An MLO provides a borrower with a pre-qualification estimate without running credit or verifying income. Three months later, the borrower applies for a loan and is denied due to recent credit issues. The borrower claims the MLO misled them. What is the MLO's best defense?
Correct Answer
C) Pre-qualification is based on unverified information and subject to actual verification
MLOs should clearly communicate that pre-qualification estimates are based on unverified, self-reported information and are subject to actual credit, income, and asset verification. Proper disclosure of the preliminary nature of pre-qualification protects both the lender and borrower.
Why This Is the Correct Answer
MLOs should clearly communicate that pre-qualification estimates are based on unverified, self-reported information and are subject to actual credit, income, and asset verification. Proper disclosure of the preliminary nature of pre-qualification protects both the lender and borrower.
More Origination Questions
A borrower has a construction-to-permanent loan with a 12-month construction phase. At month 10, construction is only 60% complete due to delays. What is the most likely outcome?
For a construction-to-permanent loan, when must the initial Closing Disclosure be provided for the construction phase?
During a refinance transaction, the appraiser determines that significant unpermitted additions were made to the property. The appraiser wants to discuss this with the MLO before finalizing the report. What should the MLO do?
An appraiser discovers that a property has significant foundation issues that were not disclosed. The appraiser reduces the property value by $25,000 and includes detailed comments about the structural problems. The loan officer is upset because this will kill the deal. Under AIR, the loan officer:
An MLO's compensation structure includes higher payments for certain loan products. When is it acceptable to recommend these higher-compensated products?
An MLO provides pre-qualification based on a borrower's current employment but learns the borrower is starting a new job next month with a $10,000 salary increase. How should this information be handled?
An MLO issues a pre-approval letter that states 'subject to satisfactory appraisal and final underwriting approval.' The borrower uses this letter to make an offer, but the appraisal comes in $15,000 below the purchase price. What is the lender's obligation?
A borrower submits a mortgage application on Monday at 2:00 PM. The lender determines the application is complete on Wednesday at 10:00 AM. What is the latest day the Loan Estimate must be delivered to comply with TRID requirements?
How long is a typical pre-approval letter valid?
A borrower requests a rate lock on a construction-to-permanent loan where the construction phase is 8 months and the permanent phase begins immediately after. The lender's rate lock policy allows maximum 120-day locks. How should the MLO handle this situation?
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A borrower's Loan Estimate shows a $400 flood determination fee in the 'Services Borrower Cannot Shop For' section. At closing, the actual fee is $425. The lender did not shop for this service. What is the result?
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In a construction loan scenario, what happens if the actual construction costs exceed the original loan amount?