A borrower-facing employee is unsure what to do when an ad shows an interest rate but omits the APR presentation. What is the correct response?
Correct Answer
A) State the rate as an annual percentage rate
Why this is correct: The rule from 12 CFR 1026.24(c) is clear and non-discretionary. For closed-end credit ads, any mention of a specific finance charge rate triggers the requirement to also disclose the APR. The APR provides a truer cost of credit by including other charges. The employee's correct and only course of action is to ensure the ad is corrected to state the rate as an annual percentage rate. Why the other choices are wrong: "Continue the activity because the borrower appears willing to proceed" is wrong because TILA disclosures are required for the borrower's protection, irrespective of their apparent willingness. "Treat the APR in advertisements review as complete because the file contains a related refinance benefit note" is wrong because an unrelated note in the file does not cure the specific advertising disclosure violation. "Document the issue later instead of correcting the compliance problem first" is wrong because the priority is to correct the non-compliant ad; documentation alone is insufficient. Exam tip: When unsure, default to the specific regulatory requirement. General file contents or borrower demeanor do not override explicit advertising rules.
Why This Is the Correct Answer
The correct response is "State the rate as an annual percentage rate" because Lines 261-265 and 273-277; 12 CFR 1026.24(c).
Why the Other Options Are Wrong
Option B: 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 C: Treat the APR in advertisements review as complete because the file contains a related refinance benefit note.
This distractor shifts the issue to a different trigger, product, or timing rule instead of applying the rule tested in the stem.
Option D: Document the issue later instead of correcting the compliance problem first.
Document the issue later instead of correcting the compliance problem first. is not correct because it does not apply the rule tested by this file scenario.
Memory Technique
mortgage advertising compliance: 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 mortgage advertising compliance; 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?
People Also Study
Federal Mortgage-Related Laws
24% of exam
General Mortgage Knowledge
20% of exam
Mortgage Loan Origination Activities
27% of exam
Uniform State Test Content
11% of exam