Ethics 2

When a telemarketer calls a person on the do-not-call list the telemarketer is subject to a fine of:

$40,000 A telemarketer, which includes a mortgage loan originator calling leads, who disregards the National Do Not Call Registry, could be fined up to $40,000 for each call.

Mike Maxwell is a small business owner who is applying for a refinance on his home. During the loan application interview, he asks how much income he needs to show in order to qualify for the loan. What is the most ethical?

"Lets review your tax returns and bank statements to determine your income."

What is the penalty for a loan officer violating RESPA by paying a referral fee to a real estate agent?

$10,000/one year prison If someone violates Section 8 of RESPA, they are looking at a fine of up to $10,000, up to 1 year in prison or both. They also may be required to make payment to damaged parties up to 3 times the original fee that violated the section and if more than one individual is involved, then all parties are liable to the damaged borrower both jointly and separately.

Which of the following is not true with regards to prohibited acts:

It is prohibited to all MLOs to advertise and obtain clients It is not prohibited to allow MLOs to advertise on their own to gain clients, it is encouraged as long as MLOs follow all state and federal rules related to advertising.

ABC builder is trying to sell their unsold units in a subdivision, they are offering excessive seller concessions and down payment assistance to elevate the sales price on the homes, this is an example of:

A Builder Bailout Scheme A builder bailout occurs when a builder, who has unsold units in a tract, subdivision, or condominium complex, employs various fraudulent schemes to sell the remaining properties. In stressed economic or financial conditions, a builder may be pressured to liquidate remaining inventory to cover financial obligations. To sell the remaining properties, the builder may use a variety of tools including, but not limited to, hidden down payment assistance or excessive seller concessions to elevate the sales price. As a result of the scheme, the unsuspecting financial institution is often left with a loan secured by inflated collateral value and the "real" loan-to-value is greater than 100 percent.

Which participant in the loan process is responsible for assigning a value a property?

Appraiser

A hazard insurance company hosts a dinner for the employees of a mortgage broker. The designated broker encourages the employees to send clients to the insurance company. Who has violated RESPA?

Both the Hazard Insurance Company and the Mortgage Broker This is a violation of RESPA Section 8 by both parties. The hazard insurance company is paying for dinner for the employees of a broker and the broker is using the opportunity to solicit for referrals. If this had been an educational activity or payment for goods or services actually provided this would not be a violation of RESPA.

Arlo is underwater on his current property so he decides to purchase a new home in a neighborhood right near his current home. He closes on the property and then lets his old home go into foreclosure; this is an example of:

Buy and Bail Fraud A buy and bail fraud scheme typically involves a borrower who is current on a mortgage loan, but the value of the house has fallen below the amount owed. The borrower continues to make loan payments, while applying for a purchase money mortgage loan on a similar but less expensive house because its value has declined. Alternatively, the borrower currently has good credit, but pending events are such that the borrower will soon be unable to afford monthly payments on the existing loan (e.g. loan term adjustments, job loss, debt accumulation, etc.) or qualify for a new loan. In either case, after the new property has been obtained, the borrower "walks" or "bails" on the first loan.

Under RESPA, which of the following would be considered legal?

Charging for fees that are direct costs of the loan. It is only acceptable to charge the actual amount of the fee for each loan cost. You cannot inflate the cost or pay a referral fee

A borrower attends a seminar on how to get rich by investing in real estate with no money down. A third party encourages the borrower to invest in three real estate properties. Under the third party's guidance the borrower completes the applications and provides the specific documentation required. The borrower is unaware that the third party owned numerous properties in the name of an LLC and submitted applications on not just the three properties known to the borrower but on a total of 15 properties, this is an example of:

Chunking Chunking involves A third party convinces an uninformed borrower to invest in a property (or properties), with no money down, with the third party acting as the borrower's agent. The third party is also typically the owner of the property or is part of a larger group organizing the scheme. Without the borrower's knowledge, the third party submits loan applications on the borrower's behalf to multiple financial institutions for various properties. These applications are submitted as owner-occupied or as an investment property with a falsified lease. The scheme usually requires the assistance of an appraiser, broker, and/or title company representative to ensure that the third party, as agent for the borrower, does not have to bring any money to the multiple closings. The third party retains the loan proceeds, leaving the borrower with multiple loans that cannot be repaid. The financial institutions are forced to foreclose on the properties and suffer sizable losses.

Which type of scam is run by the homeowner, who attempts to refinance their property over and over until little to no equity remains?

