Ethics · 18% of the SAFE exammedium
Correct answer: The MLO generally may not reduce compensation simply to help a borrower qualify, as compensation must be set before the transaction and not varied based on loan characteristics
Under the LO Compensation Rule (Regulation Z), an MLO's compensation on a transaction must generally be set in advance and cannot be changed based on the terms of the transaction or to benefit the borrower. This prevents MLOs from manipulating loan pricing in ways that could obscure conflicts of interest. Very limited regulatory exceptions exist — such as to cover a bona fide third-party closing cost overrun — but simply wanting to help a borrower qualify is not a recognized exception. Financial hardship documentation does not create an exception, nor does lender agreement. This rule ensures that compensation structures do not create incentives to steer borrowers toward loans they cannot afford.
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