A borrower-facing employee is unsure what to do when a loan officer wants different terms because of a protected applicant characteristic. What is the correct response?
Correct Answer
A) Evaluate the file without prohibited-basis factors
Why this is correct: For any employee involved in the loan process, the correct response to a loan officer considering a protected characteristic is mandated by Regulation B (the governing federal rule The file must be assessed on financial merits alone. Therefore, "Evaluate the file without prohibited-basis factors" is the unequivocally correct instruction, ensuring compliance with fair lending laws. Why the other choices are wrong: The choice "Resolve the Fairness in lending and prohibited basis issue with the asset documentation exception that does not fit the facts" is wrong because invoking an irrelevant exception (like one for asset documentation) does not correct the fundamental violation of considering a prohibited factor. The choice "Ignore the consumer-protection issue unless the borrower complains" is wrong because the duty to comply is independent of borrower complaints. The choice "Document the issue later instead of correcting the compliance problem first" is wrong because the priority is to stop the violation and re-evaluate correctly; documentation is a secondary step. Exam tip: When faced with a fair lending violation, the first step is always to remove the prohibited factor from consideration. Correct the process, then document.
Why This Is the Correct Answer
The correct response is "Evaluate the file without prohibited-basis factors" because Lines 250-254; 12 CFR 1002.4(a).
Why the Other Options Are Wrong
Option B: Resolve the Fairness in lending and prohibited basis issue with the asset documentation 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: Ignore the consumer-protection issue unless the borrower complains.
Ignore the consumer-protection issue unless the borrower complains. is not correct because it does not apply the rule tested by this file scenario.
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
fair-lending controls: 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 fair-lending controls; 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
In a file escalation meeting, the supervisor sees facts tied to RESPA Kickbacks and Referrals. What should the file reflect?
In a closing-readiness check, a disclosure specialist sees facts tied to Appraisal Fraud Detection. What should the file reflect?
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?
A refinance eliminates a borrower's fixed-rate loan, adds substantial fees, provides no cash or lower payment, and restarts a 30-year term. What should the MLO do before recommending it?
An applicant has verified monthly income of $5,000 and monthly obligations of $4,700 after the proposed mortgage payment. The applicant expects an undocumented raise next year. What should the MLO do?
A lender bases approval entirely on the home's high appraised value and does not verify the borrower's income or existing debts. What is the central compliance concern?
A borrower agrees to a mortgage but declines an optional home-warranty plan. The final loan documents nevertheless finance a $2,400 warranty premium. What should the MLO do?
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?
To obtain approval, an MLO changes a self-employed applicant's verified monthly income from $6,000 to $9,000 without supporting documentation. How should this conduct be characterized?
A homeowner is encouraged to refinance for the third time in 18 months. Each loan generates new points and fees, while the borrower's payment and rate do not improve. Which practice is most strongly indicated?
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