CMA Underwriting and Risk Assessment 3

Question 1

What is the significance of the 'three Cs' in traditional mortgage underwriting?

Accepted Answer

Credit, Collateral, and Capacity (ability to repay)

Answer

The three Cs—Credit history, Collateral value, and Capacity (income/DTI)—form the core framework underwriters use to evaluate mortgage risk.

Question 2

When underwriting a rental property, how do most conventional lenders treat projected rental income for a borrower who is a first-time landlord?

Accepted Answer

75% of the appraiser's market rent estimate can offset the housing payment, but full income qualification still applies

Answer

Fannie Mae typically allows 75% of the market rent from an appraisal to be used to offset the subject property's PITIA for a first-time investor.

Question 3

A borrower receives a large deposit of $15,000 into their bank account 30 days before closing. How should an underwriter handle this?

Accepted Answer

Require the borrower to source and document the deposit to confirm it is not an undisclosed loan

Answer

Large undocumented deposits must be sourced to ensure funds are not borrowed, as undisclosed liabilities would affect the borrower's actual debt load.

Question 4

In the context of risk assessment, what is a 'compensating factor'?

Accepted Answer

A positive element in the borrower's profile that offsets a weakness in another qualifying area

Answer

Compensating factors such as significant cash reserves or a low LTV can allow approval when one qualifying metric, like DTI, exceeds standard thresholds.

Question 5

What does a 'rate-and-term refinance' typically require compared to a cash-out refinance from an underwriting risk perspective?

Accepted Answer

Less stringent LTV and reserve requirements because no equity is being extracted

Answer

Rate-and-term refinances are considered lower risk than cash-out transactions, so they typically allow higher LTVs and have fewer reserve requirements.

(CMA) Certified Mortgage Advisor Practice Test

(CMA) Certified Mortgage Advisor Practice Test

CMA Underwriting and Risk Assessment 3