Mortgage Mortgage Ethics and Professional Conduct Questions and Answers 2 — Questions and Answers
Question 1: A mortgage loan originator receives a referral fee from a real estate agent for directing borrowers to their services. Under RESPA, this arrangement is:
- Permissible if the fee is disclosed at closing
- Prohibited as an illegal kickback (Correct answer)
- Allowed if the borrower consents in writing
- Acceptable if the fee is under $500
Correct answer: Prohibited as an illegal kickback
RESPA Section 8 prohibits kickbacks and referral fees exchanged between settlement service providers for the referral of business.
Question 2: Which action would constitute steering under federal mortgage lending regulations?
- Offering a borrower multiple loan products to compare
- Directing a qualified borrower to a higher-cost loan to earn a larger commission (Correct answer)
- Providing rate sheets from different lenders
- Explaining the differences between fixed and adjustable rate mortgages
Correct answer: Directing a qualified borrower to a higher-cost loan to earn a larger commission
Steering occurs when a loan originator directs a borrower into a loan with less favorable terms than the borrower qualifies for, typically to increase the originator's compensation.
Question 3: A borrower asks a loan officer to inflate their income on the application to qualify for a larger mortgage. The loan officer should:
- Comply if the borrower signs a statement of responsibility
- Refuse and document the request in the loan file (Correct answer)
- Adjust the income slightly to help the borrower qualify
- Report the borrower to the IRS immediately
Correct answer: Refuse and document the request in the loan file
Falsifying income information on a mortgage application constitutes loan fraud, and the loan officer must refuse the request and document the incident.
Question 4: Under the Dodd-Frank Act, a mortgage loan originator's compensation may NOT be based on:
- The loan originator's years of experience
- The number of loans originated per quarter
- The terms or conditions of the loan other than the principal amount (Correct answer)
- The overall profitability of the lending institution
Correct answer: The terms or conditions of the loan other than the principal amount
Dodd-Frank prohibits loan originator compensation from being tied to loan terms or conditions other than the loan amount, preventing incentives that could harm borrowers.
Question 5: A mortgage professional discovers that a colleague has been backdating documents to meet a program deadline. What is the most appropriate course of action?
- Ignore it since it does not affect their own transactions
- Report the conduct to their compliance department or supervisor (Correct answer)
- Confront the colleague privately and ask them to stop
- Wait to see if an auditor catches the issue
Correct answer: Report the conduct to their compliance department or supervisor
Mortgage professionals have an ethical and often legal obligation to report known fraudulent activities, including document falsification, through proper compliance channels.
Question 6: Which practice violates the Equal Credit Opportunity Act (ECOA) in mortgage lending?
- Requiring a minimum credit score for loan approval
- Offering different interest rates based on creditworthiness
- Discouraging an applicant from applying based on their national origin (Correct answer)
- Denying a loan due to insufficient collateral value
Correct answer: Discouraging an applicant from applying based on their national origin
ECOA prohibits discrimination based on race, color, religion, national origin, sex, marital status, age, or receipt of public assistance in any aspect of a credit transaction.
Mortgage Mortgage Ethics and Professional Conduct Questions and Answers 2
A mortgage loan originator receives a referral fee from a real estate agent for directing borrowers to their services.
Under RESPA, this arrangement is: