A state-law refresher raises a question about loan-originator obligations. Which action should the loan file reviewer recommend?
Correct Answer
B) Apply fair dealing before recommending a product
Why this is correct: A loan originator's duty of fair dealing is a fundamental obligation. It means acting in the borrower's best interest, providing honest and accurate information, and avoiding conflicts. Applying fair dealing before recommending a product ensures the recommendation is suitable and compliant, not based on the originator's compensation or sales goals. Why the other choices are wrong: "Recommend a product before resolving facts needed to evaluate compliance" is wrong because a product recommendation must be based on a complete and accurate assessment of the borrower's financial situation and loan needs. "Treat the Good Faith Fair Dealing review as complete because the file contains a related ability-to-repay note" is wrong because fair dealing is a continuous obligation, not a single checkbox; an ATR note does not discharge the broader duty. "Let sales goals control the recommendation when the file facts point elsewhere" is wrong because it is the definition of steering, which is a prohibited practice that violates fair dealing. Exam tip: Fair dealing means putting the borrower's needs first. Any action that prioritizes the lender's or originator's interest over a suitable, accurate recommendation is a red flag.
Why This Is the Correct Answer
The correct response is "Apply fair dealing before recommending a product" because MLO obligations include fair dealing, no steering, accurate information, and compliant compensation.
Why the Other Options Are Wrong
Option A: Recommend a product before resolving facts needed to evaluate compliance.
This choice is not the best answer because it applies the wrong file step for loan-originator obligations; the governing rule is tested by the correct option.
Option C: Treat the Good Faith Fair Dealing review as complete because the file contains a related ability-to-repay 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: Let sales goals control the recommendation when the file facts point elsewhere.
This choice is not the best answer because it applies the wrong file step for loan-originator obligations; the governing rule is tested by the correct option.
Memory Technique
loan-originator obligations: identify the rule being tested, then choose the action that documents or applies that rule before the file moves forward.
Exam Tip
For loan-originator obligations 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
More Origination Questions
Before the team acts on a servicing handoff check, a closing coordinator must address Asset Verification and Reserves. Which response is most defensible?
An MLO is reviewing procedures for a case where a cost changes after the Closing Disclosure has already been provided. What is the proper handling?
During a post-application update, a quality-control reviewer encounters a Credit Analysis and Evaluation issue. Which response should avoid a shortcut that would misapply the rule?
A construction-to-permanent loan will disburse in 5 draws over 11 months before the permanent phase begins. Which Regulation Z appendix provides a disclosure method for multiple-advance construction transactions?
Before closing, the team discovers that a borrower asks which upfront charge can be collected before intent to proceed. What is the safest compliant answer?
A construction loan agreement allows advances only after documented completion of specified work. A builder requests the next draw, but no completion evidence has been provided. What should occur?
Before releasing the final construction draw, which combination most directly supports project completion and clear collateral?
A construction-to-permanent loan will convert to a substantially higher fully amortizing payment. Which payment is especially important when assessing the borrower's long-term repayment capacity?
A construction-to-permanent note states that conversion requires completion, a certificate of occupancy, and no unresolved liens. Construction is finished, but a mechanic's lien remains. What should happen?
A branch manager asks about a loan file because a processor wants to omit known monthly obligations from underwriting. What should happen?
People Also Study
Federal Mortgage-Related Laws
24% of exam
General Mortgage Knowledge
20% of exam
Ethics, Fraud & Consumer Protection
18% of exam
Uniform State Test Content
11% of exam
Related Study Resources
Previous Question
In a document-cure review, a disclosure specialist sees facts tied to Underwriting Documentation Requirements. What should the file reflect?
Next Question
A borrower asks which figure on the closing disclosure tells him the total dollars he will have paid by the end of a 30-year loan, including principal, interest, mortgage insurance and loan costs. Which Loan Calculations field reports this total dollar amount?