Before closing, the team discovers that a loan officer wants different terms because of a protected applicant characteristic. What is the safest compliant answer?
Correct Answer
D) Evaluate the file without prohibited-basis factors
Why this is correct: The safest compliant answer is always the one that directly follows the law. Regulation B's prohibition on considering prohibited-basis factors (the governing federal rule is non-negotiable. Even a discovery just before closing does not change this. The only safe action is to stop the improper evaluation and "Evaluate the file without prohibited-basis factors" to ensure the terms are based solely on legitimate criteria. Why the other choices are wrong: The choice "Let production goals override the required verification, disclosure, license, or record step" is wrong because business pressures never justify violating fair lending laws. The choice "Apply the rule only after a regulator asks specifically about financial responsibility" is wrong because compliance is required at all times, not just upon regulatory inquiry. The choice "Treat the rule as waived because all parties want the file to move faster" is wrong because parties cannot waive federal anti-discrimination statutes. Exam tip: No business justification—speed, goals, or agreement—ever overrides the core fair lending mandate to ignore protected characteristics.
Why This Is the Correct Answer
The correct response is "Evaluate the file without prohibited-basis factors". Credit decisions and treatment must not turn on prohibited-basis factors.
Why the Other Options Are Wrong
Option A: Let production goals override the required verification, disclosure, license, or record step.
Let production goals override the required verification, disclosure, license, or record step. is not correct because it bypasses the rule supported by the explanation.
Option B: Apply the rule only after a regulator asks specifically about financial responsibility.
Apply the rule only after a regulator asks specifically about financial responsibility. is not correct because it bypasses the rule supported by the explanation.
Option C: Treat the rule as waived because all parties want the file to move faster.
Treat the rule as waived because all parties want the file to move faster. is not correct because it bypasses the rule supported by the explanation.
Memory Technique
Discouragement and different treatment can be fair-lending problems before denial.
Exam Tip
Discouragement and different treatment can be fair-lending problems before denial.
Common Mistakes to Avoid
- -Fair lending applies to every aspect of the credit transaction, not just final approval.
More Ethics & Fraud Questions
In a file escalation meeting, the supervisor sees facts tied to RESPA Kickbacks and Referrals. What should the file reflect?
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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