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

DTI divides total monthly debt payments by gross monthly income, giving lenders a snapshot of whether the borrower can afford additional debt service.

Question 2

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

Accepted Answer

43%

Answer

The CFPB's Qualified Mortgage rule generally caps the back-end DTI at 43%, ensuring the borrower has a reasonable ability to repay the mortgage.

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

PMI protects the lender — not the borrower — against loss if the borrower defaults on a conventional mortgage with an LTV greater than 80%.

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

On a 5/1 ARM, the interest rate is fixed for the first 5 years and then resets annually based on a specified index plus a margin.

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

A jumbo loan exceeds the conforming loan limits established by the FHFA for Fannie Mae and Freddie Mac, making it ineligible for purchase by those GSEs.

(CRB) Certified Retail Banker Practice Test

(CRB) Certified Retail Banker Practice Test

CRB Lending & Credit Products 2