CRU Credit Analysis & Risk Assessment 2 — Questions and Answers
Question 1: A borrower has a 680 credit score, a 38% back-end DTI, and a 10% down payment on a conventional loan. Which factor most increases the layered risk?
- High credit score offsetting DTI
- Low down payment combined with borderline DTI (Correct answer)
- Back-end DTI below the 43% threshold
- Conventional product type reducing risk
Correct answer: Low down payment combined with borderline DTI
Layered risk occurs when multiple marginal factors combine; low down payment plus borderline DTI significantly elevates default probability.
Question 2: Under the FICO scoring model, which action by a borrower would most likely cause an immediate score improvement?
- Opening two new credit card accounts
- Paying down a revolving balance from 85% to 20% utilization (Correct answer)
- Closing an old installment loan account
- Disputing a late payment from six years ago
Correct answer: Paying down a revolving balance from 85% to 20% utilization
Credit utilization is highly weighted in FICO models, and reducing revolving balances sharply lowers utilization and boosts scores quickly.
Question 3: A non-traditional credit report (NTCR) is most appropriate for borrowers who:
- Have derogatory marks on a standard credit report
- Lack sufficient tradelines to generate a standard FICO score (Correct answer)
- Want to remove a co-borrower from the application
- Are seeking jumbo financing above conforming limits
Correct answer: Lack sufficient tradelines to generate a standard FICO score
NTCRs document payment history for rent, utilities, and insurance when a borrower has no scoreable credit file.
Question 4: Which credit event carries the longest standard waiting period before a borrower is eligible for a new conventional conforming mortgage?
- Chapter 13 bankruptcy discharge
- Short sale with no deficiency
- Chapter 7 bankruptcy discharge
- Foreclosure (Correct answer)
Correct answer: Foreclosure
Fannie Mae guidelines require a 7-year waiting period from the completion date of a foreclosure for a conventional loan.
Question 5: A mortgage underwriter notices a borrower's credit report shows a $500 collection account opened two years ago. Under standard Fannie Mae guidelines, this collection:
- Must be paid in full prior to closing in all cases
- Does not need to be paid if the borrower has no other derogatory credit (Correct answer)
- Automatically disqualifies the borrower from any conventional loan
- Must be included in the DTI calculation at 5% of the balance
Correct answer: Does not need to be paid if the borrower has no other derogatory credit
Fannie Mae does not require payoff of isolated collection accounts; the underwriter evaluates the overall credit profile.
Question 6: When evaluating a borrower's credit history, a mortgage underwriter finds three 30-day late payments on a student loan in the past 12 months. This pattern most suggests:
- Isolated financial hardship with no ongoing concern
- A recent and recurring inability to manage debt obligations (Correct answer)
- The loan should be excluded from the credit analysis
- Positive credit because student loans are unsecured
Correct answer: A recent and recurring inability to manage debt obligations
Recent, recurring late payments indicate ongoing payment management problems and elevate mortgage default risk.
Question 7: A borrower applies with a 720 credit score but has a mortgage late payment from 14 months ago. How should the underwriter treat this?
- Ignore it because the score is above 700
- Note it as a significant derogatory event and require a written explanation (Correct answer)
- Treat it as an automatic denial under all agency guidelines
- Exclude it because it is beyond 12 months old
Correct answer: Note it as a significant derogatory event and require a written explanation
A mortgage late payment is a significant derogatory event regardless of credit score and requires explanation and underwriter judgment.
CRU Credit Analysis & Risk Assessment 2
A borrower has a 680 credit score, a 38% back-end DTI, and a 10% down payment on a conventional loan.
Which factor most increases the layered risk?