A borrower asks for a lower rate. The originator offers to give up part of her commission to buy it down, and her manager offers to make up the difference out of the branch’s bonus pool if the rate goes back up on the next file. What does the rule say about the arrangement?
Correct Answer
B) Keep compensation independent of loan terms or proxies
Why this is correct: The Dodd-Frank anti-steering rules are intertwined with compensation rules. A primary prohibition is that an originator's compensation cannot be based on the terms of a transaction (like the interest rate) or a proxy for those terms. "Keep compensation independent of loan terms or proxies" accurately states this core requirement, ensuring the originator has no financial incentive to steer a borrower to a more expensive loan. Why the other choices are wrong: "Apply the branch licensing timing rule even though the file is testing Dodd Frank Anti Steering Rules" is wrong because it applies an unrelated rule to the wrong context. "Let the borrower and creditor both pay the MLO on the same transaction" is wrong because this describes prohibited dual compensation. "Use profitability of the selected product to decide the originator bonus" is wrong because profitability is often a proxy for loan terms (like rate); tying a bonus to it violates the rule. Exam tip: Remember the link: Anti-steering rules are enforced by making compensation neutral. If pay varies with the loan's terms, it's illegal steering.
Why This Is the Correct Answer
The correct response is "Keep compensation independent of loan terms or proxies" because Loan originator compensation cannot be based on transaction terms or proxies and dual compensation is restricted.
Why the Other Options Are Wrong
Option A: Apply the branch licensing timing rule even though the file is testing Dodd Frank Anti Steering Rules.
This distractor shifts the issue to a different trigger, product, or timing rule instead of applying the rule tested in the stem.
Option C: Let the borrower and creditor both pay the MLO on the same transaction.
This choice is not the best answer because it applies the wrong file step for MLO compensation restrictions; the governing rule is tested by the correct option.
Option D: Use profitability of the selected product to decide the originator bonus.
This choice is not the best answer because it applies the wrong file step for MLO compensation restrictions; the governing rule is tested by the correct option.
Memory Technique
MLO compensation restrictions: identify the rule being tested, then choose the action that documents or applies that rule before the file moves forward.
Exam Tip
For MLO compensation restrictions questions, separate the required file step from plausible sales, timing, or documentation shortcuts.
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 Origination Questions
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An MLO is reviewing procedures for a case where a cost changes after the Closing Disclosure has already been provided. What is the proper handling?
During a post-application update, a quality-control reviewer encounters a Credit Analysis and Evaluation issue. Which response should avoid a shortcut that would misapply the rule?
A construction-to-permanent loan will disburse in 5 draws over 11 months before the permanent phase begins. Which Regulation Z appendix provides a disclosure method for multiple-advance construction transactions?
Before closing, the team discovers that a borrower asks which upfront charge can be collected before intent to proceed. What is the safest compliant answer?
A construction loan agreement allows advances only after documented completion of specified work. A builder requests the next draw, but no completion evidence has been provided. What should occur?
Before releasing the final construction draw, which combination most directly supports project completion and clear collateral?
A construction-to-permanent loan will convert to a substantially higher fully amortizing payment. Which payment is especially important when assessing the borrower's long-term repayment capacity?
A construction-to-permanent note states that conversion requires completion, a certificate of occupancy, and no unresolved liens. Construction is finished, but a mechanic's lien remains. What should happen?
A branch manager asks about a loan file because a processor wants to omit known monthly obligations from underwriting. What should happen?
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