During intake, marketing proposes a rate the company is not prepared to offer. What is the best compliant response?
Correct Answer
A) Advertise only credit terms actually available
Why this is correct: Regulation Z (Truth in Lending Act), specifically 12 CFR 1026.24(a), governs advertising for closed-end credit like mortgages. A fundamental rule is that if a specific credit term (like an interest rate) is advertised, the creditor must actually be prepared to offer that term. Advertising a rate that is not genuinely available is deceptive and violates this rule. Therefore, the compliant response is to ensure that only actually available terms are advertised. Why the other choices are wrong: "Continue the activity because the borrower appears willing to proceed" is wrong because a borrower's willingness does not excuse a violation of advertising rules. "Ignore the consumer-protection issue unless the borrower complains" is wrong because the lender has an affirmative duty to comply, regardless of complaints. "Document the issue later instead of correcting the compliance problem first" is wrong because the deceptive ad must be corrected immediately to prevent further harm. Exam tip: For advertising questions, remember the key principle: advertised terms must be real, bona fide offers the creditor will actually extend.
Why This Is the Correct Answer
The correct response is "Advertise only credit terms actually available" because Lines 261-265 and 273-277; 12 CFR 1026.24(a).
Why the Other Options Are Wrong
Option B: Continue the activity because the borrower appears willing to proceed.
Continue the activity because the borrower appears willing to proceed. is not correct because it does not apply the rule tested by this file scenario.
Option C: Ignore the consumer-protection issue unless the borrower complains.
Ignore the consumer-protection issue unless the borrower complains. is not correct because it does not apply the rule tested by this file scenario.
Option D: Document the issue later instead of correcting the compliance problem first.
Document the issue later instead of correcting the compliance problem first. is not correct because it does not apply the rule tested by this file scenario.
Memory Technique
mortgage advertising compliance: identify the rule being tested, then choose the action that documents or applies that rule before the file moves forward.
Exam Tip
Match the file facts to mortgage advertising compliance; do not choose an exception or shortcut that skips the required rule.
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 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?
An applicant has verified monthly income of $5,000 and monthly obligations of $4,700 after the proposed mortgage payment. The applicant expects an undocumented raise next year. What should the MLO do?
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?
A borrower agrees to a mortgage but declines an optional home-warranty plan. The final loan documents nevertheless finance a $2,400 warranty premium. What should the MLO do?
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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