Ethical Issues PrepXl

Question 1

Which of the following would not be covered by the GLB Act?

A.Processor
B.Loan broker
C.Title company
D.Appraiser

Answer 1

The answer is Appraiser. The Gramm-Leach-Bliley Act requires financial institutions to give privacy notices to consumers, explaining their information-sharing policies. The GLB Act applies to financial institutions that offer financial products and services to individuals. Persons covered would include loan processors and loan brokers. Since title companies also handle consumers’ personal information, such entities would be covered as well. Appraisers are not covered under the GLB Act.

Question 2

Under the Red Flags Rule, each affected business must:

A.Develop a written plan to reduce identity theft
B.Pull two credit reports on all borrowers
C.Request three forms of identification from all borrowers
D.Compare all customers to the fraud hotline list

Answer 2

The answer is develop a written plan to reduce identity theft. Under the Red Flags Rule, financial institutions that hold any consumer account or other account for which there is a reasonably-foreseeable risk of identity theft are required to develop and implement an identity theft program. The program must be established to identify patterns, practices, and specific forms of activity that are red flags signaling possible identity theft, detect and respond appropriately to red flags in order to prevent and mitigate identity theft, and be updated periodically to reflect changes in risks from identity theft.

Question 3

Which of the following is true about the Do-Not-Call Implementation Act?

A.A business entity may never call a number listed on the Do-Not-Call Registry
B.The Do-Not-Call Registry only relates to telemarketers engaging in solicitation activities in the mortgage industry
C.An established business relationship between a business entity and a consumer does not fall under the scope of the Do-Not-Call Implementation Act
D.Once a phone number is listed on the Do-Not-Call Registry, it remains on the Registry until it is removed or service is discontinued

Answer 3

The answer is Once a phone number is listed on the Do-Not-Call Registry, it remains on the Registry until it is removed or service is discontinued.

As a result of the Do-Not-Call Implementation Act, a consumer may register his or her phone number on the national Do-Not Call Registry as a number that may not be called by telemarketers. Once registered, a phone number remains on the Registry until it is removed or service is discontinued. A company engaging in telemarketing activities may, however, call a number listed on the Registry if the company has an established business relationship with the consumer, unless the consumer specifically asks not to be contacted.

Question 4

what is the “Do-Not-Call Implementation Act” ?

Answer 4

The “Do-Not-Call Implementation Act” is a U.S. law, enacted in 2003, that established the national Do-Not-Call Registry.

This registry allows individuals to limit the telemarketing calls they receive. The law was designed to give consumers a choice regarding whether they want to receive sales calls and to provide a way for them to avoid unsolicited calls.

Key Guidelines of the Do-Not-Call Implementation Act

1. Do-Not-Call Registry: Consumers can register their telephone numbers on the Do-Not-Call Registry, which telemarketers are required to honor by not calling numbers listed on the registry. The registration does not expire, and a number stays on the registry until it is removed by the consumer or the number is disconnected and reassigned.
2. Exemptions: Certain types of calls are exempt from the registry’s restrictions, including calls from:
   
   • Charitable organizations
   • Political organizations
   • Polling surveys
   • Companies with which a consumer has an existing business relationship (EBR), though this exemption lasts only for 18 months after the last purchase, delivery, or payment unless the consumer asks to receive calls.
3. Enforcement and Penalties: The Federal Trade Commission (FTC), along with the Federal Communications Commission (FCC) and state authorities, are responsible for enforcing the rules of the Do-Not-Call Registry. Violations of the registry can result in substantial fines per incident.
4. Telemarketer Requirements: Telemarketers are required to access the national registry database every 31 days and delete numbers on their call lists that are registered on the Do-Not-Call list.
5. Calling Hours: Telemarketers are only allowed to call consumers between the hours of 8 a.m. and 9 p.m. local time.
6. Caller ID: Telemarketers are required to transmit their phone number and, if possible, their name, through caller ID services.

The Do-Not-Call Implementation Act provides consumers with a mechanism to reduce the number of unwanted telemarketing calls, enhancing privacy and reducing the likelihood of scams and unwanted solicitations.

