Ethical Practices & Risk Management Flashcards

A CMPS advisor suspects that a real estate agent is inflating property appraisals to make deals work. What is the advisor's ethical obligation?

Answer: Report the suspicion to the lender's compliance team and potentially to regulators

Appraisal fraud is a federal crime and advisors have an ethical and legal duty to report suspected fraud to their compliance team or appropriate authorities.

Which of the following best describes 'steering' in the context of mortgage lending ethics?

Answer: Directing borrowers to loan products that are less favorable than those they qualify for based on protected characteristics

Steering involves directing borrowers toward unsuitable or higher-cost products based on their race, ethnicity, or other protected characteristics.

A CMPS professional's client is self-employed and wants to use 'stated income' to qualify. What is the appropriate response under current lending regulations?

Answer: Require full documentation of income per current QM/ATR rules

Under the Ability-to-Repay (ATR) rule, lenders must verify and document income using accepted methods; no-doc or stated-income loans are prohibited for most mortgage types.

A client asks a CMPS advisor to hold off on disclosing an outstanding judgment to the lender because it might affect approval. The advisor should:

Answer: Decline and explain that material information must be disclosed on the loan application

Concealing a material fact such as an outstanding judgment on a mortgage application constitutes fraud; advisors must require full disclosure.

The Qualified Mortgage (QM) rule primarily protects borrowers by:

Answer: Limiting points and fees and prohibiting certain risky loan features

QM rules cap points and fees at 3% and prohibit features like negative amortization and balloon payments to protect borrowers from predatory terms.

Which scenario represents an appropriate use of a dual agency disclosure in a mortgage context?

Answer: All of the above require written disclosure to all parties

Any situation where the mortgage professional has conflicting interests requires written disclosure to all affected parties to maintain ethical transparency.

Which of the following is a key element of an effective Anti-Money Laundering (AML) compliance program for mortgage professionals?

Answer: Customer identification procedures, suspicious activity monitoring, and SAR filing when required

An effective AML program includes Know Your Customer (KYC) procedures, ongoing transaction monitoring, and filing Suspicious Activity Reports when warranted.