CRU Client Advisory & Consultation 2 — Questions and Answers
Question 1: A borrower asks why their pre-qualification amount differs from their final approved loan amount. What is the most accurate explanation an underwriter should provide?
- Pre-qualification is based on stated information without verification, while the approved amount reflects verified income, assets, and credit (Correct answer)
- Pre-qualification uses stricter guidelines than final underwriting
- The approved amount always exceeds the pre-qualification because underwriters are more lenient
- Pre-qualification is legally binding, so the difference must be explained in writing to regulators
Correct answer: Pre-qualification is based on stated information without verification, while the approved amount reflects verified income, assets, and credit
Pre-qualification relies on unverified borrower-stated data, whereas final loan approval is based on fully documented and verified financial information.
Question 2: When advising a client about a rate lock, which risk should the underwriter specifically disclose?
- Rate locks guarantee the rate will decrease before closing
- If the loan does not close before the lock expiration, the borrower may face a higher rate or extension fee (Correct answer)
- Rate locks are automatically extended at no cost if the lender causes delays
- A rate lock eliminates all closing cost variability
Correct answer: If the loan does not close before the lock expiration, the borrower may face a higher rate or extension fee
Borrowers must understand that if closing is delayed past the lock period, they risk a rate increase or must pay an extension fee.
Question 3: A client with a 580 credit score asks about conventional loan options. What is the most appropriate advisory response?
- Conventional loans are available at all credit score levels with no penalty
- A 580 score typically does not meet conventional loan minimums; FHA may be a more suitable option (Correct answer)
- The client should apply for a jumbo loan instead
- Credit score has no bearing on conventional loan eligibility
Correct answer: A 580 score typically does not meet conventional loan minimums; FHA may be a more suitable option
Conventional loans typically require a minimum 620 credit score, so a borrower with 580 should be counseled toward FHA or credit improvement strategies.
Question 4: During consultation, a borrower reveals they plan to rent out the subject property immediately after purchase but want to claim owner-occupancy for a better rate. How should the underwriter respond?
- Allow the loan to proceed since rental income will help qualify the borrower
- Advise the borrower that misrepresenting occupancy intent constitutes mortgage fraud (Correct answer)
- Suggest the borrower wait six months after closing before renting
- Approve the loan under investor terms without notifying the borrower of the difference
Correct answer: Advise the borrower that misrepresenting occupancy intent constitutes mortgage fraud
Misrepresenting intended occupancy is mortgage fraud, and the underwriter must advise the borrower of this and refuse to proceed under false pretenses.
Question 5: Which federal regulation requires lenders to provide borrowers with a Loan Estimate within three business days of receiving a loan application?
- RESPA Section 8
- TILA-RESPA Integrated Disclosure (TRID) rule (Correct answer)
- Equal Credit Opportunity Act (ECOA)
- Home Mortgage Disclosure Act (HMDA)
Correct answer: TILA-RESPA Integrated Disclosure (TRID) rule
The TRID rule, effective since 2015, requires lenders to issue a Loan Estimate within three business days of application receipt.
Question 6: A client is confused about the difference between mortgage insurance premium (MIP) and private mortgage insurance (PMI). What is the key distinction an underwriter should explain?
- MIP applies to conventional loans; PMI applies to FHA loans
- MIP is required on FHA loans for the life of the loan in many cases; PMI on conventional loans can be removed once equity reaches 20% (Correct answer)
- Both MIP and PMI are identical products offered by different insurers
- PMI is a government program while MIP is provided by private companies
Correct answer: MIP is required on FHA loans for the life of the loan in many cases; PMI on conventional loans can be removed once equity reaches 20%
MIP is required on FHA loans and may last the loan's life, while PMI on conventional loans can be cancelled when the LTV reaches 80%.
Question 7: 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 lender's profit margin on the points
- The borrower's break-even period compared to their expected time in the home (Correct answer)
- Whether the appraiser approves of discount points
- The current federal funds rate set by the Federal Reserve
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.
CRU Client Advisory & Consultation 2
A borrower asks why their pre-qualification amount differs from their final approved loan amount.
What is the most accurate explanation an underwriter should provide?