CMPS Ethical Practices & Risk Management 4 — Questions and Answers
Question 1: A CMPS advisor is approached by a developer who offers a commission override for every buyer the advisor steers to the developer's preferred lender. This arrangement is:
- Legal if disclosed in writing
- A violation of RESPA Section 8 regardless of disclosure (Correct answer)
- Permitted if the preferred lender offers competitive rates
- Acceptable as long as the buyer signs a consent form
Correct answer: A violation of RESPA Section 8 regardless of disclosure
RESPA Section 8 prohibits kickback arrangements in settlement services regardless of disclosure or competitive pricing.
Question 2: What does 'suitability' mean in the context of CMPS ethical obligations?
- Ensuring the borrower qualifies under lender guidelines
- Recommending mortgage products that align with the client's financial goals, risk tolerance, and long-term interests (Correct answer)
- Selecting the product with the lowest monthly payment
- Matching the client to the lender with the highest approval rate
Correct answer: Recommending mortgage products that align with the client's financial goals, risk tolerance, and long-term interests
Suitability requires that mortgage recommendations serve the client's overall financial objectives, not just minimum qualification standards.
Question 3: A client's loan file shows large, unexplained deposits in their bank statements. As a CMPS advisor, the appropriate action is to:
- Ignore them if the balance is sufficient for closing
- Source and document all large deposits per lender and regulatory requirements (Correct answer)
- Remove the relevant statements from the file
- Ask the client to open a new account to avoid scrutiny
Correct answer: Source and document all large deposits per lender and regulatory requirements
Lenders and regulators require that large undocumented deposits be sourced to prevent money laundering and ensure asset legitimacy.
Question 4: Under Regulation B (ECOA), a lender must notify an applicant of adverse action within how many days of receiving a completed application?
- 10 days
- 30 days (Correct answer)
- 45 days
- 60 days
Correct answer: 30 days
ECOA Regulation B requires adverse action notices within 30 days of receiving a completed credit application.
Question 5: Which behavior would MOST likely constitute predatory lending?
- Offering a 30-year fixed mortgage to a first-time homebuyer
- Repeatedly refinancing a client into high-cost loans to generate fees without net benefit to the borrower (Correct answer)
- Recommending a 15-year loan to a client who wants to pay off their home faster
- Disclosing all fees and APR on the Loan Estimate
Correct answer: Repeatedly refinancing a client into high-cost loans to generate fees without net benefit to the borrower
Loan flipping — repeatedly refinancing borrowers into high-cost products for fee income without client benefit — is a hallmark of predatory lending.
Question 6: A CMPS advisor learns that a colleague is submitting falsified employment verification letters. What is the ethical course of action?
- Ignore it — it's not your file
- Report the activity to compliance, management, or regulators as required (Correct answer)
- Confront the colleague privately and trust them to stop
- Complete your own files and avoid association with the colleague
Correct answer: Report the activity to compliance, management, or regulators as required
Mortgage professionals have an ethical and often legal duty to report known fraud to their compliance department or appropriate regulatory authority.
Question 7: Which of the following best describes the purpose of the Home Mortgage Disclosure Act (HMDA)?
- To set maximum interest rates on mortgage loans
- To collect and publish data on mortgage lending to identify discriminatory patterns (Correct answer)
- To require lenders to offer loans in all geographic areas equally
- To mandate minimum down payment requirements for all borrowers
Correct answer: To collect and publish data on mortgage lending to identify discriminatory patterns
HMDA requires lenders to collect and report loan data to help regulators identify potential discrimination and ensure fair lending across communities.
CMPS Ethical Practices & Risk Management 4
A CMPS advisor is approached by a developer who offers a commission override for every buyer the advisor steers to the developer's preferred lender.
This arrangement is: