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?
Correct Answer
D) Packing an unwanted product into the loan
Why this is correct: "Packing" refers to the deceptive practice of adding unnecessary or unwanted products or services to a loan, increasing the loan amount and cost without the borrower's informed consent. Here, the borrower declined the credit-life policy, and it is not required, so including it in the loan amount is a clear example of packing, which is prohibited. Why the other choices are wrong: "Permissible risk-based pricing" is wrong because risk-based pricing adjusts loan terms based on credit risk, not on adding unwanted insurance. "A valid changed circumstance" is wrong because a changed circumstance relates to revised Loan Estimates under TRID, not to adding declined products. "Required hazard-insurance coverage" is wrong because hazard insurance protects the property and is typically required, whereas credit-life insurance is optional debt protection. Exam tip: If a borrower declines an optional product, financing it into the loan without new, informed consent is packing—a red flag for unfair practice.
Why This Is the Correct Answer
Why this is correct: "Packing" refers to the deceptive practice of adding unnecessary or unwanted products or services to a loan, increasing the loan amount and cost without the borrower's informed consent. Here, the borrower declined the credit-life policy, and it is not required, so including it in the loan amount is a clear example of packing, which is prohibited. Why the other choices are wrong: "Permissible risk-based pricing" is wrong because risk-based pricing adjusts loan terms based on credit risk, not on adding unwanted insurance. "A valid changed circumstance" is wrong because a changed circumstance relates to revised Loan Estimates under TRID, not to adding declined products. "Required hazard-insurance coverage" is wrong because hazard insurance protects the property and is typically required, whereas credit-life insurance is optional debt protection. Exam tip: If a borrower declines an optional product, financing it into the loan without new, informed consent is packing—a red flag for unfair practice.
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?
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?
A borrower discovers that the loan amount includes fees for three optional credit products that were never discussed. Which fact most strongly indicates loan packing?
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
Before the team acts on a production meeting, a licensing coordinator must address Do Not Call Registry Compliance. Which response is most defensible?
Next Question
A processor handoff raises a Fraud Detection and Prevention question for an operations lead. What answer should guide the file?