[NMLS SAFE] 29, Affiliated Business, Anti-Steering and the Named Fraud Schemes

Lesson 29 of the free Quibank NMLS SAFE course. Three ways a deal goes crooked — and the safe harbors that keep you clean: affiliated business arrangements, the anti-steering rule, and the fraud schemes every investigator knows by name. Affiliated business arrangements first. A brokerage may refer borrowers to a title agency it owns — legally — only if three conditions all hold.

The relationship and an estimate of the affiliate's charges are disclosed at or before the referral. The borrower is never required to use the affiliate. And the only thing of value flowing back is a return on the ownership interest itself. Exam version.

When does the arrangement qualify? The answer: disclosure at or before the referral, no required use, and ownership return as the only benefit. Disclosure at the closing table is too late, and requiring the affiliate in exchange for a rate discount breaks the rule on its face. The anti-steering safe harbor.

A consumer who wants to compare fixed and adjustable loans must be shown, for each type she asked about, at least three options: the loan with the lowest interest rate; the lowest rate without risky features — no negative amortization, no prepayment penalty, no balloon in the first seven years; and the lowest total discount points, origination points and origination fees. Three per product type, drawn from creditors you regularly do business with. Exam version. What does the safe harbor require for a consumer comparing fixed and adjustable options?

The answer: for each transaction type she expressed interest in, the three specified options. Three in total from the easiest product, three sorted by closing costs, or fixed-rate only — every wrong answer shrinks the list somewhere the rule does not allow. And the schemes. Fraud for housing: a borrower lies — inflated income, an altered pay stub — to get a home he truly intends to live in and repay.

Still a federal crime; intending to pay cures nothing. Fraud for profit: industry insiders extracting cash from the transaction. A straw buyer fronts good credit for a hidden purchaser. An air loan: the borrower or the property does not even exist.

A silent second: a hidden junior lien secretly covering the down payment. Exam version. A wage earner inflates his income and submits an altered pay stub for a home he and his family will occupy — no insiders involved. The answer: fraud for housing.

His intent to make every payment does not matter; knowingly submitting a false document is the crime. Exam version. An MLO, an appraiser, and a closing agent run a credit-worthy cousin through the application, while the real purchaser — who could not qualify — takes the keys and cash leaves the closing. The answer: a straw buyer scheme, fraud for profit, because insiders are extracting money.

Not an air loan: this buyer and this property are real. Lock these in. Affiliated business: disclose before the referral, never require, ownership return only. Anti-steering: three options for each product type the consumer asked about.

Fraud for housing is the borrower lying for a home; fraud for profit is insiders extracting cash — straw buyers, air loans, silent seconds. And from lesson 25, tested again in ethics: appraisers may be informed, never pressured. Next lesson: the finale — a final review of the rules everyone gets wrong, across all five domains. Practice free at quibank.com/en/mlo.

See you in lesson 30.