A mortgage team asks a policy analyst about MLO compensation restrictions during an NMLS filing review. Which answer should guide the file?
Correct Answer
A) Keep compensation independent of loan terms or proxies
Why this is correct: The governing concept is that loan originator compensation cannot be based on any term of the transaction (like the interest rate or points) or a proxy for a term. This rule, from the Dodd-Frank Act and Regulation Z, is designed to prevent steering borrowers into loans that benefit the MLO rather than the borrower. The correct answer, "Keep compensation independent of loan terms or proxies," directly states this core prohibition. Why the other choices are wrong: "Treat the Dodd Frank MLO Compensation review as complete because the file contains a related PMI cancellation note" is wrong because a PMI note is unrelated to the MLO compensation analysis; the review must be based on the compensation plan itself. "Change MLO pay after the lock because the borrower chose discount points" is wrong because adjusting pay based on the borrower's choice of points directly ties compensation to a loan term, which is prohibited. "Offset a pricing exception by reducing only this originator compensation" is wrong because it involves adjusting the MLO's pay based on a loan pricing decision, which is a prohibited link to a transaction term. Exam tip: Remember the golden rule: MLO pay cannot vary with *any* loan term. If you see an option suggesting a pay change tied to points, fees, or the loan amount, it's incorrect.
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 B: Treat the Dodd Frank MLO Compensation review as complete because the file contains a related PMI cancellation note.
This distractor shifts the issue to a different trigger, product, or timing rule instead of applying the rule tested in the stem.
Option C: Change MLO pay after the lock because the borrower chose discount points.
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: Offset a pricing exception by reducing only this originator compensation.
This choice is a tempting shortcut, but it conflicts with MLO compensation restrictions because the file still needs the required documentation, timing, or rule-based review before the action is taken.
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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