NMLS SAFE Practice Test

NMLS SAFE Ethics, Fraud & Fair Lending Practice Questions

Ethics, Fraud & Fair Lending makes up 9 of every 50 questions on a Tigertest NMLS SAFE practice test. Here are 10 of the 36 questions on it, each with the answer and the reason.

Updated 2026-11-10 by the Tigertest team. Based on the NMLS SAFE MLO content outline. Original questions; 50 per test, weighted like the real 120-question test, 75% to pass. Not affiliated with NMLS.

1. 1. A lender sets higher minimum loan amounts in ZIP codes where most residents share one national origin, though incomes there match nearby areas. This is a form of:

   • A.Loan flipping
   • B.Redlining
   • C.Steering
   • D.Blockbusting

   Answer: B. Redlining is refusing or limiting credit in an area because of the race, national origin or other protected traits of its residents. It violates the Fair Housing Act and ECOA.

2. 2. An originator steers a borrower who qualifies for a prime loan into a costlier subprime loan because it pays the originator more. This is:

   • A.Allowed if the rate is disclosed
   • B.Normal pricing for risk
   • C.Allowed if the borrower signs
   • D.Steering, a predatory practice

   Answer: D. Steering a consumer to a loan that is worse for them to earn more compensation is barred by Regulation Z's anti-steering rule and is a hallmark of predatory lending.

3. 3. A lender applies the same minimum loan amount to every applicant, but the rule excludes far more applicants of one race without a business need. Under the Fair Housing Act this may be:

   • A.Disparate impact
   • B.Reverse redlining
   • C.Disparate treatment
   • D.Redlining

   Answer: A. Disparate impact is a neutral policy that falls more heavily on a protected group without a legitimate business justification; courts recognize it under the Fair Housing Act. Since July 21, 2026, Regulation B no longer treats it as an ECOA violation. Disparate treatment is treating applicants differently because of a protected trait.

4. 4. Which is a protected class under the Fair Housing Act but not under ECOA?

   • A.Religion
   • B.National origin
   • C.Familial status
   • D.Race

   Answer: C. The Fair Housing Act protects familial status and disability. ECOA covers marital status, age and public assistance income instead; race, religion and national origin are in both.

5. 5. A borrower is repeatedly refinanced, paying new fees each time with little benefit. This predatory practice is:

   • A.Loan packing
   • B.Redlining
   • C.Loan flipping
   • D.Equity skimming

   Answer: C. Loan flipping is frequent refinancing that strips equity through repeated fees and points without a real benefit to the borrower.

6. 6. An originator adds credit life insurance to a loan without the borrower's knowing consent. This practice is called:

   • A.Loan packing
   • B.Rate locking
   • C.Escrow padding
   • D.Loan flipping

   Answer: A. Packing adds unnecessary products such as single-premium credit insurance to the loan, raising the amount financed without real consent.

7. 7. A buyer applies for an owner-occupied loan but plans to rent the home to tenants and never move in. This is:

   • A.Identity theft
   • B.A straw buyer scheme
   • C.An air loan
   • D.Occupancy fraud

   Answer: D. Misstating occupancy to get the lower rate and down payment of an owner-occupied loan is occupancy fraud.

8. 8. A person with good credit buys a home in his name for a friend who cannot qualify, and the friend will live there and pay. The person is acting as a:

   • A.Power of attorney
   • B.Straw buyer
   • C.Non-occupant co-borrower
   • D.Gift donor

   Answer: B. A straw buyer lends their name and credit to hide the real borrower. A disclosed non-occupant co-borrower is legitimate; a hidden arrangement is fraud.

9. 9. A loan is made on a property that does not exist, with a fake borrower and invented documents. This is called:

   • A.A flip
   • B.An air loan
   • C.A silent second
   • D.A bridge loan

   Answer: B. An air loan is fraud in which the borrower, property or both are fabricated, often with collusion from insiders.

10. 10. A buyer gets an undisclosed second loan from the seller to cover the down payment the lender thinks the buyer paid. This is a:

    • A.Gift of equity
    • B.Buydown
    • C.Seller concession
    • D.Silent second

    Answer: D. A silent second is an undisclosed subordinate loan that hides the buyer's true leverage. Disclosed seller credits and gifts of equity are lawful.