What must MLOs do if they suspect a borrower is being subjected to loan fraud?

When a mortgage loan originator (MLO) suspects that a borrower is being subjected to loan fraud, it is imperative to report the suspected fraud to the appropriate authorities. This responsibility stems from the MLO's duty to uphold ethical standards and legal compliance, ensuring the integrity of the mortgage lending process.

Reporting suspected loan fraud helps protect not only the financial institution but also the borrower and the overall market from the ramifications of fraudulent activities. Authorities, such as regulatory agencies or law enforcement, are equipped to investigate these matters thoroughly. By not taking action, the MLO could inadvertently enable the continuation of fraudulent practices and expose themselves and their institution to legal liability.

Directly notifying the borrower, while well-intentioned, could complicate matters or even lead to retaliation or other unforeseen consequences. Consulting with a legal advisor may be prudent for personal guidance, but it does not fulfill the immediate obligation to report the suspicious activity. Ignoring the suspicions entirely would contradict the MLO's professional responsibilities and ethical duties. Thus, reporting suspected fraud is the necessary and correct course of action.