CMPS Ethics and Client Counseling 5 — Questions and Answers
Question 1: A CMPS notices that a colleague is routinely approving clients who clearly cannot afford their loans. The ethical obligation is to:
- Ignore it since it is the colleague's responsibility
- Report the concern to a supervisor or compliance officer (Correct answer)
- Match the colleague's approach to stay competitive
- Warn clients away from the colleague publicly
Correct answer: Report the concern to a supervisor or compliance officer
Ethical professionals have an obligation to report practices that harm consumers or violate lending standards through proper internal compliance channels.
Question 2: Under the Truth in Lending Act (TILA), what is the primary ethical purpose of the Loan Estimate?
- To lock in the interest rate for 60 days
- To give clients clear, standardized cost information before they commit to the loan (Correct answer)
- To authorize the lender to pull the client's credit report
- To satisfy state escrow disclosure requirements
Correct answer: To give clients clear, standardized cost information before they commit to the loan
The Loan Estimate provides standardized disclosure of loan terms and costs, enabling consumers to make informed decisions and compare offers ethically.
Question 3: Which behavior demonstrates cultural competency in mortgage counseling?
- Assuming clients from certain backgrounds prefer certain loan products
- Tailoring communication style while providing equal access to all loan options (Correct answer)
- Using a single standardized script for all client interactions
- Deferring clients to advisors of their same cultural background
Correct answer: Tailoring communication style while providing equal access to all loan options
Cultural competency involves adapting communication style to the client while ensuring equal, unbiased access to all appropriate loan products.
Question 4: What is the ethical implication of a 'no-cost' mortgage offer that a CMPS presents to a client?
- There are genuinely no costs associated with the loan
- The costs are typically offset by a higher interest rate, which must be clearly explained (Correct answer)
- The lender absorbs all fees as a promotional strategy
- No-cost mortgages are prohibited under federal law
Correct answer: The costs are typically offset by a higher interest rate, which must be clearly explained
No-cost mortgages typically shift closing costs into a higher interest rate; planners must clearly explain this trade-off so clients can make informed decisions.
Question 5: A client is considering a reverse mortgage and appears to not fully understand the product. What is the ethical requirement before proceeding?
- Proceed quickly before the client changes their mind
- Require the client to complete HUD-approved reverse mortgage counseling (Correct answer)
- Provide a simplified verbal summary and close immediately
- Have a family member sign on behalf of the client
Correct answer: Require the client to complete HUD-approved reverse mortgage counseling
Federal law requires that applicants for reverse mortgages complete HUD-approved counseling to ensure they fully understand the product before proceeding.
Question 6: A planner receives a referral from a builder who only refers clients if the planner uses the builder's preferred title company. What ethical issue does this raise?
- None, as builders are entitled to recommend preferred vendors
- A potential RESPA violation and conflict of interest that must be disclosed or avoided (Correct answer)
- A fair housing concern based on geographic targeting
- A licensing issue requiring state approval of the arrangement
Correct answer: A potential RESPA violation and conflict of interest that must be disclosed or avoided
Conditional referral arrangements tied to using specific settlement service providers raise RESPA and conflict-of-interest concerns that must be disclosed or declined.
Question 7: How does a CMPS professional demonstrate ethical integrity when market conditions change significantly after a client's initial consultation?
- Wait for the client to ask about changes before updating them
- Proactively contact the client to update them on how changes may affect their plan (Correct answer)
- Proceed with the original plan regardless of market changes
- Refer the client to a financial news outlet for updates
Correct answer: Proactively contact the client to update them on how changes may affect their plan
Proactively communicating material changes in market conditions demonstrates ethical transparency and genuine commitment to the client's best interests.
CMPS Ethics and Client Counseling 5
A CMPS notices that a colleague is routinely approving clients who clearly cannot afford their loans.
The ethical obligation is to: