Ethics and Fraud Prevention Flashcards
7 cards from real Mortgage practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Ethics and Fraud Prevention flashcards as text
A borrower asks their loan officer to list a higher purchase price on the sales contract so they can receive extra cash at closing. This is an example of:
Answer: Sales price inflation fraud
Inflating the sales price to extract additional cash at closing is sales price inflation fraud, a common mortgage fraud scheme.
Under RESPA, a mortgage broker who receives an unearned fee for referring a borrower to a title company is guilty of:
Answer: A kickback violation
RESPA Section 8 prohibits kickbacks — payments for referrals where no services were actually rendered.
Which federal law requires mortgage originators to report suspicious activity that may indicate money laundering?
Answer: Bank Secrecy Act
The Bank Secrecy Act requires financial institutions and their employees to file Suspicious Activity Reports (SARs) for transactions that may involve money laundering.
A borrower who has poor credit uses a relative with excellent credit to apply for the mortgage, intending for the relative to have no ownership stake. This is called a:
Answer: Straw buyer scheme
A straw buyer scheme involves using someone else's identity and credit profile to obtain a loan for a property the straw buyer will not actually own or occupy.
An appraiser who consistently provides inflated valuations in exchange for continued business from a lender is violating:
Answer: USPAP and ethical standards
Providing inflated appraisals for repeat business violates the Uniform Standards of Professional Appraisal Practice (USPAP), which requires appraiser independence.
Which practice involves convincing elderly homeowners to repeatedly refinance their mortgages to generate fees while depleting their home equity?
Answer: Equity stripping through serial refinancing
Serial refinancing targeting equity-rich borrowers — especially seniors — to generate origination fees while draining equity is a predatory and fraudulent practice.
A loan officer who processes a loan application knowing the stated income is fabricated is:
Answer: Potentially criminally liable for mortgage fraud
Knowingly processing a fraudulent application makes the loan officer a participant in mortgage fraud, which carries criminal penalties under federal law.