Ethics
The conduct standards
The ethics domain tests both legal prohibitions and professional judgment. State licensing laws built on the SAFE Act require an MLO to act in the borrower's best interest, engage in fair dealing, and avoid fraudulent, deceptive, or dishonest conduct. Specifically prohibited: false promises, misleading advertising, high-pressure tactics, and steering a borrower into a costlier product to increase compensation.
Fraud typologies to recognize
- Occupancy misrepresentation ("I'll live there" on an investment purchase).
- Income or asset falsification, altered documents, and undisclosed second liens.
- Straw buyers and undisclosed interested parties.
- Appraisal pressure. You must never help a borrower "qualify" with inaccurate information, and suspected fraud must be reported through your institution's channel.
Fair lending, privacy, and advertising
Disparate treatment is intentional discrimination; disparate impact is a neutral policy with a discriminatory effect. Redlining and discouraging applicants both violate fair lending law. GLBA limits sharing nonpublic personal information, so unencrypted email of tax returns or credit reports is a problem. The NMLS unique identifier must appear on advertising and loan documents, and quoting a rate, payment, or term triggers full required disclosures.
Worked example
A realtor proposes a $500 "marketing fee" per closed loan, to be funded from the borrower's closing costs. This violates RESPA Section 8 - a thing of value for a referral. Payment would be permissible only for goods or services actually performed and reasonably worth the fee, with no referral-based split. The loan originator compensation rule separately bars sharing compensation with a party other than the payer.
Traps that cost marks
- Assuming borrower consent cures an illegal arrangement.
- Assuming conduct that is unethical but not clearly illegal is untested - the domain scores both.
- Confusing a disclosure obligation with a permission to act.