Underwriting & Risk Management Flashcards

A borrower has gross monthly income of $8,000, a proposed PITI of $2,000, and other monthly debts of $800. What is the back-end DTI ratio?

Answer: 35%

Back-end DTI = ($2,000 + $800) / $8,000 = 35%.

Under the CFPB's Ability-to-Repay rule, how many underwriting factors must a creditor consider at minimum?

Answer: Eight

Regulation Z §1026.43(c) lists eight factors, including income, employment, payment, simultaneous loans, obligations, DTI or residual income, and credit history.

Which of these is generally treated as a valid compensating factor for a DTI ratio above standard guidelines?

Answer: Significant post-closing cash reserves

Substantial verified liquid reserves show the borrower can absorb payment shocks, so they are a common compensating factor.

A property appraised at $400,000 is purchased for $380,000 with a first mortgage of $304,000 and a second lien of $38,000. What is the CLTV?

Answer: 90%

CLTV uses the lesser of price or value: ($304,000 + $38,000) / $380,000 = 90%.

For a self-employed borrower, how many years of tax returns do conventional underwriting guidelines typically require?

Answer: Two years, though one may be allowed with strong AUS findings

Fannie Mae and Freddie Mac usually require two years of returns, with one year sometimes acceptable when AUS findings support it.

What is the primary purpose of a lender's post-closing quality control (QC) program?

Answer: To find defects, measure the defect rate, and fix origination process weaknesses

Post-closing QC samples closed loans to find defects and root causes, which lowers repurchase and compliance risk.

Which borrower attribute does the 'capacity' component of the traditional 'Cs of credit' describe?

Answer: Ability to repay from income relative to debts

Capacity measures repayment ability, usually through income, employment stability, and DTI.