CHCP Mortgage Processing & Underwriting 5 — Questions and Answers
Question 1: A borrower's income from a part-time job can typically be used for qualification if they have worked the part-time job for at least how long?
- 6 months
- 12 months
- 18 months
- 24 months (Correct answer)
Correct answer: 24 months
Most conventional guidelines require a 2-year history of part-time employment to use that income for qualification, demonstrating its consistency.
Question 2: What is the purpose of an 'appraisal review' or 'field review' ordered by the underwriter?
- To replace the original appraisal with a lower value
- To verify the accuracy and methodology of the original appraisal (Correct answer)
- To inspect the property for repairs
- To establish flood zone designation
Correct answer: To verify the accuracy and methodology of the original appraisal
An appraisal review is a secondary evaluation to assess whether the original appraisal's value, methodology, and comparable sales are credible and supported.
Question 3: Which document is used to disclose the Annual Percentage Rate (APR) and loan terms to the borrower under TRID rules?
- Good Faith Estimate
- Truth-in-Lending Disclosure
- Loan Estimate (Correct answer)
- Closing Disclosure
Correct answer: Loan Estimate
Under TRID (TILA-RESPA Integrated Disclosure), the Loan Estimate replaced both the GFE and early TIL disclosure and must be provided within 3 business days of application.
Question 4: In mortgage processing, what does a 'clear to close' (CTC) status mean?
- The title is free of liens
- All underwriting conditions have been satisfied and the loan is approved for closing (Correct answer)
- The property has passed final inspection
- The borrower's rate lock has been confirmed
Correct answer: All underwriting conditions have been satisfied and the loan is approved for closing
Clear to close means the underwriter has reviewed and approved all conditions, and the closing department can proceed to schedule and prepare closing documents.
Question 5: What is a 'non-arm's length transaction' in mortgage underwriting, and why does it matter?
- A loan where the interest rate is above market; it triggers additional disclosures
- A transaction between related parties, requiring additional scrutiny to prevent inflated values or undisclosed arrangements (Correct answer)
- A purchase without a real estate agent; underwriting is the same
- A refinance where the borrower retains the same lender
Correct answer: A transaction between related parties, requiring additional scrutiny to prevent inflated values or undisclosed arrangements
Non-arm's length transactions involve related parties (family members, employer-employee) and require heightened underwriting review because the sale price may not reflect true market value.
Question 6: Which government agency insures FHA loans against borrower default?
- Fannie Mae
- The Department of Veterans Affairs (VA)
- The Federal Housing Administration (FHA) under HUD (Correct answer)
- The Federal Home Loan Bank
Correct answer: The Federal Housing Administration (FHA) under HUD
FHA loans are insured by the Federal Housing Administration, which is part of the U.S. Department of Housing and Urban Development (HUD).
Question 7: What is the significance of a 'rate lock expiration' during the mortgage processing stage?
- The borrower loses their right to the loan
- If the loan does not close before expiration, the interest rate may change and extension fees may apply (Correct answer)
- The lender must offer a lower rate automatically
- The appraisal must be redone
Correct answer: If the loan does not close before expiration, the interest rate may change and extension fees may apply
When a rate lock expires before closing, the borrower is no longer guaranteed the locked rate and may face market rate changes or must pay extension fees to preserve the rate.
CHCP Mortgage Processing & Underwriting 5
A borrower's income from a part-time job can typically be used for qualification if they have worked the part-time job for at least how long?