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 closing-readiness check, a disclosure specialist sees facts tied to Appraisal Fraud Detection. What should the file reflect?
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?
An MLO alters a bank statement to make the applicant's account balance appear higher and submits it to underwriting. Which response is appropriate?
A branch manager asks about a loan file because marketing proposes a rate the company is not prepared to offer. What should happen?
A branch pays its originators 1.1% of the loan amount on every file, and an extra $400 whenever the loan closes with an escrow waiver. Escrow waivers at this branch are granted only on loans priced above par, and the originator decides whether to offer one. Under Regulation Z, which part of this compensation arrangement, if any, is prohibited?
A borrower wants cash for necessary home repairs. A proposed refinance provides $15,000 cash but adds $12,000 in costs and extends repayment by 15 years. What is the best next step for the MLO?
A borrower pays a mortgage broker $3,400 directly at closing. The lender also offers the same brokerage 1.5% of the loan amount as a lender-paid credit on the same file. Under Regulation Z's dual-compensation rule, may the brokerage accept both payments on this transaction?
Before closing, the team discovers that an ad shows an interest rate but omits the APR presentation. What is the safest compliant answer?
A residential mortgage lender files a suspicious activity report about a borrower on 8 April. On 15 April the borrower calls to ask why the file has stalled, and the branch manager wants to tell him a report was filed so he can explain himself. May the manager tell the borrower that a suspicious activity report was filed?
The loan team is resolving Privacy and Confidentiality during a quality-control sample. Which action best fits the rule?
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