A mortgage agent, Sarah, is arranging a mortgage for her client, Mr. Henderson. Sarah's brokerage firm has a preferred lender with whom they have an exclusive referral agreement, earning them a higher commission. Sarah presents this lender's product to Mr. Henderson without disclosing the referral agreement and the higher commission received. Has Sarah violated any ethical or regulatory obligations?

Question: A mortgage agent, Sarah, is arranging a mortgage for her client, Mr. Henderson. Sarah's brokerage firm has a preferred lender with whom they have an exclusive referral agreement, earning them a higher commission. Sarah presents this lender's product to Mr. Henderson without disclosing the referral agreement and the higher commission received. Has Sarah violated any ethical or regulatory obligations?

Answer options: ✅ Yes, Sarah has a duty to disclose any potential conflict of interest to Mr. Henderson.

• No, as long as the terms offered by the preferred lender are competitive, no disclosure is necessary.
• No, referral agreements are standard business practice and do not require disclosure.
• Yes, but only if the preferred lender's rates are higher than other available options.

Correct answer: Yes, Sarah has a duty to disclose any potential conflict of interest to Mr. Henderson.

Explanation: Mortgage agents are required to disclose any actual or potential conflicts of interest, including compensation arrangements that could influence their recommendations. This is mandated to ensure transparency and client best interest.