A mortgage broker knows a borrower will not occupy the property but insists on owner occupancy. What should the loan officer do?

In this scenario, the correct choice involves refusing to originate the loan as an owner-occupied transaction. This decision is grounded in the principles of ethical lending and compliance with legal standards. Owner-occupied loans often come with specific benefits and lower interest rates, intended for borrowers who genuinely intend to live in the property. If the mortgage broker is aware that the borrower will not occupy the property, approving the loan as an owner-occupied transaction could lead to potential legal violations and misrepresentation.

By refusing to originate the loan under these false pretenses, the loan officer ensures that the loan adheres to the correct classification, which is vital for maintaining integrity in the lending process. This protects not just the lender's financial interests but also upholds consumer protection laws that aim to prevent fraud and ensure fair lending practices. The situation emphasizes the importance of transparency and accuracy in mortgage lending, which is necessary for both ethical standards and regulatory compliance.