A processor handoff raises an ECOA Fair Lending question for a policy analyst. What answer should guide the file?
Correct Answer
D) Remove the protected-class or redlining factor
Why this is correct: ECOA and the Fair Housing Act prohibit discrimination in credit transactions based on protected characteristics like race, religion, or national origin. Redlining is a specific illegal practice of denying credit based on the geographic location of a property (often associated with the racial composition of an area). Any factor in underwriting or marketing that considers a protected class or suggests redlining must be eliminated to ensure fair lending. Why the other choices are wrong: The choice "Continue the activity because the borrower appears willing to proceed" is wrong because fair lending violations are not excused by borrower agreement. The choice "Delay the ECOA Fair Lending step until a later reverse-mortgage occupancy review instead of acting now" is wrong because fair lending issues require immediate attention, not delay. The choice "Document the issue later instead of correcting the compliance problem first" is wrong because documenting a discriminatory factor without removing it does not cure the violation. Exam tip: If you see any underwriting criterion or marketing practice that mentions or implies a protected class, it is a red flag that must be removed immediately.
Why This Is the Correct Answer
The correct response is "Remove the protected-class or redlining factor" because Fair lending requires equal treatment and credit-related standards without prohibited-basis discrimination.
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: Delay the ECOA Fair Lending step until a later reverse-mortgage occupancy review instead of acting now.
This distractor shifts the issue to a different trigger, product, or timing rule instead of applying the rule tested in the stem.
Option C: 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
fair-lending controls: 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 fair-lending controls; 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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