Mortgage Ethics and Professional Conduct 3 — Questions and Answers
Question 1: A borrower provides falsified tax returns to qualify for a mortgage loan. If the MLO suspects fraud but proceeds anyway, the MLO may be charged with:
- Misrepresentation of material fact only
- Aiding and abetting mortgage fraud (Correct answer)
- A minor regulatory infraction
- Breach of contract with the lender
Correct answer: Aiding and abetting mortgage fraud
An MLO who knowingly proceeds with a fraudulent application can be charged with aiding and abetting mortgage fraud under federal law.
Question 2: The Loan Estimate must be delivered to the borrower within how many business days of receiving a completed loan application?
- 1 business day
- 3 business days (Correct answer)
- 5 business days
- 7 business days
Correct answer: 3 business days
Under TILA-RESPA Integrated Disclosure (TRID) rules, the Loan Estimate must be delivered within three business days of application.
Question 3: A lender charges a borrower a higher interest rate based on their national origin rather than their creditworthiness. This violates which law?
- Fair Housing Act (FHA) and Equal Credit Opportunity Act (ECOA) (Correct answer)
- Gramm-Leach-Bliley Act (GLBA)
- Home Ownership and Equity Protection Act (HOEPA)
- Community Reinvestment Act (CRA)
Correct answer: Fair Housing Act (FHA) and Equal Credit Opportunity Act (ECOA)
Both the Fair Housing Act and ECOA prohibit discrimination in lending based on national origin and other protected characteristics.
Question 4: When must an MLO renew their NMLS registration or state license?
- Every two years on their anniversary date
- Annually by December 31, with most states (Correct answer)
- Every three years at the federal level
- Only when changing employers
Correct answer: Annually by December 31, with most states
Most state MLO licenses and NMLS registrations require annual renewal, typically completed by December 31 of each year.
Question 5: A borrower waives their right to the three-day waiting period before closing. Under what limited circumstances is this allowed?
- It is never allowed under any circumstances
- Only when the borrower has a bona fide personal financial emergency (Correct answer)
- When the loan amount is below the conforming loan limit
- When the lender and borrower mutually agree in writing
Correct answer: Only when the borrower has a bona fide personal financial emergency
Borrowers may waive the three-day waiting period only in cases of a bona fide personal financial emergency that must be documented.
Question 6: An MLO receives a $500 gift card from a real estate agent as a thank-you for referrals. This arrangement is:
- Permitted if disclosed to both parties
- A violation of RESPA's anti-kickback provisions (Correct answer)
- Legal under the de minimis exemption up to $25
- Allowed if the gift is not cash
Correct answer: A violation of RESPA's anti-kickback provisions
RESPA prohibits any thing of value exchanged for referrals of settlement services, regardless of the form or amount.
Question 7: Which of the following is considered a red flag for identity theft in a mortgage application?
- Borrower's address matches their employer's address
- A notice of address discrepancy from the credit bureau (Correct answer)
- Borrower requests paper statements instead of electronic
- Loan amount equals exactly the home's listed price
Correct answer: A notice of address discrepancy from the credit bureau
A notice of address discrepancy from the credit bureau is a standard red flag under the FTC's Red Flags Rule that MLOs must investigate.
Mortgage Ethics and Professional Conduct 3
A borrower provides falsified tax returns to qualify for a mortgage loan.
If the MLO suspects fraud but proceeds anyway, the MLO may be charged with: