Ethical Issues

Each of the following may be associated with contract kiting, or double-contract fraud, except: A. A silent second B. An inflated purchase price C. A cash-back transaction D. An under-secured loan

A. A silent second Contract kiting (also known as double contract or dual contract) occurs when a seller agrees to create a second, falsified sales agreement with an inflated purchase price so the buyer can obtain a larger loan from a lender. This would result in the buyer obtaining all the funds necessary to pay off the seller's lower actual selling price from the loan proceeds, possibly getting cash back, and the lender being under-secured and subject to greater loss in the event of default.

Under the Red Flags Rule, each affected business must: A. Develop a written plan to reduce identity theft B. Pull two credit reports on all borrowers C. Request three forms of identification from all borrowers D. Compare all customers to the fraud hotline list

A. Develop a written plan to reduce identity theft Under the Red Flags Rule, financial institutions that hold any consumer account or other account for which there is a reasonably-foreseeable risk of identity theft are required to develop and implement an identity theft program. The program must be established to identify patterns, practices, and specific forms of activity that are red flags signaling possible identity theft, detect and respond appropriately to red flags in order to prevent and mitigate identity theft, and be updated periodically to reflect changes in risks from identity theft.

Compliance with the Red Flags Rule is required under: A. FACTA B. RESPA C. HMDA D. TILA

A. FACTA Included in the implementation of Fair and Accurate Transactions Act (FACTA), the FTC and the federal financial institution regulatory agencies published the Red Flags Rule. This rule requires financial institutions, including mortgage lenders and creditors, that hold any consumer account for which there is a reasonably-foreseeable risk of identity theft, to develop and implement an identity theft prevention program.

What is the maximum punishment for committing loan fraud? A. $10,000 fine, one year in prison, or both per occurrence B. $1,000,000 fine, 30 years in prison, or both per occurrence C. $1,000 per occurrence D. $5,000 per occurrence unless intentional

B. $1,000,000 fine, 30 years in prison, or both per occurrence Title 18 of the United States Code specifies jail terms and fines for crimes associated with mortgage loan fraud. For fraud/false statements, a person is subject to up to five years in jail and/or a $100,000 fine. For a false mortgage loan application, conspiracy to commit fraud, fraud/swindles, or bank fraud, a person would be subject to up to 30 years in jail and/or a $1 million fine.

Which of the following is least likely to indicate fraud with respect to occupancy status? A. A borrower is purchasing a home in the same neighborhood as his current home B. A borrower is moving from another state C. A borrower is moving from a 5,000-square-foot home to a 1,500-square-foot home D. A borrower claims to be selling his primary residence, but it is not listed

B. A borrower is moving from another state Occupancy fraud is a representation by the buyer that an investment property will be owner-occupied in order to obtain the more-favorable terms offered by the lender on owner-occupied real estate. A borrower moving from one state to another and seeking a mortgage loan would NOT be an indication of occupancy fraud.

The Financial Privacy Rule: A. Was authorized by the Truth-in-Lending Act B. Governs the collection and disclosure of consumers' personal financial information by financial institutions C. Requires financial institutions to implement programs to guard against identity theft D. Allows a financial institution to share nonpublic personal information of a customer only if it obtains written permission from the customer

B. Governs the collection and disclosure of consumers' personal financial information by financial institutions The Financial Privacy Rule, arising from the Gramm-Leach-Bliley Act, governs the collection and disclosure of customers' personal financial information by financial institutions. It requires financial institutions to provide privacy notices to their customers, setting forth their privacy practices with regards to information collected and shared, and to offer customers the right to opt out of allowing their information to be shared.

An example of a red flag under the Red Flags Rule would include all of the following, except: A. Missed payments occur when there is no history of missed payments by the borrower B. The borrower has moved from another state C. Mail sent to the borrower is returned as undeliverable D. The credit report contains a different address for the borrower than the one supplied

B. The borrower has moved from another state Categories of red flags include alerts, notifications, or other warnings received from consumer reporting agencies, the presentation of suspicious documents, the presentation of suspicious personal identifying information, personal identifying information provided by the customer that is inconsistent with other personal identifying information provided by the customer, a covered account is used in a manner that is not consistent with established patterns of activity on the account, and notification is received that the customer is not receiving paper account statements or that there have been unauthorized transactions on a covered account. Moving from one state to another would not be considered to be a red flag.

