In a mortgage origination file, an MLO refers a borrower to an affiliated title agency. Which action should be taken?
Correct Answer
D) Give the AFBA disclosure and avoid required use
Why this is correct: The governing rule is Regulation X, 12 CFR 1024.15(b), which regulates Affiliated Business Arrangements (AFBAs). When an MLO refers a borrower to an affiliated title agency, the law requires two key actions: first, the affiliate relationship must be disclosed to the borrower, and second, the borrower cannot be required to use that affiliate. The correct action, "Give the AFBA disclosure and avoid required use," directly fulfills these two mandatory requirements. Why the other choices are wrong: The choice "Continue the activity because the borrower appears willing to proceed" is wrong because borrower willingness does not excuse the MLO from providing the required disclosure and ensuring the use is not required. The choice "Ignore the consumer-protection issue unless the borrower complains" is wrong because the disclosure is a proactive legal duty, not a reactive one triggered by a complaint. The choice "Use the income calculation standard to decide the Affiliated business arrangement ethics issue before confirming the trigger facts" is wrong because income calculation standards are irrelevant to the legal requirements for AFBA disclosures; the trigger fact (a referral to an affiliate) is already present. Exam tip: For any referral to an affiliated service provider, remember the two-part rule: disclose the relationship and never require its use.
Why This Is the Correct Answer
The correct response is "Give the AFBA disclosure and avoid required use" because Lines 250-254; 12 CFR 1024.15(b).
Why the Other Options Are Wrong
Option A: Continue the activity because the borrower appears willing to proceed.
Continue the activity because the borrower appears willing to proceed. is not correct because it does not apply the rule tested by this file scenario.
Option B: Ignore the consumer-protection issue unless the borrower complains.
Ignore the consumer-protection issue unless the borrower complains. is not correct because it does not apply the rule tested by this file scenario.
Option C: Use the income calculation standard to decide the Affiliated business arrangement ethics issue before confirming the trigger facts.
This distractor shifts the issue to a different trigger, product, or timing rule instead of applying the rule tested in the stem.
Memory Technique
conflicts of interest: identify the rule being tested, then choose the action that documents or applies that rule before the file moves forward.
Exam Tip
Match the file facts to conflicts of interest; do not choose an exception or shortcut that skips the required rule.
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 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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