CMPS Ethical Practices & Risk Management 3 — Questions and Answers
Question 1: A CMPS advisor suspects that a real estate agent is inflating property appraisals to make deals work. What is the advisor's ethical obligation?
- Ignore it if the loans are closing successfully
- Report the suspicion to the lender's compliance team and potentially to regulators (Correct answer)
- Negotiate a lower purchase price to compensate
- Advise the client to accept the inflated appraisal for better equity position
Correct answer: Report the suspicion to the lender's compliance team and potentially to regulators
Appraisal fraud is a federal crime and advisors have an ethical and legal duty to report suspected fraud to their compliance team or appropriate authorities.
Question 2: Which of the following best describes 'steering' in the context of mortgage lending ethics?
- Directing clients to the lowest APR product available
- Directing borrowers to loan products that are less favorable than those they qualify for based on protected characteristics (Correct answer)
- Recommending fixed-rate over adjustable-rate mortgages
- Advising clients away from subprime loans
Correct answer: Directing borrowers to loan products that are less favorable than those they qualify for based on protected characteristics
Steering involves directing borrowers toward unsuitable or higher-cost products based on their race, ethnicity, or other protected characteristics.
Question 3: A CMPS professional's client is self-employed and wants to use 'stated income' to qualify. What is the appropriate response under current lending regulations?
- Accept stated income since the client is self-employed
- Require full documentation of income per current QM/ATR rules (Correct answer)
- Use bank statements only if the client requests it
- Waive income verification for clients with high credit scores
Correct answer: Require full documentation of income per current QM/ATR rules
Under the Ability-to-Repay (ATR) rule, lenders must verify and document income using accepted methods; no-doc or stated-income loans are prohibited for most mortgage types.
Question 4: A client asks a CMPS advisor to hold off on disclosing an outstanding judgment to the lender because it might affect approval. The advisor should:
- Honor the client's request as attorney-client privilege applies
- Decline and explain that material information must be disclosed on the loan application (Correct answer)
- Disclose after closing to protect the client
- Ask the client to resolve the judgment before submitting the application
Correct answer: Decline and explain that material information must be disclosed on the loan application
Concealing a material fact such as an outstanding judgment on a mortgage application constitutes fraud; advisors must require full disclosure.
Question 5: The Qualified Mortgage (QM) rule primarily protects borrowers by:
- Guaranteeing the lowest possible interest rate
- Limiting points and fees and prohibiting certain risky loan features (Correct answer)
- Requiring a 20% down payment for all purchase transactions
- Mandating lender-paid mortgage insurance
Correct answer: Limiting points and fees and prohibiting certain risky loan features
QM rules cap points and fees at 3% and prohibit features like negative amortization and balloon payments to protect borrowers from predatory terms.
Question 6: Which scenario represents an appropriate use of a dual agency disclosure in a mortgage context?
- When the advisor personally owns the property the client is purchasing
- When the advisor works for both the buyer and the seller's lender simultaneously
- When the broker represents the borrower and the wholesale lender in the same transaction
- All of the above require written disclosure to all parties (Correct answer)
Correct answer: All of the above require written disclosure to all parties
Any situation where the mortgage professional has conflicting interests requires written disclosure to all affected parties to maintain ethical transparency.
Question 7: Which of the following is a key element of an effective Anti-Money Laundering (AML) compliance program for mortgage professionals?
- Requiring all clients to use wire transfers only
- Customer identification procedures, suspicious activity monitoring, and SAR filing when required (Correct answer)
- Refusing to work with foreign nationals
- Conducting credit checks in lieu of identity verification
Correct answer: Customer identification procedures, suspicious activity monitoring, and SAR filing when required
An effective AML program includes Know Your Customer (KYC) procedures, ongoing transaction monitoring, and filing Suspicious Activity Reports when warranted.
CMPS Ethical Practices & Risk Management 3
A CMPS advisor suspects that a real estate agent is inflating property appraisals to make deals work.
What is the advisor's ethical obligation?