A processor asks how to handle a file where an MLO refers a borrower to an affiliated title agency. Which response is most accurate?
Correct Answer
C) Give the AFBA disclosure and avoid required use
Why this is correct: Under the Affiliated Business Arrangement (AFBA) rules (the governing federal rule, when an MLO refers a borrower to an affiliated service provider (like a title agency), specific disclosures must be given, and the borrower cannot be required to use that affiliate. Furthermore, referral fees or kickbacks are prohibited. Therefore, the accurate response is to "Give the AFBA disclosure and avoid required use." Why the other choices are wrong: The choice "Treat the compliance requirement as optional because closing is near" is wrong because timing does not excuse mandatory legal requirements. The choice "Continue processing without correcting the disclosure, licensing, compensation, or consumer-protection issue" is wrong because it ignores multiple violations that must be addressed. The choice "Ignore the issue if the borrower orally agrees to continue" is wrong because borrower consent does not override the disclosure and anti-required use rules. Exam tip: For affiliate referrals, think "Disclose and don't require." The AFBA disclosure is mandatory, and the borrower must have a free choice.
Why This Is the Correct Answer
The correct response is "Give the AFBA disclosure and avoid required use". The affiliate relationship must be disclosed, the borrower cannot be required to use the affiliate, and referral compensation cannot be disguised.
Why the Other Options Are Wrong
Option A: Treat the compliance requirement as optional because closing is near.
Treat the compliance requirement as optional because closing is near. is not correct because the governing rule requires the compliant answer shown in the explanation.
Option B: Continue processing without correcting the disclosure, licensing, compensation, or consumer-protection issue.
Continue processing without correcting the disclosure, licensing, compensation, or consumer-protection issue. is not correct because the governing rule requires the compliant answer shown in the explanation.
Option D: Ignore the issue if the borrower orally agrees to continue.
Ignore the issue if the borrower orally agrees to continue. is not correct because the governing rule requires the compliant answer shown in the explanation.
Memory Technique
AFBA questions usually test disclosure, no required use, and ownership return.
Exam Tip
AFBA questions usually test disclosure, no required use, and ownership return.
Common Mistakes to Avoid
- -Affiliation is not automatically illegal, but the conditions matter.
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