Florida Real Estate Sales Associate Examination Content OutlineReal Estate FinanceMedium
A real estate agent discovers that a mortgage loan officer regularly advises clients to inflate their income on loan applications to qualify for larger loans, promising that the higher income will not be verified. This practice is an example of:
- AMortgage fraud
- BTruth in Lending Act (TILA) violation
- CQualified mortgage (QM) violation
- DPredatory lending
Show answer & explanationAnswer & explanation
Correct answer: A. Mortgage fraud
Inflating income on a loan application, especially when encouraged by a loan officer, constitutes mortgage fraud. This involves intentional misrepresentation or omission of material facts in a mortgage loan application or related documents.
Why the other options are wrong
- B. A TILA violation involves failing to disclose loan terms accurately, not encouraging applicants to falsify information.
- C. A Qualified Mortgage (QM) violation relates to loans that do not meet specific criteria designed to ensure ability to repay, but the act described is more direct fraud.
- D. Predatory lending involves unfair or abusive loan terms, often targeting vulnerable borrowers, but not necessarily direct falsification of application data.
Mortgage Fraud
Any intentional misrepresentation or omission of material fact in a mortgage loan application or any other document used in the mortgage lending process, with the intent to defraud a lender or other parties.
- Can be perpetrated by borrowers, lenders, or other industry professionals
- Examples: income falsification, occupancy fraud, appraisal fraud
- A federal and state crime
- Often results in financial loss for lenders and can destabilize housing markets
Memory trick: Mortgage Fraud: 'Misleading Facts' for illicit gains.