SAFE MLO TEST: ETHICS STUDY GUIDE
Redlining - Answer -When a lender refuses to make loans secured by property in a
certain neighborhood because of the racial or ethnic composition of the neighborhood.
Blockbusting - Answer -The illegal practice of inducing owners to sell their homes (often
at a deflated price) by suggesting the ethnic or racial composition of the neighborhood is
changing, with the implication that property values will decline as a result.
credit freeze - Answer -Places a credit file 'on ice' by preventing the information from
being reported to third parties, such as credit grantors and other companies. Lenders
are not able to gain access to the credit file unless given permission by the account
holder. The credit file can still be disclosed in certain situations, such as for companies
(e.g., mortgage, credit card, cell phone) doing business with the account holder and for
collection agencies working for one of the companies.
Minor - Answer -One who has not attained the age of majority in a state and does not
have legal capacity to be bound by most contracts.
Fraud Alert - Answer -A notification that appears in a consumer's credit file instructing
lenders to take extra steps to verify the consumer's identity before processing loan
applications. The purpose of a fraud alert is to prevent identity thieves and other
criminals from securing loans or opening credit accounts.
Referral - Answer -any oral or written action directed to a person that has the effect of
affirmatively influencing the selection of a provider of a settlement service or business.
Straw Buyer - Answer -A person who receives payment from a conspirator for the use
of that person's name and credit history to apply for a loan, generally as part of a
mortgage fraud scheme.
Chapter 7 Bankruptcy - Answer -Bankruptcy type with no repayment plan.
Property Flipping - Answer -Purchasing a property and quickly reselling it for a profit.
Blind advertisement - Answer -Generally, any real estate advertisement that is used by
a licensee regarding the sale or lease of real estate or of licensed activities that does
not include the broker's name or business name. Prohibited in most states.
Predatory Lending - Answer -Practice of making loans with excessively high fees and
misrepresented loan terms; predatory lenders often target borrowers who are financially
unstable and who do not qualify for conventional loans.
, Suspicious Activity Report (SAR) - Answer -Data on mortgage fraud compiled by the
FBI that is filed by federally-insured financial institutions and from reports by the
Department of Housing and Urban Development's Office of the Inspector General.
Discrimination - Answer -Treating people unequally because of their race, religion, sex,
national origin, age, or some other characteristic of a protected class, in violation of civil
rights laws.
Duress - Answer -The use of force or improper actions, against a person or property, to
induce a party to enter into a contract.
Fraud for Profit - Answer -Industry-insider fraud motivated by money; estimated at 80%
of all reported fraud losses.
Bait and switch - Answer -A deceptive sales technique that involves advertising to a
consumer with a particular product, service, or rate to attract them, then persuading
them to accept something more costly. Most states have consumer protection laws that
make this tactic illegal.
Concealment - Answer -Occurs when a licensee fails to disclose information that is
material to a decision to a party to whom the licensee has such a duty.
Misrepresentation - Answer -A false or misleading statement.
Payment Shock - Answer -Any significant increase in monthly liability that heightens the
risk of loan default.
Nonpublic Personal Information - Answer -Any personally-identifiable financial
information that a financial institution collects about an individual in connection with
providing a financial product or service.
Ethics - Answer -The fundamental principles of honesty and integrity that guide a
person's behavior.
Deficiency Judgment - Answer -A personal judgment against a borrower if the
lender/creditor does not receive the amount of the lien plus the costs associated with
foreclosure at a foreclosure sale.
Double Sold Loan - Answer -A mortgage fraud scam where a loan may: 1) be sold to a
fraudulent company who will supposedly service the loan but really just steals the
money, or 2) where a buyer signs multiple copies of the loan documents, which the loan
originator submits to multiple lenders for the purpose of pocketing the duplicated loan
amount.
Air Loan - Answer -A loan that is a total fabrication, with a fictional property as non-
existent collateral, fictional buyers, or straw buyers.
