Ethics, Including Fraud and Consumer Protection
Ethics, including fraud and consumer protection
This domain tests integrity in origination: fraud detection and reporting, fair lending, privacy, and consumer protection. Expect scenario questions on occupancy fraud, document alteration, kickbacks, steering, and elder abuse.
Fraud red flags
- Altered pay stubs, bank statements, or tax returns; fonts and totals that do not match.
- Straw buyers, undisclosed second liens, or cash back at closing.
- Occupancy misrepresentation: borrower says primary residence but intends to rent.
- Appraisal pressure or inflated value; undisclosed debts.
Consumer protection duties
- UDAAP: no unfair, deceptive, or abusive acts in advertising or servicing.
- ECOA and Fair Housing: no discrimination; apply consistent standards.
- GLBA privacy and FACT Act red flags: safeguard nonpublic information and detect identity theft.
- Report suspected fraud to management and, where required, regulators; do not coach borrowers.
Worked example
A borrower applying for an owner-occupied loan mentions he will rent the property within 60 days. The MLO must not ignore this. The MLO should document the statement, clarify occupancy intent, and if the borrower confirms rental intent, stop the owner-occupied application and explore investment-property terms. Proceeding would be occupancy fraud.
Traps
- Relying on "the borrower signed it" after seeing red flags.
- Promising approval or rates to close.
- Accepting referral fees not disclosed.
- Ignoring elder abuse or unusual power of attorney.