A borrower’s public assistance income is left out of the ratio because the branch treats it as unstable by policy. Nothing in the guidelines distinguishes it on any other ground. How should the file be evaluated?
Correct Answer
B) Evaluate the file without prohibited-basis factors
Why this is correct: The governing principle is the Equal Credit Opportunity Act's prohibition on discrimination, codified in Regulation B at 12 CFR 1002.4(a). If a loan officer wants different terms due to a protected characteristic, that intent is illegal. The required action is to ensure the file is assessed objectively. "Evaluate the file without prohibited-basis factors" directs the MLO to base the decision solely on financial qualifications, which is the compliant action. Why the other choices are wrong: The choice "Continue the activity because the borrower appears willing to proceed" is wrong because a borrower cannot consent to illegal discrimination. The choice "Apply the secondary-market delivery timing rule even though the file is testing Fairness in lending and prohibited basis" is wrong because secondary-market timing rules are unrelated to the core fair lending issue; applying an irrelevant rule does not solve the violation. The choice "Document the issue later instead of correcting the compliance problem first" is wrong because the illegal consideration must be stopped and corrected immediately; documentation follows correction. Exam tip: In fair lending questions, the correct answer always involves removing the protected characteristic from the decision-making process. Look for phrases like "without prohibited-basis factors."
Why This Is the Correct Answer
The correct response is "Evaluate the file without prohibited-basis factors" because Lines 250-254; 12 CFR 1002.4(a).
Why the Other Options Are Wrong
Option A: Continue the activity because the borrower appears willing to proceed.
Continue the activity because the borrower appears willing to proceed. is not correct because it does not apply the rule tested by this file scenario.
Option C: Apply the secondary-market delivery timing rule even though the file is testing Fairness in lending and prohibited basis.
This distractor shifts the issue to a different trigger, product, or timing rule instead of applying the rule tested in the stem.
Option D: Document the issue later instead of correcting the compliance problem first.
Document the issue later instead of correcting the compliance problem first. is not correct because it does not apply the rule tested by this file scenario.
Memory Technique
fair-lending controls: identify the rule being tested, then choose the action that documents or applies that rule before the file moves forward.
Exam Tip
Match the file facts to fair-lending controls; do not choose an exception or shortcut that skips the required rule.
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 Ethics & Fraud Questions
In a closing-readiness check, a disclosure specialist sees facts tied to Appraisal Fraud Detection. What should the file reflect?
An MLO recommends a loan with a low initial payment that will increase sharply in two years. The borrower says retirement income will be fixed and asks whether the payment can change. What is the appropriate response?
An MLO alters a bank statement to make the applicant's account balance appear higher and submits it to underwriting. Which response is appropriate?
A branch manager asks about a loan file because marketing proposes a rate the company is not prepared to offer. What should happen?
A borrower wants cash for necessary home repairs. A proposed refinance provides $15,000 cash but adds $12,000 in costs and extends repayment by 15 years. What is the best next step for the MLO?
Before closing, the team discovers that an ad shows an interest rate but omits the APR presentation. What is the safest compliant answer?
The loan team is resolving Privacy and Confidentiality during a quality-control sample. Which action best fits the rule?
A house last sold for $185,000 in January. In March it changes hands 3 times in 9 days, reaching $410,000, with the same appraiser and the same closing agent on every leg. Assuming the parties colluded to inflate appraisals without improvements to support the higher prices, what fraud scheme does this pattern illustrate?
For closings involving federally related mortgage loans, a title company pays a real estate brokerage $75 for each referred client who closes. The brokerage only passes along the client’s name and number. Does this referral payment comply with RESPA Section 8?
Before closing, the team discovers that a loan officer wants different terms because of a protected applicant characteristic. What is the safest compliant answer?
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