CMB Ethics and Professional Standards in Mortgage Banking 1 — Questions and Answers
Question 1: Under the MBA's Code of Ethics, a CMB-certified professional must disclose which of the following to clients at the point of application?
- The lender's preferred title company
- All material fees, terms, and the nature of the lender's compensation (Correct answer)
- The borrower's credit score and internal risk tier
- The projected secondary market sale price of the loan
Correct answer: All material fees, terms, and the nature of the lender's compensation
Ethical standards require full disclosure of material fees, loan terms, and compensation arrangements so borrowers can make informed decisions.
Question 2: Which federal law most directly prohibits mortgage professionals from engaging in discriminatory lending practices based on race, color, religion, sex, or national origin?
- Truth in Lending Act (TILA)
- Real Estate Settlement Procedures Act (RESPA)
- Fair Housing Act (FHA) (Correct answer)
- Home Mortgage Disclosure Act (HMDA)
Correct answer: Fair Housing Act (FHA)
The Fair Housing Act explicitly prohibits discrimination in residential real estate transactions, including mortgage lending, based on protected class status.
Question 3: A mortgage banker who steers a qualified borrower toward a subprime loan when the borrower qualifies for a prime product is engaging in which prohibited practice?
- Redlining
- Reverse redlining (Correct answer)
- Blockbusting
- Churning
Correct answer: Reverse redlining
Reverse redlining (also called predatory steering) involves targeting qualified borrowers with unfair or high-cost products they don't need, often targeting minority communities.
Question 4: Under MBA professional ethics guidelines, a mortgage banker who discovers a potential conflict of interest with a client should FIRST:
- Withdraw from the transaction immediately
- Disclose the conflict to all relevant parties and obtain informed consent (Correct answer)
- Refer the client to a competitor
- Notify the state regulator before proceeding
Correct answer: Disclose the conflict to all relevant parties and obtain informed consent
Disclosure and obtaining informed consent from all affected parties is the required first step when a conflict of interest is identified, allowing parties to decide how to proceed.
Question 5: Which of the following best describes the concept of 'fiduciary duty' as it applies to mortgage bankers acting as brokers?
- An obligation to maximize the lender's profit on every transaction
- A legal duty to act in the best financial interest of the client above one's own interests (Correct answer)
- A requirement to report all transactions to HUD
- A contractual obligation to use only approved appraisers
Correct answer: A legal duty to act in the best financial interest of the client above one's own interests
A fiduciary duty obligates a mortgage broker to prioritize the client's best financial interest over their own, including recommending the most suitable loan product.
Question 6: The Home Mortgage Disclosure Act (HMDA) requires lenders to collect and report loan data primarily to:
- Set interest rate caps on mortgage products
- Help identify potential discriminatory lending patterns and ensure fair lending (Correct answer)
- Calculate the lender's Community Reinvestment Act (CRA) rating
- Establish maximum loan limits for conforming mortgages
Correct answer: Help identify potential discriminatory lending patterns and ensure fair lending
HMDA data is collected to allow regulators and the public to identify potential discriminatory or predatory lending patterns by analyzing loan approval rates across demographic groups.
Question 7: A CMB professional receives a referral fee from a title company for directing clients to that company. Under RESPA Section 8, this arrangement is:
- Permitted if disclosed on the Loan Estimate
- Prohibited because it constitutes an unearned kickback (Correct answer)
- Allowed if the fee is under $100
- Legal only if the title company is affiliated with the lender
Correct answer: Prohibited because it constitutes an unearned kickback
RESPA Section 8 prohibits giving or accepting referral fees or kickbacks for settlement services unless actual services are provided in exchange, protecting borrowers from inflated costs.
CMB Ethics and Professional Standards in Mortgage Banking 1
Under the MBA's Code of Ethics, a CMB-certified professional must disclose which of the following to clients at the point of application?