A mortgage file is paused during a lock-desk handoff because of Dodd Frank MLO Compensation. Which answer should match the file facts to the correct rule?
Correct Answer
A) Document compensation under Regulation Z rules
Why this is correct: The Dodd-Frank Act and Regulation Z establish key rules for MLO compensation: it must be documented, cannot be based on loan terms (like interest rate or proxy), and dual compensation (payment from both borrower and creditor) is generally prohibited. The correct answer aligns with the foundational requirement to properly document compensation under these rules. Why the other choices are wrong: "Pay the originator based on a loan-term proxy after closing" is wrong because compensation cannot be tied to any term of the transaction, including proxies. "Let the borrower and creditor both pay the MLO on the same transaction" is wrong because this constitutes prohibited dual compensation. "Use profitability of the selected product to decide the originator bonus" is wrong because compensation cannot be based on the profitability or terms of the loan product, as this is effectively a loan-term-based incentive. Exam tip: MLO compensation rules are strict: think 'documented and fixed'—compensation should not vary based on the loan's terms or the transaction's profitability.
Why This Is the Correct Answer
The correct response is "Document compensation under Regulation Z rules" because Loan originator compensation cannot be based on transaction terms or proxies and dual compensation is restricted.
Why the Other Options Are Wrong
Option B: Pay the originator based on a loan-term proxy after closing.
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 C: Let the borrower and creditor both pay the MLO on the same transaction.
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.
Option D: Use profitability of the selected product to decide the originator bonus.
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
MLO compensation restrictions: identify the rule being tested, then choose the action that documents or applies that rule before the file moves forward.
Exam Tip
For MLO compensation restrictions 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 closing-readiness check, a quality-control reviewer sees facts tied to Self Employed Income Calculation. What should the file reflect?
Next Question
The appraisal returns at $389,000 on a $405,000 contract. A processor is told to hold the appraiser’s $650 invoice unpaid until a revised report arrives at or above the contract price. She asks whether withholding the fee that way is allowed.