A compliance review finds that an ad shows an interest rate but omits the APR presentation. What should the MLO do next?
Correct Answer
D) State the rate as an annual percentage rate
Why this is correct: Regulation Z's advertising rules for closed-end credit (the governing federal rule require that if an advertisement states a rate of finance charge (like an interest rate), it must also state that rate as an Annual Percentage Rate (APR). The APR is a broader measure that includes costs beyond just interest, providing a more accurate comparison for consumers. Omitting the APR when a rate is presented is a violation, so the MLO must ensure the ad states the rate as an APR. Why the other choices are wrong: "Continue the activity because the borrower appears willing to proceed" is wrong because consumer consent does not override mandatory disclosure rules. "Resolve the APR in advertisements issue with the changed-circumstance exception that does not fit the facts" is wrong; the changed-circumstance rule relates to tolerances for closing cost estimates, not to the basic requirement to include the APR in ads. "Document the issue later instead of correcting the compliance problem first" is wrong because the non-compliant ad must be corrected immediately to stop the violation. Exam tip: A key advertising trigger: if you mention any rate (interest, payment, etc.), you must also disclose the APR clearly and conspicuously.
Why This Is the Correct Answer
The correct response is "State the rate as an annual percentage rate" because Lines 261-265 and 273-277; 12 CFR 1026.24(c).
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: Resolve the APR in advertisements issue with the changed-circumstance exception that does not fit the facts.
This distractor shifts the issue to a different trigger, product, or timing rule instead of applying the rule tested in the stem.
Option C: Document the issue later instead of correcting the compliance problem first.
Document the issue later instead of correcting the compliance problem first. is not correct because it does not apply the rule tested by this file scenario.
Memory Technique
mortgage advertising compliance: 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 mortgage advertising compliance; 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
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A branch manager asks about a loan file because marketing proposes a rate the company is not prepared to offer. What should happen?
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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?
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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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