Which of the following situations is least likely to be fraudulent? A. A borrower claims to make $250,000 per year, but owns almost no personal property B. A borrower lists "CPA" as his job title, but has no schooling C. A borrower claims to make $250,000 per year, but has very little debt D. A borrower has six children but is buying a two-bedroom condominium

C. A borrower claims to make $250,000 per year, but has very little debt It would not be unusual for a borrower making $250,000 to have little to no debt. As such, that situation would not be a red flag for mortgage fraud.

All of the following are red flags that broker-facilitated fraud is likely to occur or is occurring, except: A. The lender is not provided with original documents within a reasonable time B. Numerous applications from a particular loan originator have unique similarities C. A sharp decrease in the overall volume of loans processed by a particular loan originator during a short time period D. An unusually-high volume of loans with maximum loan-to-value limits from one loan originator

C. A sharp decrease in the overall volume of loans processed by a particular loan originator during a short time period Broker-facilitated fraud can be fraud for property, fraud for profit, or a combination of both. Warning signs may include, among other things, the following: the lender is not provided with original documents within a reasonable time; one mortgage loan originator has originated an unusually-high volume of loans with maximum loan-to-value limits; numerous applications from a particular mortgage loan originator have unique similarities; a high volume of loans exists in the name of trustees, holding companies, or offshore companies; an unusually large number of repurchases, foreclosures, delinquencies, early payment defaults, prepayments, missing documents, high-risk characteristics, quality control findings, or compliance problems is noted on loans processed by a particular mortgage loan originator; and an unusually-large increase in the overall volume of loans processed by a particular mortgage loan originator during a short time period.

Each of the following would be considered a form of mortgage fraud for property, except: A. The borrower overstating assets necessary for a down payment or collateral for the loan B. Submission of a fraudulent gift letter C. Appraisal fraud D. Including sporadic bonuses in with regular income

C. Appraisal fraud Fraud for property involves a borrower lying about income or assets in order to qualify for a loan to buy a home in which he or she plans to live, but which he or she might resell at a profit if income does not increase to enable continued repayment. Overstating assets, providing fraudulent income information, or submitting a fraudulent gift letter would be forms of fraud for property. Appraisal fraud would be a form of fraud for profit (NOT property), which involves mortgage and real estate professionals and others who conspire to inflate property values and, therefore, loan amounts.

Which of the following most likely indicates a fraudulent transaction? A. Large down payment B. Down payment is a gift from relatives C. Failure to fully disclose all debts and liabilities D. Large earnest money deposit

C. Failure to fully disclose all debts and liabilities The failure to disclose all debts and liabilities could be a red flag for mortgage fraud. Others could be altered bank account statements, fraudulent gift letters, and an inappropriate salary for the loan amount sought.

According to ECOA, when could a lender ask a borrower about their religion? A. If they ask for monitoring purposes B. If the loan depends on the borrower's religion C. Never D. If the borrower lives in an area known to be dominated by a certain religion

C. Never It is prohibited to ask a prospective borrower about his or her religion at any time during the loan origination process. To ensure compliance with fair lending laws, lenders must collect demographic information about race, ethnicity, and sex, but none of these relate to or indicate religion.

A borrower has obtained the down payment for a property by taking an undisclosed and unrecorded second mortgage from the seller. This is called a(n): A. Second mortgage B. Unsecured loan C. Silent second D. Dual contract

C. Silent second A silent second is a form of mortgage fraud whereby a primary lender grants a mortgage loan to a borrower, believing that the borrower has invested his or her own money in the down payment and closing costs. However, the borrower has actually borrowed the needed funds from the seller via an undisclosed and unrecorded (i.e., silent) second mortgage.

