A credit scoring model includes 'years at current address' as a significant factor. Analysis reveals this criterion results in lower scores for 25% of Native American applicants compared to 8% of white applicants, due to cultural patterns of extended family housing arrangements. The model developer argues residential stability predicts creditworthiness. This scenario most likely represents:
Correct Answer
A) Disparate impact that requires business necessity justification
This represents disparate impact under the Fair Housing Act and ECOA. While the criterion appears neutral, it disproportionately affects Native Americans due to cultural housing patterns. The model developer must prove that 'years at current address' is necessary for accurate credit assessment and that no alternative method exists that would be less discriminatory while achieving the same predictive accuracy.
Why This Is the Correct Answer
This represents disparate impact under the Fair Housing Act and ECOA. While the criterion appears neutral, it disproportionately affects Native Americans due to cultural housing patterns. The model developer must prove that 'years at current address' is necessary for accurate credit assessment and that no alternative method exists that would be less discriminatory while achieving the same predictive accuracy.
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:
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:
A borrower admits to an MLO that they inflated their income on the initial application but wants to provide correct information now. What should the MLO do?
An MLO's family member works as an appraiser and occasionally appraises properties for the MLO's borrowers through the normal appraisal management company rotation. The MLO never requests this appraiser specifically. Is this arrangement problematic?
A lender offers a mortgage product with a temporary introductory rate that is prominently advertised, but the subsequent rate increase is disclosed only in fine print at the bottom of marketing materials. The lender argues this practice is acceptable because all required disclosures are technically present. Under UDAAP standards, this practice is most likely:
An MLO discovers that a borrower's bank statements show large, round-number deposits ($5,000, $10,000) occurring monthly for the past three months, but the borrower's pay stubs show much smaller amounts. The borrower claims these are gifts from family. What red flag does this represent?
A borrower submits a rental agreement showing $2,500 monthly income from a property they claim to own. Which of the following would be the MOST significant red flag indicating potential rental income fraud?
A borrower inflates their income on a loan application for a vacation home they plan to rent out occasionally but also use personally. The primary motivation is investment return. This scenario constitutes:
People Also Study
Federal Mortgage-Related Laws
23% of exam
General Mortgage Knowledge
23% of exam
Mortgage Loan Origination Activities
25% of exam
Uniform State Test Content
12% of exam
Related Study Resources
Previous Question
A bank's loan committee consistently approves white applicants at a 90% rate but only approves Black applicants at a 60% rate, despite similar credit profiles. When questioned, committee members deny any racial bias and claim decisions are based solely on credit factors. This pattern suggests:
Next Question
A loan officer discovers that a borrower has provided false employment verification documents. The borrower explains they recently lost their job but expect to find new employment soon and just need the loan to keep their family housed. How should this be classified?