CSLB General Building (B) — All Questions

A borrower buying a second home tells the loan officer she will live in it as her primary residence to obtain a lower rate, though she plans to rent it out. This is an example of what type of mortgage fraud?

• a.Appraisal fraud
• b.Straw buyer fraud
• c.Occupancy fraud✓
• d.Identity theft

Misrepresenting how a property will be used (owner-occupied vs. investment) to obtain better loan terms is occupancy fraud, because occupancy status affects pricing and eligibility. Appraisal fraud involves inflating value, straw buyer fraud uses another person's name to hide the true buyer, and identity theft uses another person's information without consent.Mortgage fraud (occupancy fraud)

An applicant submits altered pay stubs showing $8,000 monthly income when he actually earns $4,000. What type of fraud is this?

• a.Income (misrepresentation) fraud✓
• b.Occupancy fraud
• c.Appraisal fraud
• d.Equity skimming

Falsifying or inflating income documents to qualify for a loan is income fraud, a form of misrepresentation of borrower qualifications. Occupancy fraud concerns residence use, appraisal fraud concerns property value, and equity skimming diverts a property's equity or rents from the true owner.Mortgage fraud (income fraud)

An investor with poor credit pays his cousin, who has good credit, to apply for a mortgage and take title, though the investor will make payments and control the property. The cousin is acting as a:

• a.Cosigner
• b.Guarantor
• c.Qualified co-borrower
• d.Straw buyer✓

A straw buyer lends their name and credit to obtain a loan for someone else who is the true beneficiary, concealing the real borrower from the lender. A cosigner and guarantor are disclosed parties who genuinely share liability, and a qualified co-borrower actually intends to use and pay for the property jointly and openly.Mortgage fraud (straw buyer)

A loan officer pressures an appraiser to 'hit' a value $40,000 higher than comparable sales support, so the loan will close. This is best described as:

• a.A permissible reconsideration of value
• b.Appraisal fraud / undue influence on the appraiser✓
• c.Occupancy fraud
• d.A legitimate quality-control review

Coercing or pressuring an appraiser to reach a predetermined value undermines an independent valuation and is appraisal fraud, prohibited under appraiser-independence rules. A permissible reconsideration presents new comparable data without dictating a target, and neither occupancy fraud nor a routine QC review involves pressuring the value.Mortgage fraud (appraisal fraud)

A fraudster uses a stolen Social Security number and driver's license to apply for a mortgage in someone else's name without their knowledge. This type of fraud is:

• a.Identity theft✓
• b.Straw buyer fraud
• c.Occupancy fraud
• d.Income fraud

Using another real person's identifying information without their knowledge or consent to obtain a loan is identity theft. A straw buyer knowingly participates, occupancy fraud concerns residence misrepresentation, and income fraud concerns falsified earnings.Mortgage fraud (identity theft)

In a fraud-for-profit scheme involving inflated appraisals and quick resales (flipping), who is typically harmed?

• a.Only the fraudsters who organize the scheme
• b.No one, if the loan is repaid on time
• c.Only the appraiser
• d.Lenders, legitimate borrowers, and surrounding property owners✓

Fraud-for-profit schemes harm lenders (losses on overstated loans), honest borrowers and communities (distorted values, foreclosures), and neighbors (depressed comps). It is false that no one is harmed or that only a single party bears the cost; the organizers are the perpetrators, not the victims.Mortgage fraud (who is harmed)

A family exaggerates their income slightly so they can qualify to buy a home they intend to live in. This is generally categorized as:

• a.Fraud for profit
• b.Not fraud at all, since they will live there
• c.Fraud for housing (property)✓
• d.Predatory lending

Fraud committed by borrowers to obtain a home they intend to occupy is 'fraud for housing (property).' Fraud for profit is committed by insiders/rings to extract money, it remains fraud even if they occupy the home, and predatory lending is misconduct by a lender, not a borrower misrepresentation.Mortgage fraud (fraud for property vs. profit)

Which of the following is a classic red flag for possible mortgage fraud on an application?

• a.The borrower provides a clear, verifiable two-year employment history
• b.A large, unexplained deposit appears in the borrower's account just before closing✓
• c.The appraisal is supported by three recent comparable sales
• d.The borrower's stated income matches verified W-2s

An undocumented, unexplained large deposit right before closing is a red flag because it may indicate an undisclosed loan or a gifted down payment being hidden. Verifiable employment, well-supported appraisals, and income that matches W-2s are signs of a clean file, not red flags.Mortgage fraud red flags

A file shows the same phone number for the borrower, the seller, and the appraiser, and the sale price is far above the neighborhood. These facts most likely indicate:

• a.A normal purchase transaction
• b.A well-documented gift of equity
• c.A required government subsidy
• d.Possible collusion / fraud for profit✓

Shared contact information among supposedly independent parties plus an inflated price suggests collusion, a hallmark of fraud-for-profit rings. It is not a normal arm's-length transaction, a documented gift of equity is disclosed and legitimate, and no government subsidy explains matching phone numbers across parties.Mortgage fraud red flags

Which of the following is NOT a prohibited basis for discrimination under the Equal Credit Opportunity Act (ECOA)?

• a.The applicant's credit score✓
• b.The applicant's religion
• c.The applicant's marital status
• d.Receipt of public assistance income

Credit score is a legitimate, non-prohibited factor lenders may use to assess creditworthiness. ECOA prohibits discrimination based on race, color, religion, national origin, sex, marital status, age, and receipt of public assistance income, so religion, marital status, and public-assistance income are all protected bases.ECOA / Regulation B

A creditworthy single woman is told she must have a male cosigner even though her income and credit qualify her on her own. This most likely violates ECOA on the basis of:

• a.Age
• b.Sex and marital status✓
• c.National origin
• d.Receipt of public assistance

Requiring a cosigner from a qualified applicant because she is an unmarried woman discriminates on the basis of sex and marital status, both prohibited by ECOA. Age, national origin, and public-assistance status are also protected but are not the basis implicated by demanding a male cosigner.ECOA / Regulation B

Under ECOA, when a lender takes adverse action on an application, the applicant is generally entitled to:

• a.Nothing, unless the applicant asks in writing
• b.A refund of the application fee
• c.A notice stating the specific reasons for the denial (or how to obtain them)✓
• d.An automatic second review by a federal regulator

ECOA/Regulation B requires an adverse-action notice giving the specific principal reasons for denial or telling the applicant how to request them. There is no requirement to refund fees, no automatic federal re-review, and the notice is owed without the applicant having to request it first.ECOA / Regulation B

A loan officer discourages a qualified applicant from applying after learning the applicant is 68 years old, saying 'a loan probably isn't right for someone your age.' This is:

• a.Permissible, because age affects repayment risk
• b.Permissible, if the officer is polite
• c.Only a customer-service issue, not a legal one
• d.Prohibited discouragement on the basis of age under ECOA✓

Actively discouraging a qualified applicant from applying because of age is prohibited discrimination under ECOA, which forbids discouragement on any prohibited basis. Age may not be used to deter a qualified applicant, courtesy does not cure the violation, and it is a legal violation, not merely a service lapse.ECOA / Regulation B

Which characteristic is a protected class under the federal Fair Housing Act that is NOT expressly listed in ECOA?

• a.Disability (handicap)✓
• b.Race
• c.National origin
• d.Sex

Disability (handicap) and familial status are Fair Housing Act protected classes not expressly named in ECOA's list. Race, national origin, and sex are protected under both statutes, so they do not distinguish the two laws.Fair Housing Act

A family with three young children is told an apartment complex is 'really better suited for adults.' This most likely violates the Fair Housing Act's protection for:

• a.Disability
• b.Familial status✓
• c.Religion
• d.Color

Steering a family away from housing because they have children implicates familial status, a Fair Housing Act protected class. Disability, religion, and color are also protected but are not the basis at issue when the concern is the presence of children.Fair Housing Act

The practice of denying or restricting mortgage credit to entire neighborhoods based on their racial or ethnic composition, regardless of individual applicants' qualifications, is called:

• a.Steering
• b.Blockbusting
• c.Redlining✓
• d.Disparate treatment of a single applicant

Redlining is refusing or restricting credit to whole geographic areas because of their racial or ethnic makeup. Steering directs individuals toward or away from areas, blockbusting induces panic selling by exploiting fears of neighborhood change, and disparate treatment of one applicant addresses a single person rather than an entire neighborhood.Fair Housing Act

A loan officer only shows loan programs in predominantly minority neighborhoods to minority applicants and never mentions those areas to white applicants. This is an example of:

• a.Redlining
• b.Blockbusting
• c.Disparate impact only
• d.Steering✓

Directing applicants toward or away from particular neighborhoods based on a protected characteristic is steering. Redlining denies credit to whole areas, blockbusting exploits fears to induce sales, and this is intentional disparate treatment, not merely a neutral policy with disparate impact.Fair Housing Act

A neutral-looking lending policy that unintentionally causes a significantly worse outcome for a protected class, without business justification, may still be illegal under the theory of:

• a.Disparate impact✓
• b.Disparate treatment
• c.Redlining
• d.Blockbusting

Disparate impact addresses facially neutral policies that disproportionately harm a protected class without a legitimate business necessity. Disparate treatment requires intentional different treatment, while redlining and blockbusting are specific practices rather than the impact theory itself.Fair Housing Act / ECOA (disparate impact)

Under the prohibition on unfair, deceptive, or abusive acts or practices (UDAAP), a practice is 'deceptive' when it:

• a.Merely charges a high but disclosed interest rate
• b.Misleads or is likely to mislead a reasonable consumer to their detriment✓
• c.Is legal in at least one other state
• d.Is disclosed in fine print somewhere in the file

A 'deceptive' act involves a material representation or omission likely to mislead a reasonable consumer acting reasonably. A lawful high disclosed rate is not by itself deceptive, legality elsewhere is irrelevant, and burying a fact in fine print can itself contribute to deception rather than cure it.UDAAP (Dodd-Frank)

Which agency has primary federal authority to enforce the prohibition on unfair, deceptive, or abusive acts or practices in consumer mortgage lending?

