CMC Professional Ethics and Conduct 3 — Questions and Answers
Question 1: A borrower from a protected class is quoted a higher interest rate than similarly qualified non-protected borrowers. This practice is known as:
- Redlining
- Steering
- Disparate pricing or pricing discrimination (Correct answer)
- Loan flipping
Correct answer: Disparate pricing or pricing discrimination
Charging higher rates to borrowers based on protected class characteristics is pricing discrimination, prohibited under the Fair Housing Act and ECOA.
Question 2: Under the Gramm-Leach-Bliley Act, a mortgage consultant must provide clients with a privacy notice:
- Only if the client requests one in writing
- At the time of establishing the customer relationship (Correct answer)
- After loan closing when all data has been collected
- Annually but only for repeat customers
Correct answer: At the time of establishing the customer relationship
GLB requires financial institutions to provide an initial privacy notice at the time the customer relationship is established.
Question 3: A CMC who discovers a colleague has been submitting fraudulent loan applications should:
- Handle the matter internally without involving regulators to protect the firm
- Report the conduct to appropriate authorities or supervisors per firm policy (Correct answer)
- Wait for an official audit to surface the issue
- Confront the colleague privately and take no further action if they agree to stop
Correct answer: Report the conduct to appropriate authorities or supervisors per firm policy
Professional ethics and many state laws require reporting known fraudulent conduct to supervisors or appropriate regulatory bodies.
Question 4: The practice of steering borrowers who qualify for prime loans into subprime products to earn higher commissions is:
- Permissible if the borrower signs a disclosure
- An ethical and potentially legal violation (Correct answer)
- Standard industry practice for risk management
- Required when the borrower has any negative credit history
Correct answer: An ethical and potentially legal violation
Steering qualified borrowers into higher-cost products for personal gain violates ethical standards and fair lending laws.
Question 5: When a CMC provides a Loan Estimate, federal law requires it be delivered to the applicant within:
- 1 business day of application
- 3 business days of receiving a completed application (Correct answer)
- 5 calendar days before closing
- 10 business days of application
Correct answer: 3 business days of receiving a completed application
TRID (TILA-RESPA Integrated Disclosure) requires the Loan Estimate to be delivered within 3 business days of receiving a completed loan application.
Question 6: A mortgage consultant who collects advance fees from borrowers before completing any services may be violating:
- Fannie Mae underwriting guidelines
- The Mortgage Assistance Relief Services (MARS) Rule (Correct answer)
- The National Flood Insurance Program rules
- Federal Reserve Regulation B
Correct answer: The Mortgage Assistance Relief Services (MARS) Rule
The MARS Rule prohibits collecting advance fees before successfully completing promised mortgage relief services.
Question 7: Ethical record-keeping for a CMC requires retaining loan application files for a minimum period mandated by:
- Individual client preference
- Federal and state regulatory requirements (Correct answer)
- The lender's marketing department
- The consultant's personal filing system
Correct answer: Federal and state regulatory requirements
Federal and state laws specify minimum record retention periods (commonly 3–5 years) for mortgage-related documents.
CMC Professional Ethics and Conduct 3
A borrower from a protected class is quoted a higher interest rate than similarly qualified non-protected borrowers.
This practice is known as: