Ethics
This domain tests conduct: honesty in the file, fair treatment of borrowers, conflicts of interest, and the advertising and privacy rules that apply to originators. Items are usually scenario-based, asking what the MLO should do or which practice is prohibited.
Fraud and file integrity
- Never fabricate, alter, or backdate documents; never coach a borrower to misstate income, assets, occupancy, or intent.
- Watch for occupancy fraud, straw buyers, silent second liens, undisclosed debts, and inflated appraisals.
- Suspected fraud must be escalated and, where applicable, reported through suspicious activity processes; do not "fix" the file for the borrower.
Steering, referrals, and conflicts
- Do not steer a borrower to a higher-cost loan to increase compensation; present suitable options and document the borrower's choice.
- RESPA Section 8 prohibits payment for referrals of settlement-service business; disclosure does not cure a kickback.
- Avoid undisclosed dual compensation, outside business activities that conflict with the employer, and gifts that influence placement.
Fair treatment and privacy
- ECOA and the Fair Housing Act bar discrimination in pricing, terms, marketing, and steering; UDAP/UDAAP bar deceptive or unfair practices.
- Protect nonpublic personal information under GLBA; limit access and avoid transmitting documents insecurely.
- Advertising: TILA trigger terms require additional disclosures; mortgage ads must not be deceptive, and the originator's NMLS ID must appear where required.
Worked example
A real estate agent offers $300 per closed loan referral. Paying it violates RESPA Section 8 even if it appears on a disclosure form; the originator should decline and document the request. A legitimate marketing services agreement is different: it must be in writing, reflect fair market value, and pay for actual services such as advertising - not for the referral itself.
Traps that cost marks
- Believing written disclosure cures a prohibited referral fee.
- Treating "the borrower asked me to" as a defense to a documentation change.
- Assuming ethics rules apply only at closing rather than at first contact and in advertising.
- Overlooking that fair lending covers marketing and steering, not just underwriting decisions.
- Sharing borrower documents over personal email or text.