CRAM ARCADE Open App

18% of the SAFE exam

Ethics Question Bank

Every question links to its own page with the correct answer and a full explanation. Prefer a guided session? Take the Ethics practice set or open the free app.

• What is the primary difference between fraud for profit and fraud for housing?
• A lender approves a home equity loan for an elderly homeowner based solely on the property's $180,000 in equity, without verifying the...
• An FBI investigation reveals that a mortgage broker submitted 12 loan applications for properties at addresses that do not exist, using...
• Which of the following is NOT a red flag for mortgage fraud?
• A compliance officer is training new staff on federal record retention requirements. She explains that different regulations require...
• What is the legal distinction between disparate treatment and disparate impact discrimination in fair lending?
• A lender establishes a policy requiring a minimum loan amount of $100,000 for all applicants. Analysis shows this disproportionately denies...
• A lender requires all applicants to have at least 3 traditional credit tradelines (credit cards, auto loans, mortgages). Applicants using...
• A lender requires flood insurance for all properties located in FEMA-mapped flood zones. This requirement affects some geographic areas...
• Under the Gramm-Leach-Bliley Act (GLBA), what is the primary MLO responsibility regarding borrower information?
• What is the primary purpose of NMLS registration and fingerprinting for MLOs?
• What does the SAFE Act require regarding MLO conduct standards?
• An MLO works in a neighborhood with a large elderly population. She routinely recommends adjustable-rate mortgages with low teaser rates to...
• A mortgage company files a SAR regarding a borrower suspected of submitting fraudulent income documents. The borrower later asks the MLO...
• Loan flipping is best described as a predatory practice in which a lender:
• An MLO is prohibited from receiving compensation from both the lender and the borrower on the same transaction. This restriction is...
• An appraiser knowingly selects only comparable sales that support a predetermined high value for a property, ignoring more recent and more...
• Under the Federal Reserve's Loan Originator Compensation Rule, which of the following compensation arrangements is prohibited?
• An elderly homeowner has significant equity in a paid-off property. An MLO originates a cash-out refinance loan with an 18% debt-to-income...
• An elderly homeowner with significant equity and a fixed income is approached by a lender who offers a refinance that wraps $18,000 in...
• Which characteristic most consistently distinguishes fraud for profit from fraud for housing?
• A borrower receives a $250,000 subprime ARM with a 5-year prepayment penalty equal to 5% of the loan balance in years 1-2 and 3% in years...
• A borrower is placed in a payment option ARM with a minimum monthly payment of $850. The fully amortizing payment required to pay off the...
• Which of the following scenarios most clearly illustrates fraud for profit rather than fraud for housing?
• A depository institution employs MLOs who are registered (not licensed) under the SAFE Act. One of these registered MLOs sends marketing...
• A borrower is applying for a $150,000 mortgage. The lender charges a 1% origination fee ($1,500), a $500 appraisal fee, $300 in title...
• Under the Gramm-Leach-Bliley Act (GLBA), when must a financial institution first provide a customer with a written privacy notice?
• A first-time homebuyer slightly overstates his monthly income on a mortgage application because he is afraid he will not qualify. This...
• A borrower is struggling to qualify for a loan, and the MLO believes lowering the origination fee would help. Under the LO Compensation...
• A lender's HMDA data shows that its denial rate for Black applicants in a specific metropolitan area is 28%, compared to a 12% denial rate...
• A borrower takes out a $78,000 refinance loan. The lender charges the following fees: $2,500 origination fee, $400 document preparation...
• When an MLO advertises a specific mortgage interest rate in any medium, what additional information is generally required under Regulation...
• An MLO is presenting an option-ARM product to a borrower and emphasizes only the minimum payment option, describing it as an 'affordable...
• A first-time homebuyer slightly overstates his monthly income on a loan application because he is afraid he will not qualify for the...
• During processing, an MLO notices that a loan application lists a borrower with an 800 credit score purchasing a property in a neighborhood...
• A borrower provides bank statements showing a $45,000 balance in her checking account. The MLO notices that the account received a single...
• An online mortgage advertisement displays: 'Rates as low as 5.5%! 20% down required. 30-year term available.' A consumer with a 680 credit...
• The Equal Credit Opportunity Act (ECOA) prohibits lenders from discriminating against applicants on the basis of which of the following?
• An MLO completed his annual 8 hours of CE in November of Year 1. He then switches employers and moves to a new state in January of Year 2....
• Under the Truth in Lending Act (TILA) and its implementing Regulation Z, the concept of 'points and fees' is used to determine whether a...
• An MLO reviews a loan application and notices the applicant's investment account statement shows a large deposit two weeks before closing,...
• Under the LO Compensation Rule, an MLO's compensation may be based on which of the following loan terms?
• Equity stripping is a predatory practice that primarily harms which group of homeowners?
• An MLO is reviewing a purchase transaction where the sales contract shows a price of $425,000. The property appraisal comes in at $425,000....
• A balloon payment mortgage is considered predatory when:
• A lender's advertisement states: 'Get a mortgage with payments as low as $599/month!' without specifying the loan amount, term, rate, or...
• A state-licensed MLO failed to complete their annual continuing education requirement before the license renewal deadline. Which of the...
• An 'air loan' in the context of mortgage fraud refers to:
• An individual with excellent credit agrees to apply for a mortgage on behalf of a friend who cannot qualify for financing, with the...
• Under the Fair Housing Act, which of the following is a protected class when it comes to residential mortgage lending?
• A lender offers a 7-year balloon mortgage at 5.5% with payments calculated on a 30-year amortization. The borrower's loan is $240,000. At...
