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?
Correct Answer
B) Remove the charge unless the borrower knowingly agrees to the optional product
Why this is correct: Including an optional product's cost in the loan after the borrower declined it constitutes "packing," an unfair practice. The MLO must remove the unauthorized charge unless the borrower receives new, clear disclosures and affirmatively agrees to finance the product. Merely relabeling the charge does not cure the violation. Why the other choices are wrong: "Leave it because optional products may always be financed" is wrong because financing requires the borrower's informed consent, not automatic inclusion. "Describe it as prepaid interest" is wrong because misrepresenting a fee violates disclosure rules and is deceptive. "Move the charge to the appraisal line" is wrong because moving the charge to another category falsifies the Loan Estimate and Closing Disclosure, compounding the violation. Exam tip: If a borrower says "no" to an optional product, it must not appear in the loan costs unless you obtain a new, documented agreement to include it.
Why This Is the Correct Answer
Why this is correct: Including an optional product's cost in the loan after the borrower declined it constitutes "packing," an unfair practice. The MLO must remove the unauthorized charge unless the borrower receives new, clear disclosures and affirmatively agrees to finance the product. Merely relabeling the charge does not cure the violation. Why the other choices are wrong: "Leave it because optional products may always be financed" is wrong because financing requires the borrower's informed consent, not automatic inclusion. "Describe it as prepaid interest" is wrong because misrepresenting a fee violates disclosure rules and is deceptive. "Move the charge to the appraisal line" is wrong because moving the charge to another category falsifies the Loan Estimate and Closing Disclosure, compounding the violation. Exam tip: If a borrower says "no" to an optional product, it must not appear in the loan costs unless you obtain a new, documented agreement to include it.
More Ethics & Fraud Questions
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Before closing, the team discovers that a loan officer wants different terms because of a protected applicant characteristic. What is the safest compliant answer?
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A branch manager asks about a loan file because a borrower asks whether the company will file a suspicious activity report. What should happen?
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