Certified Residential Underwriter (CRU) Designation — Questions and Answers

Question 1: Under FNMA guidelines, what is the maximum age of an appraisal report that can be used for a conventional loan at the time of note date?

180 days for all property types
90 days for existing construction
6 months for existing and 12 months for new construction (Correct answer)
12 months for all property types

Correct answer: 6 months for existing and 12 months for new construction

Fannie Mae allows appraisals up to 12 months old for new construction and up to 12 months for existing properties when an appraisal update is provided, but the standard effective date limit is 12 months with updates permitted.

Question 2: When the Case-Shiller Home Price Index shows a metro area declining, how should a CRU underwriter respond for a property in a luxury enclave within that metro?

Reject the appraisal until the market stabilizes
Apply the metro-wide decline rate to the subject property
Recognize that sub-markets may behave differently from metro averages (Correct answer)
Use the national index instead of the metro index

Correct answer: Recognize that sub-markets may behave differently from metro averages

Luxury or unique sub-markets often diverge from metro-wide trends; underwriters must examine sub-market data rather than applying broad indices uniformly.

Question 3: When analyzing credit risk for a borrower with a 700 FICO score, which additional factor would cause the most concern for a mortgage underwriter?

A mortgage late payment from 18 months ago (Correct answer)
One installment account opened 8 years ago
Three inquiries from auto loan shopping within 14 days
A credit card balance at 30% utilization

Correct answer: A mortgage late payment from 18 months ago

A mortgage late payment, even 18 months ago, is a severe derogatory event that signals willingness-to-pay issues specific to mortgage debt.

Question 4: Why is continuing education important for maintaining ethical practice?

It ensures practitioners stay current with evolving standards and best practices (Correct answer)
It is optional for experienced practitioners
It is only needed to maintain certification status
It replaces the need for experience

Correct answer: It ensures practitioners stay current with evolving standards and best practices

Continuing education ensures practitioners stay current with evolving standards, new research, and best practices, directly supporting ethical and competent practice.

Question 5: Which ethical obligation does a CRU designee have when they identify a systemic underwriting guideline that appears to have a disparate impact on a protected class?

Modify the guideline independently to correct the issue
Decline to underwrite any loans under that guideline
Continue following the guideline without question
Report the concern to compliance or legal for fair lending review (Correct answer)

Correct answer: Report the concern to compliance or legal for fair lending review

Guidelines with potential disparate impact must be escalated to compliance or legal for a fair lending analysis rather than ignored or unilaterally altered.

Question 6: A lender's title insurance policy (loan policy) primarily protects which party from title defects discovered after closing?

The seller from prior undisclosed liens
The borrower's equity interest
The real estate agent's commission
The lender's security interest up to the loan amount (Correct answer)

Correct answer: The lender's security interest up to the loan amount

The lender's (loan) title insurance policy protects the lender's security interest in the property up to the outstanding loan balance against covered title defects.

Question 7: What is the role of a title commitment (also called a preliminary title report) in the mortgage closing process?

It certifies the borrower's creditworthiness
It serves as the final title insurance policy
It discloses existing liens, encumbrances, and conditions that must be cleared before the title company will issue a policy (Correct answer)
It replaces the need for a property survey

Correct answer: It discloses existing liens, encumbrances, and conditions that must be cleared before the title company will issue a policy

A title commitment outlines what the insurer will cover and what exceptions or requirements must be resolved before issuing the final policy.

Question 8: A borrower's PITI is $1,500/month and gross monthly income is $6,000. Including $400/month in minimum credit card payments and a $300/month car loan, what is the back-end DTI?

37% (Correct answer)
33%
42%
25%

Correct answer: 37%

Back-end DTI = ($1,500 + $400 + $300) / $6,000 = $2,200 / $6,000 = 36.67%, approximately 37%.

Question 9: Under FIRREA, which threshold allows federally regulated lenders to use a Property Condition Report instead of a full USPAP-compliant appraisal for certain transactions?

Loans up to $250,000
Loans up to $400,000 in rural areas
All purchase transactions regardless of amount
Loans up to $500,000 (Correct answer)

Correct answer: Loans up to $500,000

FIRREA exemptions allow federally regulated institutions to use evaluations instead of full appraisals for transactions at or below $500,000 (non-complex residential).

Question 10: A borrower asks how an underwriter determines whether to use base salary or total compensation (including bonuses and overtime) for income qualification. What is the most accurate explanation?

Bonus and overtime income can be included if it has been consistently received for two years and is likely to continue, as documented by employer verification (Correct answer)
Total compensation is always used regardless of payment history
Only base salary is ever used; bonus and overtime income is always excluded
Bonus income is included automatically if it exceeds 10% of base salary

Correct answer: Bonus and overtime income can be included if it has been consistently received for two years and is likely to continue, as documented by employer verification

Variable income like bonuses and overtime requires a two-year history of receipt, documentation from the employer, and a reasonable expectation of continuation.

Question 11: Which federal program provides flood insurance to property owners in participating communities?

