CMC Property Appraisal and Valuation 3

Question 1

How is the Loan-to-Value (LTV) ratio calculated, and what is its significance to mortgage lenders?

Accepted Answer

LTV = loan amount / appraised value (or purchase price, whichever is lower); a higher LTV indicates greater lender risk

Answer

LTV is calculated by dividing the loan amount by the lower of the appraised value or purchase price; a higher LTV means the borrower has less equity, representing greater risk to the lender if the borrower defaults.

Question 2

When an appraisal comes in lower than the agreed-upon purchase price, what is the typical mortgage lending implication?

Accepted Answer

The lender will base the loan on the lower appraised value, requiring the buyer to cover the gap or renegotiate the price

Answer

Lenders base the loan amount on the lower of the appraised value or purchase price, so a low appraisal means the buyer must either increase their down payment to cover the gap, renegotiate the sales price, or potentially cancel the transaction.

Question 3

What is the primary function of an Appraisal Management Company (AMC) in the mortgage lending process?

Accepted Answer

To act as an independent intermediary managing the appraisal process between lenders and appraisers, ensuring independence

Answer

AMCs are independent intermediaries that manage the appraisal ordering, assignment, and review process on behalf of lenders, helping ensure appraiser independence as required by federal regulations and the Home Valuation Code of Conduct.

Question 4

Under appraiser independence requirements established by the Dodd-Frank Act, which of the following actions is PROHIBITED?

Accepted Answer

A lender or its agents pressuring, coercing, or incentivizing an appraiser to reach a predetermined value

Answer

Dodd-Frank strengthened appraiser independence protections by explicitly prohibiting lenders, mortgage brokers, real estate agents, and their agents from coercing, influencing, bribing, or pressuring appraisers to adjust value opinions to facilitate a loan transaction.

Question 5

What is a 'drive-by' or exterior-only appraisal (Form 2055), and when is it typically used?

Accepted Answer

A limited appraisal in which the appraiser inspects and photographs only the exterior without entering the property

Answer

Form 2055 is a limited appraisal report where the appraiser conducts an exterior-only inspection, relying on public records and comparable sales data for interior information, and is sometimes used for lower-risk refinance transactions.

(CMC) Certified Mortgage Consultant Practice Test

(CMC) Certified Mortgage Consultant Practice Test

CMC Property Appraisal and Valuation 3