FREE NMLS Professional Ethics and Conduct Questions and Answers

Question 1

An MLO determines that a borrower qualifies for a loan with Lender A, which offers a 6.5% interest rate, and also with Lender B, which offers a 6.25% interest rate with similar closing costs.
The MLO will receive a significantly higher commission for closing the loan with Lender A.
Ethically, what is the MLO's primary obligation in this situation?

Accepted Answer

Present both loan options clearly and allow the borrower to choose the one that best suits their needs.

Answer

Persuade the borrower that Lender A's service is superior to justify the higher rate.

Answer

Only present the option from Lender A to maximize compensation.

Answer

Inform the borrower that the rate from Lender B is likely to increase and is not a guaranteed offer.

Question 2

A mortgage loan originator is working with an elderly borrower who has a limited understanding of mortgage finance. The MLO pressures the borrower into a complex adjustable-rate mortgage with a low teaser rate, knowing the borrower's fixed income will be insufficient to cover the payments after the rate resets. This action is most likely a violation of which principle?

Accepted Answer

Unfair, Deceptive, or Abusive Acts or Practices (UDAAP)

Answer

The Home Mortgage Disclosure Act (HMDA)

Answer

The Fair Housing Act

Answer

The Real Estate Settlement Procedures Act (RESPA)

Question 3

During the application process, a borrower mentions they received a large cash gift from a relative for the down payment but cannot provide a gift letter or source the funds. The MLO suggests they deposit the cash into their bank account for two months and claim it as their own seasoned funds on the application. This suggestion constitutes:

Accepted Answer

A prohibited act of encouraging the submission of false information.

Answer

A permissible way to solve a documentation issue.

Answer

An acceptable industry practice for sourcing funds.

Answer

A legal method known as asset seasoning.

Question 4

A mortgage company's radio advertisement states, "Get a home loan with a 3.5% interest rate today! Call us now!" but fails to mention that this rate is only available for a 15-year loan with a 20% down payment and an 800 credit score. This type of advertising is considered:

Accepted Answer

Deceptive and misleading under TILA (Regulation Z).

Answer

A violation of RESPA's anti-kickback rules.

Answer

Permissible as long as the rate was available on the day of the ad.

Answer

Standard and effective marketing.

Question 5

An individual is acting as both the mortgage loan originator and the real estate agent in the same purchase transaction. To maintain professional and ethical conduct, what is the MOST important action for the individual to take?

Accepted Answer

Disclose the dual capacity to the borrower in writing and obtain their consent.

Answer

Offer the borrower a discount on the real estate commission.

Answer

Ensure their MLO compensation is structured as a flat fee.

Answer

Process the real estate portion of the transaction through a different brokerage.

Question 6

Which of the following actions by a Mortgage Loan Originator would be considered an example of 'chunking'?

Accepted Answer

Using a straw buyer to purchase multiple properties as part of a fraudulent investment scheme.

Answer

Originating a refinance loan for a borrower multiple times in a short period with no tangible net benefit.

Answer

Convincing an appraiser to fraudulently inflate the value of a property to support a higher loan amount.

Answer

Submitting a loan application for a borrower who has no intention of occupying the property.