An investor with 4 properties cannot qualify for a 5th. His cousin, who has never seen the house, signs the application, takes title and immediately deeds the property back to the investor after closing. Assuming the cousin's nominee role and planned transfer were concealed from the lender, what mortgage-fraud scheme does this arrangement illustrate?
Correct Answer
A) A straw buyer scheme: the cousin's credit stands in on the 5th property
A. The cousin acts as a concealed nominee or straw buyer. The lender evaluates the cousin without knowing the investor’s actual role and planned transfer. Scope and exceptions: Four properties is a scenario fact, not a universal lending limit. The source describes a fraud pattern, not every element of criminal liability. Source: Typical fraud schemes: Nominee Loans — https://archives.fbi.gov/archives/news/stories/2005/december/operation-quick-flip-1
Why This Is the Correct Answer
A. The cousin acts as a concealed nominee or straw buyer. The lender evaluates the cousin without knowing the investor’s actual role and planned transfer. Scope and exceptions: Four properties is a scenario fact, not a universal lending limit. The source describes a fraud pattern, not every element of criminal liability.
Why the Other Options Are Wrong
Option B: A permitted gift of equity, since the cousin transferred to a relative
Family relationship does not establish a genuine gift.
Option C: An occupancy misrepresentation and nothing more, as the cousin did apply
Concealment concerns the actual party, not merely occupancy.
Option D: A permitted arrangement if the deed is recorded within 30 days
Recording does not cure prior concealment.
Exam Tip
Disclose the real transaction parties.
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 creditor had $900 million in assets at each of the past two calendar year-ends. For consumer credit secured by a principal dwelling, its staff appraiser reports to the sales manager and receives a bonus whenever the appraised loan closes. How do Regulation Z’s employee safe harbor and compensation restriction apply?
Next Question
An underwriter finds the appraised value matches the contract price to the dollar on four files from the same originator and the same appraiser. What is the appropriate response?