A branch manager asks about a loan file because the borrower pays the broker directly and the creditor also offers compensation. What should happen?
Correct Answer
A) Decline creditor compensation for that transaction
Why this is correct: The dual-compensation restriction (the governing federal rule is triggered. The borrower's direct payment to the broker means the broker's firm (and its MLOs) cannot also receive pay from the creditor for that loan. The required outcome is to decline the creditor compensation. Why the other choices are wrong: "Use profitability of the selected product to decide the originator bonus" is non-compliant because compensation cannot be based on the profitability of an individual loan. "Change MLO pay after the lock because the borrower chose discount points" violates rules against tying compensation to specific loan terms. "Offset a pricing exception by reducing only this originator compensation" is prohibited; an originator's compensation cannot be adjusted to offset a specific loan's pricing exception. Exam tip: For manager questions, the focus is on the outcome: the creditor compensation must not be accepted. The other options describe separate, prohibited compensation practices.
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 B: Use profitability of the selected product to decide the originator bonus.
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: 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 D: 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
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