Mortgage Mortgage Ethics and Fraud Prevention Questions and Answers 3

Question 1

What is an 'air loan' in mortgage fraud?

Accepted Answer

A loan for a property that does not exist or a borrower who does not exist

Answer

An air loan is a fraudulent scheme where the loan is taken out on a nonexistent property or by a fictitious borrower, with no real collateral.

Question 2

A closing agent diverts escrow funds for personal use before the transaction settles. What is this scheme called?

Accepted Answer

Escrow fraud or embezzlement

Answer

Diverting escrow funds for personal use constitutes escrow fraud or embezzlement, a serious criminal offense.

Question 3

Which red flag most strongly indicates potential occupancy fraud on a mortgage application?

Accepted Answer

The borrower already owns multiple investment properties but claims the new purchase as a primary residence

Answer

Claiming primary residence status while owning multiple investment properties is a strong indicator of occupancy fraud to obtain better loan terms.

Question 4

What ethical obligation does a mortgage broker have when presenting loan options to a borrower?

Accepted Answer

To present options that are in the borrower's best interest, not just the most profitable for the broker

Answer

Mortgage brokers have a fiduciary-like duty to act in the borrower's best interest when recommending loan products.

Question 5

What is 'chunking' in the context of mortgage fraud?

Accepted Answer

Using multiple investors to fund portions of a fraudulent deal without their knowledge of each other

Answer

Chunking involves recruiting multiple investors to fund parts of a fraudulent real estate deal, keeping each investor unaware of the others.

Mortgage Practice Test