What must all lenders do with the funds they receive?

The correct answer is that all lenders must keep the funds they receive in a segregated escrow account. This practice is essential to maintain a clear separation of funds, ensuring that the money entrusted to the lender is used solely for its intended purpose, such as processing mortgage loans or managing other financial obligations.

Using segregated escrow accounts helps protect both the lender and the borrowers by ensuring that funds are not misappropriated or mixed with the lender's operating funds. These accounts are often utilized for managing funds related to loan transactions, such as down payments, closing costs, and reserves for property taxes and insurance. This segregation helps in maintaining transparency and accountability in the handling of clients' funds.

Other options, while they may seem reasonable, do not align with the regulatory expectations for lenders. For example, investing funds in their business or using them for personal investments would not be appropriate as these actions could lead to conflicts of interest and potential misuse of clients' money. Similarly, distributing funds among borrowers unnecessarily would not adhere to responsible lending practices or fiduciary duties that lenders owe to their clients.