Question 5

Which of the following best describes the Safeguards Rule?

A.A part of the FCRA which requires protection of customer information
B.A rule allowing financial institutions to escape liability arising from security breaches
C.A disclosure rule found in the Real Estate Settlement Procedures Act
D.A provision of the GLB Act which contains security plan requirements

Answer 5

The answer is :A provision of the GLB Act which contains security plan requirements.

The Safeguards Rule, found in the Gramm-Leach-Bliley Act, requires all financial institutions to design, implement, and maintain safeguards to ensure the security and confidentiality of its customers’ information.

Question 6

what is the Safeguards Rule?

Answer 6

The Safeguards Rule is part of the regulations under the Gramm-Leach-Bliley Act (GLBA), which was enacted in 1999.

This rule specifically requires financial institutions to implement comprehensive security programs to protect the confidentiality and integrity of consumer personal information. The rule is enforced by the Federal Trade Commission (FTC) and aims to protect consumers by ensuring that financial institutions safeguard sensitive data.

Key Components of the Safeguards Rule:

1. Written Security Plan: Financial institutions must develop, implement, and maintain a comprehensive written information security plan that describes their program to protect customer information.
2. Designated Employees: The rule requires institutions to designate one or more employees to coordinate the information security program.
3. Risk Assessment: Financial institutions must assess the risks to customer information in each relevant area of their operations, including how they collect, store, and process data. This assessment should consider potential threats to the security and integrity of customer information.
4. Management and Control of Risk: Institutions must design and implement information safeguards to control the risks identified through their risk assessments, and regularly test or monitor the effectiveness of these safeguards.
5. Service Provider Oversight: The Safeguards Rule also requires financial institutions to take steps to ensure that their service providers are capable of maintaining appropriate safeguards for customer information and actually do so. This involves contractual assurances from service providers.
6. Evaluation and Adjustment: The security program must be evaluated and adjusted in light of the results of testing and monitoring, changes in operations or business arrangements, or due to any other circumstances that might impact the effectiveness of the security program.
7. Employee Training and Management: Financial institutions are required to train staff appropriately to implement the information security program, and must manage them to ensure compliance with the security policies.

The Safeguards Rule covers a wide range of financial institutions, including not only banks, but also payday lenders, mortgage brokers, and others who offer financial products and services like loans, financial or investment advice, or insurance. The goal is to protect consumer privacy and prevent identity theft and fraud by ensuring proper handling and protection of personal information.

Question 7

Flipping is:

A.Always illegal
B.Illegal depending on the amount of profit realized
C.The process of buying a property and then quickly selling it
D.Not allowed under conventional underwriting guidelines

Answer 7

The answer is the process of buying a property and then quickly selling it. Flipping is the process of buying a property and then quickly selling it. It can be a form of predatory lending if the primary objective of the mortgage broker and/or lender is to generate additional loan points, loan fees, prepayment penalties, and fees from financing the sale of credit-related products. To prevent mortgage fraud arising from flipping, the FHA has a property flipping prohibition that provides that, in general, only an owner of record may sell a property that will be financed using FHA-insured mortgages and a property resold within 90 days from the last sale is not eligible for FHA financing.

Question 8

Which of the following situations is least likely to be fraudulent?

A.A borrower claims to make $250,000 per year, but owns almost no personal property
B.A borrower lists “CPA” as his job title, but has no schooling
C.A borrower claims to make $250,000 per year, but has very little debt
D.A borrower has six children but is buying a two-bedroom condominium

Answer 8

The answer is A borrower claims to make $250,000 per year, but has very little debt. It would not be unusual for a borrower making $250,000 to have little to no debt. As such, that situation would not be a red flag for mortgage fraud.

Question 9

Each of the following may be associated with contract kiting, or double-contract fraud, except:

A.A silent second
B.An inflated purchase price
C.A cash-back transaction
D.An under-secured loan

Answer 9

The answer is a silent second. Contract kiting (also known as double contract or dual contract) occurs when a seller agrees to create a second, falsified sales agreement with an inflated purchase price so the buyer can obtain a larger loan from a lender. This would result in the buyer obtaining all the funds necessary to pay off the seller’s lower actual selling price from the loan proceeds, possibly getting cash back, and the lender being under-secured and subject to greater loss in the event of default.