• a.The Federal Reserve Board only
• b.The Department of Housing and Urban Development (HUD)
• c.The Consumer Financial Protection Bureau (CFPB)✓
• d.The Securities and Exchange Commission (SEC)

The CFPB has primary authority to enforce UDAAP in consumer financial products, including mortgages. The Federal Reserve no longer holds primary rulemaking here, HUD administers fair-housing matters, and the SEC oversees securities, not consumer mortgage UDAAP.UDAAP (Dodd-Frank)

A lender structures a product so consumers cannot reasonably protect their own interests and takes unreasonable advantage of their lack of understanding. This best fits which UDAAP category?

• a.Unfair only
• b.Deceptive only
• c.Neither; it is simply aggressive sales
• d.Abusive✓

An 'abusive' act materially interferes with a consumer's ability to understand a term or takes unreasonable advantage of a consumer's lack of understanding or inability to protect their interests. 'Unfair' focuses on substantial unavoidable injury and 'deceptive' on misleading statements; describing it as mere aggressive sales ignores that it is specifically prohibited conduct.UDAAP (Dodd-Frank)

Under the Loan Originator Compensation Rule, a loan originator's compensation on a closed-end mortgage may NOT be based on:

• a.The interest rate or other terms of the loan✓
• b.The total dollar volume of loans originated
• c.A fixed hourly wage
• d.The number of loans that actually close

The LO Comp Rule prohibits basing an originator's compensation on a transaction's terms or conditions, such as the interest rate. Compensation may be based on overall loan volume, an hourly wage, or the number of loans that close, none of which ties pay to the specific terms of an individual loan.Loan Originator Compensation Rule

A loan officer directs a well-qualified borrower into a higher-rate loan solely because it pays the officer a larger commission. This prohibited practice is known as:

• a.Table funding
• b.Steering (for compensation)✓
• c.Yield spread rebate to the borrower
• d.Rate locking

Guiding a borrower into a loan that is not in their interest to increase the originator's pay is prohibited steering under the LO Comp Rule. Table funding is a funding mechanism, a rebate to the borrower reduces their costs rather than harming them, and rate locking simply fixes a rate for a period.Loan Originator Compensation Rule

On a single transaction, a loan originator generally may receive compensation from:

• a.Both the consumer and the creditor at the same time
• b.Whichever party pays more
• c.Either the consumer or the creditor, but not both on the same transaction✓
• d.Only the title company

The dual-compensation prohibition means an originator generally cannot be paid by both the consumer and the creditor on the same transaction; it must be one or the other. Choosing the higher payer or being paid by both violates the rule, and the title company is not the source of LO compensation.Loan Originator Compensation Rule

The Mortgage Acts and Practices Advertising Rule (Regulation N) primarily prohibits:

• a.Advertising any mortgage rate at all
• b.Advertising only on the internet
• c.Charging any origination fee
• d.Material misrepresentations in commercial communications about mortgage products✓

Regulation N (MAP Rule) bans material misrepresentations in any commercial communication about the terms of a mortgage credit product. It does not forbid advertising rates or online ads, nor does it prohibit charging a legitimate origination fee.Mortgage Acts and Practices / Regulation N

An ad promotes a '2.99% mortgage' in large print, but that rate is available to almost no one and is not honored when consumers apply. This is a classic example of:

• a.Bait-and-switch advertising✓
• b.A permissible teaser disclosure
• c.A required government rate cap
• d.A legitimate rate lock

Advertising an attractive rate that is not genuinely available to lure applicants, then switching them to worse terms, is bait-and-switch, prohibited as a deceptive practice. It is not a permissible disclosure, no government rate cap is involved, and a rate lock is an honored commitment, not a lure.Mortgage Acts and Practices / Regulation N

Which of the following mortgage advertising claims is most likely to be a prohibited misrepresentation under Regulation N?

• a.'Rates as low as 6.25% APR for qualified borrowers, subject to approval'
• b.'Guaranteed lowest payment forever, no matter what'✓
• c.'Contact us for current rates and terms'
• d.'FHA and VA loans available'

Absolute guarantees like 'lowest payment forever, no matter what' misrepresent that terms cannot change and are prohibited under Regulation N. Properly qualified rate language, an invitation to inquire, and a truthful statement that certain loan types are offered are all permissible.Mortgage Acts and Practices / Regulation N

Repeatedly refinancing a borrower's loan primarily to generate new fees, with little or no net benefit to the borrower, is a predatory practice known as:

• a.Steering
• b.Redlining
• c.Loan flipping (equity stripping)✓
• d.Table funding

Loan flipping is repeatedly refinancing to generate fees while stripping equity and providing no real benefit to the borrower. Steering pushes a borrower into worse terms for compensation, redlining denies credit by geography, and table funding is a neutral funding arrangement.Predatory lending / HOEPA

Which of the following is most characteristic of predatory lending?

