(20hr) Day 5 - ETHICS and PREDATORY LENDING - Case Studies 1-3

Students - when commenting on the following Case Studies, be sure and start your response with the corresponding Case Study number    (ex : 1 of 3)



Class Blog (1 of 3)
Ethics ( altering Loan Documentation) 

At work one day, a MLO observes an interaction between a co-worker taking a loan application from a borrower.  The borrower mentions that he will begin paying child support beginning next year, but has not received the court order yet. The co-worker acts like she doesn’t hear the borrower and proceeds with the loan application. 
What are the moral and ethical elements of this situation?



Class Blog (2 of 3) 
Serving the Underserved  

A mortgage company has had a mortgage production office in the heart of a large metropolitan city for over five (5) years. A subsidiary of a large savings bank, the mortgage company has played a large role in the community reinvestment objectives of the bank over the years.


About a month ago, the mortgage company’s branch manager returned from a recruiting luncheon extremely excited about the new hire of a large producer who serviced an area of the city that the branch manager had never been able to penetrate.  Primarily because he could never hire a mortgage loan originator whose race matched that of the side of town he targeted.


The mortgages were now flowing in.  Each loan marketed and subsequently made was originated for sale to the new subprime lender relationship created when the new loan officer joined the company.  Every loan carried the maximum three percent (3%) excess discount allowed by the investor; easily accomplished because there was little to no other loan competition in that community.


Needless to say, the branch manager and his boss within the bank were delighted with the new production from this underserved market.  The loan activity would surely help the bank get approval to open new bank branches throughout the new community.

In the big picture, is this a good situation for the mortgage company and its banking parent?



Class Blog (3 of 3)
Predatory Lending 

Review the Cartoon Case Study video for an interaction between an MLO and his client.  




In what ways did this MLO act in a predatory , unethical or downright unlawful way? 

17 comments:

  1. 1 of 3
    Morally, this is wrong and the co-worker is not acting on the borrower's best interest. Ethically, the co-worker should re-evaluate the loan and the financial interests of the borrower. The child support payments could impact his ability to make payments on time, and the co-worker should either re-run the LE with the new information or provide other loan alternatives. Ignoring this new factor just to make a sale is morally and ethically wrong, and could impact the lender and their organization.

    2 of 3
    This depends on their overall intentions with lending. Are they targeting this community and providing the same lending options as the other communities they serve? Are they there to make sales, or are they there to positively impact a community that was previously underserved? Are they taking the necessary measures to provide information on all available loans, or are they only providing ones that would in the long run cause harm to the borrowers? If they are acting on good morals and ethics, then in the long run this is good. If they are only doing this to have a "presence" and want to make sales, then this is wrong.

    3 of 3
    The MLO flat out lied. The borrower wanted to know what ARM stood for and the MLO said "Awesome" Rate Mortgage, and also said the ARM loan was fixed. He also left the signed pages blank which is misleading to the borrower. Any information that was necessary to provide the borrower was left out and completely unlawful. He should have disclosed all the information about the loan, filled in the paperwork, and been truthful about the differences between loan types.

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  2. 1 of 3
    Should the overhearer tell their boss? Should the overhearer talk to the MLO?
    It can cause you to question the character of the MLO.
    It is perceived as being deceiving & hurtful to all involved.
    the MLO commission factor?

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  3. 2 of 3
    I think the big issue here is that the 3% excess applied to every loan & is an example of reverse redlining which can lead to negative consequences.

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  4. 3 of 3
    The MLO lied about the answer to the client's question of what an ARM loan is & he also lied & said it was standard procedure for clients to sign blank papers which is not the case at all.

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  5. 1 of 3
    Morally, the MLO is operating in a selfish way in order to obtain the loan, usually for his own personal gain. Ethically, he is ignoring facts that could impact borrowers ability to repay the loan and possibly be damaging to borrower by resulting in default.

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  6. 2 of 3
    This would be considered reverse redlining since loans were being offered to an underserved population with little options and carrying a higher rate based on that rather than credit quality. Ultimately this would not be good for the mortgage company and banking parents reputations due to the high probability of future defaults.

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  7. 3 or 3
    The MLO operated very unethically by misleading the about the interest rate and the fact that it was not fixed, by making up the definition of an ARM and by having the borrower sign blank forms. This very likely would result in borrower not being able to afford the long term aspects of the loan. This was highly unethical and illegal.

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  8. 1 of 3
    There are people or businesses that are hurt by this situation. There is deception. The extra money gained by the broker is unfair to the other brokers or lenders. There are conflicting values and clear questions of character.

    2 of 3
    By providing nothing but higher priced subprime loans to a community underserved by lenders, the mortgage company and its banking parent are guilty of reverse redlining. The underserved community should have been offered competitive market rate products.

    3 of 3
    The MLO acted very unethically in this situation. The MLO should have made sure, with proper disclosures, that the borrower fully understood the risks of the loan and how the interest rate could potentially cripple her budget.

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  9. 1 of 3
    The co worker is morally wrong and should taken into consideration of child support and ethically factored it into the underwriting.

    2 of 3
    Financially it is great for the company but ethically they are doin a disservice by not offering all options and charging higher rates than available. This practice would be considered reverse redlining and hurts the community and company in the long run due to more defaults in the future.

    3 of 3
    This was morally and ethically terrible for the MLO to do. Lying on multiple issues about the loan. ARM does not mean 'Awesome'. Leaving documents blank and saying the rate is fixed. Most of the information needed to inform the borrower was left out. This is an example of predatory lending practices.

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  10. 1 of 1:
    Morally, the loan officer has a agenda that maybe good or bad but she is being unethically because she is taking advantage of the consumer for profit and may put her in a position of default.

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  11. 2 of 3:
    This would be considered reverse redlining, not giving the said community the option of better plans. The company is doing a disservice to themselves and the community they are looking to serve.

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  12. 1 of 3
    There are people or business entities that are hurt by the situation;
    • There is deception;
    • The extra money gained by the deceitful broker is unfair to other brokers and lenders
    who work ethically;
    • There are conflicting values - should you be honest and tell your boss? Or should
    you be loyal to your best friend and coworker?
    • There are questions of character;
    2 of 3
    By providing nothing but higher priced subprime loans to a community underserved by
    other lenders, the mortgage company and its banking parent are guilty of reverse
    redlining. They (the MLO and the manager) have both taken advantage of a segment of
    the population who do not have readily available home financing. The MLO made each
    borrower pay dearly with loans and pricing that should have been more competitive. This problem could have had a happy ending if the underserved community were offered
    competitive market rate products.
    3 of 3
    The MLO lied and has not informed the borrower well

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  13. 3 of 3;
    Lying about what an ARM is, Making the borrower sign blank paperwork and stating an % rate she most likely never receive.

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  14. 1. Without knowing the amount of child support to be paid each month, the MLO could be setting the borrower up for failure by not being able to afford the loan payments. This would also effect the lender.

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  15. 2. No. They are taking advantage of the borrowers by not offering individual loan terms.

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  16. 3. The MLO was all of the above when he didn't disclose the true terms of the ARM.

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