United States
Hong KongEthics
Eighteen percent of the exam, covering prohibited acts, fair lending, mortgage fraud, advertising compliance and consumer confidentiality. It is a rules test rather than a values test, and that is why it catches people.
Eighteen percent, which we estimate at 22 questions. More than the entire state content area.
It is also the area candidates most often skip, on the assumption that ethics questions can be answered with good instincts. They cannot.
Why instinct fails here
Because the questions are about specific prohibitions in specific regulations, not about whether something feels wrong.
Steering is prohibited under 12 CFR 1026.36(e). Appraiser coercion is prohibited under 12 CFR 1026.42. Advertising trigger terms require additional disclosures under 12 CFR 1026.24(d). Each of those is a rule with edges, and an exam question will sit on an edge.
What it covers
- Prohibited acts and practices
- Fairness in lending and predatory practices
- Mortgage fraud - detection and reporting
- Advertising and marketing compliance
- Consumer relationships and confidentiality
Fraud for housing and fraud for profit
A distinction worth knowing cold, because it is asked directly.
Fraud for housing is committed to obtain a home to live in - overstating income to qualify. Fraud for profit is committed to extract money from the transaction - a straw buyer, an inflated appraisal, a flip scheme.
Telling the lender a property will be owner-occupied when it will be rented is mortgage fraud, and it is the example that appears most often because candidates are inclined to see it as a small lie.
Predatory practices
Equity stripping, loan flipping, packing, and lending without regard to ability to repay. Four named patterns, and questions tend to describe one and ask you to name it.
Learn them as patterns with distinguishing features rather than as a list of words.
How to study it
Like federal law, because that is what it is. Work from the prohibitions themselves, note which regulation each sits in, and practice questions until the edges are familiar.
Common questions
How much of the NMLS exam is ethics?
18%, which we estimate at 22 of the 120 questions.
Are ethics questions common sense?
No. They test specific prohibitions in Regulation Z and elsewhere, and the questions sit on the edges of those rules.
What is the difference between fraud for housing and fraud for profit?
Fraud for housing obtains a home to live in. Fraud for profit extracts money from the transaction, through devices like straw buyers and inflated appraisals.
What is steering?
Directing a consumer to a transaction the originator will be paid more on, and which is not in the consumer's interest. It is prohibited under 12 CFR 1026.36(e).
What are the predatory lending patterns?
Equity stripping, loan flipping, packing, and lending without regard to ability to repay.