Mortgage Ethics and Fraud Prevention 3 — Questions and Answers
Question 1: A scheme where a property is bought and resold quickly at an artificially inflated price, often with a complicit appraiser, is known as:
- Short sale fraud
- Illegal property flipping (Correct answer)
- Deed theft
- Double escrow fraud
Correct answer: Illegal property flipping
Illegal property flipping involves purchasing a property and quickly reselling it at a fraudulently inflated price, often using a corrupt appraisal.
Question 2: When a borrower obtains multiple mortgages on the same property from different lenders simultaneously without disclosing this to any lender, it is called:
- Concurrent fraud / simultaneous closing fraud (Correct answer)
- Double application
- Loan stacking
- Identity theft fraud
Correct answer: Concurrent fraud / simultaneous closing fraud
Obtaining multiple loans on the same property from different lenders at the same time without disclosure is concurrent fraud or simultaneous closing fraud.
Question 3: Under the Secure and Fair Enforcement for Mortgage Licensing (SAFE) Act, MLOs are required to disclose which of the following on loan documents?
- Their personal tax ID
- Their NMLS unique identifier (Correct answer)
- Their state bar number
- Their employer's FDIC certificate
Correct answer: Their NMLS unique identifier
The SAFE Act requires mortgage loan originators to include their NMLS unique identifier on all loan documents and advertising.
Question 4: A loan officer who steers a creditworthy minority borrower to a higher-cost subprime loan rather than a prime loan for which they qualify is engaging in:
- Legal product placement
- Reverse redlining / predatory targeting (Correct answer)
- HMDA compliance
- Yield spread optimization
Correct answer: Reverse redlining / predatory targeting
Steering qualified minority borrowers to more expensive products based on race or national origin is reverse redlining, a form of illegal predatory lending.
Question 5: Which document must a borrower sign at closing acknowledging the property will be their primary residence, making misrepresentation of occupancy a federal offense?
- HUD-1 Settlement Statement
- Occupancy affidavit / certification (Correct answer)
- Good Faith Estimate
- Loan Estimate
Correct answer: Occupancy affidavit / certification
The occupancy affidavit or certification signed at closing affirms owner-occupancy intent; falsifying it constitutes federal mortgage fraud.
Question 6: A title company employee who secretly places a second mortgage lien on a property to steal equity from the homeowner is committing:
- Deed theft / title fraud (Correct answer)
- Equity stripping through legitimate means
- A permitted silent second
- A RESPA settlement violation
Correct answer: Deed theft / title fraud
Fraudulently placing unauthorized liens or transferring title without the owner's knowledge is deed theft or title fraud, a serious criminal offense.
Question 7: Which federal agency primarily investigates mortgage fraud cases involving federally insured loans?
- CFPB
- HUD Office of Inspector General (Correct answer)
- FTC
- FDIC
Correct answer: HUD Office of Inspector General
The HUD Office of Inspector General (OIG) is the primary federal investigative agency for fraud involving FHA-insured and other HUD-backed loans.
Mortgage Ethics and Fraud Prevention 3
A scheme where a property is bought and resold quickly at an artificially inflated price, often with a complicit appraiser, is known as: