A borrower with excellent payment history on their current 6% mortgage approaches an MLO about refinancing to a 5.5% rate. The MLO discovers the borrower has significant equity but recommends a cash-out refinance with a 7% rate and $8,000 in fees, claiming rates have increased since the initial quote. This scenario most likely represents:
Correct Answer
B) Equity stripping through deceptive refinancing
This scenario demonstrates equity stripping, where the MLO deceives the borrower about rate increases to push a cash-out refinance with unfavorable terms, allowing access to the borrower's equity while providing worse loan terms than initially discussed.
Why This Is the Correct Answer
This scenario demonstrates equity stripping, where the MLO deceives the borrower about rate increases to push a cash-out refinance with unfavorable terms, allowing access to the borrower's equity while providing worse loan terms than initially discussed.
More Ethics & Fraud Questions
A lender's mobile app prominently displays a 'pre-qualification' feature that asks for minimal information but generates loan amount estimates that are consistently 20-30% higher than what borrowers actually qualify for when they complete full applications. The app includes a disclaimer that estimates are 'subject to full underwriting.' This practice is most likely:
An MLO discovers that multiple loan applications from different borrowers contain identical handwriting in the signature sections, despite different purported signers. The applications were submitted by different real estate agents. What is the most appropriate immediate action?
A mortgage loan originator receives a lead from a real estate agent about a potential borrower. Before calling this consumer, the MLO must:
An MLO tells Asian applicants that they need larger down payments 'because that's what investors prefer for your type of loan,' while telling similarly qualified white applicants that standard down payments are acceptable. This practice represents:
A mortgage company advertises 'Guaranteed approval for all credit types!' but internally has minimum credit score requirements of 580. This advertisement is problematic because it:
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An advertisement states 'Government-backed loans available with no money down.' If the lender only offers VA loans to veterans, this advertisement is:
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An MLO working with non-English speaking borrowers consistently uses a translator who is the real estate agent's assistant rather than an independent interpreter. The MLO knows this person has limited mortgage knowledge but uses them because they're 'convenient and free.' The borrowers receive translated documents but may not fully understand complex mortgage terms. This practice: