The loan team compares the file facts with TILA Ability to Repay during a licensing team review. Which conclusion is accurate?
Correct Answer
D) Avoid refinancing that increases cost without benefit
Why this is correct: For a refinance, the MLO must evaluate the transaction for a tangible net tangible benefit to the borrower. A refinance that increases the loan's cost (e.g., higher interest rate, more fees) without providing a corresponding benefit (like lower payment, shorter term, or cash for a need) fails this test and should be avoided to prevent steering the borrower into a harmful loan. Why the other choices are wrong: "Assume benefit exists because the borrower is experienced with refinances" is wrong; benefit must be objectively evaluated, not assumed. "Use the lender compensation as evidence the refinance is in the borrower interest" is incorrect; lender gain does not equal borrower benefit. "Treat a higher-cost refinance as beneficial solely because closing is faster" is not a valid net tangible benefit; speed alone does not justify higher costs. Exam tip: The "net tangible benefit" test is key for refinances. Ask: Does this clearly improve the borrower's position? If costs rise with no offsetting gain, it's a red flag.
Why This Is the Correct Answer
The correct response is "Avoid refinancing that increases cost without benefit" because Refinance recommendations should be evaluated for borrower benefit, repayment ability, and steering risk.
Why the Other Options Are Wrong
Option A: Assume benefit exists because the borrower is experienced with refinances.
This choice is not the best answer because it applies the wrong file step for refinance benefit review; the governing rule is tested by the correct option.
Option B: Use the lender compensation as evidence the refinance is in the borrower interest.
This choice is not the best answer because it applies the wrong file step for refinance benefit review; the governing rule is tested by the correct option.
Option C: Treat a higher-cost refinance as beneficial solely because closing is faster.
This choice is a tempting shortcut, but it conflicts with refinance benefit review because the file still needs the required documentation, timing, or rule-based review before the action is taken.
Memory Technique
refinance benefit and repayment-ability review: identify the rule being tested, then choose the action that documents or applies that rule before the file moves forward.
Exam Tip
For refinance benefit review 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
More Origination Questions
Before the team acts on a servicing handoff check, a closing coordinator must address Asset Verification and Reserves. Which response is most defensible?
An MLO is reviewing procedures for a case where a cost changes after the Closing Disclosure has already been provided. What is the proper handling?
During a post-application update, a quality-control reviewer encounters a Credit Analysis and Evaluation issue. Which response should avoid a shortcut that would misapply the rule?
A construction-to-permanent loan will disburse in 5 draws over 11 months before the permanent phase begins. Which Regulation Z appendix provides a disclosure method for multiple-advance construction transactions?
Before closing, the team discovers that a borrower asks which upfront charge can be collected before intent to proceed. What is the safest compliant answer?
A construction loan agreement allows advances only after documented completion of specified work. A builder requests the next draw, but no completion evidence has been provided. What should occur?
Before releasing the final construction draw, which combination most directly supports project completion and clear collateral?
A construction-to-permanent loan will convert to a substantially higher fully amortizing payment. Which payment is especially important when assessing the borrower's long-term repayment capacity?
A construction-to-permanent note states that conversion requires completion, a certificate of occupancy, and no unresolved liens. Construction is finished, but a mechanic's lien remains. What should happen?
A branch manager asks about a loan file because a processor wants to omit known monthly obligations from underwriting. What should happen?
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