In a mortgage origination file, the borrower pays the broker directly and the creditor also offers compensation. Which action should be taken?
Correct Answer
D) Decline creditor compensation for that transaction
Why this is correct: The Loan Originator Compensation rule under 12 CFR 1026.36(d)(2)(i) prohibits a loan originator from receiving compensation from both the consumer and another person (like a creditor) in the same transaction. This is the dual-compensation restriction. If the borrower pays the broker directly, the broker must decline any compensation from the creditor for that specific loan. Why the other choices are wrong: "Apply the credit underwriting timing rule even though the file is testing Dual compensation restriction" is wrong because the issue is compensation, not underwriting timing; applying the wrong rule is non-responsive. "Increase compensation because the borrower selected a higher-rate product" is wrong because compensation cannot be based on loan terms; this would violate the prohibition on term-based compensation. "Pay the originator based on a loan-term proxy after closing" is wrong because paying based on a loan-term proxy (like loan amount or type) is generally prohibited, and dual compensation is still illegal regardless of timing. Exam tip: For compensation questions, remember the core prohibitions: no dual compensation and no compensation tied to loan terms.
Why This Is the Correct Answer
The correct response is "Decline creditor compensation for that transaction" because Lines 100 and 268-269; 12 CFR 1026.36(d)(2)(i).
Why the Other Options Are Wrong
Option A: Apply the credit underwriting timing rule even though the file is testing Dual compensation restriction.
This distractor shifts the issue to a different trigger, product, or timing rule instead of applying the rule tested in the stem.
Option B: Increase compensation because the borrower selected a higher-rate product.
This choice is not the best answer because it applies the wrong file step for MLO compensation restrictions; the governing rule is tested by the correct option.
Option C: Pay the originator based on a loan-term proxy after closing.
This choice is a tempting shortcut, but it conflicts with MLO compensation restrictions because the file still needs the required documentation, timing, or rule-based review before the action is taken.
Memory Technique
MLO compensation restrictions: identify the rule being tested, then choose the action that documents or applies that rule before the file moves forward.
Exam Tip
For MLO compensation restrictions questions, separate the required file step from plausible sales, timing, or documentation shortcuts.
Common Mistakes to Avoid
- -Choosing an internal exception instead of the governing rule
- -Treating preliminary or informal facts as a substitute for required documentation
- -Answering from a familiar but unrelated mortgage topic
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