CRU Ethical Standards & Professional Conduct 3 — Questions and Answers
Question 1: What is the primary purpose of an underwriter maintaining a complete and accurate credit file?
- To impress auditors during reviews
- To provide a defensible record of the credit decision (Correct answer)
- To increase loan processing speed
- To satisfy appraisal review requirements only
Correct answer: To provide a defensible record of the credit decision
A thorough, accurate credit file documents the basis for the underwriting decision and protects the lender in repurchase demands, audits, or regulatory reviews.
Question 2: An underwriter is pressured to clear conditions on a file without receiving the actual documents. This situation represents a violation of which ethical principle?
- Efficiency in loan processing
- Professional integrity and documentation standards (Correct answer)
- Secondary market compliance only
- Appraisal independence
Correct answer: Professional integrity and documentation standards
Clearing conditions without receiving required documents compromises professional integrity and exposes the institution to repurchase risk and fraud liability.
Question 3: How should a CRU-designated underwriter handle a conflict of interest when a close relative applies for a mortgage at their institution?
- Review the file but sign off quickly to avoid delays
- Recuse themselves and refer the file to another underwriter (Correct answer)
- Approve the loan if the borrower qualifies on paper
- Ask a loan officer to review the file on their behalf
Correct answer: Recuse themselves and refer the file to another underwriter
When a personal relationship creates a conflict of interest, the underwriter must recuse themselves and transfer the file to an unrelated underwriter.
Question 4: Under the CRU code of ethics, which action best demonstrates a commitment to continuing professional development?
- Relying solely on experience from prior years
- Staying current with industry guidelines, regulations, and best practices (Correct answer)
- Attending only mandatory company training
- Delegating research to junior staff
Correct answer: Staying current with industry guidelines, regulations, and best practices
Professional ethics require CRU designees to remain current with evolving guidelines, regulatory changes, and industry standards to serve borrowers and employers competently.
Question 5: A borrower's stated self-employment income is significantly higher than what is supported by bank statements. What ethical concern does this raise?
- It is normal for self-employed borrowers and needs no further review
- It may indicate income misrepresentation requiring further documentation (Correct answer)
- The underwriter should average the figures and proceed
- Bank statements are not required for self-employed borrowers
Correct answer: It may indicate income misrepresentation requiring further documentation
A significant discrepancy between stated income and bank statement deposits is a red flag for potential income fraud and requires additional documentation.
Question 6: Which behavior violates the ethical obligation of confidentiality in residential underwriting?
- Sharing borrower financial data with the investor purchasing the loan
- Discussing a borrower's credit profile with an unauthorized third party (Correct answer)
- Ordering a credit supplement from the credit bureau
- Reviewing the file with the assigned loan processor
Correct answer: Discussing a borrower's credit profile with an unauthorized third party
Sharing non-public personal financial information with unauthorized parties violates borrower confidentiality and applicable privacy laws such as the Gramm-Leach-Bliley Act.
Question 7: Which scenario best illustrates predatory lending, which underwriters are ethically required to identify and avoid participating in?
- Charging competitive market interest rates on a 30-year fixed mortgage
- Placing a borrower in a high-cost loan despite qualifying for a lower-rate product (Correct answer)
- Requiring PMI when the LTV exceeds 80%
- Ordering a full appraisal for a purchase transaction
Correct answer: Placing a borrower in a high-cost loan despite qualifying for a lower-rate product
Steering a borrower to a higher-cost loan when they qualify for better terms constitutes predatory lending, which underwriters must flag and refuse to support.
CRU Ethical Standards & Professional Conduct 3
What is the primary purpose of an underwriter maintaining a complete and accurate credit file?