CMPS Credit Analysis and Underwriting Standards Questions and Answers Flashcards
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Read the first 6 CMPS Credit Analysis and Underwriting Standards Questions and Answers flashcards as text
In mortgage underwriting, what is the purpose of a 'rapid rescore'?
Answer: To dispute and update credit report errors in days rather than months to improve a borrower's score before closing
Rapid rescoring is a lender-initiated process that corrects credit report inaccuracies or updates paid-off balances within 3–5 business days to potentially improve the borrower's score.
What is 'layered risk' in mortgage underwriting?
Answer: The presence of multiple risk factors simultaneously, which together make approval more difficult
Layered risk occurs when several risk factors — such as low down payment, low credit score, and high DTI — appear together, making compensating factors critical for approval.
A borrower is self-employed. Under standard agency guidelines, how many years of self-employment income documentation are typically required?
Answer: 2 years of federal tax returns (personal and business)
Fannie Mae and Freddie Mac generally require two years of personal and business federal tax returns to document self-employment income.
What is a 'compensating factor' in mortgage underwriting?
Answer: A positive financial strength that offsets a borrower's risk weakness to support loan approval
Compensating factors such as large cash reserves, low LTV, or a long employment history can offset weaknesses like a high DTI and support loan approval.
Which of the following income sources is NOT eligible to be used for qualifying income under standard conventional mortgage guidelines?
Answer: Lottery winnings received once last year
Lottery or gambling winnings are considered one-time, non-recurring income and cannot be used as qualifying income under conventional guidelines.
What is the significance of the 'ability-to-repay' (ATR) rule under the Dodd-Frank Act for mortgage underwriting?
Answer: It requires lenders to make a good-faith determination that the borrower can repay the loan based on documented income and assets
The ATR rule requires lenders to verify a borrower's financial ability to repay through documented income, assets, employment, and existing debt obligations.