Mortgage Ethics and Fraud Prevention

Question 1

A borrower asks their loan officer to list a higher purchase price on the sales contract so they can receive extra cash at closing. This is an example of:

Accepted Answer

Sales price inflation fraud

Answer

Inflating the sales price to extract additional cash at closing is sales price inflation fraud, a common mortgage fraud scheme.

Question 2

Under RESPA, a mortgage broker who receives an unearned fee for referring a borrower to a title company is guilty of:

Accepted Answer

A kickback violation

Answer

RESPA Section 8 prohibits kickbacks — payments for referrals where no services were actually rendered.

Question 3

Which federal law requires mortgage originators to report suspicious activity that may indicate money laundering?

Accepted Answer

Bank Secrecy Act

Answer

The Bank Secrecy Act requires financial institutions and their employees to file Suspicious Activity Reports (SARs) for transactions that may involve money laundering.

Question 4

A borrower who has poor credit uses a relative with excellent credit to apply for the mortgage, intending for the relative to have no ownership stake. This is called a:

Accepted Answer

Straw buyer scheme

Answer

A straw buyer scheme involves using someone else's identity and credit profile to obtain a loan for a property the straw buyer will not actually own or occupy.

Question 5

An appraiser who consistently provides inflated valuations in exchange for continued business from a lender is violating:

Accepted Answer

USPAP and ethical standards

Answer

Providing inflated appraisals for repeat business violates the Uniform Standards of Professional Appraisal Practice (USPAP), which requires appraiser independence.

Mortgage Practice Test

Mortgage Practice Test

Mortgage Ethics and Fraud Prevention