The loan team is resolving ECOA Prohibited Practices during a loan-team coaching session. Which action best fits the rule?
Correct Answer
D) Review any neutral policy with discriminatory effect
The Equal Credit Opportunity Act (ECOA) prohibits discrimination in any aspect of a credit transaction based on a prohibited basis (e.g., race, color, religion, national origin, sex, marital status, age, or receipt of public assistance). Fair lending requires lenders to ensure their policies and practices do not have a discriminatory effect, even if they appear neutral on their face. Why this is correct: "Review any neutral policy with discriminatory effect" is the correct action because ECOA prohibits not only overt discrimination but also practices that are neutral in form but have a disparate impact on a protected class. The loan team must proactively examine policies to identify and eliminate any that result in unlawful discrimination, regardless of intent. Why the other choices are wrong: "Continue the activity because the borrower appears willing to proceed" is wrong because a borrower's willingness does not excuse a violation of ECOA; the law prohibits the practice itself. "Ignore the consumer-protection issue unless the borrower complains" is wrong because lenders have an affirmative duty to comply with ECOA; they cannot wait for a complaint to address a prohibited practice. "Treat the ECOA Prohibited Practices review as complete because the file contains a related appraisal review note" is wrong because a single note in a file does not constitute a comprehensive review; the team must actively assess policies for discriminatory effects. Exam tip: Remember that ECOA requires proactive compliance. Focus on eliminating policies that cause discriminatory effects, not just on borrower complaints or superficial file reviews.
Why This Is the Correct Answer
The correct response is "Review any neutral policy with discriminatory effect" because Fair lending requires equal treatment and credit-related standards without prohibited-basis discrimination.
Why the Other Options Are Wrong
Option A: Continue the activity because the borrower appears willing to proceed.
Continue the activity because the borrower appears willing to proceed. is not correct because it does not apply the rule tested by this file scenario.
Option B: Ignore the consumer-protection issue unless the borrower complains.
Ignore the consumer-protection issue unless the borrower complains. is not correct because it does not apply the rule tested by this file scenario.
Option C: Treat the ECOA Prohibited Practices review as complete because the file contains a related appraisal review note.
This distractor shifts the issue to a different trigger, product, or timing rule instead of applying the rule tested in the stem.
Memory Technique
fair-lending controls: identify the rule being tested, then choose the action that documents or applies that rule before the file moves forward.
Exam Tip
Match the file facts to fair-lending controls; do not choose an exception or shortcut that skips the required rule.
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 Ethics & Fraud Questions
In a closing-readiness check, a disclosure specialist sees facts tied to Appraisal Fraud Detection. What should the file reflect?
An MLO recommends a loan with a low initial payment that will increase sharply in two years. The borrower says retirement income will be fixed and asks whether the payment can change. What is the appropriate response?
An MLO alters a bank statement to make the applicant's account balance appear higher and submits it to underwriting. Which response is appropriate?
A branch manager asks about a loan file because marketing proposes a rate the company is not prepared to offer. What should happen?
A borrower wants cash for necessary home repairs. A proposed refinance provides $15,000 cash but adds $12,000 in costs and extends repayment by 15 years. What is the best next step for the MLO?
Before closing, the team discovers that an ad shows an interest rate but omits the APR presentation. What is the safest compliant answer?
The loan team is resolving Privacy and Confidentiality during a quality-control sample. Which action best fits the rule?
A house last sold for $185,000 in January. In March it changes hands 3 times in 9 days, reaching $410,000, with the same appraiser and the same closing agent on every leg. Assuming the parties colluded to inflate appraisals without improvements to support the higher prices, what fraud scheme does this pattern illustrate?
For closings involving federally related mortgage loans, a title company pays a real estate brokerage $75 for each referred client who closes. The brokerage only passes along the client’s name and number. Does this referral payment comply with RESPA Section 8?
Before closing, the team discovers that a loan officer wants different terms because of a protected applicant characteristic. What is the safest compliant answer?
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