Ethics
What this domain tests
Ethics tests how an MLO behaves when a lawful but profitable action conflicts with the borrower's interest, the lender's integrity, or fair lending. Expect scenarios on fraud, misrepresentation, referral compensation, steering, privacy, and handling errors. The exam wants the action that is honest, documented, and consistent with law, not the action that closes fastest.
Core rules
- Do not make or support false statements about income, assets, occupancy, employment, or property value. Occupancy fraud-claiming a second home or investment property is a primary residence-is a common exam scenario.
- RESPA Section 8 and state law prohibit paying for referrals. Bona fide fees for actual services, at fair market value, under a written agreement, may be permissible; a “marketing fee” with no services is not.
- Fair lending requires consistent treatment. Do not vary terms, documentation, or service based on a prohibited characteristic. Steering a borrower to a costlier loan without a legitimate reason can violate fair lending and UDAAP.
- Protect nonpublic personal information under GLBA and the lender's safeguards; share only on a need-to-know basis.
- Disclose conflicts, follow the lender's complaint and fraud-reporting process, and never retaliate against a borrower who exercises a legal right.
Worked example
A borrower tells the MLO that her income is $8,000 per month, but the pay stubs and tax returns show $5,000. She asks the MLO to “use the higher figure because the overtime will pick up.” The MLO should not submit $8,000. The correct file documents the verified $5,000, explains any variable-income analysis, and, if the loan no longer qualifies, issues the proper adverse-action notice. Submitting the inflated figure would be fraud even if the borrower consented.
Traps
“The borrower told me to” is not a defense to income fraud. A referral fee paid through a marketing-services agreement is still a referral fee if no real services are provided. Ignoring a red flag because another employee reviewed the file is not a cure.