SAFE Ethics and Professional Conduct 2 — Questions and Answers
Question 1: An MLO discovers that a borrower's income was overstated on an already-submitted application. What is the correct ethical action?
- Proceed with the loan since it was the borrower's error
- Notify the lender and correct the application immediately (Correct answer)
- Wait to see if underwriting catches it
- Advise the borrower to maintain the overstated figure
Correct answer: Notify the lender and correct the application immediately
MLOs must ensure all information submitted to lenders is accurate and must correct errors as soon as they are discovered.
Question 2: Under the SAFE Act, which behavior would constitute a violation of an MLO's ethical obligations?
- Disclosing all compensation arrangements to the borrower
- Steering a borrower toward a higher-rate product to earn a larger commission (Correct answer)
- Recommending the loan product best suited to the borrower's needs
- Maintaining complete and accurate loan records
Correct answer: Steering a borrower toward a higher-rate product to earn a larger commission
Steering borrowers into less favorable loan products for personal financial gain is an unethical practice prohibited under federal law.
Question 3: A borrower who is a personal friend asks an MLO to skip some required disclosures to speed up closing. The MLO should:
- Skip the disclosures as a personal favor
- Provide all required disclosures regardless of the borrower's relationship (Correct answer)
- Delay the disclosures until after closing
- Allow the borrower to waive disclosures in writing
Correct answer: Provide all required disclosures regardless of the borrower's relationship
Required disclosures cannot be waived by the borrower or skipped by the MLO; they are legally mandated protections.
Question 4: Which of the following best describes the duty of confidentiality for an MLO?
- Sharing borrower information freely with other lenders to find better rates
- Protecting non-public personal information from unauthorized disclosure (Correct answer)
- Disclosing borrower financial details to real estate agents upon request
- Sharing credit reports with other borrowers as examples
Correct answer: Protecting non-public personal information from unauthorized disclosure
MLOs must protect non-public personal information (NPI) under the Gramm-Leach-Bliley Act and ethical standards.
Question 5: An MLO receives a referral fee from a title company for directing borrowers to use their services. This practice is:
- Permitted if disclosed to the borrower
- Prohibited under RESPA Section 8 regardless of disclosure (Correct answer)
- Allowed if the title company provides competitive rates
- Legal as long as it does not exceed $50
Correct answer: Prohibited under RESPA Section 8 regardless of disclosure
RESPA Section 8 prohibits kickbacks and referral fees between settlement service providers regardless of disclosure.
Question 6: When must an MLO disclose a material conflict of interest to a borrower?
- Only if the borrower specifically asks
- Before or at the time of the loan application (Correct answer)
- After the loan closes to avoid alarming the borrower
- Only if the conflict affects the interest rate
Correct answer: Before or at the time of the loan application
Material conflicts of interest must be disclosed proactively before or at application so the borrower can make an informed decision.
Question 7: An MLO who falsifies a borrower's employment history on a loan application could face:
- Only a minor administrative warning
- Criminal charges for mortgage fraud, fines, and license revocation (Correct answer)
- A temporary suspension of 30 days
- No penalty if the loan performs well
Correct answer: Criminal charges for mortgage fraud, fines, and license revocation
Falsifying information on a mortgage application is federal mortgage fraud, subject to criminal prosecution, civil penalties, and license revocation.
SAFE Ethics and Professional Conduct 2
An MLO discovers that a borrower's income was overstated on an already-submitted application.
What is the correct ethical action?