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NMLS > Ethics & Fraud > Flashcards

Ethics & Fraud Flashcards

1
Q

What are Ethics?

A

1) Serve the lending needs in an ethical manner
2) Treat everyone equally
3) Be honest
4) Give full disclosure about all terms and conditions of the mtg loan
5) Don’t use your knowledge to take advantage of ppl
6) Keep good documentation
7) Adhere to a code of ethics

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2
Q

What are the penalties if you were unethical?

A

1) Action by the state licensing authority (loss of license)
2) Civil lawsuits filed by injured parties (money)
3) Disciplinary action by professional associations (suspension)
4) Filing of criminal charges (very serious cases)

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3
Q

What is Fraud?

A

Intentional/negligent misrep or concealment of material facts
Examples: failing to disclose info the MLO is required to disclose can be a form of fraud OR actively concealing info or making false/misleading statements

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4
Q

What is an actual fraud?

A

You knew about it but didn’t disclose

an intentional misrep/concealment of a material fact

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5
Q

What is constructive fraud?

A

They did not tell you anything all the info was not disclosed to you but it turned out to be fraudulent
Negligent misrep or concealment of material fact

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6
Q

What is the punishment for being convicted of fraud?

A

Fine up to $1M & 30 years in prison PER COUNT

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7
Q

What are the 2 types of Mortgage Fraud? Explain each of them

A

1) Fraud for Property: AKA Fraud for Housing; more common & is perpetuated by borrowers ex) misrepresenting their income, they just want to get the house to get approved

2) Fraud for Profit: misrep w/ the intent of gaining $ through the affected transaction perpetuated by industry insiders

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8
Q

What is an asset rental fraud?

A

Someone deposits temporary funds/assets in a borrower’s bank acct to qualify

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9
Q

What is a fake down payment fraud?

A

Someone falsified the borrower’s down payment verification through fake/altered documentation

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10
Q

What is a fradulent documentation?

A

Forged/altered info on docs submitted for approval

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11
Q

What is a straw/nominee borrower?

A

Using a friend/family members name & credit to obtain a loan & lender believe it’s “them” that will be paying the mtg or when individ. with good credit history is paid to represent himself as the borrower

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12
Q

What is the silent second fraud?

A

Buyer obtains seller financing for the down payment & does not disclose this fact to the lender. Lien may go unrecorded

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13
Q

What is an “air loan” mortgage fraud?

A

Non-existent loans & no-collateral loans

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14
Q

What is the “Deed Scam”?

A

Forged seller’s signature on the deed (property to be transferred)

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15
Q

What is the “Double Sold Loans” in mortgage fraud?

A

Primary mtg holder sells loan to fraudulent company for servicing or when it’s sold to 2 diff companies fraudulently

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16
Q

What is illegal flipping?

A

Appraised @ inflated price w/o justification. Property is purchased at a low price, appraised at an inflated value w/o any valid reason, & then resold at a much higher price
**FHA requires 3 months ownership before resale.
Appraisers are required to investigate the transfer history of a property for the past 3 years

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17
Q

What is Equity Skimming?

A

Involves lenders making various types of loans knowing the borrowers will NOT be able to make monthly payments and setting up for foreclosure

18
Q

What is Loan Flipping?

A

Refinancing over and over again with no net tangible benefits

19
Q

What is an “inflated appraisal” in mortgage fraud?

A

Investors offers an amt of $ that’s much higher than the list price. At closing seller receives the proceeds of the loan & disburses the difference btwn the sale price & original list price

20
Q

What is Bait & Switch?

A

Luring consumers in with promises of low rates and specific product and then steering them to a different product so that the MLO can earn a higher fee

Alluring but insincere offer to sell a product

Trying to lure them in the door, and then when they’re in you try to switch it to something else

21
Q

What is a Bona Fide Offer?

A

Violation to discourage the purchase of advertised merchandise. Must have made “in good faith”
Whatever you’re offering, you have the right/product to offer

What you’re offering is a bona fide offer. You can’t offer what you can’t provide
Example: Black Friday, $40 X BOX for the 1st 100 people, but Best Buy only has 40 X BOX.

22
Q

What is Switch After Sale?

A

Accepting a deposit for the advertised product then switching the purchaser to higher-priced product

Example: You call about a particular product/service, you find what you need and give DEPOSIT over the phone, and then when you get there, they don’t have the product that they have

23
Q

What is the Fraud Enforcement & Recovery Act? What year? Who compiles this and by what? Where are the reports from?

A

2009; Makes it a felony to falsify loan documents
Holds private mortgage brokers & companies accountable

FBI; SARS (Suspicious Activity Reports) are filed by the FBI by financial instructions suspecting or knowing of fraud

Reports from HUD’s Office of the Inspector General

24
Q

What needs to be on the billing statement from the mortgage servicers?

A

Monthly billing statement that includes:
> What is owed on the current bill AND how much, if any, will be applied to principal, interest, & escrow
> Must show whether the principal balance will INCREASE, DECREASE, OR STAY THE SAME for each option listed on their multiple payment option
> Payments made since the last statement & how much they were applied
> Trans activity (inc. any fees/charges to the borrower’s acct)
> Contact info. for the borrower’s servicer
> How to contact a housing counselor for help
> Late payment info (if delinquent on payments)

25
Q

Explain what mortgage servicers need to do for full/partial payments

A

They must promptly credit mtg payments when rcvd. Must give a borrower credit for the FULL payment as of the day the payment is rcvd.
If they are partial payments being made, they need to disclose & will be handled. They put it in a special account. Once collected enough to make a full payment, servicer must credit that payment to the borrower’s account.

26
Q

How many days does the servicer need to respond to a payoff?

A

7 days

27
Q

Mortgage servicers must set up their business, so they can…

A

> access correct info about a borrower’s loan
respond promptly
pass along correct info about a mtg acct when servicer sells a borrower’s loan servicing to another company
property evalute an app for relief when a borrower is having difficulties paying a mtg loan. They must have a process in place,
keep records for at least 1 year after a mtg loan is PIF

28
Q

What is the process for Force-Placed Insurance?

A

When a homeowner fails to keep his home insured, lender has the right to buy & charge insurance to cover the lender’s interest in the home. Usually MORE expensive

> Servicer must alert the homeowner at least 45 days before it charges for a force-placed insurance policy
Warn the owner again at least 30 days later (2nd notice)
Bill the homeowner only the BONA FIDE COST (meaning that they can’t add anything else on top of it) of the force-placed insurance coverage.

29
Q

How do mortgage servicers need to deal with borrower’s complaints?

A

> Must quickly resolve any consumer requests in writing within 30-45 business days

30
Q

When does a mortgage service contact a borrower when they miss a payment? Under what regulation?

A

> NO later than 36 days after a missed payment
Provide workout options to the borrower w/in 45 days after a missed payment

Under regulation X regarding home foreclosures/modifications

31
Q

What is a Loan Workout?

A

Loan Modification; when borrower is experiencing a difficulty making payments
It involves establishing new payment terms that are mutually agreed upon between the lender and delinquent borrower to get payments back on schedule

32
Q

What are the required steps for the Loan Workout?

A

1) Borrower is required to submit an app & support doc for help
2) Once the servicer rcvs the app, they have a 5-day window to request additional info from the borrower
3) W/in 30 days AFTER submission of a complete loan workout app, the mortgage servicer must inform the borrower if there IS an option to save the home

33
Q

What is an independent review regarding the loan workout?

A

Borrowers may seek this which is an APPEAL of the mortgage service’s workout decision. They can appeal at least 90 days prior to the foreclosure sale, and then servicer needs to not commence any action during the 90 day timeframe

34
Q

How many days does the borrower have to submit an app for assistance prior to the scheduled foreclosure sale?

A

37 days

35
Q

What is Dual Tracking?

A

When servicers move forward on a foreclosure at the same time they are working with a borrower on a workout plan

36
Q

What is a suspicious activity?

A

Any conducted/attempted transaction or pattern of transaction that is suspicious like:
> involves money from criminal activity
> designed to evade Bank Secrecy Act (money laundering)

Examples: uses a false ID

37
Q

What is the timing of a SAR & how long do they have to keep it?

A

A Suspicious Activity Report must be filed w/in 30 days of detection of the suspicious transaction
It is ILLEGAL to tell any person involved in a transaction that a SAR has been filed
A copy of the SAR must be kept for at least 5 years

38
Q

What is Predatory Lending?

A

Loans that take advantage of ill-informed consumers:
-Excessively high fees
-Misrepresented loan terms
-Frequent refinancing that does not benefit the borrower

Targets borrowers with little knowledge of, or defense against, these practices
Goals:
>Take the property or strip its equity
> Profit from fees

39
Q

What statement defines predatory lending?

A

Statement on Subprime Lending
1) Making loans based predominately based on the foreclosure/liquidation value. The only reason you’re giving them this loan bc they have equity on this property and NOT the borrower’s ability to repay the loan
2) Borrower to repeatedly refinance (loan flipping), charge high points & fees each the loan is refinanced
3) Engaging in fraud or deception to make the deal go through

40
Q

Explain the ethics in Elder Abuse

A

> When elderly homeowners are required to apply for & obtain mtg loans they don’t want
A child/caregiver brings the consumer to take the loan
MLO should take the consumer’s app, but before actively proceeding, conduct 1-1 with the senior borrower and you need to make that decision

NMLS (5 decks)

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