CCC CCC Housing & Mortgage Counseling 2 — Questions and Answers
Question 1: When counseling a client facing foreclosure, what is the primary purpose of a 'loss mitigation' review?
- To help the lender collect the full amount owed immediately
- To explore options that avoid foreclosure and minimize losses for both borrower and lender (Correct answer)
- To transfer the property title to the lender
- To discharge the mortgage debt through bankruptcy
Correct answer: To explore options that avoid foreclosure and minimize losses for both borrower and lender
Loss mitigation refers to a lender's process of working with borrowers to find alternatives to foreclosure that reduce financial loss for both parties.
Question 2: A client wants to sell their home but owes more than the current market value. Which option allows them to sell the property for less than the outstanding mortgage balance with lender approval?
- Deed-in-lieu
- Short sale (Correct answer)
- Forbearance
- Cash-out refinance
Correct answer: Short sale
A short sale allows a homeowner to sell the property for less than owed on the mortgage, with the lender's agreement to accept the reduced proceeds.
Question 3: What is private mortgage insurance (PMI) and when is it typically required?
- Insurance that covers the borrower's life in case of death; required on all loans
- Insurance protecting the lender against default; typically required when LTV exceeds 80% (Correct answer)
- Insurance covering property damage; required on FHA loans only
- Insurance protecting the borrower against rate increases; required on ARMs
Correct answer: Insurance protecting the lender against default; typically required when LTV exceeds 80%
PMI protects the lender if the borrower defaults and is generally required when the down payment is less than 20% (LTV above 80%).
Question 4: Under the Homeowners Protection Act, when must a lender automatically cancel PMI on a conventional mortgage?
- When the loan reaches 80% LTV
- When the borrower requests cancellation at 80% LTV
- When the mortgage reaches the midpoint of its amortization schedule
- When the loan reaches 78% LTV based on original amortization schedule (Correct answer)
Correct answer: When the loan reaches 78% LTV based on original amortization schedule
The Homeowners Protection Act requires automatic PMI cancellation when the loan balance reaches 78% of the original property value based on the scheduled payment date.
Question 5: What is the primary difference between a home equity loan and a home equity line of credit (HELOC)?
- A home equity loan uses the property as collateral; a HELOC does not
- A home equity loan provides a lump sum at a fixed rate; a HELOC is a revolving credit line (Correct answer)
- A home equity loan is tax-deductible; a HELOC is not
- A home equity loan requires no credit check; a HELOC does
Correct answer: A home equity loan provides a lump sum at a fixed rate; a HELOC is a revolving credit line
A home equity loan disburses a lump sum with a fixed interest rate, while a HELOC functions like a revolving credit line with a variable rate.
Question 6: A credit counselor is helping a client understand their Closing Disclosure. When must this document be provided to a borrower before closing?
- At least 1 business day before closing
- At least 3 business days before closing (Correct answer)
- At least 5 business days before closing
- On the day of closing
Correct answer: At least 3 business days before closing
Under TRID rules, lenders must provide the Closing Disclosure at least three business days before loan consummation.
CCC CCC Housing & Mortgage Counseling 2
When counseling a client facing foreclosure, what is the primary purpose of a 'loss mitigation' review?