In a mortgage origination file, a loan officer wants different terms because of a protected applicant characteristic. Which action should be taken?
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 file escalation meeting, the supervisor sees facts tied to RESPA Kickbacks and Referrals. What should the file reflect?
In a closing-readiness check, a disclosure specialist sees facts tied to Appraisal Fraud Detection. What should the file reflect?
At closing, an MLO adds a single-premium credit-life policy to the loan amount even though the borrower declined it and the policy is not required for approval. Which practice is the clearest concern?
A refinance eliminates a borrower's fixed-rate loan, adds substantial fees, provides no cash or lower payment, and restarts a 30-year term. What should the MLO do before recommending it?
An applicant has verified monthly income of $5,000 and monthly obligations of $4,700 after the proposed mortgage payment. The applicant expects an undocumented raise next year. What should the MLO do?
A lender bases approval entirely on the home's high appraised value and does not verify the borrower's income or existing debts. What is the central compliance concern?
A borrower agrees to a mortgage but declines an optional home-warranty plan. The final loan documents nevertheless finance a $2,400 warranty premium. What should the MLO do?
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?
To obtain approval, an MLO changes a self-employed applicant's verified monthly income from $6,000 to $9,000 without supporting documentation. How should this conduct be characterized?
A homeowner is encouraged to refinance for the third time in 18 months. Each loan generates new points and fees, while the borrower's payment and rate do not improve. Which practice is most strongly indicated?
People Also Study
Federal Mortgage-Related Laws
24% of exam
General Mortgage Knowledge
20% of exam
Mortgage Loan Origination Activities
27% of exam
Uniform State Test Content
11% of exam
Related Study Resources
Previous Question
Before the team acts on a production meeting, the MLO must address Fair Advertising Practices. Which response is most defensible?
Next Question
A team member asks about ECOA Disparate Impact in a daily pipeline review while trying to resolve the issue before the file moves forward. Which response should a training manager use?