Ethics
Ethics
This domain tests conduct: fraud prevention, fair lending, UDAAP, privacy, and conflicts of interest. The exam rewards the answer that protects the consumer and the integrity of the file, even when a shortcut would close the loan faster.
Standards to apply
- Honesty and no misrepresentation: never falsify income, assets, occupancy, or intent; occupancy fraud-writing “primary residence” for a rental-is a classic exam scenario.
- Fair lending: do not discriminate or steer borrowers to higher-cost products based on protected characteristics; disparate impact can exist without intent.
- UDAAP: unfair, deceptive, or abusive acts and practices include hidden fees, misleading advertising, and pressure tactics.
- Privacy and credit reports: pull credit only with permissible purpose; safeguard nonpublic personal information under GLBA.
- Conflicts and referrals: RESPA Section 8 prohibits fees for referrals; bona fide services and disclosed affiliated business arrangements are different.
- Licensing conduct: SAFE Act character standards and NMLS unique ID requirements apply.
Worked example
A borrower says he will rent the property but asks the originator to mark it owner-occupied to obtain a lower rate. The originator must refuse and document the actual occupancy. Submitting the false application would be occupancy fraud, exposing the borrower and originator to repurchase, criminal, and licensing consequences. The correct path is to price the loan as an investment property or find a product that fits.
Traps that cost marks
- Believing “the borrower told me” excuses a false stated income or occupancy.
- Missing that disparate impact does not require discriminatory intent.
- Treating a marketing payment to a real estate agent as harmless when it is a referral fee.
- Sharing credit reports or borrower data with unauthorized third parties.