and privacy of consumer credit data and does not regulate the exchange of gifts for business referrals.

Takeaway: Providing any ‘thing of value,’ such as paying property taxes for a referral source, constitutes a prohibited kickback under RESPA Section 8.

Correct: The SAFE Act is designed to provide a regulatory floor, not a ceiling. It sets forth minimum standards for the licensing and registration of mortgage loan originators (MLOs). States are permitted to implement more rigorous standards, such as additional education hours, higher surety bond requirements, or more frequent background checks, as these measures further the Act’s goal of increasing consumer protection and reducing fraud.

Incorrect: The claim that the SAFE Act provides field pre-emption is incorrect because the Act specifically allows for state-level variations that meet or exceed federal standards. The idea that state laws must mirror federal law exactly is false; the NMLS system is designed to accommodate state-specific requirements. While the SAFE Act does prevent states from lowering standards below the federal floor, it does not mandate absolute uniformity in education hours, allowing states the flexibility to require more than the 20-hour minimum.

Takeaway: The SAFE Act establishes a federal minimum for MLO licensing while allowing states the authority to enact more stringent requirements to enhance consumer protection.

Correct: Under the Equal Credit Opportunity Act (ECOA) and Regulation B, a lender may not discriminate against an applicant because all or part of the applicant’s income derives from any public assistance program. Furthermore, if an applicant chooses to rely on child support or alimony, the lender must consider it as income to the extent that it is likely to continue. The MLO must apply the same underwriting standards to this income as they would to salary or wages, focusing on the likelihood of receipt rather than the source itself.

Incorrect: Requiring a physician’s statement to verify a disability is generally a violation of the Fair Housing Act and ECOA, as it treats disabled applicants differently than non-disabled applicants. Applying different debt-to-income thresholds based on the source of income (child support vs. wages) is discriminatory under ECOA. HMDA is a data-reporting statute and does not mandate that MLOs steer applicants toward specific products based on their income source; in fact, steering based on protected characteristics is a violation of fair lending laws.

Takeaway: MLOs must treat income from public assistance and child support with the same consideration as earned income, ensuring that underwriting criteria are applied consistently across all protected classes.

Correct: Under the Electronic Signatures in Global and National Commerce Act (ESIGN Act), for an electronic signature to be legally valid in a consumer transaction, the consumer must affirmatively consent to use electronic records. This consent must be preceded by a disclosure of their rights, including the right to receive paper records and the right to withdraw consent. Crucially, the consumer must also consent electronically in a manner that reasonably demonstrates they can access the information in the electronic form that will be used to provide the information.

Incorrect: The other options represent common misconceptions or non-mandatory practices. While identity verification is important, the ESIGN Act does not require an originator to witness the signature in person or via video. The specific visual style of an electronic signature (e.g., a cursive font) does not dictate its validity as long as the intent to sign is established. Federal regulations allow for the storage of records in electronic format and do not mandate that a secondary physical backup be maintained in a paper file, provided the electronic records are accurate and accessible.

Takeaway: For electronic signatures on mortgage disclosures to be legally binding, the originator must comply with ESIGN Act requirements for consumer consent and technological capacity demonstration.

Correct: Under RESPA Section 10 (Regulation X), when a lender or servicer establishes an escrow account, they must perform an initial escrow account analysis. This analysis must be based on the best information available to the servicer at the time of the disclosure. Using an unimproved land value for a property that has been improved (new construction) results in an inaccurate initial statement and likely leads to a significant shortage, violating the requirement to provide an estimate based on the most current and accurate data available.

Incorrect: Providing a 30-day notice for payment increases is a procedural requirement for ongoing servicing but does not address the failure to use accurate data during the initial setup. The one-sixth cushion rule limits the maximum amount a lender can require a borrower to maintain in the account, but it does not govern the accuracy of the underlying tax assessment data. The requirement to return a surplus applies to the annual escrow analysis process rather than the initial setup and disclosure phase.

Takeaway: Lenders are required to use the most accurate and current property tax information available during the initial escrow analysis to ensure disclosures are correct and to prevent borrower payment shock.

Correct: Under the SAFE Act, state regulators (often referred to as the Commissioner) have the authority to conduct investigations and examinations of any licensed MLO or person subject to the Act. This authority includes the power to subpoena documents, administer oaths, and require the production of any records deemed relevant to the inquiry. MLOs are legally obligated to cooperate with these investigations and provide reports of condition to the NMLS as well as any other data requested by the state to ensure consumer protection and market stability.

Incorrect: The assertion that federal SAR filings satisfy all state requirements is incorrect because state regulators maintain independent authority to investigate and require reporting regardless of federal filings. The claim that an investigation requires a formal consumer complaint is false; regulators have the power to conduct examinations proactively or based on any suspicion of non-compliance. Finally, the NMLS is a database and licensing system, not an investigative body or law enforcement agency; the actual investigative power resides with the state regulatory agencies.

Takeaway: State regulators possess broad, proactive investigative powers under the SAFE Act to subpoena records and witnesses to ensure MLO compliance and combat mortgage fraud.

Correct: Under the Truth in Lending Act (TILA), the Annual Percentage Rate (APR) is designed to provide consumers with a standardized way to compare the total cost of credit. By explaining that the APR includes both the interest rate and other finance charges (such as origination fees, points, and mortgage insurance), the MLO provides a more comprehensive and effective explanation of the loan’s true cost than by looking at the interest rate alone.

Incorrect: Focusing primarily on the monthly payment is insufficient because it does not account for the total cost of credit or the impact of upfront fees. Focusing solely on the Note Rate is misleading as it ignores the prepaid finance charges that increase the effective cost of the loan. While comparing interest paid over five years provides some insight, it does not fulfill the regulatory intent of using the APR as the primary comparative tool for the total cost of the loan over its full term.

Takeaway: The APR is the most effective tool for loan term explanation because it integrates the interest rate with finance charges to show the total cost of credit as a yearly rate.

Correct: Under the FACTA Red Flags Rule, users of consumer reports must have reasonable policies and procedures to respond to a notice of address discrepancy. This includes verifying the identity of the consumer to ensure the report belongs to them, often by comparing the information in the report with information the user has in its records or obtains directly from the consumer to form a reasonable belief of the consumer’s identity.

Incorrect: Automatically rejecting the application is not a federal requirement and could lead to ECOA violations if the rejection is not based on creditworthiness. Requiring three forms of government ID is an excessive internal policy rather than a specific federal regulatory mandate. Updating the application to match the bureau without verification ignores the potential red flag of identity theft and fails to resolve the discrepancy as required by law.

Takeaway: The Red Flags Rule requires mortgage professionals to verify a consumer’s identity when a credit reporting agency provides a notice of address discrepancy to prevent identity theft.

Correct: Under the Truth in Lending Act (TILA) and the Appraiser Independence Requirements (AIR), it is strictly prohibited for any person involved in a mortgage transaction to influence an appraiser’s judgment. Specifically, communicating a target value or a minimum value required for loan approval to an appraiser is a direct violation of these standards and is considered a primary indicator of appraisal fraud.

Incorrect: Requesting that an appraiser consider additional, more relevant comparable sales is generally permissible as long as it is a request for factual consideration and not a demand for a specific value. Correcting clerical or administrative errors, such as a typo in a legal description, is a standard part of the quality control process and does not violate independence. Providing a list of property improvements is a legitimate way to ensure the appraiser has all relevant facts regarding the property’s condition and value-added features.

Takeaway: Federal regulations strictly prohibit mortgage professionals from influencing an appraiser’s independent judgment by providing target values or tying loan approval to a specific appraisal outcome.