Question 17
Domain 2: Mortgage Loan Origination ActivitiesAn MLO is told by the borrower that they want to occupy the property as their primary residence, but the MLO sees text messages indicating the borrower plans to immediately rent it out. Continuing the loan as owner-occupied would constitute:
Correct answer: B
Explanation
Occupancy fraud occurs when a borrower misrepresents how they will use the property to obtain more favorable loan terms. Here, claiming the home will be a "primary residence" while planning to "immediately rent it out" is a false occupancy statement, which is a form of mortgage fraud.
Why each option is right or wrong
A. A permissible underwriting choice
B. Occupancy fraud — a form of mortgage fraud
Under the federal mortgage-fraud framework, a knowingly false statement made to influence a lender’s underwriting is fraud; occupancy is a material underwriting factor because owner-occupied loans are typically priced and approved more favorably than investment properties. Here, the borrower’s stated intent to occupy conflicts with contemporaneous text messages showing an immediate rental plan, so proceeding on an owner-occupied basis would involve a false representation of intended use. That is occupancy fraud, which falls within mortgage fraud because the misstatement is material to the loan terms and approval decision.
C. A simple disclosure issue resolved at closing
D. A non-issue if the loan is conventional