Ethics
What is the maximum punishment for committing loan fraud?
$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.
A property flipping scheme may involve any of the following, except: A. A buyer purchasing a property with the intent to reside there for only two years B. A seller who is not the owner of record of the property C. A notable increase in the value of the property with no known improvements made D. The use of unusual comparable properties
A buyer purchasing a property with the intent to reside there for only two years A property flipping scheme may involve an inflated sale price, the result of a fraudulent appraisal based on unusual comparables, or a higher sale price without any accompanying improvements to the property. The borrower may not be the owner of record. Property flipping schemes involve the quick turnover of a property, with each sale at a higher price. -A borrower planning to live in the property for two years would not be a flag for a property flipping scheme. The Higher-Priced Mortgage Loan Rule provides protection against flipping schemes, requiring two written appraisals before a property can be resold within 90 to 180 days at a price 10% to 20% higher than the purchase price.
An ability-to-repay assessment includes:
A determination as to whether the loan applicant can make a monthly payment based on a payment schedule that fully amortizes the loan over its term -An ability to repay assessment includes a determination as to whether the loan applicant can make a monthly payment based on a payment schedule that fully amortizes the loan over its term. -The following would be utilized in that determination: the consumer's current or reasonably expected income or assets, other than the value of the dwelling; the customer's current employment status; the consumer's monthly payment on the loan, calculated pursuant to the Rule, and any simultaneous loan; the consumer's monthly payment for mortgage related obligations and any current debt obligations, alimony, and child support; the consumer's monthly debt to income ratio; and the consumer's credit history.
What best describes the Safeguards Rule?
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.
What scenario is unlikely to be a red flag that broker facilitated fraud is likely to occur or is occurring?
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 housing, 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 or mortgage loan originator has originated an unusually high volume of loans with maximum loan to value limit; numerous applications from a particular mortgage loan originator have unique similarities; a high volume of loans exist 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 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 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.
A mortgage loan originator decides to give their neighbor a discount. This would be:
Acceptable -Under Section 8 of the Real Estate Settlement Procedures Act, it is illegal to give or accept any fee, kickback, or other thing of value under any agreement or understanding, verbal or otherwise, that business relating to or part of a settlement service involving a federally-related mortgage loan will be referred to any person. -So long as the discount was not given with the expectation that the neighbor would refer business to the loan originator, it is not prohibited.
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
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 would not be covered by the GLB Act? A. Processor B. Loan broker C. Title company D. Appraiser
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.
When may a mortgage loan originator give preferential treatment to a borrower?
At any time, as long as it is not based on a class covered by ECOA -The Equal Credit Opportunity Act (ECOA) was enacted in 1974 with the goal of ensuring that all persons, consumers, and businesses are given an equal chance to obtain credit. A creditor cannot discriminate against, or give preferential treatment to, an applicant in any aspect of a credit transaction on the basis of race, color, religion, national origin, sex, marital status, or age, because all or part of income derives from a public assistance program, or because he or she has in good faith exercised any right under the Consumer Credit Protection Act.
To pay an appraiser based on whether a mortgage loan closes is:
Coercive conduct -In connection with an appraisal, it is prohibited for a person to compensate, coerce, extort, collude, instruct, induce, bribe, or intimidate a person, appraiser, appraisal management company, firm, or other entity conducting or involved in the appraisal in order to influence the appraiser's independent judgment. -Additionally, a creditor may not mischaracterize the appraised value of the property, seek to influence an appraiser or otherwise to encourage a targeted value to facilitate making or pricing the transaction, or withhold or threaten to withhold payment for either an appraisal report or appraisal services.
Under the Red Flags Rule, each affected business must:
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:
FACTA -Included in the implementation of fair and accurate credit transaction act (FACTA), the FTC and the federal financial institution regulatory agencies published the Red Flags Rule. -This 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 most likely indicates a fraudulent transaction?
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.
A married couple applying for a loan knowingly fail to disclose an unsecured loan with an outstanding balance of $14,000 and a student loan in one spouse's name. This is:
Fraud for housing -Fraud for housing involves a borrower lying about income or assets. Among the most common activities involving fraud for housing are altering the applicant's credit history, concealment of liabilities (i.e., the loan applicant fails to fully disclose debts), and use of a straw buyer.
The interest rate that is calculated using the loan's index or formula that will apply after the loan is recast and the maximum margin that may apply at any time during the term of the loan is the:
Fully indexed rate -The fully-indexed rate is the interest rate that is calculated using the subject loan's index or formula that will apply after recast and the maximum margin that may apply at any time during the term of the loan. -A loan product's low introductory rate may not be included in the calculation of the fully-indexed rate.
The Financial Privacy Rule:
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.
Alma Tree is buying her first house and has saved enough money so that she can put 25% down. She works part time as a barista and earns the rest of her income as an independent contractor, writing a blog on personal finances for the single woman. Alma is working with mortgage broker Ima Furr. Alma has completed the loan application, and Ima has now requested back-up documentation.What is the next step?
Ima must verify Alma's income from her barista job with copies of her paystubs. -Under the Ability to Repay Rule, a creditor must make a good faith determination that a borrower will be able to repay the loan according to its terms. The creditor must obtain third-party verification of income, assets, and liabilities to make that determination. -If a borrower is self-employed, he or she may be required to provide tax returns for a two-year period to evidence self-employment income. In this case, Alma must provide paystubs for her barista job and would likely be required to provide tax returns and other back-up documentation of income received from her blogging job.
