A mortgage file is paused during a lock-desk handoff because of ECOA Disparate Impact. Which answer should decide how the file should be documented?
Correct Answer
A) Do not discourage applicants on a prohibited basis
Why this is correct: The Equal Credit Opportunity Act (ECOA) prohibits discrimination in any aspect of a credit transaction based on a prohibited basis (e.g., race, color, religion, national origin, sex, marital status, age). Disparate impact occurs when a neutral policy has a disproportionately adverse effect on a protected class. A key rule is that lenders must not discourage applicants from applying for credit on a prohibited basis. The correct answer, "Do not discourage applicants on a prohibited basis," is a direct application of this fundamental ECOA principle. 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 potential discriminatory effects. "Ignore the consumer-protection issue unless the borrower complains" is wrong because ECOA compliance is the lender's proactive duty, not dependent on complaints. "Apply the correct general concept to the wrong appraisal review stage rather than the ECOA Disparate Impact rule" is wrong because it misapplies a concept and fails to address the specific fair lending issue at hand. Exam tip: ECOA's core rule: do not discourage applicants. Disparate impact analysis is about effects, not intent.
Why This Is the Correct Answer
The correct response is "Do not discourage applicants on a prohibited basis" because Fair lending requires equal treatment and credit-related standards without prohibited-basis discrimination.
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: Apply the correct general concept to the wrong appraisal review stage rather than the ECOA Disparate Impact rule.
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-lending controls: 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-lending controls; 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
In a closing-readiness check, a disclosure specialist sees facts tied to Appraisal Fraud Detection. What should the file reflect?
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?
An MLO alters a bank statement to make the applicant's account balance appear higher and submits it to underwriting. Which response is appropriate?
A branch manager asks about a loan file because marketing proposes a rate the company is not prepared to offer. What should happen?
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?
Before closing, the team discovers that an ad shows an interest rate but omits the APR presentation. What is the safest compliant answer?
The loan team is resolving Privacy and Confidentiality during a quality-control sample. Which action best fits the rule?
A house last sold for $185,000 in January. In March it changes hands 3 times in 9 days, reaching $410,000, with the same appraiser and the same closing agent on every leg. Assuming the parties colluded to inflate appraisals without improvements to support the higher prices, what fraud scheme does this pattern illustrate?
For closings involving federally related mortgage loans, a title company pays a real estate brokerage $75 for each referred client who closes. The brokerage only passes along the client’s name and number. Does this referral payment comply with RESPA Section 8?
Before closing, the team discovers that a loan officer wants different terms because of a protected applicant characteristic. What is the safest compliant answer?
People Also Study
Federal Mortgage-Related Laws
24% of exam
General Mortgage Knowledge
20% of exam
Mortgage Loan Origination Activities
27% of exam
Uniform State Test Content
11% of exam
Related Study Resources
Previous Question
A mortgage file contains a $9,400 recent deposit with no plausible explanation or paper trail, an employer verification faxed from the borrower’s home number, and two pay stubs whose year-to-date figures do not reconcile. Which facts warrant further verification before approval?
Next Question
A 79-year-old on a fixed income of $2,150 a month is offered a cash-out refinance that raises her payment by $340 and pays off a $9,000 card. What payment-versus-income comparison should the originator explain before the borrower evaluates this debt consolidation?