Ethics · 18% of the SAFE examhard
Correct answer: Flag the deposits as potential income or asset fraud red flags, require the borrower to provide a written explanation with supporting documentation before proceeding, and consider filing a Suspicious Activity Report if fraud is reasonably suspected
Large, round-dollar deposits that do not align with a borrower's documented income are classic red flags for income or asset fraud — commonly involving undisclosed gift funds without proper documentation, laundered funds, or fabricated asset accounts. The correct MLO response is to request a Letter of Explanation (LOE) and supporting documentation to verify the source of the funds before the loan proceeds. If fraud is reasonably suspected, the institution may be required to file a Suspicious Activity Report (SAR) under FinCEN regulations implementing the Bank Secrecy Act (31 CFR 1029 for non-bank mortgage lenders; applicable depository institution rules for bank MLOs). "s stated monthly income of $7,200 and require no add..." is incorrect because three deposits totaling $45,000 over 60 days are not consistent with a $7,200 monthly income and cannot be accepted without documentation — agency guidelines require sourcing of large unexplained deposits. "Reject the application immediately without further r..." is incorrect because irregular lump-sum deposits cannot be averaged as income without documentation confirming their source, nature, and likelihood of continuance; agency guidelines require specific documentation for self-employment and other non-W2 income. "Average the three deposits into the borrower's month..." is incorrect for two reasons: first, unexplained deposits are red flags requiring investigation, not confirmed fraud; second, Regulation B governs equal credit opportunity and prohibits discrimination in lending — it does not define mortgage fraud, and immediate rejection without inquiry could itself constitute a fair lending violation.
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