CMPS Ethical Practices & Risk Management 5 — Questions and Answers
Question 1: A client refinancing their home asks the CMPS advisor to omit a second mortgage from the application. The advisor should:
- Omit it if the second lender won't report it
- Refuse and explain that all liens must be disclosed on the application (Correct answer)
- List it only if the underwriter specifically asks
- Omit it to help the client qualify at a better rate
Correct answer: Refuse and explain that all liens must be disclosed on the application
All existing liens must be disclosed on a mortgage application; concealing debt is a form of mortgage fraud.
Question 2: Which type of risk refers to the potential that changes in market interest rates will adversely affect the value of a client's mortgage or investment portfolio?
- Credit risk
- Interest rate risk (Correct answer)
- Liquidity risk
- Operational risk
Correct answer: Interest rate risk
Interest rate risk is the exposure to loss in value or increased cost resulting from fluctuations in prevailing interest rates.
Question 3: A CMPS professional who holds a state MLO license must meet continuing education requirements that include at minimum how many hours annually under the SAFE Act?
- 4 hours
- 8 hours (Correct answer)
- 12 hours
- 16 hours
Correct answer: 8 hours
The SAFE Act mandates a minimum of 8 hours of continuing education annually for licensed MLOs, including specific required topics.
Question 4: In evaluating a client's overall mortgage risk profile, which factor is considered a compensating factor that may allow approval despite a high debt-to-income ratio?
- A history of late payments on student loans
- Substantial cash reserves equal to 12+ months of mortgage payments (Correct answer)
- A recently opened credit card account
- A 580 credit score with no other assets
Correct answer: Substantial cash reserves equal to 12+ months of mortgage payments
Significant cash reserves demonstrate financial resilience and are recognized as a compensating factor by most agency guidelines when DTI is elevated.
Question 5: Redlining as a discriminatory practice refers to:
- Charging higher fees based on loan amount
- Refusing to lend or providing unfavorable terms in specific geographic areas based on racial or ethnic composition (Correct answer)
- Restricting loan products to high-income borrowers
- Adding discount points to loans for low-credit borrowers
Correct answer: Refusing to lend or providing unfavorable terms in specific geographic areas based on racial or ethnic composition
Redlining is the illegal practice of denying or limiting financial services in neighborhoods based on their racial or ethnic demographics.
Question 6: Which best practice should a CMPS advisor follow when a client appears to be in financial distress and may not be able to afford the mortgage they are applying for?
- Proceed with the application since qualification is the lender's responsibility
- Conduct a full financial review and counsel the client on alternatives, including smaller loans, longer timeframes, or rental options (Correct answer)
- Refer the client to a credit repair company and reapply in 6 months
- Submit the application at the highest loan amount to maximize options
Correct answer: Conduct a full financial review and counsel the client on alternatives, including smaller loans, longer timeframes, or rental options
A CMPS advisor's fiduciary duty requires counseling clients holistically, which may include advising against a loan that creates undue financial risk.
Question 7: A lender's compliance officer asks a CMPS advisor to backdate a rate lock confirmation to meet a regulatory deadline. The advisor should:
- Comply since the compliance officer has authority over the file
- Refuse and document the request, then escalate to senior management or legal counsel (Correct answer)
- Comply only if the client benefits from the earlier date
- Ask the client for permission before backdating
Correct answer: Refuse and document the request, then escalate to senior management or legal counsel
Backdating documents is fraud regardless of who requests it; the advisor must refuse, document the request, and report it through appropriate channels.
CMPS Ethical Practices & Risk Management 5
A client refinancing their home asks the CMPS advisor to omit a second mortgage from the application.
The advisor should: