Compliance, Prohibited Acts & Advertising: practice questions

Under the Model State Law, what is the maximum civil penalty the commissioner may impose for each act or omission that violates the Act?

1. $1,000
2. $10,000
3. $25,000 ✓
4. $100,000

Why: MSL XX.XXX.130(3) sets the maximum penalty for each act or omission at $25,000, and 130(4) makes each violation or failure to comply with a directive or order a separate and distinct violation. The figure is the model's; each state sets its own in enacting it.

Source: Model State Law MSL XX.XXX.130(3)-(4)

An originator offers an appraiser a bonus on future orders if the appraisal "comes in at the contract price". Which prohibited act in the Model State Law does this fall under?

1. Failing to account truthfully for monies held for others
2. Charging the appraiser a fee the Act does not authorize
3. Soliciting rates that are not available when advertised
4. Paying or promising to influence the appraiser's judgment ✓

Why: MSL XX.XXX.170(11) prohibits making any payment, threat or promise, directly or indirectly, to any appraiser of a property for the purpose of influencing the appraiser's independent judgment as to value. A promise of future orders tied to the value is exactly that. Regulation Z's valuation independence rule, 12 CFR 1026.42, prohibits the same conduct at federal level.

Source: Model State Law MSL XX.XXX.170(11)

An originator's NMLS license application asks about past civil judgments. He carelessly answers "no", forgetting a judgment entered against him three years ago. How does the Model State Law treat the answer?

1. No violation, because he did not intend to mislead
2. No violation unless the judgment exceeded $10,000
3. A violation; negligent false statements count ✓
4. A violation only if the regulator had asked him twice

Why: MSL XX.XXX.170(10) prohibits negligently making any false statement, or knowingly and willfully making any omission of material fact, in information or reports filed with a governmental agency or the NMLS. Negligence is enough for a false statement. Separately, MSL XX.XXX.130(1)(b) lets the commissioner deny a license for a material misstatement in an application.

Source: Model State Law MSL XX.XXX.170(10), .130(1)(b)

During a state investigation, a branch manager shreds borrower files he fears will show problems. How does the SAFE Act treat this?

1. It is allowed for records older than the retention period
2. It is a matter for the employer's policy, not federal law
3. It is allowed during an exam if copies are kept on servers
4. It is forbidden to destroy records in an investigation or exam ✓

Why: 12 U.S.C. 5114(4) provides that no person subject to investigation or examination may knowingly withhold, abstract, remove, mutilate, destroy or secrete any books, records, computer records or other information. The Model State Law repeats the rule at MSL XX.XXX.160(8), and 5114(2) obliges the originator to make books and records available on request.

Source: 12 U.S.C. 5114(2), (4)

A mortgage company holds borrowers' appraisal deposits and cannot say what happened to several of them. Which prohibited act in the Model State Law is most directly involved?

1. Requiring property insurance above the replacement cost
2. Advertising terms that are not actually available
3. Charging a best-efforts fee when no loan is made
4. Failing to account truthfully for monies of a party ✓

Why: MSL XX.XXX.170(14) makes it a prohibited act to fail to truthfully account for monies belonging to a party to a residential mortgage loan transaction. Deposits held for borrowers belong to them until properly applied.

Source: Model State Law MSL XX.XXX.170(14)