Mixed Deck — All CMC Topics Flashcards

What distinguishes a 'portfolio loan' from a conventional conforming loan?

Answer: Portfolio loans are held by the originating lender and not sold to the secondary market

Portfolio loans are kept on the lender's books rather than sold, allowing more flexible underwriting outside agency guidelines.

Under the Fair Housing Act, a CMC must NOT vary loan terms based on a borrower's:

Answer: National origin

The Fair Housing Act prohibits discrimination in mortgage lending based on national origin, race, color, religion, sex, disability, or familial status.

A borrower is applying for a loan on a 2-unit property to be used as a primary residence. What is the minimum down payment required under FHA guidelines?

Answer: 3.5%

FHA requires only 3.5% down for 1-4 unit properties when the borrower occupies one unit as a primary residence and has a qualifying credit score.

What is 'subordination' in real estate finance?

Answer: An agreement where a junior lienholder agrees to remain in a lower lien priority

Subordination is when a junior lienholder (such as a second mortgage holder) agrees to remain in a secondary lien position behind a new first mortgage.

A mortgage consultant who collects advance fees from borrowers before completing any services may be violating:

Answer: The Mortgage Assistance Relief Services (MARS) Rule

The MARS Rule prohibits collecting advance fees before successfully completing promised mortgage relief services.

Which loan type is specifically designed for the purchase and renovation of a single-family property using one loan?

Answer: Both A and C

Both FHA 203(k) and Fannie Mae HomeStyle Renovation Mortgage combine purchase and renovation costs into a single loan.

Which mortgage product allows seniors to receive loan proceeds as monthly payments, a lump sum, or a line of credit without making monthly mortgage payments?

Answer: Home Equity Conversion Mortgage (HECM)

The FHA-insured HECM is the standard reverse mortgage allowing seniors 62+ to access home equity with no required monthly payments.

A shared appreciation mortgage (SAM) typically requires the borrower to give the lender a portion of future appreciation. What does the borrower receive in exchange?

Answer: A below-market interest rate

In a shared appreciation mortgage, the borrower accepts a below-market interest rate in exchange for giving the lender a share of any future appreciation in the property's value.

During the underwriting review of a borrower's bank statements, which of the following would be the biggest 'red flag' requiring further investigation and a letter of explanation?

Answer: A large, un-sourced cash deposit made one week prior to the loan application.

A large, recent cash deposit without a clear source is a major red flag for underwriters. It raises concerns about undisclosed debt, un-seasoned funds for the down payment, or even potential money laundering. The other options represent normal financial activities that are easily verifiable and expected.

What is the maximum back-end DTI ratio generally permitted under standard Fannie Mae guidelines without compensating factors?

Answer: 45%

Fannie Mae's standard maximum back-end DTI is 45% when run through DU without additional risk factors.

An appraisal comes in $15,000 below the purchase price on a conventional loan. What is the underwriter's standard course of action?

Answer: Base the loan on the appraised value, requiring the borrower to cover the difference

Conventional underwriting guidelines require the loan amount to be based on the lesser of the purchase price or appraised value.

Which party typically orders the home appraisal?

Answer: Lender

The lender typically orders the home appraisal to ensure the property's value supports the loan amount. This is a critical step in the mortgage process, as the appraisal provides an independent, professional opinion of the property's market value. The lender needs this assessment to mitigate their risk, ensuring that if the borrower defaults, the property's value is sufficient to cover the outstanding loan balance.

The Home Mortgage Disclosure Act (HMDA) was enacted primarily to:

Answer: Detect discriminatory lending patterns and ensure credit is available in communities

HMDA requires lenders to collect and report loan data to help regulators identify potential redlining and fair lending violations.

A self-employed borrower with a strong credit score and significant cash reserves has been in business for five years. Due to substantial, legitimate business expense write-offs, their adjusted gross income on their tax returns does not meet traditional underwriting guidelines. Which mortgage product is specifically designed to address this type of scenario?

Answer: A portfolio loan, such as a Non-Qualified Mortgage (Non-QM) bank statement loan.

Non-Qualified Mortgages (Non-QM) are designed for borrowers who do not meet the strict guidelines for Qualified Mortgages (e.g., Fannie Mae/Freddie Mac). A common type of Non-QM product is a bank statement loan, which allows self-employed borrowers to use their business bank statements to prove income and cash flow, rather than relying solely on tax returns which may not reflect their true ability to repay.

A borrower is obtaining a conventional conforming loan to purchase a condominium. They have a 710 FICO score and are making a 10% down payment (90% LTV). Based on standard Fannie Mae/Freddie Mac guidelines, which combination of factors will most likely result in cumulative Loan-Level Price Adjustments (LLPAs)?

Answer: The combination of the 710 FICO score, 90% LTV, and the property being a condominium.

Loan-Level Price Adjustments (LLPAs) are risk-based fees assessed on conventional loans. The adjustments are cumulative and are based on a matrix of risk factors, including credit score, loan-to-value (LTV) ratio, property type, occupancy, and loan purpose. A credit score below the top tiers (e.g., 80%), and a condominium property type are all individual risk factors that trigger LLPAs. The combination of all three will result in cumulative adjustments to the loan's price.

When a lender offers a 'hybrid ARM,' what does the 'hybrid' designation specifically refer to?

Answer: A fixed-rate period at the start followed by an adjustable-rate period

A hybrid ARM combines a fixed-rate initial period (e.g., 5 or 7 years) with a subsequent adjustable-rate period, blending features of both fixed and adjustable mortgages.

A client wishes to purchase a fixer-upper that requires moving a load-bearing wall and has estimated repair costs of $45,000. Which renovation loan program is most suitable for this scenario, and why?

Answer: FHA 203(k) Standard, because the repairs are structural and exceed the typical cost limit for the Limited program.

The FHA 203(k) Standard program is designed for properties requiring major rehabilitation, including structural repairs like moving a load-bearing wall. It has a minimum required repair cost of $5,000 and can finance costs exceeding the cap of the Limited 203(k) program (which is typically around $35,000 and restricted to non-structural work). The Standard 203(k) also requires the use of a HUD-approved consultant to oversee the project.

Which of the following best describes a 'teaser rate' on an ARM?

Answer: An artificially low introductory rate below the fully-indexed rate

A teaser rate is an introductory ARM rate set below the fully-indexed rate (index + margin) to attract borrowers.

Which ethical principle requires a CMC to recommend the loan product that best meets the client's needs rather than the one with the highest commission?

Answer: Fiduciary duty

Fiduciary duty obligates the CMC to act in the client's best interest, placing the client's financial welfare above personal gain.

Under the Dodd-Frank Act, what is a 'Qualified Mortgage' (QM)?

Answer: A mortgage meeting specific underwriting standards that provides lenders safe harbor from ability-to-repay claims

A Qualified Mortgage meets specific ATR underwriting criteria and gives lenders legal protection from borrower claims of inadequate ability-to-repay assessment.