A broker’s agreement with a wholesale lender pays a higher percentage when the loan carries a prepayment penalty. The broker argues the penalty is the borrower’s choice, so the payment is the borrower’s doing rather than the broker’s. Does that hold?
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
More Origination Questions
Before the team acts on a servicing handoff check, a closing coordinator must address Asset Verification and Reserves. Which response is most defensible?
An MLO is reviewing procedures for a case where a cost changes after the Closing Disclosure has already been provided. What is the proper handling?
During a post-application update, a quality-control reviewer encounters a Credit Analysis and Evaluation issue. Which response should avoid a shortcut that would misapply the rule?
A construction-to-permanent loan will disburse in 5 draws over 11 months before the permanent phase begins. Which Regulation Z appendix provides a disclosure method for multiple-advance construction transactions?
Before closing, the team discovers that a borrower asks which upfront charge can be collected before intent to proceed. What is the safest compliant answer?
A construction loan agreement allows advances only after documented completion of specified work. A builder requests the next draw, but no completion evidence has been provided. What should occur?
Before releasing the final construction draw, which combination most directly supports project completion and clear collateral?
A construction-to-permanent loan will convert to a substantially higher fully amortizing payment. Which payment is especially important when assessing the borrower's long-term repayment capacity?
A construction-to-permanent note states that conversion requires completion, a certificate of occupancy, and no unresolved liens. Construction is finished, but a mechanic's lien remains. What should happen?
A branch manager asks about a loan file because a processor wants to omit known monthly obligations from underwriting. What should happen?
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