Prohibited Acts, Fraud & Advertising: practice questions

An ad compares a two-year teaser payment with the payment on the consumer's current 30-year fixed loan, without saying the teaser ends. Under Regulation N, what is the problem?

1. Only that the ad fails to show the lender's NMLS identifier
2. A misleading comparison of a temporary payment with another ✓
3. Nothing, as long as both payments shown are arithmetically correct
4. Only that the ad names the consumer's current lender without consent

Why: 12 CFR 1014.3(h) prohibits misrepresentations about "Any comparison between: (1) Any rate or payment that will be available for a period less than the full length of the mortgage credit product; and (2) Any actual or hypothetical rate or payment".

Source: 12 CFR 1014.3(h)

What criminal penalty does RESPA set for giving or accepting a kickback for a settlement service referral?

1. A fine of up to $1,000,000, prison for up to 30 years, or both
2. Loss of the offender's license for life, with no fine or prison
3. None; RESPA section 8 carries civil liability only, not criminal
4. A fine of up to $10,000, prison for up to one year, or both ✓

Why: 12 U.S.C. 2607(d)(1): "Any person or persons who violate the provisions of this section shall be fined not more than $10,000 or imprisoned for not more than one year, or both."

Source: 12 U.S.C. 2607(d)(1)

A loan officer knowingly and wilfully submits a materially falsified income document to HUD staff reviewing an FHA insurance claim. What is the general maximum prison term under 18 U.S.C. 1001?

1. 1 year
2. 5 years ✓
3. 10 years
4. 30 years

Why: 18 U.S.C. 1001(a) punishes knowingly and wilfully making or using a materially false writing "in any matter within the jurisdiction of the executive, legislative, or judicial branch" with a fine, "imprisoned not more than 5 years", or both (8 years in terrorism cases).

Source: 18 U.S.C. 1001(a)

A borrower knowingly overstates his income on an application to a mortgage lending business to get a larger loan. What is the maximum federal penalty under 18 U.S.C. 1014?

1. A fine of up to $10,000, prison for up to 1 year, or both
2. A fine of up to $250,000, prison for up to 5 years, or both
3. A civil penalty only, since a false application is not a federal crime
4. A fine of up to $1,000,000, prison for up to 30 years, or both ✓

Why: 18 U.S.C. 1014 covers whoever knowingly makes any false statement to influence, among others, "a mortgage lending business" or an FDIC-insured institution on any application or loan, and provides that the person "shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both."

Source: 18 U.S.C. 1014

Does the Fair Housing Act's ban on discrimination in residential real estate-related transactions reach appraisers?

1. Yes; appraising residential property is one of those transactions ✓
2. No; it covers only lenders that make or buy residential mortgages
3. No; appraisers are covered only by state licensing rules and USPAP
4. Yes, but only when the appraiser is employed by the lender itself

Why: 42 U.S.C. 3605(b)(2) defines a residential real estate-related transaction to include "The selling, brokering, or appraising of residential real property." Section 3605(c) lets appraisers consider factors other than the protected characteristics.

Source: 42 U.S.C. 3605(b)-(c)

A title agent pays a loan officer a $250 kickback on a transaction in which the borrower paid a $900 title fee. What damages does RESPA section 8(d)(2) allow the borrower, before costs and attorneys' fees?

1. $250
2. $750
3. $900
4. $2,700 ✓

Why: 12 U.S.C. 2607(d)(2) makes violators jointly and severally liable to the person charged for the settlement service "in an amount equal to three times the amount of any charge paid for such settlement service": 3 x $900 = $2,700.

Source: 12 U.S.C. 2607(d)(2)

Under the anti-steering safe harbour, what belief must the originator hold about the loan options he presents?

1. A belief that each option has the lowest APR in the local market
2. A belief that she will pick the no-points loan
3. A written belief, signed by the creditor, that each option is suitable
4. A good faith belief that the consumer likely qualifies for them ✓

Why: 12 CFR 1026.36(e)(3)(ii): "The loan originator must have a good faith belief that the options presented to the consumer pursuant to paragraph (e)(3)(i) of this section are loans for which the consumer likely qualifies."

Source: 12 CFR 1026.36(e)(3)(ii)

A mortgage ad quotes a monthly payment "that covers everything", though taxes and insurance must be paid separately. Under Regulation N, what is this?

1. A prohibited misrepresentation about taxes or insurance ✓
2. Lawful puffery, as long as the rate quoted is accurate
3. A breach only if the ad was sent by post, not online
4. A matter for the state insurance regulator alone

Why: 12 CFR 1014.3(e) prohibits misrepresenting "The terms, amounts, payments, or other requirements relating to taxes or insurance ... including but not limited to misrepresentations about: (1) Whether separate payment of taxes or insurance is required".

Source: 12 CFR 1014.3(e)