NMLS Ethics Test Questions and Answers All Correct.docx

NMLS Ethics Test Questions and Answers All C When ordering an appraisal, it is illegal to... - Answer-Request that the appraiser return a minimum or specific value. You Mortgage professionals are permitted to communicate their own or the borrower's opinion when order an appraisal; however, requesting a specific or minimum value is considered improper influence of an appraiser and is a serious ethical/legal violation. Borrower credit it - Answer-An amount paid by the lender to a third party originator for locking a borrower's interest rate at a rate higher than par. The intent of borrower credit is to help subsidize closing costs for a borrower in exchange for taking a higher rate "Caveat emptor" means... - Answer-"Let the buyer beware." It is a common concept cited in the ethical debate over whether mortgage professionals should be agents for borrowers. Overvaluations of real estate violates... - Answer-Provisions of TILA. The Fair Housing Act & the Financial Institutions Reform, Recovery, and Enforcement Act also include regulations relating to property valuation. Equity stripping is... - Answer-The unethical practice of basing a loan approval on only the appraised value of the property. The practice does not consider repayment ability. Some states have passed regulations aimed at prohibiting the practice. 3 conditions that an affiliated business must meet to satisfy referral requirements... - Answer-Disclosure of the relationship No required used of the referred entity Limitations on the "things of value" resulting from the arrangement Regulation Z prohibits advertising - Answer-An attractive interest rate or loan term that is not actually available. TILA & Regulation Z include a number of prohibitions and requirements for advertising The safeguards Rule and Disposal Rule are... - Answer-Concerned with preserving the confidentiality of personal financial information. The FTC's Disposal Rule and the Gramm-Leach-Bliley Safeguards Rule outline the manner in which financial information must be protected while maintained by an entity and during the process of record disposal. "Fiduciary duty" means... - Answer-One person (agent) is acting in the best interests of another. It requires loyalty, good faith, and an obligation of the agent to consider the interests of the other person before their own. An air loan is... - Answer-A fraudulent transaction where a fictitious borrower obtains a mortgage and secures it with fictitious property. Air loans may also include fictitious employers. appraisers, and credit agencies in order to obtain verification necessary to process the loan application. Equity-based lending occurs when... - Answer-A lending decision is based on the equity available in the borrower's home, rather than creditworthiness and ability to repay. Yield spread premiums are now known as... - Answer-Borrower credits. Property flipping occurs when - Answer-A property is bought and resold withing a very short period of time. The resale usually involves the used of an inflated appraisal of the property's value. The HPML Rule works to curb property flipping by creating second appraisal requirements for certain transactions. Service release premiums are - Answer-Fees lenders can earn when selling loans in the secondary market. They are often cited in the controversy over yield spread premiums earned by loan originators. Mark-ups are the practice of - Answer-Unilaterally increasing the charges of another settlement service provider and retaining the difference. HUD considers mark-ups a form of illegal fee-splitting and a violation of RESPA A straw buyer is ... - Answer-A person who accepts a fee for the use of his/her social security number and other personal information on a mortgage application. Straw buyers are often unaware that they are liable for fraud and for making false statements to the government The Gramm-Leach-Bliley act requires - Answer-Financial institutions to provide customers with a privacy notice as well as an opt-out notice. This is aimed at protecting their nonpublic personal information. Adverse action occurs when - Answer-A creditor makes an unfavorable decision. An example would be a lender rejecting a loan application. ECOA requires notice of adverse action within 30 days of application. Legal and ethical ways of providing disclosures include - Answer-In person, via US mail, or via facsimile. Email and secure document handling are also becoming acceptable means. Providing the information verbally or via a public posing are not acceptable methods for most disclosures. With regard to fraud, loan originators are required to - Answer-Be on the lookout for and report anything that could jeopardize a lender's investment. Originators have a fiduciary obligation to lenders. Inflated appraisals occur when - Answer-An appraiser places a much higher value on a property than can be justified. This practice has been commonly used in conjunction with other forms of mortgage fraud A straw seller - Answer-Is an individual who accepts a fee to falsely claim ownership to a property. Straw sellers are sometimes used in conjunction with straw buyers in elaborate mortgage fraud schemes. An advertisement saying "Refinance today and wipe debt clean!" - Answer-Violates the federal reserve's staff commentary on regulation z revisions. This example is considered a misleading claim of debt elimination Goals of the Fair housing act include - Answer-Providing fair housing throughout the United States Prohibiting discrimination in the sale and renting of housing Prohibiting discrimination in mortgage lending transactions The most common type of fraud involving borrowers are - Answer-Falsified application. Generally, they are trying to obtain a loan they do not qualify for, but for the most part do intent to repay the loan Income qualification should always use - Answer-Factual data. Loan programs such as state income loans (also called liar's loans) led to an increase in loan application fraud. This has been blamed for increased foreclosures. A sign of fraud on a sales contract - Answer-The purchase price being higher than the list price. This could be a sign that a legitimate buyer it not involved in the transaction Identity theft is the practice of - Answer-Using another person's name, Social security number, and other personal information to secure credit or make purchases. It often figures into elaborate mortgage fraud schemes. LO Compensation Rule prohibits - Answer-Compensation based on transaction terms. Dual compensation Steering MAP Rule prohibits - Answer-Any material misrepresentation, express or implied, in any commercial communication, regarding any term of a mortgage credit product HOEPA prepayment penalty provisions - Answer-If a loan features a prepayment penalty in force for more than 36 months or exceeding 2% of the amount prepaid, the loan is subject to HOEPA and the penalty is prohibited. HOEPA was expanded to cover - Answer-Closed-end loans, open-end loans, and purchase money mortgage secured by the borrower's principal dwelling Reverse redlining is - Answer-Practice of targeting neighborhoods that were previously redlined as credit risks in order to trick residents into dangerous and predatory loans Ginnie Mae - Answer-Government owned, not stockholder owned Primary function to guarantee securities backed by FHA, VA, RHS loans (does not buy loans) Does not guarantee or deal with conventional mortgages