A mortgage company's automated underwriting system consistently approves fewer applications from borrowers in ZIP codes with majority African American populations, even when controlling for credit scores and income. The company states they had no knowledge of the demographic composition when programming the system. This most likely constitutes:
Correct Answer
C) Disparate impact because the system produces discriminatory results regardless of intent
This represents disparate impact under the Fair Housing Act. Disparate impact discrimination does not require proof of discriminatory intent. Even though the system appears neutral and the company claims no knowledge of demographics, the discriminatory results affecting a protected class (race) can still violate fair lending laws. The company would need to justify the system's criteria with legitimate business necessity.
Why This Is the Correct Answer
This represents disparate impact under the Fair Housing Act. Disparate impact discrimination does not require proof of discriminatory intent. Even though the system appears neutral and the company claims no knowledge of demographics, the discriminatory results affecting a protected class (race) can still violate fair lending laws. The company would need to justify the system's criteria with legitimate business necessity.
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:
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
Previous Question
A borrower submits an application with income documentation that shows round numbers (exactly $5,000 per month) for 24 consecutive months with no variation. The borrower is self-employed and claims this represents consistent contract work. What should trigger SAR consideration?
Next Question
A mortgage loan originator receives a referral from a past client who provides their friend's phone number. The friend has not given direct consent to be contacted. Under the Telephone Consumer Protection Act (TCPA), what is the MLO's best course of action?