Before the loan advances, a compliance manager must resolve an MLO compensation restrictions issue in a training scenario. What should happen?
Correct Answer
A) Decline dual compensation when the consumer pays directly
Why this is correct: The Dodd-Frank Act and Regulation Z prohibit loan originators from receiving compensation from both the consumer and another party (e.g., the creditor) on the same transaction. This is the "dual compensation" restriction. The scenario requires resolving a compensation issue before funding, so the compliant action is to decline the prohibited dual payment. Why the other choices are wrong: "Let the borrower and creditor both pay the MLO on the same transaction" directly violates the dual compensation rule. "Apply the TRID timing rule even though the file is testing Dodd Frank Compensation Rules" is incorrect because TRID timing rules govern disclosures, not compensation restrictions; applying them here would not resolve the core compliance issue. "Change MLO pay after the lock because the borrower chose discount points" is wrong because MLO compensation cannot be adjusted based on transaction terms (like discount points) after the loan is locked, as this could make compensation dependent on a loan term, which is also prohibited. Exam tip: Remember the core prohibitions: compensation cannot be based on loan terms, and dual compensation (consumer + creditor) is not allowed.
Why This Is the Correct Answer
The correct response is "Decline dual compensation when the consumer pays directly" because Loan originator compensation cannot be based on transaction terms or proxies and dual compensation is restricted.
Why the Other Options Are Wrong
Option B: Let the borrower and creditor both pay the MLO on the same transaction.
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 C: Apply the TRID timing timing rule even though the file is testing Dodd Frank Compensation Rules.
This distractor shifts the issue to a different trigger, product, or timing rule instead of applying the rule tested in the stem.
Option D: 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.
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
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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?
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