Question 19
Domain 3: Ethics, Fraud Prevention, and Consumer ProtectionA borrower tells an MLO that their employer pays part of their income "off the books" and asks the MLO to include this undocumented income on the application. The MLO should:
Correct answer: B
Explanation
An MLO must base an application on verified information and cannot knowingly include income that is not documented. Undocumented “off the books” pay is not supported by records, so it should be excluded from the application.
Why each option is right or wrong
A. Include it if the borrower signs a statement verifying the income
B. Decline to include undocumented income on the application
Under the federal mortgage application rules, an MLO may not knowingly make or assist in making a materially false statement or omit material facts in connection with a loan application; the anti-fraud provisions in 18 U.S.C. § 1014 and the SAFE Act’s standards of conduct require truthful, document-supported disclosures. Because the borrower’s “off the books” pay is expressly undocumented, it cannot be treated as qualifying income on the application, and including it would create a false representation of the borrower’s financial condition.
C. Report the borrower to the IRS
D. Include it but note that it is unverified