A compliance review finds that a loan officer wants different terms because of a protected applicant characteristic. What should the MLO do next?
Correct Answer
D) Evaluate the file without prohibited-basis factors
Why this is correct: The core fair lending rule under Regulation B (the governing federal rule is absolute: credit decisions and terms cannot be influenced by prohibited-basis factors like race, religion, or national origin. When a review finds a loan officer wants different terms for this reason, the immediate and mandatory corrective action is to remove that improper influence. "Evaluate the file without prohibited-basis factors" means reassessing the application based solely on objective financial qualifications, which is the required response. Why the other choices are wrong: The choice "Treat the compliance requirement as optional because closing is near" is wrong because proximity to closing does not waive fair lending laws; violating them at any stage is illegal. The choice "Continue processing without correcting the disclosure, licensing, compensation, or consumer-protection issue" is wrong because it explicitly directs inaction on a serious violation that must be corrected. The choice "Ignore the issue if the borrower orally agrees to continue" is wrong because a borrower cannot waive their rights under anti-discrimination laws; the MLO's duty to comply is independent of borrower consent. Exam tip: A discovery of prohibited-basis influence demands immediate correction. Never let timing, convenience, or borrower agreement override this rule.
Why This Is the Correct Answer
The correct response is "Evaluate the file without prohibited-basis factors". Credit decisions and treatment must not turn on prohibited-basis factors.
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 C: 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
Discouragement and different treatment can be fair-lending problems before denial.
Exam Tip
Discouragement and different treatment can be fair-lending problems before denial.
Common Mistakes to Avoid
- -Fair lending applies to every aspect of the credit transaction, not just final approval.
More Ethics & Fraud Questions
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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?
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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?
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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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