CRU Ethical Standards & Professional Conduct 2 — Questions and Answers
Question 1: An underwriter discovers that a loan officer has submitted inflated appraisals on multiple files. What is the underwriter's ethical obligation?
- Approve the files to maintain the business relationship
- Report the pattern to supervisory management or compliance (Correct answer)
- Request new appraisals quietly without escalating
- Deny only the most recent file and move on
Correct answer: Report the pattern to supervisory management or compliance
Underwriters must report suspected fraud or appraisal manipulation to compliance or management — concealing known misconduct violates professional ethics.
Question 2: Which statement best describes the concept of 'independence' in residential underwriting ethics?
- Underwriters may accept lender incentives if disclosed
- Underwriters must make credit decisions free from undue pressure or bias (Correct answer)
- Independence applies only to appraisers, not underwriters
- Underwriters should consult loan officers before rendering any decision
Correct answer: Underwriters must make credit decisions free from undue pressure or bias
Independence requires that underwriters render credit decisions solely based on borrower qualifications and program guidelines, without coercion.
Question 3: A borrower's file contains a gift letter, but the underwriter suspects the funds are actually a loan. What is the appropriate action?
- Accept the gift letter at face value since it is signed
- Approve the loan if credit is otherwise strong
- Request additional documentation to verify the source of funds (Correct answer)
- Ask the loan officer to confirm verbally that it is a gift
Correct answer: Request additional documentation to verify the source of funds
When red flags suggest a gift may be an undisclosed loan, the underwriter must request documentation to verify the true nature and source of funds.
Question 4: Under ethical professional standards, how should an underwriter handle a request from a manager to approve a borderline loan for a key client?
- Approve it to support the company's revenue goals
- Document the manager's request and apply guidelines consistently (Correct answer)
- Deny it without explanation to avoid conflict
- Escalate to the secondary market desk without reviewing the file
Correct answer: Document the manager's request and apply guidelines consistently
Underwriters should document any override requests and apply program guidelines consistently, ensuring a defensible paper trail.
Question 5: What does the Fair Housing Act prohibit underwriters from doing?
- Declining loans based on inadequate income
- Using race, national origin, or religion as underwriting factors (Correct answer)
- Applying debt-to-income ratio limits
- Requiring documentation of employment history
Correct answer: Using race, national origin, or religion as underwriting factors
The Fair Housing Act prohibits discrimination in residential lending based on protected classes including race, color, national origin, sex, religion, familial status, and disability.
Question 6: A CRU designee discovers a clerical error in a closed loan that resulted in incorrect fee disclosures. What is the ethical course of action?
- Ignore it since the loan has already closed
- Notify compliance so corrective action can be taken (Correct answer)
- Correct only the file without telling anyone
- Wait to see if the borrower complains
Correct answer: Notify compliance so corrective action can be taken
Ethical professionals must disclose errors that affect consumer disclosures so that the institution can assess and take appropriate corrective action.
Question 7: Which practice is considered an ethical red flag in the underwriting review process?
- Requesting tax transcripts to verify income
- Conducting a verbal verification of employment
- Consistently approving loans only after receiving calls from a specific broker (Correct answer)
- Ordering a second appraisal when the first appears low
Correct answer: Consistently approving loans only after receiving calls from a specific broker
A pattern of approvals following contact from a specific broker suggests undue influence and is a red flag for compromised underwriting independence.
CRU Ethical Standards & Professional Conduct 2
An underwriter discovers that a loan officer has submitted inflated appraisals on multiple files.
What is the underwriter's ethical obligation?