A borrower-facing employee is unsure what to do when the borrower pays the broker directly and the creditor also offers compensation. What is the correct response?
Correct Answer
C) Decline creditor compensation for that transaction
Why this is correct: The correct response is determined by the dual-compensation rule in 12 CFR 1026.36(d)(2)(i). When the borrower pays the broker directly, the broker (and its employees) cannot also be paid by the creditor for that loan. Therefore, the creditor compensation must be declined. Why the other choices are wrong: "Increase compensation because the borrower selected a higher-rate product" is prohibited because compensation cannot be based on the transaction's interest rate. "Pay the originator based on a loan-term proxy after closing" is wrong because compensation cannot be based on a proxy for loan terms. "Let the borrower and creditor both pay the MLO on the same transaction" is a direct violation of the rule being tested. Exam tip: For employee guidance questions, the answer is the straightforward application of the rule: if the consumer pays you, you cannot also take lender pay for that loan.
Why This Is the Correct Answer
The correct response is "Decline creditor compensation for that transaction". Direct consumer-paid compensation triggers the dual-compensation restriction for that transaction.
Why the Other Options Are Wrong
Option A: Increase compensation because the borrower selected a higher-rate product.
This choice is not the best answer because it applies the wrong file step for MLO compensation restrictions; the governing rule is tested by the correct option.
Option B: Pay the originator based on a loan-term proxy after closing.
This choice is a tempting shortcut, but it conflicts with MLO compensation restrictions because the file still needs the required documentation, timing, or rule-based review before the action is taken.
Option D: Let the borrower and creditor both pay the MLO on the same transaction.
This choice is not the best answer because it applies the wrong file step for MLO compensation restrictions; the governing rule is tested by the correct option.
Memory Technique
Consumer-paid originator means look for the no-other-compensation rule.
Exam Tip
For MLO compensation restrictions questions, separate the required file step from plausible sales, timing, or documentation shortcuts.
Common Mistakes to Avoid
- -Disclosure alone does not make dual compensation permissible.
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?
People Also Study
Federal Mortgage-Related Laws
24% of exam
General Mortgage Knowledge
20% of exam
Ethics, Fraud & Consumer Protection
18% of exam
Uniform State Test Content
11% of exam
Related Study Resources
Previous Question
Two borrowers on a Fannie Mae loan have representative credit scores of 742 and 693. Which score is the loan's representative credit score for pricing?
Next Question
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?