A processor is resolving Good Faith and Fair Dealing during a quality-control sample. Which action best fits the rule?
Correct Answer
B) Avoid steering the borrower to increase compensation
Why this is correct: The duty of fair dealing includes the prohibition against "steering," which is guiding a borrower to a loan product that is not in their best interest in order to increase the loan originator's compensation. The correct answer, "Avoid steering the borrower to increase compensation," is a direct application of this core MLO obligation to act in the borrower's interest. Why the other choices are wrong: "Let sales goals control the recommendation when the file facts point elsewhere" is wrong because it subordinates the borrower's best interest to the originator's or lender's financial goals, violating fair dealing. "Treat borrower familiarity with mortgages as a waiver of required file steps" is wrong because a borrower's experience does not waive the MLO's legal and procedural obligations, such as providing accurate disclosures. "Continue with incomplete facts because the loan appears likely to close" is wrong because proceeding without complete and verified information can lead to errors and violations; due diligence is required. Exam tip: Your duty is to the borrower's best interest, not to your commission. Any action that puts your pay ahead of a suitable loan recommendation is a red flag.
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: Let sales goals control the recommendation when the file facts point elsewhere.
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: 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 D: 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.
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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A lender calls a letter based only on the buyer’s unverified statements a prequalification. It calls a conditional letter based on verified income, assets and credit a preapproval. Which offers stronger documented evidence of financing readiness without guaranteeing funding?
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A borrower-facing employee is unsure what to do when a cost changes after the Closing Disclosure has already been provided. What is the correct response?