NMLS Mortgage Fraud Prevention and Risk Management 1 â Questions and Answers
Question 1: What term describes a person who obtains a mortgage on behalf of another party who cannot qualify, concealing the true buyer's identity from the lender?
- Straw buyer (Correct answer)
- Co-borrower
- Silent partner
- Guarantor
Correct answer: Straw buyer
A straw buyer applies for a mortgage on behalf of another personâoften someone ineligibleâwho will actually receive the property, constituting loan fraud.
Question 2: Under the Bank Secrecy Act, within how many days must a Suspicious Activity Report (SAR) be filed after detecting suspicious activity involving $5,000 or more?
- 30 days (Correct answer)
- 60 days
- 10 days
- 90 days
Correct answer: 30 days
The BSA requires financial institutions to file a SAR within 30 calendar days of initially detecting the suspicious activity.
Question 3: What type of mortgage fraud involves rapid resales of a property between related parties using inflated appraisals to deceive lenders?
- Illegal property flipping (Correct answer)
- Foreclosure rescue fraud
- Air loan fraud
- Equity skimming
Correct answer: Illegal property flipping
Illegal property flipping uses a sequence of staged sales and fraudulent appraisals to artificially inflate a property's apparent value before a lender funds the final loan.
Question 4: In mortgage fraud, an 'air loan' is best described as:
- A loan on a non-existent property with fabricated borrowers and collateral (Correct answer)
- A loan made to purchase an aircraft hangar
- An unsecured personal loan disguised as a mortgage
- A loan with an adjustable rate tied to an index
Correct answer: A loan on a non-existent property with fabricated borrowers and collateral
Air loans involve completely fictitious transactionsâfake borrowers, fake properties, fake employersâleaving the lender with no real collateral whatsoever.
Question 5: Which of the following is a red flag that may indicate occupancy fraud on a mortgage application?
- Borrower lists a distant rental address as their intended primary residence (Correct answer)
- Borrower has an above-average credit score
- Property is located near the borrower's current employer
- Borrower provides two years of W-2 income documentation
Correct answer: Borrower lists a distant rental address as their intended primary residence
Claiming a property will be owner-occupied when the borrower intends to rent it out is occupancy fraud, used to obtain more favorable interest rates and terms.
Question 6: What is 'income fraud' in the context of a mortgage application?
- Overstating income or falsifying employment documents to qualify for a loan (Correct answer)
- Claiming income from an undisclosed second job
- Underreporting income on a federal tax return
- Failing to disclose rental income to the IRS
Correct answer: Overstating income or falsifying employment documents to qualify for a loan
Income fraud occurs when a borrower misrepresents their income or employment status to qualify for a mortgage they could not otherwise obtain.
Question 7: The Financial Crimes Enforcement Network (FinCEN) operates under which federal department?
- U.S. Department of the Treasury (Correct answer)
- U.S. Department of Justice
- The Federal Reserve System
- U.S. Department of Housing and Urban Development
Correct answer: U.S. Department of the Treasury
FinCEN is a bureau of the U.S. Department of the Treasury responsible for safeguarding the financial system from illicit use, including combating mortgage fraud and money laundering.
NMLS Mortgage Fraud Prevention and Risk Management 1
What term describes a person who obtains a mortgage on behalf of another party who cannot qualify, concealing the true buyer's identity from the lender?