Mortgage Ethics and Fraud Prevention 5 — Questions and Answers
Question 1: A 'chunking' scheme in real estate involves an investor convincing lenders to finance multiple properties simultaneously by:
- Disclosing all properties upfront on each application
- Hiding the multiple simultaneous loan applications from each lender (Correct answer)
- Using only one lender for all properties
- Paying off properties before buying new ones
Correct answer: Hiding the multiple simultaneous loan applications from each lender
In chunking, an investor hides simultaneous loan applications from each lender to avoid debt-to-income ratio disqualification, constituting fraud.
Question 2: Under the Dodd-Frank Act, which rule prohibits mortgage loan originators from receiving compensation based on the interest rate or other loan terms?
- The Ability-to-Repay rule
- The Loan Originator Compensation rule (Correct answer)
- The Qualified Mortgage rule
- The TRID rule
Correct answer: The Loan Originator Compensation rule
The Loan Originator Compensation rule under Dodd-Frank prohibits compensation tied to loan terms like interest rate, preventing steering incentives.
Question 3: A homeowner facing foreclosure is approached by a company promising to save their home if they temporarily sign the deed over to the company. This is an example of:
- A legitimate loss mitigation service
- Foreclosure rescue fraud / deed theft (Correct answer)
- A permitted short sale arrangement
- A legal deed-in-lieu of foreclosure
Correct answer: Foreclosure rescue fraud / deed theft
Foreclosure rescue fraud involves convincing distressed homeowners to sign over their deed under false pretenses, often resulting in permanent loss of the home.
Question 4: Which statement best describes the ethical obligation of a mortgage professional regarding a borrower's non-public personal information (NPI)?
- It may be shared freely with affiliated companies
- It must be protected and only used for the purpose it was collected (Correct answer)
- It may be sold to third-party marketers with verbal consent
- It only requires protection after loan closing
Correct answer: It must be protected and only used for the purpose it was collected
Under the Gramm-Leach-Bliley Act and professional ethics standards, NPI must be safeguarded and used only for the purposes disclosed to the borrower.
Question 5: A loan officer who fabricates employment verification documents for a self-employed borrower without the borrower's knowledge is:
- Helping the borrower qualify legitimately
- Committing fraud regardless of the borrower's innocence (Correct answer)
- Performing an acceptable workaround
- Only liable if the lender discovers the fraud
Correct answer: Committing fraud regardless of the borrower's innocence
Fabricating documents makes the loan officer a fraud perpetrator regardless of whether the borrower was aware; the originator bears full criminal liability.
Question 6: Which of the following is a red flag that a purchase transaction may involve mortgage fraud?
- The borrower has a long employment history with one employer
- The property is being sold far above comparable neighborhood values with an immediate resale (Correct answer)
- The borrower is making a 20% down payment from documented savings
- The appraisal matches the contract price closely
Correct answer: The property is being sold far above comparable neighborhood values with an immediate resale
A property sold significantly above market value with an unusually quick turnaround is a classic red flag for illegal property flipping or inflated appraisal fraud.
Question 7: Predatory lending practices are prohibited primarily because they:
- Reduce lender profit margins unfairly
- Exploit vulnerable borrowers with unfair, deceptive, or abusive loan terms (Correct answer)
- Violate secondary market underwriting guidelines only
- Increase the supply of affordable housing
Correct answer: Exploit vulnerable borrowers with unfair, deceptive, or abusive loan terms
Predatory lending is prohibited because it targets and exploits vulnerable borrowers — including seniors and low-income individuals — with unfair, deceptive, or abusive terms.
Mortgage Ethics and Fraud Prevention 5
A 'chunking' scheme in real estate involves an investor convincing lenders to finance multiple properties simultaneously by: