CMC Client Financial Advising 3 — Questions and Answers
Question 1: A client's credit report shows a collection account from three years ago. How should a CMC advise the client before applying for a mortgage?
- Pay off the collection immediately to remove it from the report
- Consult with the lender because paying off old collections can sometimes reset the derogatory date (Correct answer)
- Dispute all negative items regardless of accuracy
- Wait seven years until the collection falls off automatically
Correct answer: Consult with the lender because paying off old collections can sometimes reset the derogatory date
Paying off an old collection can update the account's last-activity date, which may temporarily lower the credit score; the CMC should advise coordinating with the lender first.
Question 2: When calculating a client's qualifying income from rental properties, lenders typically use what percentage of gross rents?
- 100% of gross rental income
- 75% of gross rental income (Correct answer)
- 50% of gross rental income
- Only net rental income after all expenses
Correct answer: 75% of gross rental income
Most conventional guidelines allow 75% of gross rental income to account for vacancy and maintenance, with the remaining 25% treated as an expense offset.
Question 3: A client has recently changed jobs but has been in the same industry for ten years. How should a CMC assess employment stability?
- The client is ineligible because job changes are always disqualifying
- Employment history in the same field counts positively even with a recent employer change (Correct answer)
- Only the current employer's tenure matters for qualification
- The client must wait two years in the new position before applying
Correct answer: Employment history in the same field counts positively even with a recent employer change
Lenders evaluate continuity of income in the same field; a job change within the same industry is generally viewed favorably and does not require a two-year wait.
Question 4: Which of the following best describes the purpose of a Good Faith Estimate (now Loan Estimate) provided to a mortgage client?
- It guarantees the final interest rate offered to the borrower
- It provides an itemized estimate of loan terms and closing costs within three business days of application (Correct answer)
- It replaces the need for a formal appraisal
- It serves as the final closing disclosure document
Correct answer: It provides an itemized estimate of loan terms and closing costs within three business days of application
The Loan Estimate (which replaced the GFE under TRID) must be provided within three business days of application and discloses estimated loan terms and costs.
Question 5: A client is concerned about rising interest rates and asks about protecting their rate. What should a CMC recommend?
- Float the rate and lock closer to closing to capture the best price
- Lock the interest rate to protect against rate increases during the loan process (Correct answer)
- Refinance immediately before locking
- Switch to an adjustable-rate mortgage to avoid lock fees
Correct answer: Lock the interest rate to protect against rate increases during the loan process
A rate lock guarantees the agreed interest rate for a specified period, protecting the borrower from market rate increases before closing.
Question 6: A CMC discovers that a client's bank statements show large undocumented deposits. What is the appropriate course of action?
- Ignore deposits under $1,000 as they are immaterial
- Ask the client to provide a written explanation and source documentation for all large deposits (Correct answer)
- Include all deposits as qualifying income automatically
- Advise the client to open a new bank account to avoid scrutiny
Correct answer: Ask the client to provide a written explanation and source documentation for all large deposits
Lenders require borrowers to source and explain large undocumented deposits to confirm funds are not undisclosed loans that would affect DTI.
Question 7: What does the term 'cash-out refinance' mean in mortgage advising?
- Refinancing to eliminate all closing costs
- Replacing an existing mortgage with a larger loan and receiving the difference in cash (Correct answer)
- A short-term bridge loan for down payment assistance
- Paying off a mortgage early with a lump sum payment
Correct answer: Replacing an existing mortgage with a larger loan and receiving the difference in cash
A cash-out refinance replaces the existing mortgage with a new, larger loan, and the borrower receives the equity difference as cash at closing.
CMC Client Financial Advising 3
A client's credit report shows a collection account from three years ago.
How should a CMC advise the client before applying for a mortgage?