• a.Verifying the borrower's ability to repay before closing
• b.Providing clear, accurate disclosures
• c.Offering the borrower the lowest cost option they qualify for
• d.Making a loan the lender knows the borrower cannot afford to repay✓

Making a loan without regard to, or despite knowing, the borrower cannot repay is a core feature of predatory lending and violates ability-to-repay principles. Verifying repayment ability, giving accurate disclosures, and offering the lowest-cost qualifying option are all hallmarks of responsible, non-predatory lending.Predatory lending / Ability-to-Repay

Under the Gramm-Leach-Bliley Act, a mortgage company's duty to protect customers' nonpublic personal information (NPI) primarily requires it to:

• a.Maintain safeguards to keep NPI secure and provide a privacy notice✓
• b.Publish customers' loan balances for transparency
• c.Share NPI freely with any marketing partner
• d.Delete all customer records after closing

GLBA requires financial institutions to provide privacy notices and to maintain administrative, technical, and physical safeguards for NPI. Publishing balances or sharing NPI freely would violate privacy duties, and GLBA does not mandate deleting records after closing.Gramm-Leach-Bliley Act (Privacy) / Safeguards

A loan officer leaves printed loan applications containing Social Security numbers on an unlocked desk overnight in a shared building. This most directly violates:

• a.The RESPA Section 8 anti-kickback rule
• b.The GLBA Safeguards Rule protecting NPI✓
• c.The Loan Originator Compensation Rule
• d.The Fair Housing Act

Failing to physically secure documents containing NPI violates the GLBA Safeguards Rule, which requires safeguarding customer information. RESPA Section 8 addresses kickbacks, the LO Comp Rule addresses pay, and the Fair Housing Act addresses discrimination, none of which govern physical safeguarding of NPI.Gramm-Leach-Bliley Act (Safeguards Rule)

Under GLBA, before a financial institution shares a consumer's NPI with certain nonaffiliated third parties, the consumer generally must be given:

• a.A cash payment
• b.A guaranteed lower interest rate
• c.A privacy notice and, in many cases, the right to opt out✓
• d.Ownership of the third party

GLBA requires a privacy notice describing information-sharing practices and, for many nonaffiliated sharing situations, an opportunity to opt out. Consumers are not owed a cash payment, a rate reduction, or ownership of the third party in exchange for their NPI.Gramm-Leach-Bliley Act (Privacy)

A title company pays a mortgage broker $200 for each loan referred to it, with no service performed in return. Under RESPA Section 8, this payment is:

• a.Permitted as a marketing expense
• b.Permitted if under $500
• c.Permitted if disclosed on the Closing Disclosure
• d.A prohibited kickback for the referral of settlement service business✓

RESPA Section 8 prohibits giving or accepting a fee or thing of value for referring settlement-service business when no bona fide service is performed. A referral fee is not a legitimate marketing expense, there is no dollar threshold that makes it legal, and disclosure does not cure an illegal kickback.RESPA Section 8

Which of the following payments is generally PERMITTED under RESPA Section 8?

• a.Payment for goods or services actually furnished at a reasonable market value✓
• b.A fee paid solely for referring a borrower to a title company
• c.A kickback split between two providers for steering business
• d.A gift card to a real estate agent for each closed referral

RESPA Section 8 permits payments for goods or services actually provided at their reasonable market value. Fees solely for referrals, kickback splits, and gifts tied to referrals are all prohibited because they pay for the referral rather than a bona fide service.RESPA Section 8

RESPA Section 8's anti-kickback provisions apply to referrals of business involving:

• a.Only the loan interest rate
• b.Settlement (closing) services such as title, appraisal, and escrow✓
• c.Only real estate commissions
• d.Only homeowner's insurance

Section 8 covers referrals of settlement-service business, which includes services like title insurance, appraisal, and escrow. It is not limited to the interest rate, real estate commissions alone, or homeowner's insurance alone; the broad category is settlement services.RESPA Section 8

A loan officer's brother owns the appraisal company being used on the officer's own borrower's loan. The most ethical action is to:

• a.Say nothing, since appraisals are independent anyway
• b.Personally instruct the appraiser on the value needed
• c.Disclose the relationship and ensure appraiser independence is maintained✓
• d.Cancel the loan to avoid any appearance of a conflict

Disclosing the conflict and preserving appraiser independence properly manages the situation without harming the borrower. Concealing the relationship risks an undisclosed conflict, instructing the appraiser on value is illegal coercion, and cancelling a legitimate loan needlessly harms the borrower.Ethical duty / conflicts of interest