Federal Crop Insurance Program
FHA Mortgage Insurance Program
FEMA Disaster Relief Fund
National Flood Insurance Program (NFIP) (Correct answer)

Correct answer: National Flood Insurance Program (NFIP)

The NFIP, administered by FEMA, offers federally backed flood insurance to homeowners in communities that adopt floodplain management ordinances.

Question 12: When a borrower asks whether they should pay discount points to lower their interest rate, which factor is most important for the underwriter to help the client evaluate?

The current federal funds rate set by the Federal Reserve
The borrower's break-even period compared to their expected time in the home (Correct answer)
The lender's profit margin on the points
Whether the appraiser approves of discount points

Correct answer: The borrower's break-even period compared to their expected time in the home

The break-even analysis—dividing point cost by monthly savings—tells the borrower how long it takes to recoup the upfront cost, which should be weighed against how long they plan to stay.

Question 13: What is the appropriate response to witnessing unethical conduct by a colleague?

Confront the colleague publicly
Report the conduct through established channels and document observations (Correct answer)
Post about it on social media
Ignore it to maintain workplace harmony

Correct answer: Report the conduct through established channels and document observations

Reporting through established channels with proper documentation follows professional obligations to protect public welfare while ensuring due process.

Question 14: In the context of residential mortgage portfolio strategy, a 'liquidity buffer' is best described as:

A secondary market commitment to purchase loans within 30 days of origination
A portfolio segment of loans retained as collateral for FHLB advances
An escrow account maintained for property tax and insurance payments
A reserve of unencumbered high-quality liquid assets to meet unexpected funding needs (Correct answer)

Correct answer: A reserve of unencumbered high-quality liquid assets to meet unexpected funding needs

A liquidity buffer consists of unencumbered liquid assets held to ensure the institution can meet cash demands without resorting to distressed asset sales.

Question 15: What is 'functional obsolescence' in the context of residential appraisal?

Value loss caused by negative external factors
Loss in value due to deficiencies or super-adequacies within the property (Correct answer)
Physical deterioration from normal wear and tear
Depreciation applied uniformly over a property's useful life

Correct answer: Loss in value due to deficiencies or super-adequacies within the property

Functional obsolescence is a loss in value from features that are inadequate, outdated, or excessive relative to current market preferences.

Question 16: Which document is the primary source used to verify a self-employed borrower's net income for underwriting purposes?

Letter from the borrower's accountant
Profit and loss statement only
Federal tax returns (Form 1040) (Correct answer)
Bank statements

Correct answer: Federal tax returns (Form 1040)

Federal tax returns are the standard documentation used to verify self-employed income because they reflect IRS-reported figures.

Question 17: An appraiser identifies three comparable sales that bracket the subject property's value. What is the primary purpose of 'bracketing' in the sales comparison approach?

To meet USPAP minimum comparable count requirements
To average the three sale prices together
To exclude outlier sales from analysis
To ensure comparables bound the subject above and below in key characteristics (Correct answer)

Correct answer: To ensure comparables bound the subject above and below in key characteristics

Bracketing means selecting comparables with features both superior and inferior to the subject to support value adjustments from both directions.

Question 18: Which loan scenario would most likely require the borrower to have reserves equal to six months of PITI?

Primary residence refinance with 30% equity
VA loan for a primary residence
Investment property purchase with a high LTV (Correct answer)
FHA loan on an owner-occupied single-family home

Correct answer: Investment property purchase with a high LTV

Investment properties and higher-risk transactions typically require greater reserves — often six months of PITI — compared to primary residences.

Question 19: A property is located in a Special Flood Hazard Area (SFHA). Under the Flood Disaster Protection Act, what is required before the loan can close?

An environmental impact study
A flood elevation certificate only
Flood insurance in at least the amount of the loan or the maximum available, whichever is less (Correct answer)
The borrower must relocate the structure out of the flood zone

Correct answer: Flood insurance in at least the amount of the loan or the maximum available, whichever is less

The Flood Disaster Protection Act requires mandatory flood insurance for properties in SFHAs, with coverage at least equal to the loan amount or NFIP maximum, whichever is less.

Question 20: An underwriter notices the appraiser used comparables located more than one mile from the subject in a dense urban neighborhood. What concern should this raise?

The appraisal automatically fails USPAP
Comparable distance is irrelevant if square footage matches
The lender must order a second appraisal by default
The distance may indicate the appraiser could not find truly comparable local sales (Correct answer)

Correct answer: The distance may indicate the appraiser could not find truly comparable local sales

In dense urban markets, comparables beyond typical proximity may reflect a different sub-market, potentially distorting the subject's value.

Question 21: A borrower wants to know why a property appraisal came in below the purchase price. Which advisory explanation is most appropriate?

The appraiser independently assessed market value based on comparable sales, which may differ from the negotiated price; the borrower can renegotiate, dispute the appraisal, or make up the difference (Correct answer)
The lender sets the appraisal value, so the borrower should appeal directly to the underwriter
Appraisals always come in at or above purchase price; a low appraisal indicates appraiser error
A low appraisal automatically disqualifies the borrower from receiving any financing

Correct answer: The appraiser independently assessed market value based on comparable sales, which may differ from the negotiated price; the borrower can renegotiate, dispute the appraisal, or make up the difference

Appraisers use comparable market data independently of the purchase contract, and a gap between appraised value and purchase price gives the borrower several resolution options.

Question 22: Under USPAP's Competency Rule, what must an appraiser do if they lack the knowledge or experience to complete a specific appraisal assignment?

Decline the assignment immediately without any other obligation
Complete the appraisal and note the limitation in the limiting conditions
Refer only to published data sources to compensate for lack of local knowledge
Disclose the lack of competency and either acquire the necessary competency or withdraw (Correct answer)

Correct answer: Disclose the lack of competency and either acquire the necessary competency or withdraw

USPAP requires appraisers to disclose competency limitations and take steps to gain competency or decline the assignment.

Question 23: A borrower owns a rental property with a mortgage payment of $1,500/month and rental income of $1,300/month. How should the net rental loss be treated in qualifying?

Add $200 to the monthly obligations in the DTI (Correct answer)
Use the full $1,300 rental income to offset the $1,500 mortgage
Exclude it entirely from the DTI calculation
Offset the mortgage with 75% of the rental income only

Correct answer: Add $200 to the monthly obligations in the DTI

When rental income does not offset the full mortgage payment, the net monthly loss ($200) must be added to the borrower's total monthly obligations.

Question 24: Under the Dodd-Frank Act, what is the maximum prepayment penalty period allowed for a Qualified Mortgage?

3 years (Correct answer)
5 years
1 year
2 years

Correct answer: 3 years

QM rules prohibit prepayment penalties beyond 3 years after consummation of the loan.

Question 25: Under HOEPA, a first-lien mortgage is classified as a 'high-cost mortgage' if its APR exceeds the Average Prime Offer Rate (APOR) by more than:

8.0 percentage points
6.5 percentage points (Correct answer)
5.0 percentage points
3.5 percentage points

Correct answer: 6.5 percentage points

HOEPA's APR trigger for first-lien loans is when the loan's APR exceeds the APOR by more than 6.5 percentage points.

Question 26: A state law prohibits prepayment penalties on all residential mortgages. A federally chartered national bank wishes to include a prepayment penalty in its mortgage contracts. Which principle governs this conflict?

The CFPB must issue a ruling before either law can be enforced
State law prevails because consumer protection is a state function
Federal preemption allows the national bank to override the state prohibition (Correct answer)
The lender must comply with both laws and therefore cannot charge a prepayment penalty

Correct answer: Federal preemption allows the national bank to override the state prohibition

Under the National Bank Act, OCC regulations preempt state consumer financial laws that prevent or significantly interfere with a national bank's exercise of its powers.

Question 27: Which condition in an appraisal report most directly triggers a requirement for a FHA/HUD repair escrow or completion certificate before closing?

Safety hazards, structural deficiencies, or property condition issues flagged as 'subject to repair' (Correct answer)
A gross living area difference of more than 10% from county records
Minor cosmetic defects noted as C3 condition
Comparable sales older than six months

Correct answer: Safety hazards, structural deficiencies, or property condition issues flagged as 'subject to repair'

FHA requires that health, safety, and structural deficiencies identified in the appraisal be corrected prior to or at closing via escrow or completion certificate.

Question 28: How should a professional handle a situation where they lack competence?

Delegate to an unlicensed assistant
Attempt the work and learn from mistakes
Refer the client to a qualified professional or seek additional training (Correct answer)
Accept the work to avoid losing the client

Correct answer: Refer the client to a qualified professional or seek additional training

Referring to qualified professionals or obtaining additional training when facing competence limitations protects clients and upholds professional standards.

Question 29: Under TILA, which of the following constitutes a valid 'changed circumstance' allowing a revised Loan Estimate?

A lender's internal pricing policy change
The borrower's requested change in closing date
Information relied upon at application that later proves inaccurate (Correct answer)
Market interest rate fluctuations

Correct answer: Information relied upon at application that later proves inaccurate

A valid changed circumstance under TRID includes discovering that information relied upon at application was inaccurate or incomplete.

Question 30: What IRS form does an underwriter typically use to verify a borrower's reported income directly with the IRS?

Form 1099
Form 4506-C (Correct answer)
Form W-9
Form 8821

Correct answer: Form 4506-C

IRS Form 4506-C (Request for Copy of Tax Return Transcript) allows the lender to obtain tax transcripts directly from the IRS to verify borrower-reported income.

Certified Residential Underwriter (CRU) Designation

The CRU designation, awarded by the Mortgage Bankers Association, certifies professional excellence in residential mortgage loan underwriting across financial analysis, property valuation, regulatory compliance, and ethical standards.

Questions

35 min

Time Limit

75%

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