CHAPTER 6: MORTGAGE ETHICS

Question 1

What is Ethics?

Answer 1

moral principles that govern a person’s behavior or conduct

Question 2

Morality

Answer 2

is principles concerning the distinction between right and wrong or good and
bad behavior.

Question 3

Types of Mortgage Fraud

Answer 3

• Fraud for Housing/Property – committed by a borrower
• Fraud for Profit – committed by an industry insider
• Fraud for Criminal Enterprise – committed by organized crime

Question 4

Common Fraud Scheme

Answer 4

• Straw Buyers – individuals used by fraudsters to obtain mortgages
• Air Loans
• Illegal Property Flips
• Chunking
• Builder Bailout/ Excessive Sales Incentives
• Buy and Bail
• Foreclosure Rescue Schemes
o Mortgage Assistance Relief Services Rule (MARS) made it illegal for
mortgage assistance relief providers to collect upfront fees and requires additional
disclosures
• Short Sale Fraud
• Unauthorized Fees and Payout Characteristics
• Short Sale Flip
• Non-Arm’s Length Short Sale Transaction
• Reverse Mortgage Fraud
• Affinity Fraud
• Equity Skimming
• Loan Modification Schemes

Question 5

Unfair act or practice is:

Answer 5

o Something that causes or is likely to cause substantial injury to consumers.
o The injury is not reasonably avoidable by consumers.
o The injury is not outweighed by countervailing benefits to the consumers or
competition.
o A substantial injury typically takes the form of monetary harm, like fees or costs
paid by the borrowers because of the unfair act or practice. In the case of DoddFrank, a substantial injury does not just have to be monetary damage; it can also
take other forms

Question 6

An act or practice is considered deceptive when:

Answer 6

o The act or practice misleads or is likely to mislead the consumer,
o The consumer’s interpretation is reasonable under the circumstances, and
o The misleading act or practice is material.

Question 7

• An act or practice is abusive when:

Answer 7

o The act materially interferes with the ability of a consumer to understand a term
or condition of a consumer financial product or service.
o The act takes unreasonable advantage of:
▪ A consumer’s lack of understanding of the material risks, costs, or
conditions of the product or service.
▪ A consumer’s inability to protect his or her interests in selecting or using a consumer financial product or service.
▪ A consumer’s reasonable reliance on a covered person to act in his or her
interest.

Question 8

Predatory lending

Answer 8

is unscrupulous actions carried out by a lender to entice, induce or
assist a borrower in taking a mortgage that carries high fees, a high-interest rate, strips the
borrower of equity, or places the borrower in a lower credit-rated loan to the benefit of
the lender.

Question 9

Credit insurance packing

Answer 9

occurs when a lender sneaks in paperwork at closing that

provides for credit insurance or other benefits that the borrower did not request.

Question 10

Price gouging

Answer 10

is something that occurs in many industries, including the mortgage
industry

Question 11

_____ creditors could charge borrowers outrageous fees, higher than what the
borrower would have paid with an ethical creditor.

Answer 11

1. Predatory

Question 12

Creditors can price a loan based on credit history and credit risk, known as __________. The lower the credit score, the higher the risk, and the loan is priced
accordingly. It is not unethical or considered predatory lending.

Answer 12

Loan LevelPrice Adjustments

Question 13

Equity Stripping

Answer 13

Is when a lender is after the equity in the borrower’s home. Equity
Stripping is done by getting the borrower into a loan they do not qualify for, sometimes
by encouraging a borrower to “pad” their income to get approved for the loan.

Question 14

Churning or repeated refinancing

Answer 14

is excessive selling/lending activity to generating fees

and commissions

Question 15

Steering or targeting occurs

Answer 15

when an MLO steers a borrower into a subprime product
when they could qualify for a loan with better terms. Generally, this is done because the
MLO gets something in return for putting that borrower into the subprime loan, like
additional compensation.

Question 16

_______ enacted the Telemarketing and Consumer Fraud and Abuse Prevention Act.

Within this Act is the Telemarketing Sales Rules (TSR) with the Do Not Call Provision.

Answer 16

Congress

Question 17

Telemarketing and Consumer Fraud and Abuse Prevention Act provides the Telemarketing Sales Rule, which defines and prohibits:

Answer 17

o Deceptive telemarketing acts or practices and misrepresentation. They are
prohibited from lying about any terms of their offer.
o Prohibits telemarketers from engaging in a pattern of unsolicited telephone calls
that a reasonable consumer would consider coercive or an invasion of privacy
o Restricts the hours of the day and night when unsolicited telephone calls may be
made to consumers. Telemarketers may not call before 8 a.m. or after 9 p.m.
o Prohibits calls to a consumer who have asked not to be called again
o Sets payment restrictions for the sale of certain goods and services
o Requires disclosure of the nature of the call at the start of an unsolicited sales call

Question 18

• The defined abusive telemarketing acts and practices are:

Answer 18

o May not undertake a pattern of unsolicited telephone calls which the reasonable
consumer would consider coercive or abusive of the consumer’s right to privacy
o Limit the hours of the day a telemarketer may make solicitation calls
o When selling goods or services, the telemarketer must promptly and clearly
disclose the purpose of the call is to sell goods or services. The disclosure should
include the nature and price of the goods and services.
o When it is for charitable contributions, donations, or gifts of money or other thing
of value, the telemarketer must promptly and clearly disclose the call is to solicit
charitable contributions or thing of value. They must provide the charitable
organization name and address

Question 19

Telemarketers may not solicit someone registered on the ________. Telemarketers
are required to scrub their telemarketing or client list with the Do Not Call Registry every
______.

Answer 19

1. do not call list

2. 31 DAYS

Question 20

A mortgage loan originator may solicit a client on the do not call list based on Client
Relationship as follows:

Answer 20

o A previous client from an established business relationship you may solicit for up
to 18 months after the last transaction, even if the consumer is on the Do Not Call
Registry.
o A prospective client who submits an inquiry or application you may solicit for up
to 3 months.
o A client who has given written permission may be solicited with an unspecified
time frame even if the client is on the Do Not Call Registry.

Question 21

A telemarketer, which includes a mortgage loan originator calling leads, who disregards
the National Do Not Call Registry, could be fined up to ________ for each call

Answer 21

$40,350

Question 22

Fair lending

Answer 22

is essentially granting access to credit to everyone and anyone who wishes to
obtain and qualifies for a loan

Question 23

Disparate Treatment

Answer 23

is either overt discrimination, or there is comparative evidence of
discrimination.

Question 24

Overt discrimination

Answer 24

is when a lender openly discriminates on a prohibited basis; this can
be in a written policy or an oral statement.

Question 25

Comparative evidence

Answer 25

is the treatment of a credit applicant differently based on one of
the prohibited basis, differences in treatment that are not fully explained by legitimate
non-discriminatory factors, and does not require any evidence that the treatment was
motivated by prejudice or that the creditor intended to discriminate against a person.

Question 26

Disparate Impact occurs when

Answer 26

a facially neutral policy or practice is applied equally to all
applicants, but the policy or practice disproportionately excludes or burdens certain
groups of people on a prohibited basis.

Question 27

Redlining

Answer 27

is an unethical practice where a financial institution makes it extremely
difficult or impossible for residents of a particular neighborhood to borrower money, gain
approval for a mortgage, take out insurance or gain access to other financial services
because of a history of high default rates. Redlining typically occurs in poor inner-city
neighborhoods. In the case of redlining, an individual’s qualifications and
creditworthiness are not considered.

Question 28

Reverse Redlining

Answer 28

is the opposite; it is where a financial institution lends specifically in
poor inner-city neighborhoods to charge them more than a comparable white consumer.

Question 29

Blockbusting

Answer 29

occurs when real estate agents and building developers attempt to convince
white property owners to sell their houses at low prices by promoting fears in those
homeowners that racial minorities would soon be moving into the neighborhood