Professional Conduct

Professional conduct standards establish the baseline expectations for ethical behavior in mortgage lending. These standards protect consumers, maintain industry integrity, and guide MLO behavior in situations where the right course of action may not be immediately clear.

Honesty and Integrity Standards

Core Principles

Every MLO must:

• Tell the truth in all communications with borrowers, lenders, and regulators
• Avoid misleading borrowers through omissions or half-truths
• Honor commitments made to borrowers and business partners
• Maintain transparency about qualifications, authority, and conflicts
• Report violations by others when observed

What Honesty Means in Practice

Examples of Dishonest Conduct

False Statements:

• Misrepresenting loan terms, rates, or fees
• Lying about experience or qualifications
• Falsifying application information
• Making untrue statements to underwriters

Misleading Representations:

• Promising rates or terms you cannot deliver
• Implying approval is guaranteed before underwriting
• Hiding negative loan features
• Cherry-picking information to create false impression

Advertising Rules

Truth in Advertising

All mortgage advertising must be:

• Truthful - No false claims
• Not misleading - Complete picture, not just positives
• Clear and conspicuous - Important terms not hidden
• Compliant - Follows federal and state requirements

Required Disclosures

Mortgage advertisements must include:

Trigger Terms

Under Regulation Z (TILA), certain advertising claims trigger additional disclosure requirements:

Trigger Terms Include:

• Down payment amount (e.g., "only 3% down")
• Monthly payment amount
• Number of payments
• Finance charge amount

When Triggered, Must Also Disclose:

• Amount or percentage of down payment
• Repayment terms
• APR (and if variable, that fact)

Exam Tip: If an ad mentions any specific payment or rate term, it triggers additional disclosure requirements. Vague terms like "low rates" do not trigger these requirements.

Prohibited Advertising Practices

• Bait and switch - Advertising unavailable terms to attract borrowers
• Fake urgency - False limited-time offers
• Deceptive guarantees - Promising approval or rates not deliverable
• Impersonation - Implying government affiliation
• Hidden costs - Advertising low rates without disclosing fees

Prohibited Practices

Beyond dishonesty and misleading advertising, specific practices are prohibited:

Unauthorized Practice of Law

MLOs may NOT:

• Provide legal advice about contracts, title, or property law
• Draft legal documents (other than loan applications)
• Advise on estate planning, trusts, or asset protection
• Interpret legal documents for borrowers
• Represent borrowers in legal matters

What to Say: "I'm not an attorney and can't provide legal advice. You should consult with a real estate attorney for that question."

Unauthorized Practice of Other Professions

MLOs also may not act as:

• Real estate appraisers (valuing property)
• Tax advisors (providing tax advice)
• Insurance agents (selling insurance products)
• Financial planners (unless separately licensed)

Other Prohibited Practices

Maintaining Confidentiality

Privacy Requirements (GLBA)

The Gramm-Leach-Bliley Act (GLBA) requires financial institutions to protect consumer information:

Protected Information:

• Social Security numbers
• Income and employment information
• Asset and liability details
• Credit history
• Account numbers
• Other personal financial data

Privacy Notice Requirements

Consumers must receive:

• Initial privacy notice at account opening
• Annual privacy notices (if required)
• Opt-out opportunity for certain information sharing

Safeguarding Requirements

MLOs and their employers must:

• Develop written information security programs
• Identify reasonably foreseeable risks
• Design and implement safeguards
• Monitor and test safeguards regularly
• Select and monitor service providers

Confidentiality Best Practices

1. Secure Storage - Lock physical files, encrypt digital files
2. Need-to-Know - Share information only with those who need it
3. Verify Requests - Confirm identity before releasing information
4. Proper Disposal - Shred documents, securely delete files
5. No Public Discussion - Never discuss borrower details in public
6. Social Media Caution - Never post borrower information online

Record Keeping Requirements

Retention Periods

What to Retain

Loan files should include:

• Original application and all revisions
• All disclosures provided
• Verifications (employment, income, assets)
• Appraisal and title documents
• Communication logs
• Underwriting decisions and conditions
• Closing documents

Record Keeping Best Practices

• Maintain organized, complete files
• Document all communications
• Store securely (physical and electronic)
• Implement backup procedures
• Train staff on record requirements
• Have clear destruction policies

Consequences of Professional Conduct Violations

License Consequences

Non-License Consequences

• Civil lawsuits from harmed borrowers
• CFPB enforcement actions
• Federal criminal prosecution
• Reputation damage
• Loss of employment
• Personal financial liability

Remember: Your NMLS record follows you throughout your career. Violations, even minor ones, become part of your permanent record and must be disclosed to future employers and regulators.

Ethical Decision-Making Framework

When facing difficult situations, ask:

1. Is it legal? Does it comply with all laws and regulations?
2. Is it honest? Would you be comfortable explaining your actions?
3. Does it serve the borrower? Is this in the borrower's best interest?
4. Would you be proud? How would this look in a news story?
5. What would a respected colleague do? Seek guidance when unsure

If any answer is "no" or uncertain, stop and seek guidance before proceeding.