CMA Mortgage Products and Programs 3 — Questions and Answers
Question 1: A borrower is purchasing a manufactured home on a permanent foundation. Which loan type is MOST appropriate?
- Personal property (chattel) loan
- FHA Title II loan (Correct answer)
- USDA Direct loan only
- Jumbo portfolio loan
Correct answer: FHA Title II loan
FHA Title II loans can finance manufactured homes on permanent foundations that meet HUD standards, treating them as real property.
Question 2: What is the primary purpose of the HomeReady mortgage program offered by Fannie Mae?
- To finance vacation or second homes for moderate-income borrowers
- To expand homeownership for low-to-moderate income borrowers with flexible underwriting (Correct answer)
- To provide refinancing for borrowers who are underwater on their mortgages
- To offer zero-down financing for military veterans
Correct answer: To expand homeownership for low-to-moderate income borrowers with flexible underwriting
HomeReady is designed to help low-to-moderate income buyers with features like reduced MI, low down payment, and flexible income sources.
Question 3: Which index is most commonly used as the benchmark for 5/1 ARM loans in the U.S. today?
- Prime Rate
- 11th District Cost of Funds Index (COFI)
- Secured Overnight Financing Rate (SOFR) (Correct answer)
- 1-year Treasury Constant Maturity
Correct answer: Secured Overnight Financing Rate (SOFR)
SOFR has replaced LIBOR as the primary benchmark index for most adjustable-rate mortgages in the U.S. since 2023.
Question 4: A balloon mortgage with a 7/23 structure means the loan:
- Has a fixed rate for 7 years, then adjusts annually for 23 years
- Amortizes over 30 years with a full payment due at year 7 (Correct answer)
- Is fixed for 23 years and converts to a balloon in year 7
- Adjusts every 7 years with a 23-year amortization schedule
Correct answer: Amortizes over 30 years with a full payment due at year 7
A 7/23 balloon mortgage is amortized over 30 years but requires the full remaining balance to be paid at the end of year 7.
Question 5: Under Freddie Mac's Home Possible program, what is the maximum loan-to-value ratio allowed for a one-unit primary residence?
- 90%
- 95%
- 97% (Correct answer)
- 100%
Correct answer: 97%
Freddie Mac's Home Possible allows up to 97% LTV for one-unit primary residences, requiring only a 3% down payment.
Question 6: Which type of mortgage allows the borrower to receive monthly payments from the lender rather than making payments to the lender?
- Shared appreciation mortgage
- Reverse mortgage (HECM) (Correct answer)
- Deferred payment mortgage
- Interest-only mortgage
Correct answer: Reverse mortgage (HECM)
A reverse mortgage (HECM) allows homeowners 62+ to receive loan proceeds as monthly payments, a lump sum, or line of credit.
Question 7: A 2-1 buydown on a 7% mortgage means the borrower pays:
- 5% in year 1, 6% in year 2, 7% thereafter (Correct answer)
- 6% in year 1, 6.5% in year 2, 7% thereafter
- 5% in year 1, 5.5% in year 2, 7% thereafter
- 6.5% in year 1, 7% thereafter
Correct answer: 5% in year 1, 6% in year 2, 7% thereafter
A 2-1 buydown reduces the rate by 2% in year 1 and 1% in year 2, then reverts to the note rate of 7% in year 3.
CMA Mortgage Products and Programs 3
A borrower is purchasing a manufactured home on a permanent foundation.
Which loan type is MOST appropriate?