Question 10

What is Contract kiting” or “double-contract fraud” ?

Answer 10

Contract kiting” or “double-contract fraud” is a deceptive practice in the real estate and mortgage industries. This type of fraud involves the use of two different contracts for the same property transaction to deceive lenders and often other parties involved in the transaction.

Question 11

How does Contract kiting” or “double-contract fraud” work ?

Answer 11

“Contract kiting” or “double-contract fraud” is a deceptive practice in the real estate and mortgage industries. This type of fraud involves the use of two different contracts for the same property transaction to deceive lenders and often other parties involved in the transaction. Here’s how it typically works:

Key Elements of Double-Contract Fraud:

1. Two Contracts: The central element of this fraud is the existence of two contracts for the sale of the same property. The first contract is the genuine agreement between the buyer and seller at the true sale price. The second contract, however, is falsified and shows a higher purchase price than the actual amount agreed upon.
2. Purpose of the Inflated Contract: The inflated contract is used to deceive a lender into providing a loan for more than the property is actually being sold for. The buyer then uses the extra funds for other purposes, which could range from covering the down payment to personal use or paying off other debts.
3. Misrepresentation to the Lender: In this scheme, the lender is misled about the true value of the property and the actual price agreed upon by the buyer and seller. This misrepresentation can lead to the lender extending a mortgage that exceeds the property’s true market value, increasing the risk of loan default.
4. Risks and Consequences: Double-contract fraud can lead to significant financial losses for lenders and can affect the integrity of the real estate market. Additionally, it exposes all parties involved in the fraud to legal actions, including criminal charges for fraud.
5. Detection and Prevention: Detecting double-contract fraud can be challenging, but it often involves diligent checks by the lender, such as verifying the contract details with independent property valuations and closely examining the borrower’s financial history and the transaction documents for any inconsistencies.

This type of fraud is a serious criminal offense and part of broader mortgage fraud schemes that regulators and financial institutions continually work to detect and prevent. It undermines the trust in the financial and real estate markets and can have widespread negative effects, including contributing to financial crises, such as the one experienced in 2007-2008.

Question 12

A borrower has obtained the down payment for a property by taking an undisclosed and unrecorded second mortgage from the seller. This is called a(n):

A.Second mortgage
B.Unsecured loan
C.Silent second
D.Dual contract

Answer 12

The answer is silent second.

A silent second is a form of mortgage fraud whereby a primary lender grants a mortgage loan to a borrower, believing that the borrower has invested his or her own money in the down payment and closing costs. However, the borrower has actually borrowed the needed funds from the seller via an undisclosed and unrecorded (i.e., silent) second mortgage.

Question 13

An example of a red flag under the Red Flags Rule would include all of the following, except:

A.Missed payments occur when there is no history of missed payments by the borrower
B.The borrower has moved from another state
C.Mail sent to the borrower is returned as undeliverable
D.The credit report contains a different address for the borrower than the one supplied

Answer 13

The answer is the borrower has moved from another state.

Categories of red flags include alerts, notifications, or other warnings received from consumer reporting agencies, the presentation of suspicious documents, the presentation of suspicious personal identifying information, personal identifying information provided by the customer that is inconsistent with other personal identifying information provided by the customer, a covered account is used in a manner that is not consistent with established patterns of activity on the account, and notification is received that the customer is not receiving paper account statements or that there have been unauthorized transactions on a covered account. Moving from one state to another would not be considered to be a red flag

Question 14

a red flag under the Red Flags Rule would include all of the following:

Answer 14

The Red Flags Rule, implemented by the Federal Trade Commission (FTC), requires certain businesses and organizations to implement a written Identity Theft Prevention Program designed to detect the warning signs — or “red flags” — of identity theft in their day-to-day operations. Red flags are suspicious patterns or practices, or specific activities that indicate the possibility of identity theft.

