NMLS Professional Ethics and Conduct Questions and Answers

Question 1

A mortgage advertisement prominently displays a very low "fixed" monthly payment.
In the fine print, it is revealed this payment is for an interest-only period of one year on an adjustable-rate mortgage, after which the payment will substantially increase.
This practice is most likely to be considered a violation of what?

Accepted Answer

The prohibition against Unfair, Deceptive, or Abusive Acts or Practices (UDAAP)

Answer

The Home Mortgage Disclosure Act (HMDA)

Answer

The Real Estate Settlement Procedures Act (RESPA)

Answer

The Fair Housing Act

Question 2

While reviewing a loan application, a mortgage loan originator notices that the social security number on the applicant's driver's license does not match the SSN on their application and credit report. According to the Red Flags Rule, what is the MLO's most appropriate immediate action?

Accepted Answer

Contact the applicant to resolve the discrepancy and gather clarifying documentation.

Answer

Report the applicant to the local police department for fraud.

Answer

Approve the loan but charge a higher interest rate to cover the risk.

Answer

Ignore the discrepancy as it is likely a typo.

Question 3

An MLO is working on a refinance for a homeowner who needs the property to appraise at a specific value to qualify for the loan. The MLO calls the appraiser and says, "We really need the value to come in at or above $350,000 for this deal to work." This statement is:

Accepted Answer

An unethical and illegal attempt to influence or coerce an appraiser, violating appraiser independence rules.

Answer

A permissible communication to ensure the appraiser understands the loan parameters.

Answer

A standard business practice to help streamline the underwriting process.

Answer

Only a violation if the MLO offers the appraiser a financial incentive.

Question 4

Which of the following statements made by a mortgage loan originator to a potential borrower would be a violation of professional conduct standards under the SAFE Act?

Accepted Answer

"I can guarantee that your loan will be approved within 24 hours without any documentation."

Answer

"Based on your qualifications, I can offer you a loan program with a 30-year fixed rate."

Answer

"Our company is an FHA-approved lender, which means we are authorized to originate FHA-insured loans."

Answer

"It is important that you provide me with complete and accurate financial information for your application."

Question 5

A borrower tells their MLO that they earn extra cash income from a side job but do not declare it on their taxes. The borrower asks the MLO to include this income on the application to help them qualify for a larger loan. What is the MLO's ethical and legal obligation?

Accepted Answer

Advise the borrower that only documented and verifiable income can be used for qualification.

Answer

Include the income but make a note in the file that it is undocumented.

Answer

Suggest the borrower create a fake document to support the income claim.

Answer

Include the income since the borrower stated it was true.

Question 6

An MLO is working with a client on a purchase transaction. The client's real estate agent asks the MLO for a copy of the client's credit report to "see what they're working with." How should the MLO respond?

Accepted Answer

Refuse the request, explaining that sharing nonpublic personal information with unauthorized third parties violates the Gramm-Leach-Bliley Act (GLBA).

Answer

Provide the credit report, as the agent is part of the transaction.

Answer

Ask the client for verbal permission to share the report with the agent.

Answer

Provide only the credit scores, but not the full report.