Ethical Standards & Professional Conduct Flashcards

An underwriter receives a file with an Automated Underwriting System (AUS) approval but notes that the income documentation does not support the figures entered. What is the correct ethical response?

Answer: Correct the income data, re-run AUS if needed, and re-evaluate

An AUS approval based on inaccurate data is invalid; the underwriter must use accurate figures and re-evaluate the loan accordingly.

A lender's production incentive program rewards underwriters for higher approval rates. How should a CRU designee approach this arrangement?

Answer: Continue making decisions based solely on creditworthiness and guidelines

Regardless of incentive structures, underwriters must make credit decisions based on borrower qualifications and guidelines, not on production targets.

Which document must an underwriter scrutinize most carefully to detect potential identity fraud in a residential mortgage application?

Answer: Government-issued photo identification

Government-issued ID is the primary document for verifying borrower identity, and inconsistencies can signal identity theft or fraud.

What ethical standard applies when an underwriter unknowingly approves a fraudulent loan and later discovers the fraud?

Answer: The underwriter must report the discovery to compliance immediately

Upon discovering fraud in a previously approved loan, the underwriter has an ethical and often legal obligation to report the finding to compliance or fraud investigation units.

Equal Credit Opportunity Act (ECOA) prohibits underwriters from considering which factor in a credit decision?

Answer: Marital status

ECOA prohibits creditors from discriminating based on marital status, age, sex, race, color, religion, national origin, or receipt of public assistance.

How should an underwriter respond when a real estate agent contacts them directly to discuss the status of a loan application?

Answer: Redirect the agent to the loan officer who manages communication

Underwriters should direct third-party inquiries to the loan officer, as sharing file details with unauthorized parties violates confidentiality and proper transaction protocols.

A title commitment reveals an undisclosed lien on the subject property. The loan officer asks the underwriter to overlook it. What should the underwriter do?

Answer: Require the lien to be addressed before approving or closing

Undisclosed liens must be addressed before loan approval because they affect collateral value and lien priority, regardless of title insurance coverage.