CMC Ethics and Professional Conduct 3 — Questions and Answers
Question 1: A CMC's license has lapsed but a client urgently needs to close on a purchase. The ethical course of action is to:
- Proceed since the lapse was unintentional
- Refer the client to a licensed colleague and immediately renew the license (Correct answer)
- Complete only the paperwork and have a licensed colleague sign
- Inform the client verbally but proceed anyway
Correct answer: Refer the client to a licensed colleague and immediately renew the license
Operating without a valid license is illegal; the CMC must refer the client and prioritize license renewal immediately.
Question 2: When a CMC identifies a potential error in the loan estimate provided by the lender, the ethical duty is to:
- Correct it quietly to avoid alarming the client
- Immediately notify the client and lender so the error can be properly corrected (Correct answer)
- Proceed to closing and address it afterward
- Wait to see if the client notices the discrepancy
Correct answer: Immediately notify the client and lender so the error can be properly corrected
Transparency requires the CMC to promptly disclose errors to all parties so corrections can be made before the client is harmed.
Question 3: Which federal law primarily governs fair lending by prohibiting discrimination in residential mortgage lending?
- Truth in Lending Act (TILA)
- Fair Housing Act (FHA) (Correct answer)
- Homeowners Protection Act (HPA)
- Real Estate Settlement Procedures Act (RESPA)
Correct answer: Fair Housing Act (FHA)
The Fair Housing Act prohibits discrimination in residential real estate transactions including mortgage lending based on protected classes.
Question 4: A CMC who also owns a title company must ethically:
- Automatically direct all clients to their title company for efficiency
- Disclose the affiliated business relationship in writing and allow the client to choose freely (Correct answer)
- Keep the ownership private to avoid the appearance of self-dealing
- Charge clients a premium for the convenience of the affiliated service
Correct answer: Disclose the affiliated business relationship in writing and allow the client to choose freely
RESPA requires a written Affiliated Business Arrangement (AfBA) disclosure, and clients must be free to use alternative settlement service providers.
Question 5: Predatory lending practices in mortgage consulting are best characterized as:
- Charging market-rate fees for complex loan products
- Imposing unfair or deceptive loan terms on vulnerable borrowers to generate excessive profit (Correct answer)
- Recommending adjustable-rate mortgages to qualified borrowers
- Requiring escrow accounts for property taxes and insurance
Correct answer: Imposing unfair or deceptive loan terms on vulnerable borrowers to generate excessive profit
Predatory lending involves exploiting borrowers—often vulnerable populations—through deceptive practices, excessive fees, or unsuitable loan structures.
Question 6: A CMC discovers a clerical error in a previously submitted loan application that has already been approved. The CMC should:
- Leave it since the loan was approved and corrections could cause delays
- Notify the lender immediately to correct the record before closing (Correct answer)
- Correct only if it affects the loan terms
- Let the borrower decide whether to disclose it
Correct answer: Notify the lender immediately to correct the record before closing
Accuracy of submitted information is a legal and ethical obligation; errors must be reported and corrected regardless of approval status.
Question 7: Which of the following scenarios best illustrates 'dual agency' conflict of interest in mortgage consulting?
- Recommending two different lenders to a single client
- Simultaneously representing the borrower and receiving undisclosed compensation from the lender (Correct answer)
- Using two different loan products for one transaction
- Referring a client to both a real estate agent and an attorney
Correct answer: Simultaneously representing the borrower and receiving undisclosed compensation from the lender
Undisclosed compensation from a lender while representing a borrower creates an undisclosed dual interest that violates ethical and legal standards.
CMC Ethics and Professional Conduct 3
A CMC's license has lapsed but a client urgently needs to close on a purchase.
The ethical course of action is to: