California Mortgage Loan Originator (MLO) License Practice Test

The Right of Rescission is a consumer protection provision that allows borrowers to cancel certain types of loans within a specified period, typically three days, after closing. This right is primarily designed to protect consumers in transactions involving their primary residences.

In the case of a primary residence, federal law, specifically the Truth in Lending Act (TILA), guarantees this right of rescission whenever a loan is secured by the borrower's home. The intention is to provide an opportunity for homeowners to reconsider their borrowing decisions and to ensure they have a fair understanding of the terms and implications of the loan.

For investment properties, vacation homes, and commercial properties, the Right of Rescission does not apply in the same way. These types of properties are not considered principal residences, and therefore, the additional consumer protections associated with residential mortgages are not mandated by law.

Understanding this distinction is crucial for mortgage loan originators, as it influences how loans are processed and the rights afforded to borrowers based on their occupancy type.