Ethics: Fraud, Fair Lending, and Fiduciary Conduct
Fraud, fair lending, and fiduciary conduct
Ethics questions test whether the originator puts the borrower's legitimate interests and the law ahead of a transaction. Fraud includes occupancy misrepresentation, inflated income or assets, altered documents, straw buyers, undisclosed debt, appraisal pressure, and loan flipping. Fair lending under ECOA and the Fair Housing Act prohibits discrimination based on protected characteristics and can reach facially neutral policies with unjustified disparate impact. UDAAP prohibits unfair, deceptive, or abusive acts or practices. RESPA Section 8 prohibits referral fees and fee splitting unless bona fide services are performed. Steering, redlining, reverse redlining, and discouraging applicants are prohibited.
A broker owes duties of good faith, loyalty, and disclosure, and must avoid conflicts such as undisclosed ownership, dual compensation, or ties to service providers. Privacy rules limit sharing nonpublic personal information.
Traps: "Everyone does it" is not a defense. A fee labeled "marketing" or "review" is not lawful unless actual services are provided and compensation is reasonable. Basing a recommendation on a protected class, even with "good intentions," is illegal. Ignoring red flags in borrower documents can support fraud claims.
Worked example: A real estate agent asks you to "stretch" a borrower's income by $1,500 monthly so the loan fits. You must refuse, document the request, and use verified income. Rule of thumb: if the arrangement depends on nondisclosure or a document being "creative," stop and escalate.