Mortgage Ethics and Fraud Prevention Questions and Answers

Question 1

An investor applies for a mortgage on a rental property, but intentionally states on the application that they will occupy the home as their primary residence to secure a lower interest rate.
This illegal act is best known as:

Accepted Answer

Occupancy fraud

Answer

An air loan

Answer

A silent second

Answer

Property flipping

Question 2

A mortgage company is required by which of the following federal laws to develop, implement, and maintain a comprehensive written information security program to protect its customers' nonpublic personal information?

Accepted Answer

Gramm-Leach-Bliley Act (GLBA)

Answer

Real Estate Settlement Procedures Act (RESPA)

Answer

Truth in Lending Act (TILA)

Answer

Home Mortgage Disclosure Act (HMDA)

Question 3

Which of the following scenarios best describes the use of a "straw buyer" in a mortgage fraud scheme?

Accepted Answer

An individual with a good credit history is paid to apply for a loan on behalf of another person who cannot qualify.

Answer

A borrower knowingly overstates their annual income on a loan application to qualify for a larger mortgage.

Answer

A real estate agent and appraiser collude to artificially inflate the value of a property to increase their commissions.

Answer

A lender steers a borrower towards a high-cost loan when the borrower could have qualified for a more affordable option.

Question 4

A loan originator is working with a client who admits their down payment is from an undisclosed, unseasoned cash loan from a friend. The MLO knows this will be an issue for underwriting. Which of the following actions represents the most unethical course of action?

Accepted Answer

Advising the client to deposit the cash into their bank account and provide a falsified "gift letter."

Answer

Informing the client that the lender requires all funds to be properly sourced and seasoned.

Answer

Refusing to proceed with the application unless the client can provide acceptable documentation for the funds.

Answer

Documenting the source of funds in the loan file and submitting it to the underwriter for a decision.

Question 5

A group of industry insiders, including a loan officer, an appraiser, and a title agent, conspire to create fraudulent loans on non-existent properties and keep the loan proceeds. This type of scheme is best categorized as:

Accepted Answer

Fraud for profit

Answer

Fraud for housing

Answer

Occupancy fraud

Answer

Benign fraud

Question 6

During the application process, an underwriter notes several inconsistencies: the applicant's Social Security Number was issued only three months ago, the provided address is a mail drop, and the stated employer cannot be verified. Under the Fair and Accurate Credit Transactions Act (FACTA), these warning signs are collectively known as:

Accepted Answer

Red Flags

Answer

Compensating factors

Answer

Changed circumstances

Answer

Permissible underwriting variances

An investor applies for a mortgage on a rental property, but intentionally states on the application that they will occupy the home as their primary residence to secure a lower interest rate.This illegal act is best known as:

An investor applies for a mortgage on a rental property, but intentionally states on the application that they will occupy the home as their primary residence to secure a lower interest rate.
This illegal act is best known as: