CMP - Certified Mortgage Processor Underwriting and Quality Control Questions and Answers — Questions and Answers
Question 1: A loan file submitted to Fannie Mae's Desktop Underwriter (DU) returns a finding of "Approve/Ineligible." What is the most likely reason for this result?
- The borrower meets credit and income requirements, but a specific loan parameter does not comply with Fannie Mae's eligibility rules. (Correct answer)
- The system requires the loan to be manually underwritten by a human underwriter.
- The borrower's credit score is too low to be approved under any circumstances.
- The loan has been flagged for potential fraud and must be immediately denied.
Correct answer: The borrower meets credit and income requirements, but a specific loan parameter does not comply with Fannie Mae's eligibility rules.
An "Approve/Ineligible" finding means the borrower's risk profile (credit, income, assets) is acceptable, but some aspect of the loan itself (like exceeding the conforming loan limit, or an unacceptable loan purpose) makes it ineligible for purchase by Fannie Mae. The underwriter must address the ineligibility factor.
Question 2: What is the primary purpose of a pre-funding Quality Control (QC) audit in the mortgage lending process?
- To train new loan processors and underwriters on company procedures.
- To verify the accuracy and integrity of key loan data before the loan is funded. (Correct answer)
- To satisfy regulatory reporting requirements after the loan has closed.
- To market new loan products to the borrower before closing.
Correct answer: To verify the accuracy and integrity of key loan data before the loan is funded.
Pre-funding QC is a crucial, proactive step to catch errors, miscalculations, or potential fraud *before* the lender's money is disbursed. It confirms that the loan was underwritten to guidelines and that the data is accurate, protecting the lender from funding a fraudulent or non-compliant loan.
Question 3: When manually underwriting a conventional loan for a borrower with a slightly high debt-to-income (DTI) ratio, which of the following would be considered the strongest compensating factor?
- The borrower is making a minimal 3% down payment.
- The borrower has had their current job for only one year.
- The subject property is a non-warrantable condominium.
- The borrower has significant cash reserves (e.g., 12 months of PITI) remaining after closing. (Correct answer)
Correct answer: The borrower has significant cash reserves (e.g., 12 months of PITI) remaining after closing.
Compensating factors are positive aspects of a loan file that can offset a weaker area, like a high DTI. Significant post-closing reserves demonstrate the borrower's ability to withstand financial setbacks and continue making mortgage payments, which is a powerful mitigating factor. The other options are negative or neutral, not positive compensating factors.
Question 4: A processor is reviewing a credit report for a borrower applying for an FHA loan. The report shows a Chapter 7 bankruptcy that was discharged 18 months ago. The borrower has since re-established a clean credit history. Based on standard FHA guidelines, what is the status of this loan?
- The loan is eligible for approval as it meets the minimum seasoning requirement.
- The loan must be denied as FHA requires a minimum of 3 years after a Chapter 7 discharge.
- The loan is ineligible because FHA guidelines require a minimum of 2 years after a Chapter 7 discharge. (Correct answer)
- The loan can only be approved if the borrower makes a 20% down payment.
Correct answer: The loan is ineligible because FHA guidelines require a minimum of 2 years after a Chapter 7 discharge.
Standard FHA guidelines require a minimum of two years to have passed since the discharge date of a Chapter 7 bankruptcy. Since only 18 months have passed and no extenuating circumstances are mentioned, the borrower does not yet meet the minimum waiting period.
Question 5: An underwriter issues a conditional approval that requires the borrower to provide an updated pay stub covering the last 30 days before loan documents can be drawn. This type of condition is best classified as a:
- Prior-to-doc (PTD) condition. (Correct answer)
- Prior-to-funding (PTF) condition.
- Post-closing condition.
- Marketing condition.
Correct answer: Prior-to-doc (PTD) condition.
A "prior-to-doc" (PTD) condition must be satisfied before the final loan documents (like the Note and Mortgage/Deed of Trust) can be prepared and sent to closing. An updated paystub is a classic example of a PTD condition, as it verifies the borrower's employment and income are still stable just before the closing process begins.
Question 6: During the underwriting process, which of the following findings would be the strongest indicator of potential occupancy fraud for a loan application on a primary residence?
- The borrower is a first-time homebuyer with a stable job.
- The borrower's current residence is a larger, more expensive home in the same city that is not listed for sale. (Correct answer)
- The appraisal report notes that the property is currently tenant-occupied.
- The borrower requested a 30-year fixed-rate mortgage.
Correct answer: The borrower's current residence is a larger, more expensive home in the same city that is not listed for sale.
Occupancy fraud occurs when a borrower claims a property will be their primary residence to get better loan terms but intends to use it as an investment property. A significant red flag is when the borrower already owns a superior home nearby that they are not selling, making it unlikely they intend to move into the new, presumably lesser, property as their primary home.
CMP - Certified Mortgage Processor Underwriting and Quality Control Questions and Answers
A loan file submitted to Fannie Mae's Desktop Underwriter (DU) returns a finding of "Approve/Ineligible." What is the most likely reason for this result?