CMP - Certified Mortgage Processor Appraisal and Title Review Questions and Answers — Questions and Answers
Question 1: When reviewing a preliminary title report, a mortgage processor discovers a mechanic's lien on the property. Which of the following is the most appropriate next step?
- Ignore the lien as it is the seller's responsibility.
- Recommend the loan be denied immediately.
- Communicate the finding to the loan officer and request evidence of the lien being satisfied before closing. (Correct answer)
- Assume the title company will resolve it without any further action.
Correct answer: Communicate the finding to the loan officer and request evidence of the lien being satisfied before closing.
Discovering a lien on the title report is a critical finding. The processor's duty is to communicate this to the loan officer so that a condition can be set for the seller to clear the lien and provide proof of satisfaction (a 'lien release') before the loan can close. Ignoring it or assuming it will be handled can jeopardize the lender's lien position.
Question 2: A Closing Protection Letter (CPL) is issued by the title insurance underwriter primarily to protect which party against misconduct by the closing agent?
- The property seller
- The lender and sometimes the borrower (Correct answer)
- The real estate agents involved in the transaction
- The property appraiser
Correct answer: The lender and sometimes the borrower
A Closing Protection Letter indemnifies the lender (and in some cases, the borrower) against actual losses caused by the closing agent's fraud, dishonesty, or failure to follow written closing instructions. It does not protect the seller, real estate agents, or appraiser.
Question 3: An appraiser is determining the value of a single-family residence for a conventional purchase loan. The most common and preferred appraisal report form used for this purpose is the:
- Broker Price Opinion (BPO)
- Restricted Appraisal Report
- Uniform Residential Appraisal Report (URAR Form 1004) (Correct answer)
- Narrative Appraisal Report
Correct answer: Uniform Residential Appraisal Report (URAR Form 1004)
The Uniform Residential Appraisal Report (URAR), also known as Fannie Mae Form 1004, is the standard and most common form used for appraising single-family homes for mortgage lending purposes. A BPO is an opinion of value from a real estate agent, not an appraisal. A Restricted Report is for limited use, and a Narrative Report is typically for complex commercial properties.
Question 4: Which of the following items is a critical point of comparison between the appraisal report and the loan application for a mortgage processor?
- The appraiser's license number
- The color of the front door
- The seller's name and the property address (Correct answer)
- The type of camera used for appraisal photos
Correct answer: The seller's name and the property address
A mortgage processor must verify that key details are consistent across all documents. This includes ensuring the seller's name on the appraisal matches the owner of public record and the purchase contract, and that the property address is identical on the appraisal, application, and title report to ensure the correct property is being financed and appraised.
Question 5: A borrower is purchasing a home and the lender requires title insurance. What is the primary purpose of the lender's title insurance policy?
- To protect the borrower's equity in the property.
- To insure the property against future events like fire or theft.
- To guarantee the property will appreciate in value.
- To protect the lender's financial interest against past title defects. (Correct answer)
Correct answer: To protect the lender's financial interest against past title defects.
A lender's title insurance policy protects the lender's investment in the property from financial loss due to unknown title defects that existed before the policy was issued, such as undisclosed heirs, liens, or forgeries. It does not protect the borrower's equity (that's an owner's policy) or cover future events (that's homeowner's insurance).
Question 6: During an appraisal review for a property in a new subdivision, the processor notes that the appraiser used comparable sales from a neighborhood 10 miles away with superior amenities. This is a potential red flag because:
- The appraiser is not allowed to use sales outside of the subject's city.
- The use of distant, superior comparables may artificially inflate the property's value. (Correct answer)
- Appraisers must use a minimum of five comparable sales.
- The property value should be based solely on the cost to build.
Correct answer: The use of distant, superior comparables may artificially inflate the property's value.
The sales comparison approach is the most reliable indicator of value. Comparables should be as similar and as close to the subject property as possible. Using comps from a superior neighborhood far away can skew the valuation upwards and not reflect the true market value of the subject property, which is a significant risk for the lender.
CMP - Certified Mortgage Processor Appraisal and Title Review Questions and Answers
When reviewing a preliminary title report, a mortgage processor discovers a mechanic's lien on the property.
Which of the following is the most appropriate next step?