An MLO is reviewing procedures for a case where an MLO refers a borrower to an affiliated title agency. What is the proper handling?
Correct Answer
A) Give the AFBA disclosure and avoid required use
Why this is correct: The proper handling for a referral to an affiliated title agency is governed by 12 CFR 1024.15(b). This rule mandates providing the Affiliated Business Arrangement (AFBA) disclosure and ensuring the borrower is not required to use the affiliate. Therefore, the correct procedure is to "Give the AFBA disclosure and avoid required use." Why the other choices are wrong: The choice "Use borrower consent as a substitute for the governing mortgage rule" is wrong because consent does not waive the mandatory disclosure and anti-required use provisions. The choice "Wait until after the policy exception request to decide whether the disclosure, filing, or license issue matters" is wrong because compliance is not subject to internal policy exceptions; the legal requirement is immediate. The choice "Treat conflicts of interest as satisfied by an oral manager approval" is wrong because manager approval does not fulfill the specific regulatory obligations to the borrower. Exam tip: Remember that AFBA rules are strict. No form of consent, approval, or delay replaces the duty to disclose and avoid required use.
Why This Is the Correct Answer
The correct response is "Give the AFBA disclosure and avoid required use". The affiliate relationship must be disclosed, the borrower cannot be required to use the affiliate, and referral compensation cannot be disguised.
Why the Other Options Are Wrong
Option B: Use borrower consent as a substitute for the governing mortgage rule.
Use borrower consent as a substitute for the governing mortgage rule. is not correct because it bypasses the rule supported by the explanation.
Option C: Wait until after the policy exception request to decide whether the disclosure, filing, or license issue matters.
Wait until after the policy exception request to decide whether the disclosure, filing, or license issue matters. is not correct because it bypasses the rule supported by the explanation.
Option D: Treat conflicts of interest as satisfied by an oral manager approval.
Treat conflicts of interest as satisfied by an oral manager approval. is not correct because it bypasses the rule supported by the explanation.
Memory Technique
AFBA questions usually test disclosure, no required use, and ownership return.
Exam Tip
AFBA questions usually test disclosure, no required use, and ownership return.
Common Mistakes to Avoid
- -Affiliation is not automatically illegal, but the conditions matter.
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