A branch posts a new bonus grid: $300 for each loan closed at 6.5% or below, $700 for each one closed above 7%. An originator points out that the only way to earn the higher tier is to place borrowers at a higher rate. What should happen to the grid?
Correct Answer
D) Keep compensation independent of loan terms or proxies
Why this is correct: Under 12 CFR 1026.36(d)(1), compensation cannot vary with transaction terms. Discovering a plan to pay more for a higher interest rate before closing means the compensation structure itself is non-compliant and must be corrected. The only safe, compliant answer is to keep compensation independent of loan terms or proxies. Why the other choices are wrong: "Delay the Loan originator compensation based on terms step until a later servicing transfer review instead of acting now" is wrong because the violation exists at origination and cannot be deferred; it must be corrected immediately. "Change MLO pay after the lock because the borrower chose discount points" is wrong because adjusting pay based on the borrower's selection of discount points ties compensation to a loan term. "Offset a pricing exception by reducing only this originator compensation" is wrong because making a compensation adjustment based on a transaction-specific event is prohibited. Exam tip: Timing does not cure this violation. Whether discovered before closing, after a lock, or later, a compensation plan tied to loan terms is never permissible.
Why This Is the Correct Answer
The correct response is "Keep compensation independent of loan terms or proxies" because Lines 55-63; 12 CFR 1026.36(d)(1).
Why the Other Options Are Wrong
Option A: Delay the Loan originator compensation based on terms step until a later servicing transfer review instead of acting now.
This distractor shifts the issue to a different trigger, product, or timing rule instead of applying the rule tested in the stem.
Option B: Change MLO pay after the lock because the borrower chose discount points.
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: Offset a pricing exception by reducing only this originator compensation.
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
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?
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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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