CHCP Mortgage Processing & Underwriting 3

Question 1

The three Cs of underwriting used to evaluate a mortgage application are capacity, capital, and what?

Accepted Answer

Collateral

Answer

The three Cs of mortgage underwriting are Capacity (ability to repay), Capital (assets), and Collateral (the property securing the loan).

Question 2

What is the primary purpose of Private Mortgage Insurance (PMI) on a conventional loan?

Accepted Answer

To protect the lender against default when LTV exceeds 80%

Answer

PMI protects the lender — not the borrower — against losses if the borrower defaults when the loan-to-value ratio is above 80%.

Question 3

A borrower has a FICO score of 619. Which loan program would most likely still allow them to qualify with a 3.5% down payment?

Accepted Answer

FHA loan

Answer

FHA allows credit scores as low as 580 for the 3.5% down payment option, while conventional loans typically require at least 620.

Question 4

What is 'layered risk' in underwriting?

Accepted Answer

Multiple risk factors present simultaneously that increase default probability

Answer

Layered risk occurs when a loan file has several risk factors at once (e.g., low credit score + high DTI + minimal down payment), compounding the likelihood of default.

Question 5

Under the Ability-to-Repay (ATR) rule, lenders must verify a borrower's ability to repay using which standard?

Accepted Answer

The fully indexed, fully amortized payment

Answer

The ATR rule requires lenders to qualify borrowers based on the fully indexed, fully amortizing payment, not just the initial or teaser rate.

(CHCP) Certified Home Closing Professional Practice Test

(CHCP) Certified Home Closing Professional Practice Test

CHCP Mortgage Processing & Underwriting 3