A mortgage file is paused during a secondary-market screen because of ECOA Disparate Impact. Which answer should avoid a shortcut that would misapply the rule?
Correct Answer
B) Use consistent, credit-related underwriting standards
Why this is correct: The Equal Credit Opportunity Act (ECOA) prohibits discrimination in any aspect of a credit transaction. Disparate impact can occur when a seemingly neutral policy has a discriminatory effect on a protected class. Using "consistent, credit-related underwriting standards" is the primary defense against such claims, as it demonstrates decisions are based on objective financial factors, not prohibited bases. Why the other choices are wrong: "Use an internal exception instead of the required federal disclosure or timing rule" is wrong because ECOA's anti-discrimination rules are mandatory and cannot be bypassed by internal policy. "Wait until a regulator asks for the file before applying the federal requirement" is wrong because ECOA compliance must be integrated into the underwriting process from the start. "Rely on oral agreement when the rule requires documented compliance" is wrong because ECOA requires written notices of action and other documented procedures. Exam tip: For ECOA questions, the correct answer will emphasize objective, consistent, and credit-related criteria applied equally to all applicants.
Why This Is the Correct Answer
The correct response is "Use consistent, credit-related underwriting standards" because ECOA/Regulation B prohibits discrimination and requires action notices and valuation copies.
Why the Other Options Are Wrong
Option A: Use an internal exception instead of the required federal disclosure or timing rule.
Use an internal exception instead of the required federal disclosure or timing rule. is not correct because it does not apply the rule tested by this file scenario.
Option C: Wait until a regulator asks for the file before applying the federal requirement.
Wait until a regulator asks for the file before applying the federal requirement. is not correct because it does not apply the rule tested by this file scenario.
Option D: Rely on oral agreement when the rule requires documented compliance.
Rely on oral agreement when the rule requires documented compliance. is not correct because it does not apply the rule tested by this file scenario.
Memory Technique
ECOA and Regulation B: 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 ECOA and Regulation B; 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
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