A borrower-facing employee is unsure what to do when an MLO refers a borrower to an affiliated title agency. What is the correct response?
Correct Answer
C) Give the AFBA disclosure and avoid required use
Why this is correct: The correct procedure when an MLO refers a borrower to an affiliated title agency is mandated by RESPA's affiliated business arrangement rules (the governing federal rule The employee must ensure the borrower receives the written AfBA disclosure and understands that using the affiliate is optional. This is the required file action. Why the other choices are wrong: "Assume another jurisdiction approval automatically cures this file" is wrong because compliance is transaction-specific; another approval does not apply here. "Handle conflicts of interest with a sales script rather than the required file action" is wrong because a sales script is not the legally mandated written disclosure. "Use the file documentation check as a reason to postpone the required compliance step" is wrong because the disclosure must be given timely; postponing it for documentation is a violation. Exam tip: The required action for an affiliate referral is always a specific, written disclosure (AfBA) and no requirement to use the affiliate. Never substitute assumptions, scripts, or delays.
Why This Is the Correct Answer
The correct response is "Give the AFBA disclosure and avoid required use". The affiliate relationship must be disclosed, the borrower cannot be required to use the affiliate, and referral compensation cannot be disguised.
Why the Other Options Are Wrong
Option A: Assume another jurisdiction approval automatically cures this file.
Assume another jurisdiction approval automatically cures this file. is not correct because it bypasses the rule supported by the explanation.
Option B: Handle conflicts of interest with a sales script rather than the required file action.
Handle conflicts of interest with a sales script rather than the required file action. is not correct because it bypasses the rule supported by the explanation.
Option D: Use the file documentation check as a reason to postpone the required compliance step.
Use the file documentation check as a reason to postpone the required compliance step. is not correct because it bypasses the rule supported by the explanation.
Memory Technique
AFBA questions usually test disclosure, no required use, and ownership return.
Exam Tip
AFBA questions usually test disclosure, no required use, and ownership return.
Common Mistakes to Avoid
- -Affiliation is not automatically illegal, but the conditions matter.
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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