A loan officer discovers that a coworker is knowingly submitting falsified bank statements for clients. The most ethical and appropriate response is to:

• a.Ignore it to avoid workplace conflict
• b.Quietly warn the coworker but do nothing else
• c.Ask the coworker for a share of the extra commissions
• d.Report the misconduct through proper internal/regulatory channels✓

Knowingly submitting falsified documents is fraud, and the ethical duty is to report it through appropriate internal or regulatory channels. Ignoring it enables ongoing fraud, a quiet warning fails to stop the harm, and sharing in the proceeds makes the officer a participant in the fraud.Ethical duty / mortgage fraud reporting

A buyer and seller agree that the seller will secretly lend the buyer the down payment through an undisclosed second loan, hidden from the primary lender. This is:

• a.Mortgage fraud (a silent second / undisclosed liability)✓
• b.A permitted seller concession
• c.A standard gift of equity
• d.A required government down-payment program

A hidden second loan used for the down payment that is concealed from the primary lender is a 'silent second,' a form of mortgage fraud through material misrepresentation. A disclosed seller concession, a documented gift of equity, and a legitimate down-payment program are all transparent and lawful, unlike a concealed debt.Mortgage fraud (silent second / undisclosed debt)

Under ECOA/Regulation B, a lender may ask an applicant's marital status:

• a.Never, under any circumstances
• b.Only to deny joint applicants
• c.In limited situations, such as when it affects the creditor's rights on secured or community-property loans✓
• d.Only to charge married borrowers a higher rate

Regulation B permits asking marital status in limited circumstances, such as where state property or community-property law affects the creditor's rights, using the terms married/unmarried/separated. It is not banned outright, and it may never be used to deny joint applicants or to price loans higher for married borrowers.ECOA / Regulation B

A lender's staff routinely offers subprime products to equally qualified minority applicants while offering prime products to non-minority applicants. This pattern is best described as:

• a.Acceptable risk-based pricing
• b.Illegal steering / disparate treatment in loan products✓
• c.A privacy violation
• d.A RESPA Section 8 kickback

Channeling equally qualified minority borrowers into worse (subprime) products based on a protected class is illegal steering and disparate treatment under fair-lending law. It is not legitimate risk-based pricing when the applicants are equally qualified, and it is neither a privacy issue nor a RESPA kickback.Fair lending / steering

An originator tells a borrower 'you must sign today or lose this rate forever,' knowing the same rate will be available tomorrow. This pressure tactic is best characterized as:

• a.Good salesmanship
• b.A required disclosure
• c.A permitted rate lock
• d.A deceptive/high-pressure practice that may violate UDAAP✓

Falsely claiming a rate will vanish to pressure an immediate signature is a deceptive, high-pressure tactic that can violate UDAAP. It is not legitimate salesmanship, it is not a required disclosure, and a genuine rate lock does not rely on a false 'now or never' claim.UDAAP / advertising

An applicant who uses a wheelchair is told the lender 'doesn't really do loans for people who can't work full-time,' though the applicant has ample verified disability and investment income. This likely violates the Fair Housing Act and ECOA by discriminating on the basis of:

• a.Disability and source of income✓
• b.Age
• c.Religion
• d.Familial status

Rejecting or discouraging an applicant because of a disability, and disregarding lawful disability income, discriminates on the basis of disability and source of income. Age, religion, and familial status are protected but are not the bases implicated by these particular facts.Fair Housing Act / disability

Which arrangement would MOST likely violate the Loan Originator Compensation Rule?

• a.Paying a loan officer a flat salary regardless of loan terms
• b.Paying a loan officer a larger bonus specifically for closing loans at higher interest rates✓
• c.Paying a loan officer based on the number of loans closed
• d.Paying a loan officer an hourly wage

Tying a bonus to closing loans at higher interest rates bases compensation on a loan term, which the rule prohibits. A flat salary, pay per number of loans, and an hourly wage do not vary with the terms of individual loans and are permissible.Loan Originator Compensation Rule

An affiliated business arrangement (where a broker refers borrowers to a title company it partly owns) can be permissible under RESPA only if:

• a.The broker keeps the ownership secret
• b.The borrower is required to use the affiliate
• c.The relationship is disclosed, use is not required, and only a return on ownership is received✓
• d.The affiliate pays the broker a per-referral bonus

RESPA permits affiliated business arrangements only with written disclosure of the relationship, no requirement to use the affiliate, and returns limited to a genuine ownership interest (not referral fees). Secrecy, mandatory use, and per-referral bonuses each violate the safe-harbor conditions.RESPA Section 8 / affiliated business

Which combination on a purchase file is the STRONGEST red flag for occupancy fraud?

