In a mortgage origination file, an ad shows an interest rate but omits the APR presentation. Which action should be taken?
Correct Answer
B) State the rate as an annual percentage rate
Why this is correct: The legal requirement under Regulation Z's advertising rules (the governing federal rule is absolute. If an advertisement for closed-end credit includes an interest rate, it must also include the APR. Proximity to closing does not create an exception. The compliant action is to correct the advertisement by ensuring the rate is stated as an annual percentage rate. Why the other choices are wrong: "Treat the compliance requirement as optional because closing is near" is wrong because timing pressure never justifies a regulatory violation. "Continue processing without correcting the disclosure, licensing, compensation, or consumer-protection issue" is wrong as it advocates for ignoring a clear consumer protection law. "Ignore the issue if the borrower orally agrees to continue" is wrong because the borrower cannot waive this mandatory disclosure requirement; it is designed for their protection. Exam tip: Remember, mandatory disclosures are just that—mandatory. No external factor (timing, borrower agreement) makes them optional.
Why This Is the Correct Answer
The correct response is "State the rate as an annual percentage rate". Closed-end credit advertising rules require the finance charge rate to be stated as an annual percentage rate.
Why the Other Options Are Wrong
Option A: Treat the compliance requirement as optional because closing is near.
Treat the compliance requirement as optional because closing is near. is not correct because the governing rule requires the compliant answer shown in the explanation.
Option C: Continue processing without correcting the disclosure, licensing, compensation, or consumer-protection issue.
Continue processing without correcting the disclosure, licensing, compensation, or consumer-protection issue. is not correct because the governing rule requires the compliant answer shown in the explanation.
Option D: Ignore the issue if the borrower orally agrees to continue.
Ignore the issue if the borrower orally agrees to continue. is not correct because the governing rule requires the compliant answer shown in the explanation.
Memory Technique
When an ad mentions a rate, look for APR.
Exam Tip
When an ad mentions a rate, look for APR.
Common Mistakes to Avoid
- -The note rate and the APR are not interchangeable advertising disclosures.
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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?
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