An MLO is reviewing procedures for a case where an ad shows an interest rate but omits the APR presentation. What is the proper handling?
Correct Answer
C) State the rate as an annual percentage rate
Why this is correct: The governing concept is Regulation Z's closed-end credit advertising rule (the governing federal rule If an ad states an interest rate, it must also state the Annual Percentage Rate (APR). The APR allows for true cost comparison. The proper handling is to correct the ad to state the rate as an APR. Why the other choices are wrong: "Assume advertising and consumer protection is outside compliance review because no fee has been charged yet" is wrong because advertising rules apply when the ad runs, independent of any fee transaction. "Close or renew first and decide later whether the rule applied" is wrong because the rule applies to the advertisement, and proceeding with a non-compliant ad is a violation. "Allow activity to continue while the applicable status problem remains unresolved" is wrong because the non-compliant activity must stop until corrected. Exam tip: Advertising compliance is required at the time of publication, not tied to later stages of the loan process.
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: Assume advertising and consumer protection is outside compliance review because no fee has been charged yet.
Assume advertising and consumer protection is outside compliance review because no fee has been charged yet. is not correct because it bypasses the rule supported by the explanation.
Option B: Close or renew first and decide later whether the rule applied.
Close or renew first and decide later whether the rule applied. is not correct because it bypasses the rule supported by the explanation.
Option D: Allow activity to continue while the applicable status problem remains unresolved.
Allow activity to continue while the applicable status problem remains unresolved. is not correct because it bypasses the rule supported by 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.
More Ethics & Fraud Questions
In a closing-readiness check, a disclosure specialist sees facts tied to Appraisal Fraud Detection. What should the file reflect?
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?
An MLO alters a bank statement to make the applicant's account balance appear higher and submits it to underwriting. Which response is appropriate?
A branch manager asks about a loan file because marketing proposes a rate the company is not prepared to offer. What should happen?
A borrower wants cash for necessary home repairs. A proposed refinance provides $15,000 cash but adds $12,000 in costs and extends repayment by 15 years. What is the best next step for the MLO?
Before closing, the team discovers that an ad shows an interest rate but omits the APR presentation. What is the safest compliant answer?
The loan team is resolving Privacy and Confidentiality during a quality-control sample. Which action best fits the rule?
A house last sold for $185,000 in January. In March it changes hands 3 times in 9 days, reaching $410,000, with the same appraiser and the same closing agent on every leg. Assuming the parties colluded to inflate appraisals without improvements to support the higher prices, what fraud scheme does this pattern illustrate?
For closings involving federally related mortgage loans, a title company pays a real estate brokerage $75 for each referred client who closes. The brokerage only passes along the client’s name and number. Does this referral payment comply with RESPA Section 8?
Before closing, the team discovers that a loan officer wants different terms because of a protected applicant characteristic. What is the safest compliant answer?
People Also Study
Federal Mortgage-Related Laws
24% of exam
General Mortgage Knowledge
20% of exam
Mortgage Loan Origination Activities
27% of exam
Uniform State Test Content
11% of exam