An originator tells a caller with a strong accent that "this programme is usually not a good fit" before taking any details. No application is ever recorded. Is anything wrong here?
Correct Answer
C) Evaluate the file without prohibited-basis factors
Why this is correct: The Equal Credit Opportunity Act (ECOA), implemented by Regulation B (the governing federal rule, prohibits discrimination in any aspect of a credit transaction based on a prohibited basis such as race, color, religion, national origin, sex, marital status, age, etc. Therefore, when a loan officer suggests different terms based on a protected characteristic, the proper response is to "Evaluate the file without prohibited-basis factors." Credit decisions must be based solely on legitimate financial criteria. Why the other choices are wrong: The choice "Continue the activity because the borrower appears willing to proceed" is wrong because a borrower's willingness does not make discrimination legal. The choice "Ignore the consumer-protection issue unless the borrower complains" is wrong because fair lending laws impose an affirmative duty on creditors to avoid discrimination; they cannot ignore it. The choice "Assume the Fairness in lending and prohibited basis condition is met because the borrower satisfied the separate credit underwriting requirement" is wrong because satisfying underwriting does not excuse considering prohibited factors in setting terms. Exam tip: For fair lending questions, remember that prohibited factors must never influence any aspect of the credit transaction, regardless of other circumstances.
Why This Is the Correct Answer
The correct response is "Evaluate the file without prohibited-basis factors" because Lines 250-254; 12 CFR 1002.4(a).
Why the Other Options Are Wrong
Option A: 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 B: 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: Assume the Fairness in lending and prohibited basis condition is met because the borrower satisfied the separate credit underwriting requirement.
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?
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