A quality-control reviewer flags a case because the person preparing the valuation would be paid more if the value is higher. What correction is appropriate?
Correct Answer
B) Remove the value-based compensation conflict
Why this is correct: Under 12 CFR 1026.42(d), it is illegal for a person preparing a valuation to have compensation that is tied to the property's value. This is a clear conflict of interest. When a quality-control reviewer flags this, the appropriate correction is to remove the value-based compensation conflict to ensure compliance before the loan proceeds. Why the other choices are wrong: Using production pressure to influence the appraiser delivery date or conclusion is prohibited coercion. Discussing a target value with the appraiser is direct, prohibited influence. Ordering a second appraisal solely because the first value was too low is also prohibited coercion under appraisal independence rules. Exam tip: Any action that pressures an appraiser for a specific outcome or value is wrong. The fix is to eliminate the financial incentive.
Why This Is the Correct Answer
The correct response is "Remove the value-based compensation conflict". Valuation compensation cannot depend on the value assigned, and conflicts must be addressed before reliance.
Why the Other Options Are Wrong
Option A: Use production pressure to influence the appraiser delivery date or conclusion.
This choice is not the best answer because it applies the wrong file step for appraisal and valuation independence; the governing rule is tested by the correct option.
Option C: Discuss a target value with the appraiser to keep the transaction alive.
This choice is not the best answer because it applies the wrong file step for appraisal and valuation independence; the governing rule is tested by the correct option.
Option D: Order a second appraisal solely because the first value was too low.
This choice is a tempting shortcut, but it conflicts with appraisal and valuation independence because the file still needs the required documentation, timing, or rule-based review before the action is taken.
Memory Technique
Appraiser pay tied to value is not acceptable.
Exam Tip
For appraisal and valuation independence questions, separate the required file step from plausible sales, timing, or documentation shortcuts.
Common Mistakes to Avoid
- -Borrower consent does not cure a valuation independence conflict.
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?
Between the Loan Estimate and closing, prepaid interest increases $180, homeowner insurance increases $95, transfer taxes increase $40, and a credit report fee for which the consumer could not shop increases $12. There is no valid revised estimate or other exception. Which increases violate TRID's zero-tolerance 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?
People Also Study
Federal Mortgage-Related Laws
24% of exam
General Mortgage Knowledge
20% of exam
Ethics, Fraud & Consumer Protection
18% of exam
Uniform State Test Content
11% of exam