In a document-cure review, a risk reviewer sees facts tied to Fraud for Profit vs Housing. What should the file reflect?
Correct Answer
B) Verify inconsistent information before relying on it
Why this is correct: The core concept is the lender's duty to exercise due diligence to prevent mortgage fraud. Fraud for Housing typically involves a borrower misrepresenting information to qualify for a loan, while Fraud for Profit often involves industry professionals colluding for financial gain. In either case, a lender must not rely on inconsistent or questionable information. The correct answer, "Verify inconsistent information before relying on it," is a fundamental risk management and compliance step to detect and prevent fraud. Why the other choices are wrong: "Continue the activity because the borrower appears willing to proceed" is wrong because willingness does not make fraud acceptable or compliant. "Use prior SAFE Act testing approval as a substitute for the current Fraud for Profit vs Housing requirement" is wrong because prior testing does not waive the ongoing duty to verify information for each loan. "Document the issue later instead of correcting the compliance problem first" is wrong because the compliance problem (potential fraud) must be addressed immediately, not just documented for later. Exam tip: Your duty is to verify information. Never assume prior approvals or borrower willingness overrides the need for due diligence.
Why This Is the Correct Answer
The correct response is "Verify inconsistent information before relying on it" because Mortgage fraud includes false income, asset, occupancy, identity, appraisal, and professional-collusion schemes.
Why the Other Options Are Wrong
Option A: Continue the activity because the borrower appears willing to proceed.
Continue the activity because the borrower appears willing to proceed. is not correct because it does not apply the rule tested by this file scenario.
Option C: Use prior SAFE Act testing approval as a substitute for the current Fraud for Profit vs Housing requirement.
This distractor shifts the issue to a different trigger, product, or timing rule instead of applying the rule tested in the stem.
Option D: Document the issue later instead of correcting the compliance problem first.
Document the issue later instead of correcting the compliance problem first. is not correct because it does not apply the rule tested by this file scenario.
Memory Technique
mortgage-fraud types: identify the rule being tested, then choose the action that documents or applies that rule before the file moves forward.
Exam Tip
Match the file facts to mortgage-fraud types; do not choose an exception or shortcut that skips the required rule.
Common Mistakes to Avoid
- -Choosing an internal exception instead of the governing rule
- -Treating preliminary or informal facts as a substitute for required documentation
- -Answering from a familiar but unrelated mortgage topic
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?
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