Here are examples of red flags under the Red Flags Rule:

1. Suspicious Documents:
   
   • Documents provided for identification appear to have been altered or forged.
   • The photograph or physical description on the identification is not consistent with the appearance of the customer presenting the identification.
   • Other information on the ID is inconsistent with information provided by the person opening a new account or customer presenting the ID.
2. Suspicious Personal Identifying Information:
   
   • Discrepancies in address, Social Security Number (SSN), phone number, or other personal information that do not match external information sources.
   • An SSN that has not been issued or is listed on the Social Security Administration’s Death Master File.
   • Inconsistencies between the SSN range and date of birth.
3. Unusual Use of, or Suspicious Activity Related to, the Account:
   
   • Noticeably rapid increase in credit usage or large, unexplained withdrawals or transfers between accounts.
   • The customer fails to make the first payment or makes an initial payment but no subsequent payments.
   • A customer who reopens a previously closed account without a reasonable explanation.
4. Alerts from Others:
   
   • Notice from customers, victims of identity theft, law enforcement authorities, or other businesses about possible identity theft in connection with covered accounts held by the financial institution or creditor.
5. Inconsistent Account Activity:
   
   • Accounts that are used in a way that is not consistent with established patterns of activity, such as nonpayment when there is no history of late or missed payments.
   • Unusual foreign transactions when the customer’s account history shows no such previous activity.

Organizations subject to the Red Flags Rule are expected to identify likely risks specific to their environment or business operations and update their programs accordingly. This proactive approach helps curb the risks associated with identity theft, protecting both the consumer and the institution.

Question 15

Which of the following best describes the potential penalty for violators of Do-Not-Call rules?

A.Up to $51,744 per day in which calls were made
B.Up to $51,744 per customer actually contacted
C.Up to $51,744 per call made
D.Up to $51,744 per hour in which calls were made

Answer 15

The answer is up to $51,744 per call made. A person that violates the Do-Not-Call Implementation Act is subject to a penalty of $51,744 for each violation; each day a violation continues is considered to be a new violation. Where a violation is a call made in violation of Do-Not-Call rules, the penalty is imposed per call.

Question 16

All of the following are red flags that broker-facilitated fraud is likely to occur or is occurring, except:

A.The lender is not provided with original documents within a reasonable time
B.Numerous applications from a particular loan originator have unique similarities
C.A sharp decrease in the overall volume of loans processed by a particular loan originator during a short time period
D.An unusually-high volume of loans with maximum loan-to-value limits from one loan originator

Answer 16

The answer is a sharp decrease in the overall volume of loans processed by a particular loan originator during a short time period.

Broker-facilitated fraud can be fraud for housing, fraud for profit, or a combination of both.

Warning signs may include, among other things, the following:

the lender is not provided with original documents within a reasonable time;

one mortgage loan originator has originated an unusually-high volume of loans with maximum loan-to-value limits;

numerous applications from a particular mortgage loan originator have unique similarities;

a high volume of loans exists in the name of trustees, holding companies, or offshore companies;

an unusually large number of repurchases, foreclosures, delinquencies, early payment defaults, prepayments, missing documents, high-risk characteristics, quality control findings, or compliance problems is noted on loans processed by a particular mortgage loan originator;

and an unusually-large increase in the overall volume of loans processed by a particular mortgage loan originator during a short time period.

Question 17

What is the maximum punishment for committing loan fraud?

A.$10,000 fine, one year in prison, or both per occurrence
B.$1,000,000 fine, 30 years in prison, or both per occurrence
C.$1,000 per occurrence
D.$5,000 per occurrence unless intentional

Answer 17

The answer is $1,000,000 fine, 30 years in prison, or both per occurrence. Title 18 of the United States Code specifies jail terms and fines for crimes associated with mortgage loan fraud. For fraud/false statements, a person is subject to up to five years in jail and/or a $100,000 fine. For a false mortgage loan application, conspiracy to commit fraud, fraud/swindles, or bank fraud, a person would be subject to up to 30 years in jail and/or a $1 million fine.

