SAFE - Certified Secure and Fair Enforcement Mortgage Loan Originator Ethics and Professional Conduct Questions and Answers 1 — Questions and Answers
Question 1: A mortgage loan originator (MLO) tells a client that the advertised interest rate is 'guaranteed,' but fails to disclose that this rate is only locked for 15 days and that significant fees apply. This action would most likely be considered what type of prohibited conduct?
- A kickback under RESPA.
- A deceptive act under UDAAP. (Correct answer)
- A violation of the Fair Housing Act.
- Permissible puffing in advertising.
Correct answer: A deceptive act under UDAAP.
This is a deceptive act under the Unfair, Deceptive, or Abusive Acts or Practices (UDAAP) regulation. A deceptive act is characterized by a representation, omission, or practice that is likely to mislead the consumer acting reasonably under the circumstances. By omitting material information about the rate lock period and associated fees, the MLO is misleading the consumer.
Question 2: An MLO has a brother who is a real estate agent. The MLO pays his brother a $500 'marketing fee' for every closed loan that the brother refers to him. Which law is being violated?
- Truth in Lending Act (TILA)
- Fair Credit Reporting Act (FCRA)
- Real Estate Settlement Procedures Act (RESPA) (Correct answer)
- Home Ownership and Equity Protection Act (HOEPA)
Correct answer: Real Estate Settlement Procedures Act (RESPA)
Section 8 of the Real Estate Settlement Procedures Act (RESPA) prohibits giving or receiving a fee, kickback, or anything of value in exchange for the referral of settlement service business. The payment to the real estate agent is directly tied to referrals, making it an illegal kickback.
Question 3: Which of the following scenarios best illustrates an MLO breaching their duty of care to a borrower?
- Failing to place a borrower into the lowest-cost loan program for which they qualify because a higher-cost loan offers the MLO a larger commission. (Correct answer)
- Providing the borrower with a list of three approved appraisers to choose from.
- Disclosing the MLO's NMLS unique identifier on all application forms and advertisements.
- Refusing to process a loan application for an individual who is on public assistance, citing insufficient income.
Correct answer: Failing to place a borrower into the lowest-cost loan program for which they qualify because a higher-cost loan offers the MLO a larger commission.
An MLO has a duty to act in the borrower's best interest. Failing to secure a loan that is reasonably advantageous to the borrower in favor of personal gain is a breach of that duty. This practice, often called steering, prioritizes the MLO's compensation over the borrower's financial well-being.
Question 4: Under the SAFE Act's ethics requirements, MLOs must complete continuing education annually. How many of these hours must be dedicated specifically to ethics?
- 1 hour
- 3 hours
- 4 hours
- 2 hours (Correct answer)
Correct answer: 2 hours
The federal SAFE Act requires MLOs to complete 8 hours of annual continuing education. This must include 3 hours of Federal law, 2 hours of ethics (which covers fraud, consumer protection, and fair lending), and 2 hours of non-traditional mortgage training.
Question 5: An MLO advertises a 'No Closing Costs' loan on a large billboard. However, the fine print at the very bottom, which is unreadable from a car, states that the borrower is still responsible for third-party fees like appraisal and title insurance. This advertising practice is a potential violation of which regulation?
- The Equal Credit Opportunity Act (ECOA)
- The Home Mortgage Disclosure Act (HMDA)
- The Mortgage Acts and Practices (MAP) Rule - Regulation N (Correct answer)
- The Fair and Accurate Credit Transactions Act (FACTA)
Correct answer: The Mortgage Acts and Practices (MAP) Rule - Regulation N
The Mortgage Acts and Practices (MAP) Rule, also known as Regulation N, specifically prohibits misrepresentations in the advertising of mortgage products. Claiming 'No Closing Costs' while obscuring the fact that significant third-party fees still apply is a deceptive practice under this rule.
Question 6: A borrower expresses to their MLO that they are on a tight, fixed income and are very worried about their monthly payment increasing. The MLO, who works for a lender that heavily incentivizes the sale of adjustable-rate mortgages (ARMs), presents only ARM options to the borrower, emphasizing the low initial 'teaser' rate. This is an example of:
- An abusive act under UDAAP. (Correct answer)
- A violation of RESPA Section 8.
- A permissible sales technique.
- A required disclosure under TILA.
Correct answer: An abusive act under UDAAP.
This is an example of an abusive act under UDAAP. An abusive act takes unreasonable advantage of a consumer's lack of understanding of the material risks, costs, or conditions of the product or service. By pushing a risky product on a vulnerable consumer who has explicitly stated their aversion to payment shock, the MLO is taking unreasonable advantage of the borrower's situation and lack of understanding.
SAFE - Certified Secure and Fair Enforcement Mortgage Loan Originator Ethics and Professional Conduct Questions and Answers 1
A mortgage loan originator (MLO) tells a client that the advertised interest rate is 'guaranteed,' but fails to disclose that this rate is only locked for 15 days and that significant fees apply.
This action would most likely be considered what type of prohibited conduct?