An originator handles a $420,000 purchase in which the seller is the originator's brother. The lender's written conflict policy requires disclosure of close family relationships with transaction participants and compliance review before proceeding. What should the originator do?
Correct Answer
D) Disclose the relationship to the lender and follow the required conflict-review process
D. Disclose the family relationship and follow the stated review process. The lender policy in the scenario expressly covers this relationship. An appraisal matching the price does not remove the personal relationship or the policy requirement. Scope and exceptions: The lender policy is a stipulated fact. Fannie Mae’s cited code supports conflict transparency for its business partners; it is not a nationwide rule for every originator-relative transaction or an automatic identity-of-interest LTV limit. Source: Conduct Business with Integrity, 1.2.1 — https://www.fanniemae.com/business-partner-code-conduct
Why This Is the Correct Answer
D. Disclose the family relationship and follow the stated review process. The lender policy in the scenario expressly covers this relationship. An appraisal matching the price does not remove the personal relationship or the policy requirement. Scope and exceptions: The lender policy is a stipulated fact. Fannie Mae’s cited code supports conflict transparency for its business partners; it is not a nationwide rule for every originator-relative transaction or an automatic identity-of-interest LTV limit.
Why the Other Options Are Wrong
Option A: Skip disclosure if the contract price equals the appraised value
A price comparison is not a substitute for conflict disclosure.
Option B: Proceed without disclosure because the borrower is unrelated to the seller
The policy concerns the originator’s relationship, not only buyer–seller relationships.
Option C: Reject the file because every transaction involving an originator's relative is illegal
The facts do not establish a universal ban on relatives participating in transactions.
Exam Tip
Disclose potential conflicts and apply the actual policy and program requirements.
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