Churning Churning or repeated refinancing is excessive selling/lending activity to generating fees and commissions. In some cases, the lender steps the rate down through multiple refinances. Each refinance is only to a slightly lower rate until the pre-arranged rate is reached.

It is permissible for loan processors to:

Contact loan applicants in order to obtain information needed to process a loan. Loan processors only complete clerical or support duties like obtaining additional information to complete an application. They can't talk to the borrower about the rates and terms of the loan.

A borrower colluded with a mortgage broker to use the borrower's property as collateral for numerous home equity lines of credit (HELOCs) at different financial institutions. The scheme was executed by closing on multiple HELOCs in a short period of time to take advantage of the delay in recording the mortgages. In addition, the mortgage broker misrepresented the borrower's financial information in order to increase the borrower's debt capacity. The property with less than $125,000 in equity was used to obtain over $1 million in credit from several financial institutions:

Double Selling Double selling occurs when a mortgage loan originator accepts a legitimate application and related documentation from a borrower, reproduces or copies the loan file, and sends the loan package to separate warehouse lenders to each fund the same loan. In some instances, double selling is self-perpetuating because, to keep the scheme going, different loans must be substituted for the ones on which documents cannot be provided. Under this scheme, the broker has to make payments to the investor who received the copied documents or first payment default occurs.

This involves conspiratorial involvement of individuals using the mortgage market to benefit financially from criminal behavior.

Fraud for Profit Fraud for profit may involve a group of industry insiders attempting to defraud lenders for profit. Those who commit this type of mortgage fraud use their specialized knowledge or authority to commit or facilitate the fraud.

Which of the following might be considered unethical performance as a mortgage originator?

Having the consumer sign blank forms, so they do not have to come to your office.

Under FACTA how many free credit reports from each bureau can a consumer receive each calendar year?

One. FACTA gives consumers their right to one free credit report each year from each credit reporting agency. It also allows consumers to purchase, for a reasonable fee, a credit score along with the information about how the credit score is calculated.

What best describes negative amortization?

Payments that are insufficient to pay interest, the difference is added to the principal. Negative amortization occurs when a mortgage allows the borrower to make minimum payments that are less than the entire amount of interest owed, the unpaid interest is deferred by adding it to the loan balance. Also known as a deferred interest.

ABC Mortgages makes a loan with the consumer even though he is unlikely to repay it, anticipating that they will eventually foreclose and get the borrower's equity in the property. This is an example of:

Predatory Lending Predatory lending is unscrupulous actions carried out by a lender to entice, induce or assist a borrower in taking a mortgage that carries high fees, a high-interest rate, strips the borrower of equity, or places the borrower in a lower credit-rated loan to the benefit of the lender.

A Property is purchased, a fraudulently higher value appraisal is created, and then it is quickly sold. Which of the following is the type of fraud being described?

Property Flipping Illegal property flipping occurs when the property is purchased and resold quickly at an artificially inflated price by utilizing fraudulently inflated appraisals. Illegal property flips typically have not been improved or renovated since the purchase and are quickly resold at a much higher price. Sometimes the property is only owned for twenty-four (24) hours before it is resold.

A mortgage originator must act both ethically and responsibly. Which of the following is not considered unethical?

Provide guidance in writing a credit explanation letter. It is not unethical to help a borrower write a credit explanation latter, it would be unethical to delay closing, lock an interest rate with two lenders or leave blanks.

What fact about a borrower must be considered by the underwriter, when underwriting a mortgage loan application?

Receipt of Public Assistance You cannot refuse to consider public assistance as a form of income on a loan application, this would be considered discrimination.

If an MLO suggests to a client that he pick a specific product just because the MLO gets paid a higher commission, that MLO would be guilty of:

Steering The MLO, who has the upper hand and knowledge of the industry, is going to steer that borrower into the loan they think is best. Steering becomes a problem when an MLO steers a borrower into a loan that could potentially harm them for the sole purpose of obtaining a higher commission.

For which of the following reasons would it be permissible to refuse to take an application from a potential borrower?

The borrower has alluded to the fact that she is submitting false documents in order to qualify for a larger loan. It is 100% ok to deny an application if there is suspected fraud. You cannot deny a loan because of their race or ethnicity or their use of public assistance. It is also not acceptable to deny a loan because the borrower is shopping with other companies.

It is allowed to discriminate under ECOA if:

The borrower is too young to enter into legally binding documents.

Loan documentation fraud may include any of the following except:

The lender. The lender isn't going to try to fool themselves.