Ethics
Ethics tests conduct standards, fraud prevention, fair lending, and conflicts of interest in origination. Questions often ask what to do when a shortcut would close the loan but violate a duty.
Standards and prohibitions
- Duty of care and good faith: accurate disclosures, no misrepresentation, and no omission of material terms.
- Fraud: occupancy misrepresentation, income or asset falsification, straw buyers, appraisal pressure, and forged documents. Report suspected fraud; do not help fix numbers.
- RESPA Section 8: no fee, kickback, or thing of value for referrals. A disclosed kickback is still illegal; an affiliated business arrangement needs bona fide services, market-rate compensation, and disclosure.
- Fair lending: ECOA and the FHA prohibit discrimination and steering; pricing and product placement must be consistent.
- UDAAP: unfair, deceptive, or abusive acts and practices, including hidden fees and loan flipping.
- Privacy: GLBA safeguards and FCRA permissible purpose.
Worked example
A real estate agent offers to send clients exclusively to an MLO for $500 per closing, described as marketing. No services are performed. The payment is a referral fee, not compensation for goods or services, so it violates RESPA Section 8 even if disclosed in writing. The MLO should decline and document the request.
Traps
Believing disclosure cures a kickback; calling a referral marketing; steering a borrower to a higher-cost loan for a lender incentive; ignoring red flags because the borrower needs the loan.