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Ethics and Professional Conduct 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 Professional Conduct flashcards as text

  1. A mortgage loan originator (MLO) discovers mid-process that a borrower's income was overstated on the application. What is the MLO's ethical obligation?

    Answer: Correct the application and notify the lender of the discrepancy

    MLOs must ensure all information in loan applications is accurate and must correct any misrepresentations discovered during processing.

  2. Which federal law specifically prohibits mortgage professionals from accepting kickbacks or unearned fees in connection with real estate settlement services?

    Answer: Real Estate Settlement Procedures Act (RESPA)

    RESPA Section 8 explicitly prohibits kickbacks, referral fees, and unearned fees among settlement service providers.

  3. A borrower asks their MLO to recommend a specific title company owned by the MLO's spouse. What must the MLO do first?

    Answer: Disclose the affiliated business relationship in writing to the borrower

    RESPA requires written disclosure of affiliated business arrangements before making any referral to a related settlement service provider.

  4. Under the SAFE Act, an MLO who moves to a new state must:

    Answer: Obtain a license in the new state before originating loans there

    The SAFE Act requires MLOs to be licensed in each state where they originate loans; licenses do not automatically transfer between states.

  5. An MLO steers a creditworthy borrower toward a high-cost loan because it pays a higher commission. This practice is best described as:

    Answer: Predatory lending

    Steering borrowers to higher-cost products for the originator's financial benefit rather than the borrower's interest is a classic form of predatory lending.

  6. A mortgage professional who willfully violates the SAFE Act licensing requirements may face:

    Answer: Civil penalties of up to $25,000 per day of violation

    Willful violations of the SAFE Act can result in civil money penalties of up to $25,000 per day per violation.

  7. Which behavior best exemplifies the 'fiduciary duty' concept as applied to mortgage brokerage relationships?

    Answer: Placing the borrower's financial interests above the broker's own interests

    Fiduciary duty requires the mortgage broker to act in the best interest of the borrower, prioritizing the client's needs over personal gain.