In an adjustable-rate mortgage loan, recast:
Is the time in the loan term where periodic payments must be of sufficient amount to fully amortize the loan within the remaining term -Recast is the time within a loan's term at which payments that will fully amortize the loan over its remaining term are required. In other words, recast occurs at the end of the period during which payments on an adjustable-rate mortgage are based on a low introductory rate. -Interest-only payments may be made on an interest-only loan, or negatively-amortizing payments may be made on a negative amortization loan.
Blank information on an application:
May be a red flag for identity theft
Paul is applying for a 30-year mortgage loan. He is 64 years old and plans to retire at age 65. The lender:
May not consider Paul's age in determining whether to grant him the loan -ECOA prohibits discrimination on the basis of age against a loan application as long as the applicant is of age to enter into contracts. -Regardless of age, if Paul is able to prove continuance of stable, steady, and sufficient income to afford the loan he is seeking, his application may move forward.
According to ECOA, when could a lender ask a borrower about their religion?
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.
If a borrower lives a long distance from their work, that may be an indicator of fraud in the area of:
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?
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.
The simultaneous origination of multiple loans on the same collateral is:
Piggyback lending -Piggyback lending (also known as making a simultaneous loan) is an additional covered transaction or an open-end home equity line of credit that will be secured by the same dwelling and is made to the same consumer at the same time or before the closing on the covered transaction, or made after closing to cover the closing costs of the first transaction. -Pursuant to the Ability to Repay Rule, a lender must make a determination that the borrower can pay both the first mortgage on the property and the simultaneous loan according to the terms of each loan.
When advertising nontraditional mortgages on the radio, television, or billboards:
Providers should provide clear and balanced information about the risks of these products -When advertising a nontraditional mortgage product, the loan originator must ensure that its ads are clear and contain no false or misleading information. If a trigger term is used in the ad, additional disclosures must be made. -For example, ads that tout low monthly payments or low interest rates must include adequate disclosure of other terms, such as the fact that the stated rate will apply only during a loan's initial period, that payments will increase, and that a final balloon payment may be required.
Why would a lender have a problem with double contracts?
Relevant information is being kept from the lender -Mortgage fraud using double contracts is also called "contract kiting." In this type of fraud, a seller agrees to create a second, falsified sales agreement with an inflated purchase price in order to 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 and the lender being undersecured and subject to greater loss in the event of default.
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):
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.
A buyer wishes to purchase a property but is unable to qualify. He pays his sister to apply for the loan and state that she will occupy the property. This is an example of the use of:
Straw buyer -A straw buyer is a person who allows the use of their personal information by another individual to apply for or obtain a loan. -This often occurs when the actual borrower is unable to qualify for the loan based on his or her own credit history. -Use of a straw buyer is mortgage fraud, and the straw buyer is often paid for the use of his or her personally identifying information.
A person who acts as a borrower on a loan because the actual buyer is unable to qualify is referred to as:
Straw buyer -A straw buyer is a person who allows the use of their personal information by another individual to apply for or obtain a loan. -This often occurs when the actual borrower is unable to qualify for the loan based on his or her own credit history. -Use of a straw buyer is mortgage fraud, and the straw buyer is often paid for the use of his or her personally identifying information.
Which of the following would not be considered a valid changed circumstance for the issuance of a revised Loan Estimate?
Technical error on the disclosure -A revised Loan Estimate may be issued if a valid "changed circumstance" occurs or information previously provided and upon which the loan originator offered the original Loan Estimate changes or was inaccurate and causes a change in a settlement charge. -Changed circumstances that may affect settlement costs and provide an acceptable reason to issue a revised Loan Estimate include a natural disaster, the title insurer whose fees for title insurance are disclosed goes out of business, or new information arises that reveals a pending property boundary dispute.
If a loan file contains fraudulent documentation, what is the least likely to happen?
The borrower's interest rate could be increased -It is mortgage fraud to participate in the submission of a fraudulent mortgage loan application. A licensee that participates in such fraud could be subject to 30 years in jail and/or up to $1 million in fines. If set forth in any contract between the lender and the loan originator, the loan originator could also be required to reimburse the lender for any loss it incurs or repurchase the loan. -A buyback or repurchase agreement provides that the investor may return the loan to the originating lender if the borrowers default within a specified period of time (e.g., within the first three or six months), there is evidence of loan fraud, or the loan does not comply with regulatory requirements.
A licensee is in compliance with the Ability to Repay Rule. What is not true?
The licensee is making a stated-income loan -The Ability to Repay Rule requires a creditor make a good faith determination that the borrower is able to repay the loan according to its terms. It must make that determination based upon a monthly payment amount calculated to fully amortize the loan at the fully-indexed rate. -It also requires third-party verification of the borrower's ability to repay in the form of documentation of income, assets, and liabilities. With a stated-income loan, both assets and employment are verified, but income is not.
A mortgage loan originator discovers that her borrowers created, edited, and printed their own W-2s on their home computer in order to show enough income to qualify for the requested loan. If the mortgage loan originator does not disclose this information to the lender, what could happen to the mortgage loan originator?
The mortgage loan originator could be fined up to $1,000,000, serve up to 30 years in prison, or both -If a loan originator knows that his or her prospective borrower has submitted false information on the loan application, he or she is guilty of mortgage fraud. -If a loan originator is found to have made or participated in the making of a false mortgage loan application and/or engaged in a conspiracy to commit fraud, fraud/swindles, or bank fraud, he or she is subject to 30 years in jail and/or the imposition of $1 million in fines.
Flipping is:
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.
What best describes the potential penalty for violators of Do-Not-Call rules?
Up to $43,280 per call made -A person that violates the do not call implementation act is subject to the penalty of $43,280 for each violation. -Each day the violation continues is considered to be a new violation. -Where a violation is a call made in violation of do not call rule, the penalty is imposed per call.
