A regulator exam preparation raises a question about fair-lending controls. Which action should the loan file reviewer recommend?
Correct Answer
B) Remove the protected-class or redlining factor
Why this is correct: The Equal Credit Opportunity Act (ECOA) prohibits discrimination in any aspect of a credit transaction based on a protected class (e.g., race, religion, national origin, sex). Fair-lending controls must ensure decisions are based on creditworthiness, not prohibited factors. If a reviewer finds a "protected-class or redlining factor" influencing a decision, the only compliant action is to "Remove the protected-class or redlining factor" from consideration. Why the other choices are wrong: "Continue the activity because the borrower appears willing to proceed" is wrong because a borrower's willingness does not legalize discrimination. "Ignore the consumer-protection issue unless the borrower complains" is wrong because ECOA violations are illegal regardless of whether a complaint is filed. "Treat the ECOA Disparate Treatment review as complete because the file contains a related credit underwriting note" is wrong because a general underwriting note does not address or correct a specific fair-lending violation. Exam tip: In fair lending, any factor related to a protected class must be eliminated from the credit decision process. The rule is absolute.
Why This Is the Correct Answer
The correct response is "Remove the protected-class or redlining factor" because Fair lending requires equal treatment and credit-related standards without prohibited-basis discrimination.
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 ECOA Disparate Treatment review as complete because the file contains a related credit underwriting 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 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?
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
A company policy update raises a question about mortgage advertising compliance. Which action should the state compliance officer recommend?
Next Question
An originator handles a $420,000 purchase in which the seller is the originator's brother. The lender's written conflict policy requires disclosure of close family relationships with transaction participants and compliance review before proceeding. What should the originator do?