An originator tells a borrower the monthly payment will be $2,140 while the file shows $2,140 principal and interest only, with taxes and insurance on top. What is wrong with the statement?
Correct Answer
D) Communicate accurate terms and document the file
Why this is correct: The duty of good faith and fair dealing requires an MLO to act honestly, provide accurate information, and avoid misleading the borrower. The correct choice, "Communicate accurate terms and document the file," is the foundation of this duty. It ensures the borrower receives clear, truthful information about loan terms, and that all communications and decisions are properly recorded for transparency and compliance. Why the other choices are wrong: "Use the quickest product path instead of the rule that applies to the transaction" is wrong because it advocates for speed over compliance, potentially steering the borrower into an inappropriate product or violating applicable laws. "Accept terms the borrower prefers even if required disclosures are incomplete" is wrong because regulatory disclosures (like the Loan Estimate and Closing Disclosure) are mandatory. Proceeding without them violates TILA-RESPA integrated disclosure rules. "Recommend a product before resolving facts needed to evaluate compliance" is wrong because recommending a loan product requires a preliminary assessment of the borrower's financial situation to ensure the recommendation is suitable and compliant. Doing so blindly risks steering and fair lending violations. Exam tip: Good faith and fair dealing is not just an ethical ideal; it's a practical standard enforced through accurate communication and thorough documentation.
Why This Is the Correct Answer
The correct response is "Communicate accurate terms and document the file" because MLO obligations include fair dealing, no steering, accurate information, and compliant compensation.
Why the Other Options Are Wrong
Option A: Use the quickest product path instead of the rule that applies to the transaction.
This choice is a tempting shortcut, but it conflicts with loan-originator obligations because the file still needs the required documentation, timing, or rule-based review before the action is taken.
Option B: Accept terms the borrower prefers even if required disclosures are incomplete.
This choice is not the best answer because it applies the wrong file step for loan-originator obligations; the governing rule is tested by the correct option.
Option C: Recommend a product before resolving facts needed to evaluate compliance.
This choice is not the best answer because it applies the wrong file step for loan-originator obligations; the governing rule is tested by the correct option.
Memory Technique
loan-originator obligations: identify the rule being tested, then choose the action that documents or applies that rule before the file moves forward.
Exam Tip
For loan-originator obligations 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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