• a.The borrower currently rents and is buying a first home to live in
• b.The subject property is near the borrower's job
• c.The borrower already owns and occupies a nearby home of similar value
• d.The 'owner-occupied' subject property is hundreds of miles from the borrower's job and existing residence✓

An 'owner-occupied' property located far from the borrower's job and current home strongly suggests it will not truly be occupied, a classic occupancy-fraud red flag. Renting before a first purchase, buying near work, and owning a similar nearby home are consistent with legitimate occupancy plans.Mortgage fraud red flags

The core purpose of consumer protection laws like UDAAP in mortgage lending is to:

• a.Protect consumers from unfair, deceptive, and abusive treatment✓
• b.Guarantee every applicant is approved
• c.Maximize lender profits
• d.Eliminate all interest charges

Consumer protection laws aim to shield consumers from unfair, deceptive, and abusive acts or practices. They do not guarantee approval, exist to maximize lender profits, or eliminate lawful interest charges.UDAAP / consumer protection

An agent tells homeowners 'you should sell now before more minority families move in and prices drop,' hoping to profit from panic sales. This illegal practice is:

• a.Redlining
• b.Blockbusting✓
• c.Steering
• d.Disparate impact

Inducing owners to sell by exploiting fears about the entry of a protected class into the neighborhood is blockbusting. Redlining denies credit by area, steering directs buyers based on protected traits, and disparate impact concerns neutral policies with unequal effects, none of which describes panic-selling inducement.Fair Housing Act / blockbusting

An originator wants to email a borrower's full loan file, including SSN and bank data, over an unsecured public connection. The best practice under GLBA safeguards is to:

• a.Send it unencrypted for speed
• b.Post it to a public website for convenience
• c.Use secure, encrypted transmission to protect the NPI✓
• d.Text the documents to the borrower's phone unencrypted

GLBA's Safeguards Rule requires protecting NPI, so sensitive files should be transmitted using secure, encrypted methods. Sending unencrypted email, posting to a public website, or texting unencrypted documents all expose NPI and violate safeguarding duties.Gramm-Leach-Bliley Act (Safeguards)

Under RESPA, a mortgage broker takes a real estate agent to an expensive dinner every time the agent sends a referral. This is most likely:

• a.Always permitted as normal business courtesy
• b.Permitted because no cash changed hands
• c.Permitted if the meal is under $100
• d.A prohibited thing of value given for referrals✓

A 'thing of value' given in exchange for referrals, including meals tied to referrals, is prohibited under RESPA Section 8 even if no cash is exchanged. There is no courtesy exception, the non-cash nature does not save it, and there is no fixed dollar threshold that makes referral-linked gifts legal.RESPA Section 8

A lender refuses to count a borrower's part-time income solely because the borrower is a woman on maternity leave, assuming she 'won't return to work.' This assumption most likely violates ECOA on the basis of:

• a.Sex (including pregnancy/maternity)✓
• b.Age
• c.National origin
• d.Receipt of public assistance

Assuming a woman on maternity leave will not return to work, and discounting her income, is sex discrimination (including pregnancy) prohibited by ECOA. Age, national origin, and public-assistance status are protected but are not the basis implicated by a maternity-leave assumption.Fair lending / ECOA

Which loan feature, when combined with a borrower who clearly cannot afford it, is a hallmark of predatory lending?

• a.A fully amortizing fixed-rate loan within the borrower's budget
• b.Excessive fees and a large balloon payment the borrower cannot meet✓
• c.A clearly disclosed, competitive APR
• d.A modest, verified down payment

Excessive fees paired with an unaffordable balloon payment set the borrower up to fail and are hallmarks of predatory lending. An affordable amortizing loan, a competitive disclosed APR, and a verified down payment are all features of responsible lending.Predatory lending

A borrower qualifies for both a lower-cost conventional loan and a higher-cost product that pays the originator more. Ethically, the originator should:

• a.Always sell the product that pays the most
• b.Hide the conventional option
• c.Present the options honestly and not steer the borrower into the costlier loan for personal gain✓
• d.Refuse to discuss costs

Ethical practice requires presenting options honestly and not steering a borrower into a costlier loan just to increase the originator's pay. Always selling the highest-paying product, hiding the cheaper option, or refusing to discuss costs all breach the duty of fair dealing and may violate steering rules.Ethical duty / suitability

Under ECOA, discrimination is prohibited in:

• a.Only the interest rate charged
• b.Only the decision to approve or deny
• c.Only advertising
• d.Any aspect of a credit transaction, from application through servicing and collection✓

ECOA prohibits discrimination in any aspect of a credit transaction, including application, evaluation, terms, servicing, and collection. Limiting it to only the rate, only the approval decision, or only advertising understates the statute's full reach.ECOA / Regulation B

A fraudster creates a completely fictitious borrower and property that do not exist, then obtains loan proceeds. This scheme is known as:

• a.An air loan✓
• b.A permissible bridge loan
• c.A gift of equity
• d.A rate-and-term refinance

An 'air loan' is a fraud in which the borrower, property, and sometimes the entire transaction are fabricated to extract loan proceeds. A bridge loan, a gift of equity, and a rate-and-term refinance are all legitimate, real transactions, not fabrications.Mortgage fraud (air loan)

Which statement about mortgage advertising is TRUE?