Question 18

Compliance with the Red Flags Rule is required under:

A.FACTA
B.RESPA
C.HMDA
D.TILA

Answer 18

The answer is FACTA.

Included in the implementation of Fair and Accurate Credit Transactions Act (FACTA), the FTC and the federal financial institution regulatory agencies published the Red Flags Rule. This rule requires financial institutions, including mortgage lenders and creditors, that hold any consumer account for which there is a reasonably-foreseeable risk of identity theft, to develop and implement an identity theft prevention program.

Question 19

Which of the following is most likely a red flag of fraud?

A.The borrower has a new job
B.The borrower is moving from another state
C.The borrower is purchasing a home down the street from his current home, stating the new house will be his primary residence but he plans to keep his current home and not rent it out
D.The borrower’s down payment is coming from the sale of another home, which was serving as his primary residence until its sale

Answer 19

The answer is The borrower is purchasing a home down the street from his current home, stating the new house will be his primary residence but he plans to keep his current home and not rent it out. Among the red flags for loan application fraud are indications that the borrower will not be an owner-occupant. This can be evidenced by a significant or unrealistic commute distance from home to job, the purchase of new housing not large enough to accommodate all occupants, or if the buyer currently resides in the property and is purchasing it from landlord or lives close to the subject property or if the borrower indicates an intent to rent or sell his current residence with no documentation.

Question 20

Each of the following would be considered a form of mortgage fraud for housing, except:

A.The borrower overstating assets necessary for a down payment or collateral for the loan
B.Submission of a fraudulent gift letter
C.Appraisal fraud
D.Including sporadic bonuses in with regular income

Answer 20

The answer is appraisal fraud.

Fraud for housing involves a borrower lying about income or assets in order to qualify for a loan to buy a home in which he or she plans to live, but which he or she might resell at a profit if income does not increase to enable continued repayment. Overstating assets, providing fraudulent income information, or submitting a fraudulent gift letter would be forms of fraud for housing. Appraisal fraud would be a form of fraud for profit (NOT housing), which involves mortgage and real estate professionals and others who conspire to inflate property values and, therefore, loan amounts.

Question 21

If a borrower lives a long distance from their work, that may be an indicator of fraud in the area of:

A.Down payment
B.Income
C.Employment history
D.Occupancy

Answer 21

The answer is occupancy.

If the property a loan applicant is hoping to purchase is a long distance from the applicant’s employment, that would be a possible flag for occupancy fraud. Occupancy fraud is a false representation by the buyer that a property being purchased as an investment property will be owner-occupied, in order to obtain the more favorable terms offered by the lender on owner-occupied real estate.

Question 22

According to ECOA, when could a lender ask a borrower about their religion?

A.If they ask for monitoring purposes
B.If the loan depends on the borrower’s religion
C.Never
D.If the borrower lives in an area known to be dominated by a certain religion

Answer 22

never

Question 23

The Privacy of Consumer Financial Information Rule:

A.Was authorized by the Truth-in-Lending Act
B.Governs the collection and disclosure of consumers’ personal financial information by financial institutions
C.Requires financial institutions to implement programs to guard against identity theft
D.Allows a financial institution to share nonpublic personal information of a customer only if it obtains written permission from the customer

Answer 23

The answer is governs the collection and disclosure of consumers’ personal financial information by financial institutions.

The Privacy of Consumer Financial Information Rule, arising from the Gramm-Leach-Bliley Act, governs the collection and disclosure of customers’ personal financial information by financial institutions. It requires financial institutions to provide privacy notices to their customers, setting forth their privacy practices with regards to information collected and shared, and to offer customers the right to opt out of allowing their information to be shared.

Question 24

Which of the following most likely indicates a fraudulent transaction?

A.Large down payment
B.Down payment is a gift from relatives
C.Failure to fully disclose all debts and liabilities
D.Large earnest money deposit

Answer 24

The answer is Failure to fully disclose all debts and liabilities. The failure to disclose all debts and liabilities could be a red flag for mortgage fraud. Others could be altered bank account statements, fraudulent gift letters, and an inappropriate salary for the loan amount sought.

