During intake, the borrower pays the broker directly and the creditor also offers compensation. What is the best compliant response?
Correct Answer
A) Decline creditor compensation for that transaction
Why this is correct: The governing rule is Regulation Z's prohibition on dual compensation (the governing federal rule When a borrower pays a mortgage broker directly for the broker's services, the broker (and its loan originators) cannot also receive compensation from the creditor for that same transaction. The only compliant action is to decline the creditor's offered compensation to avoid the violation. Why the other choices are wrong: "Pay the originator based on a loan-term proxy after closing" is wrong because compensation cannot be based on a proxy for loan terms like rate or term. "Let the borrower and creditor both pay the MLO on the same transaction" directly violates the dual-compensation rule. "Use profitability of the selected product to decide the originator bonus" is wrong because compensation cannot be tied to the profitability or terms of the specific loan. Exam tip: Remember the key trigger: direct consumer payment to the broker. When that happens, creditor compensation for that loan must be declined.
Why This Is the Correct Answer
The correct response is "Decline creditor compensation for that transaction" because Lines 100 and 268-269; 12 CFR 1026.36(d)(2)(i).
Why the Other Options Are Wrong
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 C: 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.
Option D: Use profitability of the selected product to decide the originator bonus.
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
MLO compensation restrictions: identify the rule being tested, then choose the action that documents or applies that rule before the file moves forward.
Exam Tip
For MLO compensation restrictions 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
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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?
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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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