Redlining - Answer -When a lender refuses to make loans secured by property in a
certain neighborhood because of the racial or ethnic composition of the neighborhood.
Blockbusting - Answer -The illegal practice of inducing owners to sell their homes (often
at a deflated price) by suggesting the ethnic or racial composition of the neighborhood is
changing, with the implication that property values will decline as a result.
credit freeze - Answer -Places a credit file 'on ice' by preventing the information from
being reported to third parties, such as credit grantors and other companies. Lenders
are not able to gain access to the credit file unless given permission by the account
holder. The credit file can still be disclosed in certain situations, such as for companies
(e.g., mortgage, credit card, cell phone) doing business with the account holder and for
collection agencies working for one of the companies.
Minor - Answer -One who has not attained the age of majority in a state and does not
have legal capacity to be bound by most contracts.
Fraud Alert - Answer -A notification that appears in a consumer's credit file instructing
lenders to take extra steps to verify the consumer's identity before processing loan
applications. The purpose of a fraud alert is to prevent identity thieves and other
criminals from securing loans or opening credit accounts.
Referral - Answer -any oral or written action directed to a person that has the effect of
affirmatively influencing the selection of a provider of a settlement service or business.
Straw Buyer - Answer -A person who receives payment from a conspirator for the use
of that person's name and credit history to apply for a loan, generally as part of a
mortgage fraud scheme.
Chapter 7 Bankruptcy - Answer -Bankruptcy type with no repayment plan.
Property Flipping - Answer -Purchasing a property and quickly reselling it for a profit.
Blind advertisement - Answer -Generally, any real estate advertisement that is used by
a licensee regarding the sale or lease of real estate or of licensed activities that does
not include the broker's name or business name. Prohibited in most states.
Predatory Lending - Answer -Practice of making loans with excessively high fees and
misrepresented loan terms; predatory lenders often target borrowers who are financially
unstable and who do not qualify for conventional loans.
, Suspicious Activity Report (SAR) - Answer -Data on mortgage fraud compiled by the
FBI that is filed by federally-insured financial institutions and from reports by the
Department of Housing and Urban Development's Office of the Inspector General.
Discrimination - Answer -Treating people unequally because of their race, religion, sex,
national origin, age, or some other characteristic of a protected class, in violation of civil
rights laws.
Duress - Answer -The use of force or improper actions, against a person or property, to
induce a party to enter into a contract.
Fraud for Profit - Answer -Industry-insider fraud motivated by money; estimated at 80%
of all reported fraud losses.
Bait and switch - Answer -A deceptive sales technique that involves advertising to a
consumer with a particular product, service, or rate to attract them, then persuading
them to accept something more costly. Most states have consumer protection laws that
make this tactic illegal.
Concealment - Answer -Occurs when a licensee fails to disclose information that is
material to a decision to a party to whom the licensee has such a duty.
Misrepresentation - Answer -A false or misleading statement.
Payment Shock - Answer -Any significant increase in monthly liability that heightens the
risk of loan default.
Nonpublic Personal Information - Answer -Any personally-identifiable financial
information that a financial institution collects about an individual in connection with
providing a financial product or service.
Ethics - Answer -The fundamental principles of honesty and integrity that guide a
person's behavior.
Deficiency Judgment - Answer -A personal judgment against a borrower if the
lender/creditor does not receive the amount of the lien plus the costs associated with
foreclosure at a foreclosure sale.
Double Sold Loan - Answer -A mortgage fraud scam where a loan may: 1) be sold to a
fraudulent company who will supposedly service the loan but really just steals the
money, or 2) where a buyer signs multiple copies of the loan documents, which the loan
originator submits to multiple lenders for the purpose of pocketing the duplicated loan
amount.
Air Loan - Answer -A loan that is a total fabrication, with a fictional property as non-
existent collateral, fictional buyers, or straw buyers.
