A team is asked to apply a stricter reserve requirement to applicants whose income includes a housing allowance from a religious organisation. The guideline is unwritten and applied by habit. How should it be handled?
Correct Answer
D) Apply neutral standards without protected-class discrimination
Why this is correct: The Fair Housing Act (FHA) prohibits discrimination in housing-related transactions based on protected characteristics such as race, color, religion, sex, national origin, familial status, or disability. Compliance requires applying objective, neutral standards equally to all applicants. The correct choice, "Apply neutral standards without protected-class discrimination," is the core mandate of the FHA. Why the other choices are wrong: "Use an internal exception instead of the required federal disclosure or timing rule" is wrong because internal policies cannot override federal anti-discrimination law. "Wait until a regulator asks for the file before applying the federal requirement" is wrong because Fair Housing compliance must be built into every transaction from the start. "Resolve the Fair Housing Act issue with the changed-circumstance exception that does not fit the facts" is wrong because the changed-circumstance exception relates to TRID fee tolerance rules, not Fair Housing discrimination. Exam tip: Fair Housing is about equal treatment. Any action that treats applicants differently based on a protected class is a violation.
Why This Is the Correct Answer
The correct response is "Apply neutral standards without protected-class discrimination" because Mortgage terms and treatment cannot discriminate or redline on protected-class grounds.
Why the Other Options Are Wrong
Option A: Use an internal exception instead of the required federal disclosure or timing rule.
Use an internal exception instead of the required federal disclosure or timing rule. is not correct because it does not apply the rule tested by this file scenario.
Option B: Wait until a regulator asks for the file before applying the federal requirement.
Wait until a regulator asks for the file before applying the federal requirement. is not correct because it does not apply the rule tested by this file scenario.
Option C: Resolve the Fair Housing Act issue with the changed-circumstance exception that does not fit the facts.
This distractor shifts the issue to a different trigger, product, or timing rule instead of applying the rule tested in the stem.
Memory Technique
Fair Housing Act 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 Fair Housing Act 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
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