CMPS Ethics and Client Counseling 3 — Questions and Answers
Question 1: A CMPS advisor is approached by a real estate agent who offers referral fees for mortgage business. What is the ethical and legal concern?
- Referral fees are always acceptable between licensed professionals
- RESPA prohibits unearned referral fees that inflate settlement costs (Correct answer)
- The advisor should accept fees only if disclosed to the client
- Referral arrangements are unregulated at the federal level
Correct answer: RESPA prohibits unearned referral fees that inflate settlement costs
RESPA (Real Estate Settlement Procedures Act) prohibits kickbacks and unearned fees in real estate settlement transactions.
Question 2: Which scenario represents a conflict of interest that must be disclosed to the client?
- The planner holds a CFP designation
- The planner's firm owns a share of the title company being recommended (Correct answer)
- The planner uses third-party loan origination software
- The planner charges a flat advisory fee
Correct answer: The planner's firm owns a share of the title company being recommended
Ownership interests in affiliated settlement service providers create conflicts of interest that must be fully disclosed under RESPA's Affiliated Business Arrangement rules.
Question 3: A client shares sensitive financial information with their CMPS advisor. Under ethical guidelines, this information should be:
- Shared freely with partner lenders to speed up the process
- Used only for purposes the client has authorized (Correct answer)
- Retained and used for marketing to other clients with similar profiles
- Disclosed to family members who co-signed the application
Correct answer: Used only for purposes the client has authorized
Client financial information is confidential and may only be used for authorized purposes such as processing the client's mortgage application.
Question 4: What is 'steering' in mortgage lending, and why is it considered unethical?
- Guiding clients toward the best-fit product for their situation
- Directing clients to higher-cost loans to increase broker compensation (Correct answer)
- Recommending fixed-rate over adjustable-rate mortgages
- Advising clients to improve credit before applying
Correct answer: Directing clients to higher-cost loans to increase broker compensation
Steering involves directing clients to loan products that benefit the originator financially rather than the client, which is prohibited under the Dodd-Frank Act.
Question 5: A mortgage planner suspects a client may be a victim of elder financial abuse by a family member pressuring a cash-out refinance. The planner should:
- Proceed with the transaction since the client signed the documents
- Pause and consult compliance or legal counsel before proceeding (Correct answer)
- Let the family member handle the process independently
- Close the loan and notify authorities afterward
Correct answer: Pause and consult compliance or legal counsel before proceeding
Suspected elder financial abuse requires the planner to halt the transaction and seek guidance from compliance or legal resources to protect the vulnerable client.
Question 6: What is the primary ethical reason a CMPS should document all client counseling sessions?
- To comply with state marketing regulations
- To create a clear record of advice given and client acknowledgment (Correct answer)
- To upsell additional financial products later
- To share with competing advisors for benchmarking
Correct answer: To create a clear record of advice given and client acknowledgment
Documentation protects both the client and the professional by creating an accurate record of advice provided and the client's informed decisions.
Question 7: Under the Fair Housing Act, a mortgage planner must ensure that:
- Loan terms are negotiated based on neighborhood location
- All clients receive equal treatment regardless of protected class status (Correct answer)
- Higher-risk neighborhoods receive more scrutiny in underwriting
- Credit standards are adjusted based on national origin
Correct answer: All clients receive equal treatment regardless of protected class status
The Fair Housing Act prohibits discrimination in mortgage lending based on race, color, religion, national origin, sex, disability, or familial status.
CMPS Ethics and Client Counseling 3
A CMPS advisor is approached by a real estate agent who offers referral fees for mortgage business.
What is the ethical and legal concern?