West Virginia Mortgage Law Practice Test

If a lender determines that a borrower does not qualify for a loan, but another product is available that materially differs from the terms requested in the initial application, the lender must:

1. Approve the initial application and offer the product

2. Decline the initial application and offer new terms and disclosures for the alternative product

3. Reject the loan application without offering alternatives

4. Refer the borrower to another lender

The correct answer is: Approve the initial application and offer the product

The situation described involves a lender evaluating a borrower's loan application and finding that they do not qualify for the specific loan terms requested. In such scenarios, the lender is obligated to communicate the outcome transparently and offer any alternatives that may fit the borrower's needs. The most appropriate course of action in this case is to decline the initial application while providing the borrower with new terms and disclosures for the alternative product available. This ensures that the borrower is made aware of all options, allowing them to make an informed decision. Approving the initial application and offering the product would be misleading, as it does not reflect the actual eligibility of the borrower for the initial terms. Rejecting the application without offering alternatives would leave the borrower without guidance on potential options that could meet their financial needs. Referring the borrower to another lender doesn't meet the obligation to offer available products. Therefore, declining the application and presenting the new terms maintains compliance with lending laws and supports the borrower's interests.