CMA Mortgage Underwriting & Risk Analysis 2 — Questions and Answers
Question 1: A borrower has a DTI of 48% but compensating factors including 12 months reserves and a 780 credit score. Under conventional guidelines, which statement best describes the underwriter's likely approach?
- Automatic denial because DTI exceeds 45%
- May approve using DU/LP with documented compensating factors (Correct answer)
- Must reduce the loan amount until DTI falls below 36%
- Requires a co-borrower to lower the DTI
Correct answer: May approve using DU/LP with documented compensating factors
Fannie Mae's Desktop Underwriter and Freddie Mac's Loan Prospector can approve DTIs above 45% when strong compensating factors such as significant reserves and excellent credit are documented.
Question 2: Which of the following income types requires a two-year history and continuation for at least three years to be used in qualifying?
- Base salary income
- Social Security retirement income
- Self-employment income (Correct answer)
- Part-time employment income
Correct answer: Self-employment income
Self-employment income requires a two-year documented history via tax returns and must be reasonably expected to continue for at least three years.
Question 3: An appraisal comes in $15,000 below the purchase price on a $300,000 transaction with 10% down. What is the MOST COMMON resolution to proceed with the transaction?
- The lender automatically increases the loan amount to cover the gap
- The borrower renegotiates the price or pays the appraisal gap in cash (Correct answer)
- The appraiser is required to revise the value upward
- The loan program switches to FHA to allow higher LTV
Correct answer: The borrower renegotiates the price or pays the appraisal gap in cash
When an appraisal falls short, the borrower typically must either renegotiate the purchase price with the seller or cover the appraisal gap with additional cash at closing.
Question 4: Under the ATR/QM rule, which loan feature automatically disqualifies a loan from being a Qualified Mortgage?
- Fixed interest rate
- 30-year amortization term
- Negative amortization (Correct answer)
- Single-family collateral
Correct answer: Negative amortization
Negative amortization, where the loan balance increases over time, is explicitly prohibited under the ATR/QM rule and disqualifies a loan from QM status.
Question 5: A property has a sales price of $400,000 and is being purchased with an 80% LTV conventional loan. The NOI for the investment property is $28,000 annually. What is the DSCR?
- 0.875
- 1.09
- 1.40
- Cannot be determined without the annual debt service (Correct answer)
Correct answer: Cannot be determined without the annual debt service
DSCR equals NOI divided by annual debt service; without knowing the annual mortgage payment (debt service), the DSCR cannot be calculated.
Question 6: Which of the following is considered a 'red flag' for loan fraud that an underwriter should escalate?
- Borrower refinancing within 12 months of purchase
- Purchase price significantly below comparable sales with a rapid resale contract (Correct answer)
- Borrower using gift funds for down payment
- Seller paying 3% in concessions
Correct answer: Purchase price significantly below comparable sales with a rapid resale contract
A purchase price significantly below market value combined with a simultaneous or rapid resale contract at a much higher price is a classic indicator of property flipping fraud.
Question 7: A borrower's credit report shows a Chapter 7 bankruptcy discharged 3 years ago. Which loan type has the shortest waiting period and could potentially approve this borrower today?
- Conventional conforming
- FHA (Correct answer)
- VA
- USDA
Correct answer: FHA
FHA loans have a 2-year waiting period after Chapter 7 discharge, making them eligible after 3 years, while conventional loans require 4 years.
CMA Mortgage Underwriting & Risk Analysis 2
A borrower has a DTI of 48% but compensating factors including 12 months reserves and a 780 credit score.
Under conventional guidelines, which statement best describes the underwriter's likely approach?