CMB Current Industry Issues 2 — Questions and Answers
Question 1: A lender uses a complex machine-learning model to deny credit applications. According to CFPB guidance, what must the adverse action notice provide?
- A copy of the model's source code
- Only a generic statement that the applicant did not meet model criteria
- No reasons, since algorithmic decisions are exempt from ECOA notice rules
- Specific and accurate principal reasons for the denial, even if the model is complex (Correct answer)
Correct answer: Specific and accurate principal reasons for the denial, even if the model is complex
CFPB Circular 2022-03 and 2023-03 confirm ECOA/Regulation B require specific principal reasons regardless of the technology used.
Question 2: Which federal rule finalized in 2024 requires mortgage originators and secondary market issuers to adopt quality control standards for automated valuation models (AVMs)?
- The SAFE Act Licensing rule
- The HMDA Partial Exemption rule
- The interagency AVM Quality Control Standards rule (Correct answer)
- The TILA-RESPA Integrated Disclosure rule
Correct answer: The interagency AVM Quality Control Standards rule
Six agencies jointly finalized AVM quality control standards covering confidence, data manipulation, conflicts of interest, random testing, and nondiscrimination.
Question 3: Following the 2024 NAR settlement, what is a key change affecting homebuyers using a buyer's agent?
- Buyer agent compensation is now prohibited by law
- MLS listings must display the buyer agent commission offer
- Sellers must always pay a 3% buyer agent commission
- Buyers generally must sign a written agreement with their agent before touring homes (Correct answer)
Correct answer: Buyers generally must sign a written agreement with their agent before touring homes
The settlement requires written buyer agreements and bars offers of buyer-broker compensation on the MLS.
Question 4: Why have trigger leads been a major industry concern, prompting federal legislation in 2025?
- Trigger leads raised consumers' credit scores improperly
- They required lenders to pull credit twice
- Credit bureaus sold notices of a consumer's mortgage inquiry to competing lenders who then flooded the consumer with solicitations (Correct answer)
- They allowed borrowers to skip appraisals
Correct answer: Credit bureaus sold notices of a consumer's mortgage inquiry to competing lenders who then flooded the consumer with solicitations
The Homebuyers Privacy Protection Act restricts the sale of mortgage-inquiry trigger leads to limited circumstances.
Question 5: Under the amended FTC Safeguards Rule, a nonbank mortgage lender must notify the FTC of a security event involving unencrypted information of at least how many consumers?
- 50
- 5,000
- 10,000
- 500 (Correct answer)
Correct answer: 500
The rule requires notice to the FTC within 30 days of discovering a notification event affecting 500 or more consumers.
Question 6: What is the primary risk that the CFPB and FHFA have highlighted regarding appraisal bias?
- Excessive appraisal fees for jumbo loans
- Appraisers failing to obtain state licenses
- Overuse of desktop appraisals for refinances
- Systematic undervaluation of homes in minority neighborhoods (Correct answer)
Correct answer: Systematic undervaluation of homes in minority neighborhoods
The interagency PAVE initiative targeted racial and ethnic bias that leads to undervaluation in minority communities.
Question 7: A lender relies on a third-party AI underwriting vendor. Who bears fair lending responsibility for discriminatory outcomes?
- No one, if the model does not use protected class data directly
- Only the vendor, since it built the model
- The lender remains responsible for compliance (Correct answer)
- The applicant's credit bureau
Correct answer: The lender remains responsible for compliance
Regulators hold lenders accountable for third-party tools, including disparate impact from proxy variables.
