Ethical Practices & Risk Management Flashcards

A client refinancing their home asks the CMPS advisor to omit a second mortgage from the application. The advisor should:

Answer: Refuse and explain that all liens must be disclosed on the application

All existing liens must be disclosed on a mortgage application; concealing debt is a form of mortgage fraud.

Which type of risk refers to the potential that changes in market interest rates will adversely affect the value of a client's mortgage or investment portfolio?

Answer: Interest rate risk

Interest rate risk is the exposure to loss in value or increased cost resulting from fluctuations in prevailing interest rates.

A CMPS professional who holds a state MLO license must meet continuing education requirements that include at minimum how many hours annually under the SAFE Act?

Answer: 8 hours

The SAFE Act mandates a minimum of 8 hours of continuing education annually for licensed MLOs, including specific required topics.

In evaluating a client's overall mortgage risk profile, which factor is considered a compensating factor that may allow approval despite a high debt-to-income ratio?

Answer: Substantial cash reserves equal to 12+ months of mortgage payments

Significant cash reserves demonstrate financial resilience and are recognized as a compensating factor by most agency guidelines when DTI is elevated.

Redlining as a discriminatory practice refers to:

Answer: Refusing to lend or providing unfavorable terms in specific geographic areas based on racial or ethnic composition

Redlining is the illegal practice of denying or limiting financial services in neighborhoods based on their racial or ethnic demographics.

Which best practice should a CMPS advisor follow when a client appears to be in financial distress and may not be able to afford the mortgage they are applying for?

Answer: Conduct a full financial review and counsel the client on alternatives, including smaller loans, longer timeframes, or rental options

A CMPS advisor's fiduciary duty requires counseling clients holistically, which may include advising against a loan that creates undue financial risk.

A lender's compliance officer asks a CMPS advisor to backdate a rate lock confirmation to meet a regulatory deadline. The advisor should:

Answer: Refuse and document the request, then escalate to senior management or legal counsel

Backdating documents is fraud regardless of who requests it; the advisor must refuse, document the request, and report it through appropriate channels.