CMP Conventional Loan Programs and Secondary Market 2 — Questions and Answers
Question 1: Freddie Mac's automated underwriting system is called:
- Desktop Underwriter (DU)
- Loan Product Advisor (LPA) (Correct answer)
- Total Mortgage Scorecard
- TOTAL (Technology Open To Approved Lenders)
Correct answer: Loan Product Advisor (LPA)
Freddie Mac uses Loan Product Advisor (LPA), formerly known as Loan Prospector, as its automated underwriting system.
Question 2: What is the maximum debt-to-income (DTI) ratio typically approved on a conventional loan when the automated underwriting system (AUS) issues an Approve/Eligible finding?
- 36%
- 41%
- 45%
- 50% (Correct answer)
Correct answer: 50%
DU and LPA can approve conventional loans with DTI ratios up to 50% when strong compensating factors such as high credit scores or significant reserves are present.
Question 3: How long must a borrower typically wait after a Chapter 7 bankruptcy discharge before qualifying for a conventional conforming loan under Fannie Mae guidelines?
- 1 year
- 2 years
- 4 years (Correct answer)
- 7 years
Correct answer: 4 years
Fannie Mae requires a 4-year waiting period after a Chapter 7 bankruptcy discharge before a borrower is eligible for a new conventional loan.
Question 4: Under Fannie Mae guidelines, which of the following is an acceptable source of gift funds for a conventional loan down payment?
- The property seller
- A real estate agent involved in the transaction
- A blood relative of the borrower (Correct answer)
- The mortgage lender providing the loan
Correct answer: A blood relative of the borrower
Fannie Mae allows gift funds from family members such as blood relatives, spouses, and domestic partners, but not from those with a financial interest in the transaction.
Question 5: What is a mortgage-backed security (MBS) in the context of the secondary mortgage market?
- An insurance policy protecting lenders from borrower default
- A bond-like investment backed by a pool of mortgage loans (Correct answer)
- A government guarantee on all conventional mortgages
- The lender's escrow account for tax and insurance payments
Correct answer: A bond-like investment backed by a pool of mortgage loans
An MBS is an investment security backed by a pool of mortgage loans, enabling investors to receive payments derived from borrowers' principal and interest payments.
Question 6: When a conventional loan is sold to Fannie Mae, the originating lender typically retains the right to:
- Charge the borrower additional origination fees post-sale
- Modify the loan terms after the loan is sold
- Service the loan and collect monthly payments on Fannie Mae's behalf (Correct answer)
- Foreclose on the property without Fannie Mae's approval
Correct answer: Service the loan and collect monthly payments on Fannie Mae's behalf
Lenders often retain mortgage servicing rights (MSR) after selling loans to GSEs, collecting payments and handling borrower communications on behalf of the investor.
Question 7: What is the minimum credit score generally required to qualify for a conventional conforming loan?
- 580
- 620 (Correct answer)
- 660
- 700
Correct answer: 620
Most conventional conforming loan programs require a minimum credit score of 620, though borrowers with higher scores receive better pricing through Loan-Level Price Adjustments.
CMP Conventional Loan Programs and Secondary Market 2
Freddie Mac's automated underwriting system is called: