A borrower wants cash for necessary home repairs. A proposed refinance provides $15,000 cash but adds $12,000 in costs and extends repayment by 15 years. What is the best next step for the MLO?
Correct Answer
A) Analyze the costs, payment, term, equity impact, and alternatives with the borrower before making a recommendation
Why this is correct: The governing ethical duty is to ensure the loan provides a tangible net benefit to the borrower. This requires a comprehensive analysis, not just looking at one factor. The MLO must analyze the total costs ($12,000) against the cash received ($15,000), the impact of extending the repayment term by 15 years, the change in monthly payment, the effect on the borrower's home equity, and whether better alternatives (like a home equity loan or repair-specific loan) exist. Only after this analysis can a sound recommendation be made. Why the other choices are wrong: Recommend it solely because it produces cash ignores the high costs and long-term consequences, violating the duty of fair lending. Describe all financed costs as borrower savings is deceptive; financed costs are debt, not savings. Ignore the extended term because the new payment is lower is misleading; a longer term means paying interest for many more years, which may outweigh a lower monthly payment. Exam tip: A "best next step" question often points to the most comprehensive, borrower-focused analysis before any recommendation is made.
Why This Is the Correct Answer
Why this is correct: The governing ethical duty is to ensure the loan provides a tangible net benefit to the borrower. This requires a comprehensive analysis, not just looking at one factor. The MLO must analyze the total costs ($12,000) against the cash received ($15,000), the impact of extending the repayment term by 15 years, the change in monthly payment, the effect on the borrower's home equity, and whether better alternatives (like a home equity loan or repair-specific loan) exist. Only after this analysis can a sound recommendation be made. Why the other choices are wrong: Recommend it solely because it produces cash ignores the high costs and long-term consequences, violating the duty of fair lending. Describe all financed costs as borrower savings is deceptive; financed costs are debt, not savings. Ignore the extended term because the new payment is lower is misleading; a longer term means paying interest for many more years, which may outweigh a lower monthly payment. Exam tip: A "best next step" question often points to the most comprehensive, borrower-focused analysis before any recommendation is made.
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