A team member asks about Dodd Frank MLO Compensation in an investor-delivery review while trying to apply the requirement without relying on borrower preference. Which response should the loan team use?
Correct Answer
C) Keep compensation independent of loan terms or proxies
Why this is correct: The Dodd-Frank Act's loan originator compensation rules are designed to prevent steering and unfair practices. A core principle is that an MLO's compensation cannot be based on the terms or conditions of the loan (e.g., interest rate, points, loan type) or on a proxy for those terms. Compensation must be fixed or based on factors like the loan amount or hours worked, independent of the specific transaction's terms. The correct choice, "Keep compensation independent of loan terms or proxies," directly states this fundamental rule. Why the other choices are wrong: "Use profitability of the selected product to decide the originator bonus" is wrong because basing pay on product profitability is effectively a proxy for loan terms, which is prohibited. "Change MLO pay after the lock because the borrower chose discount points" is wrong because changing compensation based on a loan term (discount points) is a direct violation. "Apply the advertising disclosure timing rule even though the file is testing Dodd Frank MLO Compensation" is wrong because it applies an unrelated rule to a compensation question, which does not address the core requirement. Exam tip: For MLO comp questions, the safest answer is usually one that emphasizes independence from loan terms. Phrases like "fixed" or "not based on" are strong indicators of a correct answer.
Why This Is the Correct Answer
The correct response is "Keep compensation independent of loan terms or proxies" because Loan originator compensation cannot be based on transaction terms or proxies and dual compensation is restricted.
Why the Other Options Are Wrong
Option A: Use profitability of the selected product to decide the originator bonus.
This choice is not the best answer because it applies the wrong file step for MLO compensation restrictions; the governing rule is tested by the correct option.
Option B: Change MLO pay after the lock because the borrower chose discount points.
This choice is not the best answer because it applies the wrong file step for MLO compensation restrictions; the governing rule is tested by the correct option.
Option D: Apply the advertising disclosure timing rule even though the file is testing Dodd Frank MLO Compensation.
This distractor shifts the issue to a different trigger, product, or timing rule instead of applying the rule tested in the stem.
Memory Technique
MLO compensation restrictions: identify the rule being tested, then choose the action that documents or applies that rule before the file moves forward.
Exam Tip
For MLO compensation restrictions questions, separate the required file step from plausible sales, timing, or documentation shortcuts.
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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