• A mortgage company has two compensation plans: Plan A pays MLOs 1.25% of the loan amount for all loans. Plan B pays MLOs 0.75% of the loan...
• Mrs. Chen, age 72, owns her home free and clear. Over the past four years, her MLO has encouraged her to refinance three times, each time...
• Under the Bank Secrecy Act, a financial institution must file a Suspicious Activity Report (SAR) within how many days of detecting a...
• A balloon payment mortgage is most commonly associated with predatory lending when the borrower:
• An MLO works for a mortgage company that is affiliated with a real estate brokerage. A borrower purchases a home through that brokerage and...
• A borrower applies for a mortgage and asks the MLO whether they intend to sell or share the borrower's personal financial data with third...
• An MLO is licensed in three states: State A, State B, and State C. State A revokes his license after finding that he misrepresented...
• A borrower applies for a $400,000 mortgage. To qualify, she needs to show monthly income of at least $8,000. She submits W-2s showing...
• A group of investors purchases a distressed home for $90,000, makes only cosmetic repairs, and then sells the property to an unsuspecting...
• Under the SAFE Act and Regulation Z, where must an MLO include their NMLS Unique Identifier?
• Under the Bank Secrecy Act, a Currency Transaction Report (CTR) must be filed when a customer conducts a cash transaction exceeding what...
• Under the Dodd-Frank Act, prepayment penalties on most qualified mortgages (QMs) are restricted to the first three years of the loan....
• Before Dodd-Frank reforms, a yield spread premium (YSP) allowed a mortgage broker to receive compensation from a lender when the broker...
• A lender's data shows that it approves conventional mortgage applications from White applicants at a rate of 78% but approves applications...
• An MLO consistently recommends high-cost subprime loan products to African American borrowers who would actually qualify for conventional...
• A mortgage broker represents a borrower seeking a $400,000 purchase loan. The broker finds two loan options: Option 1 is a conventional...
• How many hours of continuing education must a licensed MLO complete each year to maintain their NMLS license?
• Which practice best describes 'loan flipping' as a form of predatory lending?
• An elderly homeowner has significant equity in her paid-off home. A lender convinces her to take out a series of high-cost home equity...
• During the loan application process, an MLO receives an application where the listed borrower's signature on the purchase contract looks...
• A first-time homebuyer slightly overstates her annual income on a loan application because she fears she will not qualify for the mortgage...
• Before the Dodd-Frank Act banned the practice, an MLO placed a borrower who qualified for a 6.0% rate into a 6.75% loan. The lender paid...
• A borrower has a 7-year ARM with a prepayment penalty clause that charges 3% of the outstanding balance if the loan is paid off in years...
• Under HOEPA's protections against loan flipping, which of the following refinance transactions would most likely be considered to lack a...
• During a loan application review, an MLO notices that a borrower's pay stubs show a monthly income of $4,200, but the loan application...
• A mortgage broker consistently refers African American applicants in a predominantly minority neighborhood to a subprime lender charging...
• Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, an employee who reports potential consumer financial law violations to...
• A borrower owns a home worth $300,000 and owes $80,000 on her mortgage. A lender offers her a $200,000 home equity loan at a high interest...
• A borrower purchases what she represents to the lender as her primary residence and receives an owner-occupied interest rate. Post-closing...
• A state mortgage regulator conducts an examination of a lender and finds repeated violations of the state's prohibited acts statute,...
• A mortgage broker negotiates a loan for a borrower at 6.5% interest and receives a yield spread premium from the lender. The borrower also...
• A 72-year-old borrower owns her home free and clear, valued at $290,000. She has a monthly income of $1,100 from Social Security. A lender...
• A borrower with limited financial literacy is placed in a 30-year mortgage with low monthly payments, but the loan contract contains a...
• Under the Dodd-Frank Act and Federal Reserve rules implementing the Truth in Lending Act, mortgage loan originators are prohibited from...
• An MLO is reviewing a loan file and notices that the borrower's bank statements show three large deposits — each for exactly $15,000 — made...
• A balloon payment in a mortgage loan is best described as:
• An MLO is reviewing a file in which the borrower's W-2s show $72,000 in annual wages, but the credit report reveals a recently opened...
• A first-time homebuyer slightly overstates their income on a loan application because they are afraid they will not qualify for the...
• A borrower with a 720 credit score, 38% DTI, and 20% down payment applies for a conventional loan. The MLO offers this borrower a 30-year...
• A borrower contacts an MLO and verbally provides their name, income, property address, estimated property value, and requested loan amount....
• A subprime lender originates a 2/28 adjustable-rate mortgage with a 3-year prepayment penalty of 4% in year 1, 3% in year 2, and 2% in year...
• A community bank's loan officer regularly originates mortgages in a mixed-income metropolitan area. Analysis of the bank's HMDA data shows...
• Under Dodd-Frank's Qualified Mortgage (QM) rules, which statement about prepayment penalties is accurate?
• A Suspicious Activity Report (SAR) must be filed with FinCEN within how many calendar days of detecting a suspicious transaction that...
• A property sells for $120,000 in January. Sixty days later, it is listed and sold for $210,000 with a new appraisal supporting the higher...
• A lender targets homeowners in a specific zip code with reverse mortgage solicitations, charging upfront fees of 8% of the home's value,...
• A mortgage broker arranges a loan and receives a 1% origination fee from the borrower. The lender also offers to pay the broker a yield...
• A lender's data shows that its automated underwriting system denies applications from borrowers in predominantly Hispanic zip codes at a...
• An MLO lets her license lapse for 13 months before applying for reinstatement. Under SAFE Act provisions, what is most likely required...