CRB Lending & Credit Products 2

Question 1

What is the Debt-to-Income (DTI) ratio primarily used to evaluate in consumer lending?

Accepted Answer

The proportion of a borrower's monthly gross income consumed by monthly debt obligations

Answer

The proportion of a borrower's total assets relative to outstanding debts

Answer

The interest rate spread between a loan and a benchmark index

Answer

The ratio of secured debt to unsecured debt in the borrower's profile

Question 2

Under the Qualified Mortgage (QM) rule, what is the maximum back-end DTI ratio generally permitted?

Accepted Answer

43%

Answer

28%

Answer

36%

Answer

50%

Question 3

What is the purpose of Private Mortgage Insurance (PMI) on a conventional loan?

Accepted Answer

It protects the lender if the borrower defaults when LTV exceeds 80%

Answer

It insures the borrower's life in case of death during the loan term

Answer

It reimburses the borrower for property damage covered by homeowner's insurance

Answer

It guarantees the interest rate will not increase on an adjustable-rate mortgage

Question 4

On a 5/1 Adjustable-Rate Mortgage (ARM), what do the numbers 5 and 1 represent?

Accepted Answer

The rate is fixed for 5 years, then adjusts every 1 year thereafter

Answer

5 years of interest-only payments followed by 1 year of full amortization

Answer

The loan has a 5% rate cap and adjusts a maximum of 1% per year

Answer

The initial rate is 5% and the margin is 1% above the index

Question 5

A jumbo mortgage differs from a conforming mortgage primarily because it:

Accepted Answer

Exceeds the loan limits set by Fannie Mae and Freddie Mac

Answer

Carries a federally guaranteed repayment provision

Answer

Requires the borrower to pay FHA mortgage insurance premiums

Answer

Has a shorter maximum loan term of 15 years

Question 6

What is a balloon payment mortgage?

Accepted Answer

A mortgage with a large lump-sum payment due at the end of a short term

Answer

A mortgage in which monthly payments increase gradually over the loan term

Answer

A mortgage that adjusts its interest rate based on inflation each year

Answer

A mortgage in which only interest is paid and principal is never reduced

Question 7

When underwriting a consumer loan, a retail banker reviews the 'Five Cs of Credit.' Which of the following is NOT one of the Five Cs?

Accepted Answer

Currency

Answer

Capacity

Answer

Collateral

Answer

Character