Ethics and Fraud Prevention Flashcards

A borrower who claims a rental property as their primary residence to obtain a lower interest rate is committing:

Answer: Occupancy fraud

Misrepresenting a non-owner-occupied investment property as a primary residence to obtain better loan terms is occupancy fraud.

In a 'builder bailout' scheme, a real estate developer secretly provides down payment funds to buyers while falsely certifying the buyer provided funds themselves. This inflates the:

Answer: Loan-to-value ratio beyond what is disclosed to the lender

Builder bailout schemes hide the true source of down payment funds, causing the lender to underestimate the real LTV ratio and assume more risk than disclosed.

A mortgage professional who discovers a colleague is submitting fraudulent loan files should first:

Answer: Report the activity through proper channels such as compliance or a SAR filing

Mortgage professionals have a legal and ethical duty to report known fraud through proper channels, including internal compliance and Suspicious Activity Reports.

Which type of fraud involves a criminal assuming a homeowner's identity to illegally transfer property title and then obtain a mortgage?

Answer: Identity theft / deed fraud

Identity theft combined with deed fraud occurs when a criminal uses a stolen identity to forge a deed transfer and subsequently extract equity through fraudulent loans.

The Home Mortgage Disclosure Act (HMDA) helps detect potential discriminatory lending practices primarily by requiring lenders to:

Answer: Collect and report demographic data on loan applicants

HMDA requires lenders to collect and report applicant demographic data, enabling regulators to identify patterns of potential lending discrimination.

A mortgage loan originator who charges a borrower an undisclosed fee and pockets it personally is committing:

Answer: Embezzlement and an undisclosed fee violation

Charging a borrower an undisclosed fee and retaining it personally constitutes embezzlement and violates RESPA's requirement for transparent fee disclosure.

When evaluating a mortgage application, a loan officer who ignores clear signs of fraudulent documentation to close the loan is said to have practiced:

Answer: Willful blindness / deliberate ignorance

Deliberately ignoring red flags of fraud to avoid knowledge is called willful blindness, which does not protect a mortgage professional from criminal liability.