A borrower-facing employee is unsure what to do when the person preparing the valuation would be paid more if the value is higher. What is the correct response?
Correct Answer
C) Remove the value-based compensation conflict
This question tests the rule prohibiting conflicts of interest in the valuation process. The governing concept is that a person preparing a valuation must be independent, and their compensation cannot be based on the value conclusion, as this creates an incentive to inflate the estimate. The original explanation cites the specific regulatory authority: 12 CFR § 1026.42(d). Why this is correct: The correct response is "Remove the value-based compensation conflict." The regulation explicitly prohibits compensation to a person who prepares a valuation from being based on the value assigned. When such a conflict is identified, it must be addressed and removed before the valuation can be relied upon for the loan decision. Why the other choices are wrong: "Withhold the valuation copy until closing if the applicant does not ask" is wrong because it violates the borrower's right to receive a copy of the appraisal promptly, regardless of whether they ask. "Treat the Valuation conflict of interest review as complete because the file contains a related branch licensing note" is wrong because a licensing note does not resolve or excuse a prohibited compensation conflict; the conflict itself must be removed. "Ask the appraiser to ignore a condition issue so the loan can meet timing" is wrong because it constitutes improper coercion or influence of the appraiser, which is also prohibited. Exam tip: For any valuation conflict question, remember the core rule: compensation must never depend on the property value, and any such conflict must be eliminated—not documented, ignored, or worked around.
Why This Is the Correct Answer
The correct response is "Remove the value-based compensation conflict" because Lines 215-219; 12 CFR 1026.42(d).
Why the Other Options Are Wrong
Option A: Withhold the valuation copy until closing if the applicant does not ask.
This choice is not the best answer because it applies the wrong file step for appraisal and valuation independence; the governing rule is tested by the correct option.
Option B: Treat the Valuation conflict of interest review as complete because the file contains a related branch licensing note.
This distractor shifts the issue to a different trigger, product, or timing rule instead of applying the rule tested in the stem.
Option D: Ask the appraiser to ignore a condition issue so the loan can meet timing.
This choice is a tempting shortcut, but it conflicts with appraisal and valuation independence because the file still needs the required documentation, timing, or rule-based review before the action is taken.
Memory Technique
appraisal and valuation requirements: identify the rule being tested, then choose the action that documents or applies that rule before the file moves forward.
Exam Tip
For appraisal and valuation independence 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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