CMB Underwriting & Risk Management 2 — Questions and Answers
Question 1: 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?
- 40%
- 30%
- 25%
- 35% (Correct answer)
Correct answer: 35%
Back-end DTI = ($2,000 + $800) / $8,000 = 35%.
Question 2: Under the CFPB's Ability-to-Repay rule, how many underwriting factors must a creditor consider at minimum?
- Six
- Eight (Correct answer)
- Ten
- Five
Correct answer: Eight
Regulation Z §1026.43(c) lists eight factors, including income, employment, payment, simultaneous loans, obligations, DTI or residual income, and credit history.
Question 3: Which of these is generally treated as a valid compensating factor for a DTI ratio above standard guidelines?
- Significant post-closing cash reserves (Correct answer)
- A recent increase in revolving credit limits
- A pending raise not yet documented
- A co-signer with no credit history
Correct answer: Significant post-closing cash reserves
Substantial verified liquid reserves show the borrower can absorb payment shocks, so they are a common compensating factor.
Question 4: 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?
- 95%
- 90% (Correct answer)
- 80%
- 85.5%
Correct answer: 90%
CLTV uses the lesser of price or value: ($304,000 + $38,000) / $380,000 = 90%.
Question 5: For a self-employed borrower, how many years of tax returns do conventional underwriting guidelines typically require?
- Three years
- One year in all cases
- Two years, though one may be allowed with strong AUS findings (Correct answer)
- Five years
Correct 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.
Question 6: What is the primary purpose of a lender's post-closing quality control (QC) program?
- To replace the pre-funding appraisal review
- To decide servicing transfer dates
- To reprice loans before sale
- To find defects, measure the defect rate, and fix origination process weaknesses (Correct answer)
Correct 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.
Question 7: Which borrower attribute does the 'capacity' component of the traditional 'Cs of credit' describe?
- Ability to repay from income relative to debts (Correct answer)
- Amount of down payment invested
- Value of the collateral
- Willingness to repay based on past behavior
Correct answer: Ability to repay from income relative to debts
Capacity measures repayment ability, usually through income, employment stability, and DTI.