• a.Only the interest rate must be truthful; other claims can be exaggerated
• b.Advertisements must not contain material misrepresentations about loan terms✓
• c.Fine-print disclaimers can cure an otherwise misleading headline
• d.APR never has to be stated accurately

Advertising must avoid material misrepresentations about loan terms, and misleading claims are prohibited regardless of the topic. It is false that only the rate must be truthful, that fine print cures a misleading headline, or that the APR need not be accurate.UDAAP / advertising

A lender's policy is to reject all applicants whose income comes from a housing voucher or public assistance, regardless of amount or reliability. This policy:

• a.Is fully permissible risk management
• b.Violates only state law
• c.Violates ECOA, which protects applicants whose income derives from public assistance✓
• d.Is required by federal law

ECOA protects applicants who derive income from public assistance, so a blanket rejection of such income violates the statute. It is not permissible risk management, it is a federal violation (not merely state), and no federal law requires rejecting public-assistance income.Fair lending / ECOA

When income fraud leads a borrower into a loan they truly cannot afford, the MOST directly harmed party is often:

• a.The fraud ring only
• b.No one, if home prices rise
• c.Only the federal government
• d.The borrower, who faces default and potential foreclosure✓

Income fraud that places a borrower in an unaffordable loan most directly harms that borrower, who risks default and foreclosure, along with the lender. It is false that no one is harmed if prices rise, that only the government suffers, or that only the fraud ring bears the consequences.Mortgage fraud (who is harmed)

Which entity is primarily responsible for enforcing the federal Fair Housing Act?

• a.The Department of Housing and Urban Development (HUD)✓
• b.The Securities and Exchange Commission (SEC)
• c.The Internal Revenue Service (IRS)
• d.The Federal Trade Commission only

HUD is primarily responsible for administering and enforcing the Fair Housing Act (with the DOJ for litigation). The SEC oversees securities, the IRS handles taxes, and the FTC's consumer-protection role does not make it the primary Fair Housing Act enforcer.Fair Housing Act

The main purpose of the Loan Originator Compensation Rule is to:

• a.Guarantee originators a minimum commission
• b.Prevent originators from being incentivized to sell consumers worse loan terms✓
• c.Require all loans to be fixed-rate
• d.Set a national maximum interest rate

The rule exists to remove incentives that would lead originators to push consumers into worse terms for higher pay. It does not guarantee a minimum commission, mandate fixed-rate loans, or impose a national rate cap.Loan Originator Compensation Rule

A permissible way for a mortgage broker and a real estate agent to share the cost of a jointly produced advertisement is:

• a.The agent pays nothing but receives referral credit
• b.The broker pays the agent's entire marketing budget
• c.Each party pays its fair share based on its actual proportion of the ad✓
• d.The broker pays per closed referral disguised as advertising

Under RESPA, co-marketing is permissible only if each party pays a share proportionate to its actual benefit or space in the advertisement. Free advertising given in exchange for referrals, paying another's full budget, or disguised per-referral payments are prohibited kickbacks.RESPA Section 8

The type of information protected as nonpublic personal information (NPI) under GLBA includes:

• a.Only a customer's name
• b.Only information already public in county records
• c.Only marketing preferences
• d.Financial information a customer provides, like SSN, account numbers, and income✓

NPI includes personally identifiable financial information a customer provides or that results from a transaction, such as SSNs, account numbers, and income. A name alone is not NPI, publicly available record information is generally not NPI, and NPI is far broader than marketing preferences.Gramm-Leach-Bliley Act

Two applicants with identical credit profiles apply on the same day; the lender charges the applicant of a different race a higher rate for no legitimate reason. This is the clearest example of:

• a.Disparate treatment✓
• b.Disparate impact
• c.A privacy violation
• d.A permissible pricing exception

Charging different prices to similarly situated applicants because of race is intentional disparate treatment, the most direct form of lending discrimination. Disparate impact involves neutral policies with unequal effects, this is not a privacy issue, and there is no legitimate exception when the only difference is race.Fair lending / disparate treatment

A loan officer notices the borrower's stated employer phone number connects to the borrower's own cell phone. The officer should:

• a.Ignore it because the loan is otherwise strong
• b.Investigate the discrepancy as a potential employment-fraud red flag✓
• c.Coach the borrower on a better story
• d.Close quickly before anyone notices

An employer 'verification' number that rings the borrower's own phone is a red flag for fabricated employment and must be investigated. Ignoring it, coaching a cover story, or rushing to close would each facilitate potential fraud rather than address it.Mortgage fraud / ethics

Which of the following best illustrates an 'unfair' act or practice under UDAAP?

