A mortgage file contains a $9,400 recent deposit with no plausible explanation or paper trail, an employer verification faxed from the borrower’s home number, and two pay stubs whose year-to-date figures do not reconcile. Which facts warrant further verification before approval?
Correct Answer
B) All 3 are red flags calling for further documentation before approval
B. All three inconsistencies warrant follow-up. Investigate the unexplained funds, independently confirm the employer verification, and reconcile the income records. A plausible innocent explanation must be verified, not merely assumed; these indicators do not themselves prove fraud. Scope and exceptions: Deposit-documentation rules depend on program and transaction type. For example, Fannie Mae uses an income-relative large-deposit definition, with different purchase and refinance rules. This question concerns unresolved inconsistencies, not an automatic rejection rule. Source: Common red flags: overview, employment and income, asset documentation — https://singlefamily.fanniemae.com/mortgage-fraud-prevention Evaluating Large Deposits — https://guide-selling.fanniemae.com/sel/b3-4.2-02/depository-accounts
Why This Is the Correct Answer
B. All three inconsistencies warrant follow-up. Investigate the unexplained funds, independently confirm the employer verification, and reconcile the income records. A plausible innocent explanation must be verified, not merely assumed; these indicators do not themselves prove fraud. Scope and exceptions: Deposit-documentation rules depend on program and transaction type. For example, Fannie Mae uses an income-relative large-deposit definition, with different purchase and refinance rules. This question concerns unresolved inconsistencies, not an automatic rejection rule.
Why the Other Options Are Wrong
Option A: Only the pay stubs matter, since the other 2 have innocent explanations
Possible innocent explanations do not resolve the unanswered facts.
Option C: Only the deposit matters, because every $9,400 deposit has the same sourcing requirement
There is no universal $9,400 threshold, and the other discrepancies remain.
Option D: None is a red flag, provided the credit score and the ratios both pass
Passing ratios or credit scores do not authenticate the supporting records.
Exam Tip
Resolve red flags with evidence before making a fraud finding.
More Ethics & Fraud Questions
In a closing-readiness check, a disclosure specialist sees facts tied to Appraisal Fraud Detection. What should the file reflect?
An MLO recommends a loan with a low initial payment that will increase sharply in two years. The borrower says retirement income will be fixed and asks whether the payment can change. What is the appropriate response?
An MLO alters a bank statement to make the applicant's account balance appear higher and submits it to underwriting. Which response is appropriate?
A branch manager asks about a loan file because marketing proposes a rate the company is not prepared to offer. What should happen?
A borrower wants cash for necessary home repairs. A proposed refinance provides $15,000 cash but adds $12,000 in costs and extends repayment by 15 years. What is the best next step for the MLO?
Before closing, the team discovers that an ad shows an interest rate but omits the APR presentation. What is the safest compliant answer?
The loan team is resolving Privacy and Confidentiality during a quality-control sample. Which action best fits the rule?
A house last sold for $185,000 in January. In March it changes hands 3 times in 9 days, reaching $410,000, with the same appraiser and the same closing agent on every leg. Assuming the parties colluded to inflate appraisals without improvements to support the higher prices, what fraud scheme does this pattern illustrate?
For closings involving federally related mortgage loans, a title company pays a real estate brokerage $75 for each referred client who closes. The brokerage only passes along the client’s name and number. Does this referral payment comply with RESPA Section 8?
Before closing, the team discovers that a loan officer wants different terms because of a protected applicant characteristic. What is the safest compliant answer?
People Also Study
Federal Mortgage-Related Laws
24% of exam
General Mortgage Knowledge
20% of exam
Mortgage Loan Origination Activities
27% of exam
Uniform State Test Content
11% of exam
Related Study Resources
Previous Question
A 78-year-old owns her home free of debt and is offered a $140,000 cash-out refinance on which $31,000 goes in fees and the payment is 62% of her income. If underwriting confirms the borrower cannot sustain the payment, what predatory-lending pattern do the excessive fees and unaffordable equity-based loan illustrate?
Next Question
A mortgage file is paused during a lock-desk handoff because of ECOA Disparate Impact. Which answer should decide how the file should be documented?