Ethics practice questions

Answer: D) Prohibited by federal mortgage relief rules

• AIncorrect. Upfront fees are prohibited.
• BIncorrect. Upfront fees are prohibited.
• CIncorrect. Upfront fees are prohibited.
• DCorrect. Fees may be collected only after results are delivered.

Answer: C) An unearned fee markup

• AIncorrect. This is unrelated.
• BIncorrect. The extra $150 was not earned.
• CCorrect. Marking up a third-party fee without providing services is an unearned fee under RESPA.
• DIncorrect. This is unrelated.

Answer: B) A deceptive omission of a material loan cost

Leaving out a prepayment penalty when a borrower asks about early payoff is likely to mislead them about a material cost, so it is a deceptive omission. Disclosing the penalty somewhere else doesn't fix the misleading answer.

• AIncorrect. A written disclosure doesn't make it acceptable to leave a borrower with a false impression when they ask directly about the term. Omitting material information the consumer needs to avoid being misled can still be deceptive.
• BCorrect. Under the CFPB's deception standard, an omission is deceptive if it is likely to mislead a reasonable consumer about something material. Costs and restrictions such as a prepayment penalty are presumed material.
• CIncorrect. ECOA covers discrimination on prohibited bases such as race, sex, or age. Nothing here involves treating the borrower differently on a prohibited basis. The problem is a misleading omission.
• DIncorrect. Puffery is vague, subjective praise such as "a great loan." Hiding a specific, factual cost in answer to a direct question is a material omission, not puffery.

Answer: B) A builder bailout

• AIncorrect. Buydowns are disclosed rate reductions.
• BCorrect. The incentives inflate the apparent value.
• CIncorrect. Disclosed concessions are legal.
• DIncorrect. It's fraud.

Answer: A) Fraud for housing

Misrepresenting information to get a home to live in, usually on one loan with the intent to repay, is fraud for housing. It is still illegal. Fraud for profit aims to extract money, often through multiple loans and insiders.

• ACorrect. Fraud for housing is a misrepresentation by an applicant in order to buy or keep a primary residence. It usually involves a single loan, and the borrower generally intends to repay.
• BIncorrect. Fraud for profit usually involves multiple loans, often with industry insiders, and aims to pull illicit proceeds out of property transactions. This borrower only wants a home to live in.
• CIncorrect. Knowingly misstating income on a mortgage application is fraud whatever the borrower plans to do later. Intending to repay doesn't make the misrepresentation legal.
• DIncorrect. Equity skimming means acquiring homes with loans in default, not paying the mortgages, and keeping the rents. It has nothing to do with misstating income to qualify for a loan.

Answer: B) Privacy and the client's consent

• AIncorrect. It's a privacy issue.
• BCorrect. Get written permission first.
• CIncorrect. It's a privacy issue.
• DIncorrect. It's a privacy issue.

Answer: D) Include it on the application

• AIncorrect. This is improper.
• BIncorrect. Omitting known debt is a prohibited act and may be fraud.
• CIncorrect. This hides a liability.
• DCorrect. Known debts must be disclosed even if they are not on the credit report.

Answer: C) Occupancy fraud

• AIncorrect. Redlining is area-based discrimination.
• BIncorrect. Steering is directing a borrower to a product for the MLO's gain.
• CCorrect. Misstating occupancy to get better terms is occupancy fraud.
• DIncorrect. Lying about occupancy is fraud.

Answer: B) A disguised kickback under RESPA Section 8

• AIncorrect. Inflated payments for referrals are kickbacks.
• BCorrect. Payments must match fair market value for actual services.
• CIncorrect. It's a likely violation.
• DIncorrect. It's a likely kickback.

Answer: B) A prohibited referral fee (kickback) under RESPA Section 8

RESPA Section 8 (12 CFR 1024.14(b)) bans giving or accepting any thing of value for referring settlement service business. A per-referral payment for which the MLO performs no services is a kickback, and disclosing it does not make it legal.

• AIncorrect. Disclosure does not make a referral fee legal. Section 1024.14(b) prohibits giving or accepting any fee for referring settlement service business, whether or not it is disclosed.
• BCorrect. The agency would be paying the MLO for referring settlement service business, and the MLO would provide no services in return. Section 1024.14(b) bars both giving and accepting such a fee.
• CIncorrect. A flat per-file fee is still a payment for referrals. How the fee is structured does not change that it pays for steering business.
• DIncorrect. The ban applies even if the borrower's cost does not go up. The violation is the payment for the referral itself.