A branch manager asks about a loan file because marketing proposes a rate the company is not prepared to offer. What should happen?
Correct Answer
A) Advertise only credit terms actually available
Why this is correct: The rule under Regulation Z (12 CFR 1026.24(a)) is clear: any specific credit term advertised in a mortgage context must be a term the creditor is prepared to offer. If marketing proposes an unavailable rate, it creates a deceptive advertisement. The branch manager must ensure compliance by directing that advertising reflect only terms that are actually available. Why the other choices are wrong: "Treat prior mortgage experience as a substitute for the required compliance condition" is wrong because experience does not override specific regulatory requirements. "Use a generic national checklist instead of the requirement in this staff training note" is wrong because checklists must incorporate all applicable rules, including this specific advertising mandate. "Document that advertising and consumer protection was reviewed, but take no required corrective action" is wrong because merely documenting a known violation without fixing it is non-compliant. Exam tip: When a proposed action violates a clear rule (like advertising real rates), the answer is always to stop the violation and adhere to the rule, not to find workarounds.
Why This Is the Correct Answer
The correct response is "Advertise only credit terms actually available". Specific advertised terms must be terms the creditor actually is or will be prepared to offer.
Why the Other Options Are Wrong
Option B: Treat prior mortgage experience as a substitute for the required compliance condition.
Treat prior mortgage experience as a substitute for the required compliance condition. is not correct because it bypasses the rule supported by the explanation.
Option C: Use a generic national checklist instead of the requirement in this staff training note.
Use a generic national checklist instead of the requirement in this staff training note. is not correct because it bypasses the rule supported by the explanation.
Option D: Document that advertising and consumer protection was reviewed, but take no required corrective action.
Document that advertising and consumer protection was reviewed, but take no required corrective action. is not correct because it bypasses the rule supported by the explanation.
Memory Technique
For advertising, ask whether the exact term is real and available.
Exam Tip
For advertising, ask whether the exact term is real and available.
Common Mistakes to Avoid
- -A disclaimer does not cure a term that is not actually available.
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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