In a training scenario, an ad shows an interest rate but omits the APR presentation. What action best follows the rule?
Correct Answer
B) State the rate as an annual percentage rate
Why this is correct: The governing concept is Regulation Z's closed-end credit advertising rule (the governing federal rule It mandates that if an advertisement states a finance charge rate, it must also state the Annual Percentage Rate (APR). The APR provides a standardized cost measure. The rule-following action is to state the rate as an APR. Why the other choices are wrong: "Continue the activity because the borrower appears willing to proceed" is wrong because compliance is not waived by borrower consent. "Apply the HMDA reporting timing rule even though the file is testing APR in advertisements" is wrong because HMDA rules concern data reporting, not advertising disclosures, and applying the wrong rule is incorrect. "Document the issue later instead of correcting the compliance problem first" is wrong because the problem must be corrected immediately; documentation is a separate step. Exam tip: In training scenarios, always apply the specific rule that governs the disclosed fact pattern—here, it's the APR advertising rule.
Why This Is the Correct Answer
The correct response is "State the rate as an annual percentage rate" because Lines 261-265 and 273-277; 12 CFR 1026.24(c).
Why the Other Options Are Wrong
Option A: Continue the activity because the borrower appears willing to proceed.
Continue the activity because the borrower appears willing to proceed. is not correct because it does not apply the rule tested by this file scenario.
Option C: Apply the HMDA reporting timing rule even though the file is testing APR in advertisements.
This distractor shifts the issue to a different trigger, product, or timing rule instead of applying the rule tested in the stem.
Option D: Document the issue later instead of correcting the compliance problem first.
Document the issue later instead of correcting the compliance problem first. is not correct because it does not apply the rule tested by this file scenario.
Memory Technique
mortgage advertising compliance: identify the rule being tested, then choose the action that documents or applies that rule before the file moves forward.
Exam Tip
Match the file facts to mortgage advertising compliance; do not choose an exception or shortcut that skips the required rule.
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 Ethics & Fraud Questions
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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?
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The loan team is resolving Privacy and Confidentiality during a quality-control sample. Which action best fits the rule?
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