Before closing, the team discovers that marketing proposes a rate the company is not prepared to offer. What is the safest compliant answer?
Correct Answer
B) Advertise only credit terms actually available
Why this is correct: Under Regulation Z's advertising rules (12 CFR 1026.24(a)), it is illegal to advertise specific credit terms, like an interest rate, that the creditor is not prepared to offer. Discovering this before closing does not change the violation; the advertisement was deceptive when made. The safest and only compliant answer is to correct the practice by ensuring advertising is limited to terms that are actually available. Why the other choices are wrong: "Allow activity to continue while the applicable status problem remains unresolved" is wrong because continuing with a known deceptive practice compounds the violation. "Ignore the advertising and consumer protection issue unless the borrower complains" is wrong because the rule is enforced by regulators, not just by borrower complaints. "Use borrower consent as a substitute for the governing mortgage rule" is wrong because a borrower cannot consent to a lender's violation of Truth in Lending advertising laws. Exam tip: The timing of discovery (before closing) is irrelevant. If an ad violated the rule when published, the proper action is always to adhere to the rule: advertise only what you can truly offer.
Why This Is the Correct Answer
The correct response is "Advertise only credit terms actually available". Specific advertised terms must be terms the creditor actually is or will be prepared to offer.
Why the Other Options Are Wrong
Option A: Allow activity to continue while the applicable status problem remains unresolved.
Allow activity to continue while the applicable status problem remains unresolved. is not correct because it bypasses the rule supported by the explanation.
Option C: Ignore the advertising and consumer protection issue unless the borrower complains.
Ignore the advertising and consumer protection issue unless the borrower complains. is not correct because it bypasses the rule supported by the explanation.
Option D: Use borrower consent as a substitute for the governing mortgage rule.
Use borrower consent as a substitute for the governing mortgage rule. is not correct because it bypasses the rule supported by the explanation.
Memory Technique
For advertising, ask whether the exact term is real and available.
Exam Tip
For advertising, ask whether the exact term is real and available.
Common Mistakes to Avoid
- -A disclaimer does not cure a term that is not actually available.
More Ethics & Fraud Questions
In a file escalation meeting, the supervisor sees facts tied to RESPA Kickbacks and Referrals. What should the file reflect?
In a closing-readiness check, a disclosure specialist sees facts tied to Appraisal Fraud Detection. What should the file reflect?
At closing, an MLO adds a single-premium credit-life policy to the loan amount even though the borrower declined it and the policy is not required for approval. Which practice is the clearest concern?
A refinance eliminates a borrower's fixed-rate loan, adds substantial fees, provides no cash or lower payment, and restarts a 30-year term. What should the MLO do before recommending it?
An applicant has verified monthly income of $5,000 and monthly obligations of $4,700 after the proposed mortgage payment. The applicant expects an undocumented raise next year. What should the MLO do?
A lender bases approval entirely on the home's high appraised value and does not verify the borrower's income or existing debts. What is the central compliance concern?
A borrower agrees to a mortgage but declines an optional home-warranty plan. The final loan documents nevertheless finance a $2,400 warranty premium. What should the MLO do?
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?
To obtain approval, an MLO changes a self-employed applicant's verified monthly income from $6,000 to $9,000 without supporting documentation. How should this conduct be characterized?
A homeowner is encouraged to refinance for the third time in 18 months. Each loan generates new points and fees, while the borrower's payment and rate do not improve. Which practice is most strongly indicated?
People Also Study
Federal Mortgage-Related Laws
24% of exam
General Mortgage Knowledge
20% of exam
Mortgage Loan Origination Activities
27% of exam
Uniform State Test Content
11% of exam
Related Study Resources
Previous Question
An applicant has verified monthly income of $5,000 and monthly obligations of $4,700 after the proposed mortgage payment. The applicant expects an undocumented raise next year. What should the MLO do?
Next Question
In a mortgage origination file, an outside party asks for borrower bank statements without a permissible basis. Which action should be taken?