During a new-license application, a licensing coordinator identifies an issue involving MLO compensation restrictions. Which response is most compliant?
Correct Answer
B) Decline dual compensation when the consumer pays directly
Why this is correct: The Loan Originator Compensation Rule under Regulation Z prohibits dual compensation, meaning an MLO cannot receive compensation from both the consumer and the creditor in the same transaction. "Decline dual compensation when the consumer pays directly" correctly identifies this restriction. Why the other choices are wrong: "Let the borrower and creditor both pay the MLO on the same transaction" explicitly violates the dual compensation prohibition. "Use profitability of the selected product to decide the originator bonus" is prohibited because compensation cannot be based on a transaction's terms or a proxy for terms. "Change MLO pay after the lock because the borrower chose discount points" is also prohibited as compensation cannot be based on specific transaction terms chosen by the borrower. Exam tip: MLO compensation must be a fixed salary or a percentage of the loan amount, and cannot vary based on loan terms, be dual-sourced, or be changed mid-transaction based on borrower choices.
Why This Is the Correct Answer
The correct response is "Decline dual compensation when the consumer pays directly" because Loan originator compensation cannot be based on transaction terms or proxies and dual compensation is restricted.
Why the Other Options Are Wrong
Option A: 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 C: 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.
Option D: Change MLO pay after the lock because the borrower chose discount points.
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?
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