SAFE Ethical Practices & Fair Lending 2 — Questions and Answers
Question 1: Under the Equal Credit Opportunity Act (ECOA), a lender must notify an applicant of adverse action within how many days of receiving a completed application?
- 15 days
- 30 days (Correct answer)
- 45 days
- 60 days
Correct answer: 30 days
ECOA requires creditors to notify applicants of adverse action within 30 days of receiving a completed credit application.
Question 2: A mortgage loan originator who steers a borrower to a higher-cost loan product when the borrower qualifies for a lower-cost product is engaging in:
- Redlining
- Reverse redlining
- Predatory steering (Correct answer)
- Blockbusting
Correct answer: Predatory steering
Predatory steering occurs when an MLO directs borrowers to more expensive loan products than they qualify for, often to earn higher compensation.
Question 3: Which federal law prohibits discrimination in residential real estate transactions based on race, color, national origin, religion, sex, familial status, or disability?
- Equal Credit Opportunity Act
- Fair Housing Act (Correct answer)
- Home Mortgage Disclosure Act
- Community Reinvestment Act
Correct answer: Fair Housing Act
The Fair Housing Act prohibits discrimination in the sale, rental, and financing of housing based on seven protected classes.
Question 4: An MLO accepts an expensive gift from a real estate agent in exchange for referrals. This arrangement most likely violates:
- The Fair Housing Act
- RESPA's anti-kickback provisions (Correct answer)
- The Truth in Lending Act
- The Gramm-Leach-Bliley Act
Correct answer: RESPA's anti-kickback provisions
RESPA Section 8 prohibits kickbacks, referral fees, or unearned fees in connection with federally related mortgage loan transactions.
Question 5: Under HMDA, lenders are required to collect and report data on mortgage applications primarily to:
- Set interest rate caps for minority borrowers
- Identify potential discriminatory lending patterns (Correct answer)
- Limit the number of loans in low-income areas
- Determine property tax assessments
Correct answer: Identify potential discriminatory lending patterns
HMDA data is used by regulators and the public to identify potential discriminatory lending patterns and ensure fair access to credit.
Question 6: A borrower mentions they are pregnant during a loan interview. The MLO should:
- Ask about planned maternity leave and its impact on income
- Note the pregnancy in the file as a risk factor
- Proceed with the application based on current income without considering the pregnancy (Correct answer)
- Require a letter from the employer confirming continued employment
Correct answer: Proceed with the application based on current income without considering the pregnancy
Under ECOA, sex and familial status are protected classes; an MLO cannot use pregnancy to make credit decisions and must evaluate the applicant based on current income.
Question 7: Which practice involves a lender refusing to make mortgage loans in certain geographic areas, regardless of the creditworthiness of individual applicants?
- Steering
- Blockbusting
- Redlining (Correct answer)
- Churning
Correct answer: Redlining
Redlining is the illegal practice of denying loans or insurance in specific geographic areas, often minority neighborhoods, regardless of applicants' creditworthiness.
SAFE Ethical Practices & Fair Lending 2
Under the Equal Credit Opportunity Act (ECOA), a lender must notify an applicant of adverse action within how many days of receiving a completed application?