Mortgage Ethics and Fraud: 2025 NMLS Exam Study Guide

Ethics is more than just "doing the right thing" in the mortgage industry; it is a rigid framework of federal laws designed to protect consumers and the financial system from predatory practices and money laundering.

1. Understanding Mortgage Fraud

Mortgage fraud is generally divided into two categories: **Fraud for Housing** (the borrower lies to get a home) and **Fraud for Profit** (industry professionals conspire to steal equity or money from lenders). Fraud for profit carries the heaviest federal penalties.

2. The Bank Secrecy Act / Anti-Money Laundering (BSA/AML)

Mortgage companies are required to have an AML program. The most critical requirement for MLOs is the filing of a **SAR (Suspicious Activity Report)** if a transaction involves at least **$5,000** and appears suspicious. **Important:** You must never tell the borrower you are filing a SAR.

3. Gramm-Leach-Bliley Act (GLBA) & The Red Flags Rule

The Safeguards Rule and the Privacy Rule under GLBA protect a consumer's Non-public Personal Information (NPI). The **Red Flags Rule**, part of FACTA, requires lenders to create a written program to detect identity theft.