CMPS Ethical Practices & Risk Management 2 — Questions and Answers
Question 1: A CMPS professional discovers mid-transaction that a client's stated income on the application is higher than what the client's tax returns support. What is the correct ethical response?
- Proceed if the lender hasn't noticed yet
- Advise the client to provide accurate documentation and correct the application (Correct answer)
- Remove the discrepancy from the file to protect the client
- Close the loan quickly before underwriting reviews the documents
Correct answer: Advise the client to provide accurate documentation and correct the application
Knowingly submitting inaccurate income information constitutes mortgage fraud; the advisor must correct the application and advise proper documentation.
Question 2: Which federal law primarily regulates the disclosure of mortgage loan terms and requires the Loan Estimate to be provided to borrowers?
- RESPA
- TRID (TILA-RESPA Integrated Disclosure) (Correct answer)
- HMDA
- Equal Credit Opportunity Act
Correct answer: TRID (TILA-RESPA Integrated Disclosure)
TRID combines TILA and RESPA disclosures and mandates the Loan Estimate be delivered within three business days of application.
Question 3: A client asks a CMPS advisor to recommend a lender who offers the advisor the highest referral bonus rather than the best product for the client. Complying with this request would violate which core ethical principle?
- Confidentiality
- Fiduciary duty / client-first obligation (Correct answer)
- Disclosure of fees
- Anti-money laundering compliance
Correct answer: Fiduciary duty / client-first obligation
Placing personal financial gain above client welfare violates the CMPS fiduciary and client-first ethical standard.
Question 4: Under the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act), which entity must Mortgage Loan Originators be registered or licensed with?
- The Federal Trade Commission (FTC)
- The Nationwide Multistate Licensing System (NMLS) (Correct answer)
- The Consumer Financial Protection Bureau (CFPB)
- The Department of Housing and Urban Development (HUD)
Correct answer: The Nationwide Multistate Licensing System (NMLS)
The SAFE Act requires all MLOs to register or obtain a license through the NMLS to ensure accountability and consumer protection.
Question 5: A borrower who is a member of a protected class is quoted a higher interest rate than similarly qualified non-protected borrowers. This is an example of:
- Redlining
- Disparate impact pricing discrimination (Correct answer)
- Steering
- Predatory underwriting
Correct answer: Disparate impact pricing discrimination
Charging higher rates to borrowers based on protected-class status constitutes discriminatory pricing under the Fair Housing Act and ECOA.
Question 6: Which risk management practice is MOST effective for a CMPS advisor working with clients in volatile interest rate environments?
- Locking all clients into 30-year fixed rates regardless of situation
- Conducting a comprehensive risk tolerance assessment and discussing rate lock options (Correct answer)
- Advising clients to delay purchase until rates stabilize
- Recommending interest-only loans to minimize short-term payment risk
Correct answer: Conducting a comprehensive risk tolerance assessment and discussing rate lock options
A thorough risk tolerance assessment followed by appropriate rate lock strategies tailors recommendations to each client's financial situation and goals.
Question 7: When a CMPS advisor receives a gift or compensation from a title company for referring clients, this may violate which regulation?
- Regulation Z (TILA)
- RESPA Section 8 prohibiting kickbacks and unearned fees (Correct answer)
- Regulation B (ECOA)
- HMDA Regulation C
Correct answer: RESPA Section 8 prohibiting kickbacks and unearned fees
RESPA Section 8 prohibits giving or receiving anything of value in exchange for referrals of settlement services.
CMPS Ethical Practices & Risk Management 2
A CMPS professional discovers mid-transaction that a client's stated income on the application is higher than what the client's tax returns support.
What is the correct ethical response?