Which of the following is most likely a red flag of fraud? A. The borrower has a new job B. The borrower is moving from another state C. The borrower is purchasing a home down the street from his current home, stating the new house will be his primary residence but he plans to keep his current home and not rent it out D. The borrower's down payment is coming from the sale of another home, which was serving as his primary residence until its sale

C. The borrower is purchasing a home down the street from his current home, stating the new house will be his primary residence but he plans to keep his current home and not rent it out Among the red flags for loan application fraud are indications that the borrower will not be an owner-occupant. This can be evidenced by a significant or unrealistic commute distance from home to job, the purchase of new housing not large enough to accommodate all occupants, or if the buyer currently resides in the property and is purchasing it from landlord or lives close to the subject property or if the borrower indicates an intent to rent or sell his current residence with no documentation.

Flipping is: A. Always illegal B. Illegal depending on the amount of profit realized C. The process of buying a property and then quickly selling it D. Not allowed under conventional underwriting guidelines

C. The process of buying a property and then quickly selling it Flipping is the process of buying a property and then quickly selling it. It can be a form of predatory lending if the primary objective of the mortgage broker and/or lender is to generate additional loan points, loan fees, prepayment penalties, and fees from financing the sale of credit-related products. To prevent mortgage fraud arising from flipping, the FHA has a property flipping prohibition that provides that, in general, only an owner of record may sell a property that will be financed using FHA-insured mortgages and a property resold within 90 days from the last sale is not eligible for FHA financing.

Which of the following best describes the potential penalty for violators of Do-Not-Call rules? A. Up to $42,530 per day in which calls were made B. Up to $42,530 per customer actually contacted C. Up to $42,530 per call made D. Up to $42,530 per hour in which calls were made

C. Up to $42,530 per call made A person that violates the Do-Not-Call Implementation Act is subject to a penalty of $42,530 for each violation; each day a violation continues is considered to be a new violation. Where a violation is a call made in violation of Do-Not-Call rules, the penalty is imposed per call.

Which of the following best describes the Safeguards Rule? A. A part of the FCRA which requires protection of customer information B. rule allowing financial institutions to escape liability arising from security breaches C. A disclosure rule found in the Real Estate Settlement Procedures Act D. A provision of the GLB Act which contains security plan requirements

D. A provision of the GLB Act which contains security plan requirements The Safeguards Rule, found in the Gramm-Leach-Bliley Act, requires all financial institutions to design, implement, and maintain safeguards to ensure the security and confidentiality of its customers' information.

Which of the following would not be covered by the GLB Act? A. Processor B. Loan broker C. Title company D. Appraiser

D. Appraiser The Gramm-Leach-Bliley Act requires financial institutions to give privacy notices to consumers, explaining their information-sharing policies. The GLB Act applies to financial institutions that offer financial products and services to individuals. Persons covered would include loan processors and loan brokers. Since title companies also handle consumers' personal information, such entities would be covered as well. Appraisers are not covered under the GLB Act.

If a borrower lives a long distance from their work, that may be an indicator of fraud in the area of: A. Down payment B. Income C. Employment history D. Occupancy

D. Occupancy If the property a loan applicant is hoping to purchase is a long distance from the applicant's employment, that would be a possible flag for occupancy fraud. Occupancy fraud is a false representation by the buyer that a property being purchased as an investment property will be owner-occupied, in order to obtain the more favorable terms offered by the lender on owner-occupied real estate.

Which of the following is true about the Do-Not-Call Implementation Act? A. A business entity may never call a number listed on the Do-Not-Call Registry B. The Do-Not-Call Registry only relates to telemarketers engaging in solicitation activities in the mortgage industry C. An established business relationship between a business entity and a consumer does not fall under the scope of the Do-Not-Call Implementation Act D. Once a phone number is listed on the Do-Not-Call Registry, it remains on the Registry until it is removed or service is discontinued

D. Once a phone number is listed on the Do-Not-Call Registry, it remains on the Registry until it is removed or service is discontinued As a result of the Do-Not-Call Implementation Act, a consumer may register his or her phone number on the national Do-Not Call Registry as a number that may not be called by telemarketers. Once registered, a phone number remains on the Registry until it is removed or service is discontinued. A company engaging in telemarketing activities may, however, call a number listed on the Registry if the company has an established business relationship with the consumer, unless the consumer specifically asks not to be contacted.