CHCP Mortgage Processing & Underwriting 2 — Questions and Answers
Question 1: A borrower's debt-to-income (DTI) ratio is calculated by dividing monthly debt payments by which figure?
- Net monthly income after taxes
- Gross monthly income before taxes (Correct answer)
- Annual household income
- Monthly disposable income
Correct answer: Gross monthly income before taxes
DTI is calculated using gross monthly income (before taxes and deductions) as the denominator.
Question 2: Which automated underwriting system (AUS) is primarily used by Fannie Mae?
- Loan Prospector (LP)
- Desktop Underwriter (DU) (Correct answer)
- GUS (Government Underwriting System)
- TOTAL Scorecard
Correct answer: Desktop Underwriter (DU)
Fannie Mae's proprietary AUS is Desktop Underwriter (DU), while Freddie Mac uses Loan Product Advisor (LPA).
Question 3: What is the maximum conventional loan DTI ratio typically allowed under Fannie Mae guidelines with strong compensating factors?
- 36%
- 43%
- 50% (Correct answer)
- 57%
Correct answer: 50%
Fannie Mae's DU can approve loans up to 50% DTI when strong compensating factors such as high credit score or significant reserves are present.
Question 4: A gift letter for a down payment must confirm that the funds are a gift and NOT a loan — what additional element is required?
- The donor's credit score
- A statement that no repayment is expected (Correct answer)
- A notarized signature from both parties
- Proof the donor's income exceeds the gift amount
Correct answer: A statement that no repayment is expected
Gift letters must explicitly state that no repayment is expected or required, distinguishing the funds from a loan.
Question 5: When a lender orders a 'verbal verification of employment' (VVOE), when must it typically be completed?
- At loan application
- At underwriting approval
- Within 10 business days of closing
- Within 3 business days of closing (Correct answer)
Correct answer: Within 3 business days of closing
Fannie Mae and Freddie Mac require VVOE to be completed within 3 business days of the note date (closing).
Question 6: Which type of income is typically NOT acceptable for qualifying purposes on a conventional loan without a 2-year documented history?
- Salaried W-2 income
- Self-employment income (Correct answer)
- Social Security income
- Pension income
Correct answer: Self-employment income
Self-employment income requires a 2-year history documented by tax returns because it can fluctuate and is considered less stable.
Question 7: What does a 'condition' in an underwriting approval mean?
- The loan is denied pending appeal
- The loan is approved but specific items must be satisfied before closing (Correct answer)
- The borrower must get additional counseling
- The property appraisal must be redone
Correct answer: The loan is approved but specific items must be satisfied before closing
A conditional approval means the underwriter has approved the loan subject to the borrower or processor providing specific additional documentation or information.
CHCP Mortgage Processing & Underwriting 2
A borrower's debt-to-income (DTI) ratio is calculated by dividing monthly debt payments by which figure?