Mortgage Ethics and Professional Conduct 4 — Questions and Answers
Question 1: Under Regulation B (ECOA), a lender must notify an applicant of adverse action within how many days of receiving a completed application?
- 10 days
- 15 days
- 30 days (Correct answer)
- 45 days
Correct answer: 30 days
Regulation B requires lenders to provide notice of adverse action within 30 days of receiving a completed credit application.
Question 2: A borrower with limited English proficiency requests loan documents in Spanish. The lender is required to:
- Provide all documents in Spanish by federal mandate
- Inform the borrower of available translation resources without penalizing them (Correct answer)
- Deny the loan if English documents cannot be understood
- Charge a translation fee to provide Spanish documents
Correct answer: Inform the borrower of available translation resources without penalizing them
While no federal law mandates loan documents in other languages, lenders must not discriminate against LEP borrowers and should inform them of translation resources.
Question 3: Which practice involves an appraiser inflating a property's value at a lender's or originator's request?
- Automated valuation model (AVM) usage
- Appraisal fraud / value inflation (Correct answer)
- Comparable sales adjustment
- Desk review underwriting
Correct answer: Appraisal fraud / value inflation
Appraisal fraud occurs when an appraiser misrepresents property value, often under pressure from parties who benefit from a higher valuation.
Question 4: A mortgage company fails to maintain required records for the mandated retention period. This is a violation of:
- Only state licensing requirements
- Federal recordkeeping requirements under RESPA and Regulation Z (Correct answer)
- The lender's internal compliance policy only
- The Sarbanes-Oxley Act exclusively
Correct answer: Federal recordkeeping requirements under RESPA and Regulation Z
Both RESPA and Regulation Z (TILA) impose federal recordkeeping requirements that mortgage companies must comply with.
Question 5: An MLO is approached by a colleague who asks them to sign as the originator on a loan the colleague originated. This is an example of:
- A permissible team transaction
- Loan fraud through false certification (Correct answer)
- A standard supervisory override
- Permissible co-origination under NMLS rules
Correct answer: Loan fraud through false certification
Signing as originator on a loan you did not actually originate is false certification and constitutes mortgage fraud.
Question 6: The Home Ownership and Equity Protection Act (HOEPA) primarily protects borrowers from:
- Prepayment penalties on conforming loans
- Abusive terms in high-cost mortgage loans (Correct answer)
- Excessive appraisal fees on jumbo loans
- Discriminatory denial of FHA-insured loans
Correct answer: Abusive terms in high-cost mortgage loans
HOEPA establishes additional disclosures and protections for high-cost mortgages that exceed certain APR or fee thresholds.
Question 7: A borrower complains to an MLO that they were denied a loan due to receiving public assistance income. Under ECOA, the lender:
- May legally exclude public assistance income from consideration
- Cannot discriminate against applicants because they receive public assistance income (Correct answer)
- Must require additional documentation only for public assistance income
- Is permitted to apply a discount factor to public assistance income
Correct answer: Cannot discriminate against applicants because they receive public assistance income
ECOA prohibits creditors from discriminating against applicants because all or part of their income comes from public assistance programs.
Mortgage Ethics and Professional Conduct 4
Under Regulation B (ECOA), a lender must notify an applicant of adverse action within how many days of receiving a completed application?