CMC Mortgage Products and Practices 2

Question 1

Which loan feature allows a borrower to convert from an adjustable rate to a fixed rate without refinancing?

Accepted Answer

Conversion option

Answer

Prepayment privilege

Answer

Rate cap provision

Answer

Assumability clause

Question 2

What is the primary purpose of a piggyback loan (80-10-10)?

Accepted Answer

To avoid paying private mortgage insurance

Answer

To obtain a lower interest rate on the first mortgage

Answer

To qualify for a government-backed loan

Answer

To extend the repayment term

Question 3

A balloon mortgage with a 5/25 structure means the loan has:

Accepted Answer

Payments amortized over 25 years with full balance due in 5 years

Answer

A 5-year fixed rate then 25-year ARM

Answer

A 5% rate cap and 25-year term

Answer

5 years interest-only then 25 years fully amortizing

Question 4

Which index is commonly used for adjusting rates on Home Equity Lines of Credit (HELOCs)?

Accepted Answer

Prime Rate

Answer

10-Year Treasury Constant Maturity

Answer

LIBOR

Answer

COFI

Question 5

Under the TRID rule, when must the Loan Estimate be delivered to the borrower?

Accepted Answer

Within 3 business days of receiving a complete loan application

Answer

At the time of loan approval

Answer

Before the appraisal is ordered

Answer

Within 5 calendar days of application

Question 6

A graduated payment mortgage (GPM) is best suited for borrowers who:

Accepted Answer

Anticipate income growth and can accept negative amortization early on

Answer

Expect their income to decrease over time

Answer

Want the lowest possible monthly payment throughout the loan

Answer

Are purchasing an investment property

Question 7

Which statement about interest-only (IO) loans is accurate?

Accepted Answer

The borrower builds no equity through payments during the IO period

Answer

Principal is reduced evenly each month during the IO period

Answer

IO loans are prohibited under QM rules

Answer

Monthly payments remain constant for the life of the loan