CRU Credit Analysis & Risk Assessment 3 — Questions and Answers
Question 1: Which of the following best describes the purpose of a Rapid Rescore in the mortgage process?
- To remove legitimate derogatory items from a credit report
- To quickly update credit report data and recalculate scores after errors are corrected or balances paid (Correct answer)
- To generate a non-traditional credit report for thin-file borrowers
- To merge multiple credit reports from three bureaus into one
Correct answer: To quickly update credit report data and recalculate scores after errors are corrected or balances paid
Rapid Rescore allows lenders to expedite the credit bureau update process so corrected or paid information is reflected in a new score within days.
Question 2: When a borrower's middle credit score is used for qualifying on a joint application, which score is selected?
- The highest of all scores across all borrowers
- The lower of the two middle scores when there are two borrowers (Correct answer)
- The average of all six scores from both borrowers
- The highest middle score among all borrowers
Correct answer: The lower of the two middle scores when there are two borrowers
For joint applications, the representative score is each borrower's middle score, and the qualifying score is the lower of those two middle scores.
Question 3: A borrower had a foreclosure completed 5 years ago due to documented extenuating circumstances. Under Fannie Mae's extenuating circumstances policy, the borrower may be eligible for a conventional loan after:
- 7 years regardless of circumstances
- 3 years with maximum 90% LTV (Correct answer)
- 2 years with no LTV restriction
- 4 years with a minimum 10% down payment
Correct answer: 3 years with maximum 90% LTV
Fannie Mae allows a 3-year waiting period after foreclosure when properly documented extenuating circumstances exist, with a maximum 90% LTV.
Question 4: Which type of debt is EXCLUDED from a borrower's DTI calculation under standard agency guidelines?
- A car loan with 11 months remaining
- Student loans in deferment for more than 12 months
- A co-signed mortgage where the co-signed borrower has paid on time for 12 months (Correct answer)
- A minimum payment on a revolving credit card
Correct answer: A co-signed mortgage where the co-signed borrower has paid on time for 12 months
Fannie Mae allows exclusion of a co-signed debt from DTI if documented proof shows the primary obligor has made all payments for the prior 12 months.
Question 5: A borrower's credit report shows a judgment that was satisfied three years ago. The underwriter's primary concern should be:
- Whether the judgment creditor can refile after satisfaction
- Whether any additional liens or unsatisfied judgments may still exist against the borrower (Correct answer)
- The impact on the borrower's future credit applications
- Whether the judgment was included in a bankruptcy filing
Correct answer: Whether any additional liens or unsatisfied judgments may still exist against the borrower
Satisfied judgments may indicate past financial stress, and underwriters must verify no additional outstanding judgments or liens could affect title.
Question 6: A borrower has $20,000 in medical collections. Under current Fannie Mae guidelines, how are medical collections generally treated?
- They must be paid in full before closing
- They are excluded from required payoff and disregarded in DTI calculation (Correct answer)
- They must be included in the DTI as 1% of the outstanding balance
- They require a letter of explanation but must appear on the HUD-1
Correct answer: They are excluded from required payoff and disregarded in DTI calculation
Fannie Mae specifically excludes medical collections from required payoff and does not require them to be factored into DTI calculations.
Question 7: A self-employed borrower's personal credit report shows multiple business credit card accounts with high balances. How should the underwriter address these?
- Exclude them entirely as business obligations
- Include them in DTI unless documentation proves the business pays them independently (Correct answer)
- Require the borrower to pay them off before qualifying
- Treat them as installment debt at 5% of the balance
Correct answer: Include them in DTI unless documentation proves the business pays them independently
Business accounts appearing on a personal credit report must be included in DTI unless the underwriter can document that business funds service them.
CRU Credit Analysis & Risk Assessment 3
Which of the following best describes the purpose of a Rapid Rescore in the mortgage process?