If the applicant marked Mexican, the loan officer should not have completed anything about ethnicity. The following (in italics) is from Appendix B to §1003 and specifically addresses your scenario:
An applicant may select an ethnicity or race subcategory… only …even if the applicant does not select an aggregate (main) ethnicity or aggregate (main) race category. For example, if an applicant selects only the “Mexican” box, the institution reports “Mexican” for the ethnicity of the applicant but does not also report “Hispanic or Latino” (i.e. report only the subcategory, no main).
Since the applicant completed the information and the loan officer shouldn't have, the loan officer should have marked "no" in reference to how the ethnicity was collected.