Mortgage Mortgage Ethics and Fraud Prevention Questions and Answers 2 — Questions and Answers
Question 1: A loan officer inflates a borrower's income on the application to help them qualify for a larger loan. What type of fraud is this?
- Income fraud (Correct answer)
- Identity theft
- Equity skimming
- Property flipping fraud
Correct answer: Income fraud
Falsifying income documentation on a mortgage application constitutes income fraud, a common form of mortgage fraud.
Question 2: Which federal law requires mortgage professionals to report suspected fraud?
- Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act)
- Bank Secrecy Act (BSA) (Correct answer)
- Truth in Lending Act (TILA)
- Real Estate Settlement Procedures Act (RESPA)
Correct answer: Bank Secrecy Act (BSA)
The Bank Secrecy Act requires financial institutions to file Suspicious Activity Reports (SARs) when mortgage fraud is suspected.
Question 3: An appraiser knowingly overvalues a property at the request of a real estate agent to facilitate a sale. Which ethical violation has occurred?
- Appraisal independence violation (Correct answer)
- Redlining
- Predatory lending
- Churning
Correct answer: Appraisal independence violation
Appraisal independence is violated when an appraiser is pressured or agrees to produce a biased valuation to benefit another party.
Question 4: What is a 'straw buyer' in the context of mortgage fraud?
- A buyer who purchases property on behalf of someone who cannot qualify for a mortgage (Correct answer)
- A buyer who negotiates below market value
- A buyer who pays entirely in cash to avoid disclosure
- A buyer who refinances immediately after closing
Correct answer: A buyer who purchases property on behalf of someone who cannot qualify for a mortgage
A straw buyer is someone who purchases property on behalf of another person who cannot qualify, hiding the true buyer's identity from the lender.
Question 5: Which practice involves a mortgage originator steering a qualified borrower into a higher-cost loan to earn a larger commission?
- Predatory lending (Correct answer)
- Short selling
- Loan modification fraud
- Air loans
Correct answer: Predatory lending
Predatory lending includes steering qualified borrowers into more expensive loan products for the originator's financial benefit.
Question 6: Under the SAFE Act, what is required of all mortgage loan originators?
- State licensing or federal registration and completion of pre-licensing education (Correct answer)
- Membership in the National Association of Realtors
- A minimum of 10 years of banking experience
- Passing the bar exam in their state of practice
Correct answer: State licensing or federal registration and completion of pre-licensing education
The SAFE Act mandates that all mortgage loan originators be either state-licensed or federally registered and complete required education hours.
Mortgage Mortgage Ethics and Fraud Prevention Questions and Answers 2
A loan officer inflates a borrower's income on the application to help them qualify for a larger loan.
What type of fraud is this?