Question 25

The Privacy of Consumer Financial Information Rule, also known as Regulation P, is part of the regulations enforced under the Gramm-Leach-Bliley Act (GLBA) of 1999. This rule mandates that financial institutions, which include banks, credit companies, insurance companies, and certain other businesses providing financial products and services to individuals, must protect the privacy of consumers’ personal financial information.

Answer 25

true

Question 26

Key Provisions of the Privacy of Consumer Financial Information Rule

Answer 26

Privacy Notices: Financial institutions are required to provide clear and conspicuous privacy notices to consumers at the time the consumer relationship is established and annually thereafter. These notices must detail the institution’s information-sharing practices and explain the ways consumer information is collected, shared, and protected.

Opt-Out Rights: The rule provides consumers with the right to opt out of having their information shared with non-affiliated third parties. Financial institutions must inform consumers of their right to opt out and provide a reasonable means for them to do so.

Limitations on Information Sharing: The rule restricts the ability of financial institutions to share nonpublic personal information with non-affiliated third parties unless they provide notice and opt-out opportunities to the consumer. Certain exceptions apply, such as when the information is shared to process transactions or when it is legally required.

Information Security: Under the rule, financial institutions are also required to implement security measures that guard against unauthorized access to or use of consumer information that could result in substantial harm or inconvenience to any consumer.

Scope of Application: The rule applies not only to banks and credit unions but also to payday lenders, mortgage brokers, finance companies, and certain other entities that offer financial products or services to individuals.

This rule helps ensure that consumers’ financial information is handled responsibly and provides a level of transparency and control to consumers regarding their personal information. The requirement for regular privacy notices helps maintain an ongoing understanding between financial institutions and their customers about data privacy practices.

Question 27

Which of the following is least likely to indicate fraud with respect to occupancy status?

A.A borrower is purchasing a home in the same neighborhood as his current home
B.A borrower is moving from another state
C.A borrower is moving from a 5,000-square-foot home to a 1,500-square-foot home
D.A borrower claims to be selling his primary residence, but it is not listed

Answer 27

The answer is a borrower is moving from another state. Occupancy fraud is a representation by the buyer that an investment property will be owner-occupied in order to obtain the more-favorable terms offered by the lender on owner-occupied real estate. A borrower moving from one state to another and seeking a mortgage loan would NOT be an indication of occupancy fraud.

Question 28

An ability-to-repay assessment includes:

A. A determination as to whether the loan applicant can make a monthly payment based on a payment schedule that fully amortizes the loan over its term
B. A history of the loan applicant’s employment for the five years prior to application to determine expected income
C. A review of the loan applicant’s income and liabilities only
D. A real property appraisal

Answer 28

The answer is a determination as to whether the loan applicant can make a monthly payment based on a payment schedule that fully amortizes the loan over its term. An ability-to-repay assessment includes a determination as to whether the loan applicant can make a monthly payment based on a payment schedule that fully amortizes the loan over its term. The following would be utilized in that determination: the consumer’s current or reasonably-expected income or assets, other than the value of the dwelling; the consumer’s current employment status; the consumer’s monthly payment on the loan, calculated pursuant to the Rule, and any simultaneous loan; the consumer’s monthly payment for mortgage-related obligations and any current debt obligations, alimony, and child support; the consumer’s monthly debt-to-income ratio; and the consumer’s credit history.

Question 29

Which of the following would not be considered a valid changed circumstance for the issuance of a revised Loan Estimate?

A.Inaccurate information
B.Technical error on the disclosure
C.Natural disaster
D.New information

Answer 29

The answer is “technical error” on the disclosure.

A revised Loan Estimate may be issued if a valid “changed circumstance” occurs or information previously provided and upon which the loan originator offered the original Loan Estimate changes or was inaccurate and causes a change in a settlement charge. Changed circumstances that may affect settlement costs and provide an acceptable reason to issue a revised Loan Estimate include a natural disaster, the title insurer whose fees for title insurance are disclosed goes out of business, or new information arises that reveals a pending property boundary dispute.

