MLO - Mortgage Loan Origination (SAFE MLO) Exam

When an MLO suspects that a borrower, such as the mother in this case, may be under duress or being coerced into a transaction, they have a duty to ensure that all parties are willingly participating. The ethical approach would be to ask to speak privately with the mother to verify her intentions and comfort level with the transaction. This ensures that the loan is compliant with consumer protection laws such as the Truth in Lending Act (TILA) and the Equal Credit Opportunity Act (ECOA), which protect against unfair lending practices.

Ignoring the situation (Option B) could lead to participation in a coerced or fraudulent transaction.

Suggesting that the son be a co-borrower (Option C) or signing a power of attorney (Option D) are inappropriate if the mother is unwilling to proceed.

Verifying her willingness safeguards the integrity of the loan process and ensures compliance with fair lending practices.

References:

Truth in Lending Act (TILA)

Equal Credit Opportunity Act (ECOA)

CFPB guidelines on elder financial abuse

A rate lock agreement is the document that specifies the time period during which a mortgage lender agrees to hold the interest rate at a certain percentage for the borrower. It guarantees that the rate will not change, even if market interest rates fluctuate, as long as the loan closes within the agreed-upon timeframe.

The loan application (A) initiates the mortgage process, but it does not secure the interest rate.

A preapproval letter (B) gives a preliminary loan approval but does not lock the rate.

The Closing Disclosure (C) provides final loan terms but does not set the rate lock.

References:

Fannie Mae and Freddie Mac rate lock policies

CFPB Guidelines on rate lock agreements

Under Dodd-Frank Act regulations and Regulation Z (TILA), mortgage loan originators (MLOs) cannot be compensated based on the terms of the loan, such as interest rates, loan amount, or product type. This includes any financial incentives, like bonuses or rewards, tied to loan terms. In this case:

The trip to Hawaii was awarded based on closing loans with an interest rate of 5% or higher, which directly ties the MLO's compensation to a specific loan term (the interest rate).

This violates the Loan Originator Compensation Rule, which prohibits compensating MLOs based on the terms or conditions of a loan, in order to protect borrowers from steering into unfavorable loan products.

Therefore, all forms of compensation—including bonuses, trips, or other rewards—are scrutinized if they are tied to loan terms, making the MLO's trip to Hawaii an illegal incentive under current law.

References:

Dodd-Frank Act - Loan Originator Compensation Rules

TILA/Regulation Z - Anti-Steering and Loan Terms Compensation Rules