A mortgage team asks a loan file reviewer about loan-originator obligations during a file review. Which answer should guide the file?
Correct Answer
B) Avoid steering the borrower to increase compensation
Why this is correct: A core obligation under Regulation Z's loan originator rules is to avoid steering a consumer to a loan that is not in their interest in order to increase the originator's compensation. "Avoid steering the borrower to increase compensation" directly states this fundamental prohibition. Why the other choices are wrong: "Treat borrower familiarity with mortgages as a waiver of required file steps" is incorrect; a borrower's experience does not waive any regulatory requirements or the MLO's duties. "Continue with incomplete facts because the loan appears likely to close" violates the obligation to make a reasonable, informed determination based on complete information. "Use the quickest product path instead of the rule that applies to the transaction" ignores the duty to apply all relevant rules correctly, regardless of speed. Exam tip: An MLO's duty is to the consumer's best interest, not to the speed of closing or the size of their own commission.
Why This Is the Correct Answer
The correct response is "Avoid steering the borrower to increase compensation" because MLO obligations include fair dealing, no steering, accurate information, and compliant compensation.
Why the Other Options Are Wrong
Option A: Treat borrower familiarity with mortgages as a waiver of required file steps.
This choice is not the best answer because it applies the wrong file step for loan-originator obligations; the governing rule is tested by the correct option.
Option C: Continue with incomplete facts because the loan appears likely to close.
This choice is not the best answer because it applies the wrong file step for loan-originator obligations; the governing rule is tested by the correct option.
Option D: Use the quickest product path instead of the rule that applies to the transaction.
This choice is a tempting shortcut, but it conflicts with loan-originator obligations because the file still needs the required documentation, timing, or rule-based review before the action is taken.
Memory Technique
loan-originator obligations: identify the rule being tested, then choose the action that documents or applies that rule before the file moves forward.
Exam Tip
For loan-originator obligations 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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