Question 30

The interest rate that is calculated using the loan’s index or formula that will apply after the loan is recast and the maximum margin that may apply at any time during the term of the loan is the:

A.Nominal rate
B.Annual percentage rate
C.Qualified interest rate
D.Fully-indexed rate

Answer 30

The answer is fully-indexed rate.

The fully-indexed rate is the interest rate that is calculated using the subject loan’s index or formula that will apply after recast and the maximum margin that may apply at any time during the term of the loan. A loan product’s low introductory rate may not be included in the calculation of the fully-indexed rate.

Question 31

Paul is applying for a 30-year mortgage loan. He is 64 years old and plans to retire at age 65. The lender:

A.May not consider Paul’s age in determining whether to grant him the loan
B.May steer Paul to a high-cost home loan
C.May consider Paul’s age in determining whether to grant him the loan
D.May use the value of the collateral as a determining factor to offset Paul’s age and retirement plans

Answer 31

The answer is may not consider Paul’s age in determining whether to grant him the loan.

The Equal Credit Opportunity Act prohibits discrimination on the basis of age against a loan applicant as long as the applicant is of age to enter into contracts. Regardless of age, if Paul is able to prove continuance of stable, steady, and sufficient income to afford the loan he is seeking, his application may move forward.

Question 32

Why would a lender have a problem with double contracts?

A.Relevant information is being kept from the lender
B.Appraisals are difficult with two contracts
C.It is unclear which purchase price should be used when calculating the LTV
D.Lenders do not allow seller financing

Answer 32

The answer is Relevant information is being kept from the lender.

Mortgage fraud using double contracts is also called “contract kiting.” In this type of fraud, a seller agrees to create a second, falsified sales agreement with an inflated purchase price in order to obtain a larger loan from a lender. This would result in the buyer obtaining all the funds necessary to pay off the seller’s lower actual selling price from the loan proceeds and the lender being undersecured and subject to greater loss in the event of default.

Question 33

A property flipping scheme may involve any of the following, except:

A.A buyer purchasing a property with the intent to reside there for only two years
B.A seller who is not the owner of record of the property
C.A notable increase in the value of the property with no known improvements made
D.The use of unusual comparable properties

Answer 33

The answer is a buyer purchasing a property with the intent to reside there for only two years. A property flipping scheme may involve an inflated sale price, the result of a fraudulent appraisal based on unusual comparables, or a higher sale price without any accompanying improvements to the property. The borrower may not be the owner of record. Property flipping schemes involve the quick turnover of a property, with each sale at a higher price. A borrower planning to live in the property for two years would not be a flag for a property flipping scheme. The Higher-Priced Mortgage Loan Rule provides protection against flipping schemes, requiring two written appraisals before a property can be resold within 90 to 180 days at a price 10% to 20% higher than the purchase price.

Question 34

A married couple applying for a loan knowingly fail to disclose an unsecured loan with an outstanding balance of $14,000 and a student loan in one spouse’s name. This is:

A.Permitted, as long as the applicants have a loan-to-value ratio of less than 80%
B.Fraud for assets
C.Fraud for housing
D.Broker-facilitated fraud

Answer 34

The answer is fraud for housing. Fraud for housing involves a borrower lying about income or assets. Among the most common activities involving fraud for housing are altering the applicant’s credit history, concealment of liabilities (i.e., the loan applicant fails to fully disclose debts), and use of a straw buyer.

Question 35

The simultaneous origination of multiple loans on the same collateral is:

A.Subordinate loan packaging
B.Prohibited under the Truth-in-Lending Act
C.Piggyback lending
D.A common practice in new home construction

Answer 35

The answer is piggyback lending. Piggyback lending (also known as making a simultaneous loan) is an additional covered transaction or an open-end home equity line of credit that will be secured by the same dwelling and is made to the same consumer at the same time or before the closing on the covered transaction, or made after closing to cover the closing costs of the first transaction. Pursuant to the Ability to Repay Rule, a lender must make a determination that the borrower can pay both the first mortgage on the property and the simultaneous loan according to the terms of each loan.