A quality-control reviewer flags a case because the borrower pays the broker directly and the creditor also offers compensation. What correction is appropriate?
Correct Answer
B) Decline creditor compensation for that transaction
Why this is correct: The appropriate correction aligns with 12 CFR 1026.36(d)(2)(i). A quality-control flag for dual compensation requires reversing the non-compliant action. Since the borrower paid the broker, the creditor's compensation must be declined to correct the violation. Why the other choices are wrong: "Offset a pricing exception by reducing only this originator compensation" is incorrect; compensation cannot be adjusted to remedy a pricing exception on a specific loan. "Tie the compensation plan to APR, rate, or other loan terms on covered transactions" describes an unlawful compensation structure. "Increase compensation because the borrower selected a higher-rate product" is prohibited because compensation cannot vary with specific loan terms. Exam tip: In a QC context, the correction is to remove the secondary (creditor) source of pay. The other options introduce new, independent violations.
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: 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 C: 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.
Option D: Increase compensation because the borrower selected a higher-rate product.
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
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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?
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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?
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Before releasing the final construction draw, which combination most directly supports project completion and clear collateral?
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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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