CMC Client Relations and Financial Advisory 3 — Questions and Answers
Question 1: A client is self-employed and has large write-offs that reduce their taxable income. How should a mortgage consultant typically calculate qualifying income?
- Use gross business revenue without deductions
- Average the last two years of net income from Schedule C after adding back depreciation (Correct answer)
- Use W-2 income from prior employment only
- Accept the client's stated income without documentation
Correct answer: Average the last two years of net income from Schedule C after adding back depreciation
For self-employed borrowers, lenders typically average two years of net income from tax returns and add back non-cash deductions like depreciation.
Question 2: A client is relocating and needs to close in 21 days. Which loan program is LEAST likely to meet this timeline?
- Conventional conforming loan
- FHA loan
- USDA Rural Development loan (Correct answer)
- VA loan
Correct answer: USDA Rural Development loan
USDA loans require USDA agency approval in addition to lender underwriting, which often extends the timeline well beyond 21 days.
Question 3: Under the Fair Housing Act, which action by a mortgage consultant constitutes illegal steering?
- Recommending a lower loan amount based on the client's income
- Directing minority clients toward higher-cost loan products based on race (Correct answer)
- Explaining that the client does not qualify for a jumbo loan
- Suggesting a shorter loan term to reduce total interest
Correct answer: Directing minority clients toward higher-cost loan products based on race
Steering protected-class members toward less favorable loan products based on race violates the Fair Housing Act's anti-discrimination provisions.
Question 4: A client wants to use a cash gift from a family member for a down payment. What documentation is typically required by lenders?
- A signed gift letter and evidence of fund transfer only
- A signed gift letter, evidence of donor's withdrawal, and evidence of borrower's deposit (Correct answer)
- Verbal confirmation from the donor
- No documentation is needed for family gifts
Correct answer: A signed gift letter, evidence of donor's withdrawal, and evidence of borrower's deposit
Lenders require a gift letter confirming no repayment is expected, plus a paper trail showing the donor's withdrawal and the borrower's receipt of funds.
Question 5: Which factor is most important when comparing two loan offers with the same interest rate but different fees?
- The lender's company size
- The Annual Percentage Rate (APR) (Correct answer)
- The loan servicer name
- The escrow company selected
Correct answer: The Annual Percentage Rate (APR)
APR incorporates both the interest rate and fees into a single figure, making it the best tool for comparing the true cost of two loans with the same stated rate.
Question 6: A consultant recommends a loan product that earns them a higher commission but is not in the client's best interest. This violates which core principle?
- Confidentiality
- Competency
- Integrity and duty to client (Correct answer)
- Regulatory compliance only
Correct answer: Integrity and duty to client
Recommending products for personal financial gain rather than client benefit violates the integrity and client-first principles central to professional mortgage consulting ethics.
Question 7: What is the primary purpose of the three-day waiting period before closing on most mortgage transactions under TRID?
- To allow the title company to prepare documents
- To give the borrower time to review the Closing Disclosure and compare it against the Loan Estimate (Correct answer)
- To allow the lender to run a final credit check
- To ensure the appraisal is finalized
Correct answer: To give the borrower time to review the Closing Disclosure and compare it against the Loan Estimate
TRID's mandatory three-business-day waiting period after the Closing Disclosure is delivered ensures borrowers have adequate time to review final loan costs.
CMC Client Relations and Financial Advisory 3
A client is self-employed and has large write-offs that reduce their taxable income.
How should a mortgage consultant typically calculate qualifying income?