Mortgage Advice Qualification (MAQ)

Correct: The scenario describes a failure in infrastructure planning specifically related to monitoring third-party relationships and referral fees. Under RESPA Section 8, any thing of value given in exchange for the referral of settlement service business is prohibited. Without automated controls or a centralized monitoring system, the credit union is at high risk for illegal kickbacks and unearned fees, which can lead to significant regulatory fines and legal action.

Incorrect: The lack of a disaster recovery site is an operational risk, but it does not address the specific compliance allegation regarding referral fees. The requirement for a Loan Estimate is three business days, not 24 hours, making that option factually incorrect regarding regulatory timelines. While appraisal bias is a serious concern, the whistleblower’s specific allegation regarding preferred service providers and unearned fees points directly to RESPA Section 8 violations rather than Fair Housing Act appraisal issues.

Takeaway: Infrastructure planning in mortgage lending must prioritize automated compliance monitoring for RESPA Section 8 to mitigate the risk of illegal referral fees and kickbacks.

Correct: In mortgage lending, state or local health departments are engaged to ensure that private utilities meet public health safety standards, such as water potability and septic clearance. This is a technical health and safety requirement. In contrast, an appraiser’s primary role is to determine the fair market value of the property and identify visible deferred maintenance, but they are not qualified to perform laboratory-grade water testing or subsurface septic inspections.

Incorrect: The suggestion that health departments determine loan-to-value ratios is incorrect, as LTV is a financial calculation performed by the lender’s underwriting department. Certificates of occupancy are generally issued by local building departments rather than state health services, and income verification is a function of the loan processor and underwriter. Finally, health departments do not serve as secondary market guarantors, and RESPA compliance is a regulatory matter handled by the lender and title agents, not the appraiser.

Takeaway: The State Department of Health Services ensures the technical safety of private utilities, which is a distinct regulatory requirement from the valuation and general condition assessment provided by an appraiser.

Correct: Under the Equal Credit Opportunity Act (ECOA) and the Fair Housing Act, lenders are prohibited from discriminating against applicants based on a disability, which includes mental health conditions. An internal auditor must ensure that the lender’s underwriting process focuses on the objective criteria of income stability and continuity (e.g., verifying that disability income or salary will continue) without making prohibited inquiries into the nature or severity of the borrower’s medical condition.

Correct: The most important consideration is adhering to the Equal Credit Opportunity Act (ECOA) and the Fair Housing Act, which prohibit discrimination based on age or disability. In the context of independent living, mortgage professionals must ensure that underwriting is based on objective financial criteria (income, assets, credit) and the property’s value as a dwelling. Making assumptions about a borrower’s health or longevity when determining creditworthiness is a violation of fair lending laws.

Incorrect: Classifying residential independent living units as commercial real estate to avoid TILA is a regulatory violation, as these units are typically considered dwellings if they are used as a residence. Requiring a physician’s certification of health is a direct violation of the Fair Housing Act and ECOA, as it discriminates against borrowers based on perceived disability or age. Standardizing higher interest rates based solely on the type of community or the age of the residents could be construed as predatory or discriminatory pricing, violating fair lending principles.

Takeaway: Mortgage underwriting for independent living must remain focused on objective financial data and property eligibility to ensure compliance with ECOA and Fair Housing Act protections against age and disability discrimination.

Correct: According to standard secondary market underwriting guidelines (such as those from Fannie Mae and Freddie Mac), employment gaps of 30 days or more must be explained by the borrower in writing to ensure the stability of the income. Furthermore, a verbal verification of employment (VVOE) is a critical control that must be performed shortly before the loan closing (typically within 10 business days) to confirm the borrower’s continued employment status.

Incorrect: Re-classifying the loan as high-risk is unnecessary because gaps over 30 days are acceptable if properly documented and explained. Requiring six months of continuous service is a common misconception; while stability is key, there is no hard rule requiring six months of new service specifically to ‘offset’ a short gap if the prior two-year history is strong. Obtaining IRS transcripts is a standard part of income verification (Form 4506-C) but it is not the primary or required method for explaining a specific gap in employment history.

Takeaway: Employment gaps exceeding 30 days require a written explanation from the borrower and a timely verbal verification of current employment prior to loan closing to satisfy secondary market standards.

Correct: Under federal regulatory expectations for third-party risk management, a financial institution is responsible for the actions of its partners. Even when working with state agencies or state-mandated counselors, the credit union must ensure that the services provided—especially those involving mandatory disclosures like those required by TILA—meet regulatory standards. A formal monitoring program ensures the credit union can identify and remediate compliance gaps before they lead to regulatory enforcement or consumer harm.

Incorrect: Relying solely on another agency’s internal audits is insufficient because the credit union retains the ultimate legal and regulatory responsibility for the loan’s compliance. Liability waivers are generally ineffective against federal regulatory requirements like TILA and do not mitigate the underlying risk of non-compliance. Selling loans to the secondary market does not absolve the originator of liability for compliance errors that occurred during the origination or counseling phase, as most investors require representations and warranties regarding regulatory compliance.

Takeaway: Financial institutions must maintain active oversight and independent verification of third-party partners to ensure compliance with federal consumer protection laws, regardless of the partner’s state affiliation.

Correct: The management of property taxes and insurance through escrow accounts is a critical servicing function. Failure to reconcile these accounts and make timely payments to state taxing authorities poses a severe risk because unpaid property taxes often result in a tax lien. In many jurisdictions, these liens have ‘super-priority’ status, meaning they take precedence over the mortgage lien, potentially wiping out the lender’s security interest. A secondary review process is a key internal control to ensure that automated systems are functioning correctly and that all state-mandated obligations are met.

Incorrect: Inadequate marketing disclosures relate to the Truth in Lending Act (TILA) but do not address the operational failure of escrow reconciliation or the risk to lien priority. Verifying employment history is a component of the loan origination and underwriting process (Form 1003) and is not relevant to the post-closing management of property taxes. The timing of the Loan Estimate is a requirement of the TILA-RESPA Integrated Disclosure (TRID) rule during the application phase, whereas the scenario describes a failure in the ongoing servicing and property management phase of the loan lifecycle.

Takeaway: Effective risk management in mortgage servicing requires rigorous oversight of escrow disbursements to prevent state tax delinquencies that could jeopardize the priority of the mortgage lien.

Correct: Conservation easements are permissible encumbrances for secondary market entities like Fannie Mae and Freddie Mac, provided they do not interfere with the residential use of the property. The primary requirement is that the appraiser must evaluate the property with the easement in place to ensure the value and marketability are accurately represented and that the property meets specific investor eligibility criteria.

Incorrect: Rejecting the collateral is unnecessary as easements are often acceptable if they meet specific GSE standards. Subordination is generally not feasible for conservation easements because it would jeopardize the legal status and tax benefits of the conservation effort. Assigning zero value to the land is not a standard appraisal or underwriting practice and would result in an inaccurate assessment of the collateral’s actual market value.

Takeaway: Mortgage professionals must ensure that conservation easements are properly valued by the appraiser and comply with secondary market eligibility standards regarding property encumbrances.

Correct: Transitioning to a cloud-based system with geographic redundancy is the most effective way to ensure that borrower data remains accessible even if a specific region suffers a power grid failure. Real-time synchronization ensures that the most recent onboarding documents (Form 1003, VOEs, etc.) are preserved, meeting the Recovery Time Objective (RTO) and Recovery Point Objective (RPO) required for business continuity in a regulated mortgage environment.

Incorrect: Increasing the frequency of tape backups to a weekly schedule is insufficient for a 72-hour recovery window and storing them on-site creates a single point of failure. Reciprocal agreements with competitors are often unreliable during regional disasters as both parties may be affected simultaneously. Requiring loan officers to keep personal copies on portable drives introduces significant security risks and potential violations of Gramm-Leach-Bliley Act (GLBA) privacy requirements regarding the handling of non-public personal information.

Takeaway: Effective disaster preparedness in mortgage onboarding requires automated, geographically dispersed data redundancy to ensure business continuity and the protection of sensitive borrower information.

Correct: Historic preservation easements can limit the physical changes allowed to a property, which directly affects its valuation by defining its ‘highest and best use.’ Conversely, federal tax credits for the rehabilitation of historic structures can significantly improve a borrower’s cash flow and the property’s value, making these essential factors in a comprehensive risk assessment and underwriting process.

Incorrect: Properties on the National Register are eligible for secondary market purchase, provided they meet specific appraisal and condition standards; removal from the register is not required. Historic status is a physical and legal characteristic of the property, not a protected class under the Fair Housing Act, so it must be disclosed in the appraisal. The State Historic Preservation Office (SHPO) does not provide financial guarantees or letters of credit for private mortgage transactions.

Takeaway: Evaluating historic properties requires a dual focus on the legal restrictions of preservation easements and the financial benefits of available tax incentives to accurately assess collateral risk.