• a.Charging a clearly disclosed, competitive origination fee
• b.Offering a lower rate to well-qualified borrowers
• c.Causing substantial injury the consumer cannot reasonably avoid, not outweighed by benefits✓
• d.Providing accurate loan estimates on time

An 'unfair' practice causes or is likely to cause substantial injury that consumers cannot reasonably avoid and that is not outweighed by countervailing benefits. Disclosed competitive fees, risk-based lower rates, and timely accurate estimates are legitimate practices, not unfair ones.UDAAP

A friend asks a loan officer to 'just look up' a neighbor's mortgage balance and income out of curiosity. The officer should:

• a.Share it since they are friends
• b.Share only the income, not the balance
• c.Post it in a group chat
• d.Refuse, because accessing and disclosing NPI for no legitimate business purpose is prohibited✓

Accessing or disclosing a consumer's NPI without a legitimate business purpose and authorization violates privacy duties, so the officer must refuse. Sharing any portion, or posting it publicly, would breach GLBA and the duty to safeguard customer information.Ethical duty / privacy

An advertisement using imagery and language that signals a lender only welcomes applicants of a particular race or religion may violate fair-lending law because it:

• a.Discourages applications from protected classes✓
• b.Improves consumer choice
• c.Is protected commercial speech in all cases
• d.Only matters if someone is actually denied

Advertising that discourages members of protected classes from applying can itself violate ECOA and the Fair Housing Act, even before any denial. It does not improve choice, it is not immune as commercial speech, and a violation does not require an actual denial.Fair lending / advertising

Which practice would MOST clearly be considered predatory rather than merely aggressive?

• a.Marketing loans widely to potential customers
• b.Targeting elderly homeowners with high equity for unaffordable, fee-laden refinances✓
• c.Offering a competitive fixed-rate product
• d.Explaining loan risks clearly

Deliberately targeting vulnerable elderly homeowners with unaffordable, fee-heavy loans to strip their equity is a classic predatory practice. Broad marketing, competitive products, and clear risk explanations are legitimate and consumer-friendly, not predatory.Predatory lending / ethics

Under ECOA, a lender evaluating an applicant's age may:

• a.Deny credit to anyone over 62
• b.Automatically reduce the score of older applicants
• c.Consider age only in an empirically derived, demonstrably sound credit scoring system in limited ways✓
• d.Require a younger cosigner for older borrowers

ECOA allows age to be considered only in narrow, empirically derived and statistically sound ways (for example, favoring older applicants), not to penalize them. Denying older applicants, cutting their scores, or requiring a younger cosigner all discriminate on the basis of age.ECOA / Regulation B

Which fact pattern is LEAST likely to indicate occupancy fraud?

• a.A borrower buys a fourth 'primary residence' in one year
• b.An 'owner-occupied' condo is immediately listed for rent after closing
• c.The borrower never moves in and keeps their prior home
• d.A first-time buyer sells their rental lease and moves into the new home as their sole residence✓

A first-time buyer who ends their lease and moves into the new home as their only residence is behaving consistently with a legitimate owner-occupied purchase. Buying multiple 'primary' homes in a year, renting out an 'owner-occupied' unit right away, and never moving in are all classic occupancy-fraud indicators.Mortgage fraud (occupancy)

A builder offers a mortgage broker free office space inside its sales center in exchange for the broker steering all buyers to that broker. Under RESPA, this arrangement is:

• a.A prohibited thing of value exchanged for referrals✓
• b.Permitted because office space is not cash
• c.Permitted if buyers can technically choose another lender
• d.Required to speed up closings

Free office space given in exchange for steering referrals is a 'thing of value' for referrals and violates RESPA Section 8. The non-cash nature does not exempt it, a theoretical ability to choose does not cure a steering-for-value scheme, and nothing requires such an arrangement.RESPA Section 8 / ethics

A lender may lawfully consider which of the following when deciding whether to extend mortgage credit?

• a.The applicant's national origin
• b.The applicant's verified debt-to-income ratio✓
• c.The applicant's religion
• d.Whether the applicant receives public assistance

Debt-to-income ratio is a legitimate, non-prohibited creditworthiness factor a lender may consider. National origin, religion, and receipt of public assistance are all prohibited bases under ECOA and may not be used in the credit decision.Fair lending / ECOA

A borrower asks a loan officer to 'leave off' an existing car loan from the application so the debt-to-income ratio looks better. The officer should:

• a.Omit it since the borrower requested it
• b.Reduce the amount instead of omitting it
• c.Refuse and include all known liabilities accurately✓
• d.Ask a coworker to submit it instead

Knowingly omitting a real liability to distort the DTI is misrepresentation and mortgage fraud, so the officer must include all known debts accurately. Omitting, understating, or having a coworker submit the false file would each participate in fraud rather than prevent it.Ethical duty / mortgage fraud