CMC Loan Processing and Underwriting Guidelines 3 — Questions and Answers
Question 1: What is the maximum back-end DTI ratio generally permitted under standard Fannie Mae guidelines without compensating factors?
- 45% (Correct answer)
- 41%
- 50%
- 36%
Correct answer: 45%
Fannie Mae's standard maximum back-end DTI is 45% when run through DU without additional risk factors.
Question 2: Which of the following is considered an acceptable source of gift funds for a conventional loan down payment?
- A relative by blood, marriage, or adoption (Correct answer)
- An unrelated friend without any relationship to the borrower
- The seller of the property
- The real estate agent representing the buyer
Correct answer: A relative by blood, marriage, or adoption
Fannie Mae permits gift funds from relatives related by blood, marriage, or adoption for conventional down payments.
Question 3: Under VA loan guidelines, what is the purpose of the VA Funding Fee?
- To help offset the cost of the VA loan guaranty program for taxpayers (Correct answer)
- To pay for the borrower's title insurance
- To compensate the lender for default risk
- To fund the VA home inspection
Correct answer: To help offset the cost of the VA loan guaranty program for taxpayers
The VA Funding Fee reduces the burden on taxpayers by helping sustain the VA home loan guaranty program.
Question 4: A borrower received a $10,000 cash deposit into their bank account two months ago with no documentation. How should an underwriter handle this?
- Require a written explanation and supporting documentation for the source of funds (Correct answer)
- Ignore it since it occurred more than 60 days ago
- Automatically disqualify the borrower
- Accept it as savings without further review
Correct answer: Require a written explanation and supporting documentation for the source of funds
Underwriters must source all large deposits to ensure funds are not borrowed and are eligible for use in the transaction.
Question 5: What is a 'layered risk' scenario in mortgage underwriting?
- Multiple risk factors present in one file, such as low credit score combined with high LTV and high DTI (Correct answer)
- A loan with two separate liens on the property
- A borrower with income from multiple employers
- A property located in a high-cost area
Correct answer: Multiple risk factors present in one file, such as low credit score combined with high LTV and high DTI
Layered risk refers to the combination of several individual risk factors that together increase the likelihood of default.
Question 6: For a USDA Guaranteed Rural Housing loan, what is the maximum allowable income limit based on?
- 115% of the area median income for the household size (Correct answer)
- 80% of the area median income
- The borrower's individual gross income only
- No income limit applies to guaranteed loans
Correct answer: 115% of the area median income for the household size
USDA Guaranteed loans are limited to households earning no more than 115% of the applicable area median income.
Question 7: An underwriter issues a conditional approval. What does this mean?
- The loan is approved pending satisfaction of specific outstanding conditions (Correct answer)
- The loan has been denied with the option to reapply
- The loan is fully approved with no further action needed
- The file has been suspended due to incomplete application
Correct answer: The loan is approved pending satisfaction of specific outstanding conditions
A conditional approval means the underwriter approves the loan subject to the borrower or processor fulfilling defined outstanding items.
CMC Loan Processing and Underwriting Guidelines 3
What is the maximum back-end DTI ratio generally permitted under standard Fannie Mae guidelines without compensating factors?