Before closing, the team discovers that the borrower pays the broker directly and the creditor also offers compensation. What is the safest compliant answer?
Correct Answer
B) Decline creditor compensation for that transaction
Why this is correct: The safest compliant answer is dictated by 12 CFR 1026.36(d)(2)(i). The direct consumer payment creates a dual-compensation scenario. To resolve it safely and compliantly, the creditor's compensation must be declined for that transaction. Why the other choices are wrong: "Resolve the Dual compensation restriction issue with the escrow analysis exception that does not fit the facts" is wrong because there is no applicable 'escrow analysis exception' to this rule; the facts clearly trigger the restriction. "Offset a pricing exception by reducing only this originator compensation" is non-compliant; compensation cannot be adjusted to offset specific loan pricing. "Tie the compensation plan to APR, rate, or other loan terms on covered transactions" describes a compensation method that is prohibited under the rule. Exam tip: 'Safest compliant answer' questions test your knowledge of the mandatory prohibition. The only safe path is to decline the creditor pay.
Why This Is the Correct Answer
The correct response is "Decline creditor compensation for that transaction". Direct consumer-paid compensation triggers the dual-compensation restriction for that transaction.
Why the Other Options Are Wrong
Option A: Resolve the Dual compensation restriction issue with the escrow analysis 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: Offset a pricing exception by reducing only this originator compensation.
This choice is a tempting shortcut, but it conflicts with MLO compensation restrictions because the file still needs the required documentation, timing, or rule-based review before the action is taken.
Option D: Tie the compensation plan to APR, rate, or other loan terms on covered transactions.
This choice is not the best answer because it applies the wrong file step for MLO compensation restrictions; the governing rule is tested by the correct option.
Memory Technique
Consumer-paid originator means look for the no-other-compensation rule.
Exam Tip
For MLO compensation restrictions questions, separate the required file step from plausible sales, timing, or documentation shortcuts.
Common Mistakes to Avoid
- -Disclosure alone does not make dual compensation permissible.
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?
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