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Mortgage Products and Practices Flashcards

7 cards from real CMC practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 Mortgage Products and Practices flashcards as text

  1. What distinguishes a USDA Rural Development Guaranteed Loan from a USDA Direct Loan?

    Answer: Direct loans are made by USDA itself; Guaranteed loans are made by approved lenders with USDA backing

    USDA Direct loans are funded and serviced by USDA for very-low-income borrowers, while Guaranteed loans are made by approved lenders and backed by USDA.

  2. In a hybrid ARM, the notation '7/1 ARM' means:

    Answer: The rate is fixed for 7 years then adjusts annually

    In a hybrid ARM, the first number is the fixed-rate period in years and the second is the adjustment frequency in years thereafter.

  3. 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.

  4. What is the MIP structure for an FHA loan with a term greater than 15 years and LTV above 90% at origination?

    Answer: MIP is required for the life of the loan

    FHA loans with original LTV above 90% and terms over 15 years require annual MIP for the entire loan term.

  5. 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.

  6. A conforming loan limit primarily determines:

    Answer: The maximum loan amount eligible for purchase by Fannie Mae or Freddie Mac

    Conforming loan limits set the maximum original principal balance that Fannie Mae and Freddie Mac will purchase, adjusted annually by FHFA.

  7. What is a key risk associated with negative amortization loans?

    Answer: The loan balance can grow beyond the original amount borrowed

    Negative amortization occurs when minimum payments are less than accrued interest, causing the unpaid interest to be added to principal.