In a training scenario, a loan officer wants different terms because of a protected applicant characteristic. What action best follows the rule?
Correct Answer
B) Evaluate the file without prohibited-basis factors
Why this is correct: The rule from Regulation B (the governing federal rule prohibits using protected characteristics in any aspect of a credit transaction. In a training scenario, the correct action models strict adherence to this principle. "Evaluate the file without prohibited-basis factors" instructs the loan officer to disregard the illegal factor and base the decision solely on permissible financial criteria, which is the only compliant path. Why the other choices are wrong: The choice "Continue the activity because the borrower appears willing to proceed" is wrong as borrower consent cannot legitimize discrimination. The choice "Ignore the consumer-protection issue unless the borrower complains" is wrong because fair lending requires proactive compliance, not reactive response to complaints. The choice "Treat the Fairness in lending and prohibited basis review as complete because the file contains a related privacy notice note" is wrong because a privacy notice (like a GLBA notice) is unrelated to anti-discrimination compliance; its presence does not satisfy the fair lending requirement. Exam tip: Different compliance areas (like privacy and fair lending) have distinct rules. Do not assume one notice or action covers another.
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: Ignore the consumer-protection issue unless the borrower complains.
Ignore the consumer-protection issue unless the borrower complains. is not correct because it does not apply the rule tested by this file scenario.
Option D: Treat the Fairness in lending and prohibited basis review as complete because the file contains a related privacy notice note.
This distractor shifts the issue to a different trigger, product, or timing rule instead of applying the rule tested in the stem.
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?
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