CMB Ethics and Professional Standards in Mortgage Banking 2 — Questions and Answers
Question 1: Under the Equal Credit Opportunity Act (ECOA), a lender must provide an adverse action notice to a declined applicant within how many days of the credit decision?
- 15 calendar days
- 30 calendar days (Correct answer)
- 45 calendar days
- 60 calendar days
Correct answer: 30 calendar days
ECOA requires lenders to notify applicants of adverse credit decisions within 30 days, specifying the reasons for denial so applicants can understand and potentially remedy the situation.
Question 2: Which practice involves a mortgage professional misrepresenting a borrower's income, assets, or employment to obtain loan approval, constituting mortgage fraud?
- Yield spread premium manipulation
- Loan flipping
- Application fraud or misrepresentation (Correct answer)
- Dual contracting
Correct answer: Application fraud or misrepresentation
Application fraud involves intentional misrepresentation of material facts on a loan application, which is a federal crime and a severe breach of professional ethics.
Question 3: The Gramm-Leach-Bliley Act (GLBA) requires mortgage lenders to provide borrowers with privacy notices primarily to:
- Disclose how the lender shares and protects nonpublic personal information (Correct answer)
- Notify borrowers of their right to opt out of credit reporting
- Explain the lender's secondary market sale policies
- Obtain consent before pulling a credit report
Correct answer: Disclose how the lender shares and protects nonpublic personal information
GLBA mandates that financial institutions, including mortgage lenders, inform customers about their privacy policies and how nonpublic personal information is collected, used, and shared.
Question 4: A mortgage loan originator who knowingly submits a fraudulent appraisal to obtain a higher loan amount is subject to which of the following consequences?
- Only a written reprimand from the state licensing board
- Civil liability, loss of license, and potential criminal prosecution (Correct answer)
- A mandatory retraining requirement with no financial penalty
- Suspension of the loan officer's right to originate FHA loans only
Correct answer: Civil liability, loss of license, and potential criminal prosecution
Appraisal fraud constitutes federal mortgage fraud, exposing the MLO to civil liability, revocation of the NMLS license, and criminal prosecution under 18 U.S.C. § 1014.
Question 5: Under the Dodd-Frank Act's anti-steering provisions, a mortgage loan originator's compensation may NOT be based on:
- The total number of loans closed in a quarter
- The loan-to-value ratio of the originated loan
- The terms of the transaction, such as the interest rate (Correct answer)
- Whether the borrower chooses a fixed or adjustable rate
Correct answer: The terms of the transaction, such as the interest rate
Dodd-Frank prohibits MLO compensation from being tied to loan terms (rate, APR, prepayment penalties) to prevent steering borrowers to products that maximize originator pay rather than serving borrower interests.
Question 6: Which of the following is NOT a required disclosure under the Integrated Mortgage Disclosure (TRID) rule?
- Loan Estimate provided within 3 business days of application
- Closing Disclosure provided 3 business days before consummation
- Annual percentage rate (APR) and total loan costs
- The borrower's internal credit risk grade used by the lender (Correct answer)
Correct answer: The borrower's internal credit risk grade used by the lender
TRID requires disclosure of loan terms, costs, and APR to borrowers, but the lender's internal credit risk classification is a proprietary underwriting metric that is not required to be disclosed.
Question 7: The Community Reinvestment Act (CRA) holds depository institutions accountable for:
- Maintaining specific capital reserve ratios for mortgage portfolios
- Meeting the credit needs of all communities they serve, including low- and moderate-income areas (Correct answer)
- Reporting all loan applications to the Consumer Financial Protection Bureau
- Limiting mortgage product offerings to conforming loan limits
Correct answer: Meeting the credit needs of all communities they serve, including low- and moderate-income areas
CRA requires federally regulated depository institutions to serve the credit needs of the communities where they operate, including LMI neighborhoods, to combat redlining.
CMB Ethics and Professional Standards in Mortgage Banking 2
Under the Equal Credit Opportunity Act (ECOA), a lender must provide an adverse action notice to a declined applicant within how many days of the credit decision?