Prohibited Acts, Fraud & Advertising: practice questions

A lender adds a quarter point to the rate for applicants with children under 18 living with them. How does the Fair Housing Act treat this?

1. As lawful, since the price is disclosed on the Loan Estimate
2. As lawful risk-based pricing if every such applicant pays it
3. As unlawful: it fixes loan terms because of familial status ✓
4. As unlawful only where the loan is insured or guaranteed by FHA

Why: 24 CFR 100.130(b)(2) makes it unlawful to fix "the amount, interest rate, cost, duration or other terms or conditions" of a loan secured by residential real estate because of, among other things, familial status.

Source: 24 CFR 100.130(b)(2)

An investor buys mortgage loans on homes in some neighbourhoods but refuses to buy loans in others because of the national origin of the residents. How does the Fair Housing Act regulation treat this?

1. As lawful, since the Act covers only the lenders that make loans
2. As lawful, if the investor's prices are the same everywhere
3. As unlawful only if a borrower is personally turned down
4. As unlawful discrimination in the purchasing of loans ✓

Why: 24 CFR 100.125(b)(1) lists as unlawful "Purchasing loans ... secured by dwellings in certain communities or neighborhoods but not in others because of the ... national origin of persons in such neighborhoods".

Source: 24 CFR 100.125(b)(1)

Under the Consumer Financial Protection Act, what must the CFPB show to declare a practice unfair?

1. Substantial injury not reasonably avoidable and not outweighed by benefits ✓
2. That the practice breaches established public policy, on that basis alone
3. That at least one consumer was misled by a written statement from the firm
4. That the firm intended to harm consumers when it adopted the practice

Why: 12 U.S.C. 5531(c)(1) requires a reasonable basis to conclude that the practice "causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers" and that the injury "is not outweighed by countervailing benefits to consumers or to competition". Under 5531(c)(2), public policy may not be a primary basis.

Source: 12 U.S.C. 5531(c)

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)

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

Under the federal bank fraud statute, what must a person knowingly execute or attempt to execute?

1. Any false statement to a federal agency, whether or not money changes hands
2. A scheme to defraud a financial institution or obtain its property by false pretences ✓
3. A transaction that the person knows is designed to avoid currency reporting
4. Any wire transfer that crosses state lines in connection with a mortgage

Why: 18 U.S.C. 1344 punishes whoever knowingly executes, or attempts to execute, a scheme or artifice "(1) to defraud a financial institution; or (2) to obtain any of the moneys ... owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations, or promises".

Source: 18 U.S.C. 1344

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 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)

A mortgage company pays its loan officers a bonus for each customer referred to its title affiliate, and the affiliate repays the company for those bonuses. How does RESPA section 8 treat the repayments?

1. As permitted, since the bonus itself is exempt
2. As permitted if disclosed on the ABA disclosure form
3. As a violation: the affiliate may not fund the bonuses ✓
4. As permitted, provided the affiliate is wholly owned by the company

Why: 12 CFR 1024.14(g)(1)(vii) permits "An employer's payment to its own employees for any referral activities", but Appendix B to part 1024, illustration 11, explains that it would be a violation if the affiliate reimbursed the employer for those bonuses or paid them directly.

Source: 12 CFR 1024.14(g)(1)(vii); Appendix B to part 1024, illustration 11

A mortgage broker mails homeowners flyers claiming the area is "changing" as families of a particular religion move in, and urging them to sell now through the broker's partner agency. What is this called?

1. Redlining
2. Steering
3. Reverse redlining
4. Blockbusting ✓

Why: 24 CFR 100.85 makes it unlawful, for profit, to induce a person to sell a dwelling by representations about the entry of people of a particular religion or other protected group; 100.85(c)(1) includes uninvited solicitations conveying that a neighbourhood is changing. 100.85(b): actual profit need not follow, if profit was a factor.

Source: 24 CFR 100.85; 42 U.S.C. 3604(e)

An appraiser is asked to value a house being sold by a company she part-owns. May she prepare the valuation?

1. Yes, if she discloses her shareholding in the appraisal report
2. No; she has a financial interest in the property or transaction ✓
3. Yes, if the lender's underwriter reviews her report carefully first
4. No, unless the buyer gives written consent to her appointment

Why: 12 CFR 1026.42(d)(1)(i): no person preparing a valuation "may have a direct or indirect interest, financial or otherwise, in the property or transaction for which the valuation is or will be performed." Disclosure or consent does not cure the conflict.

Source: 12 CFR 1026.42(d)(1)(i)