CRU Underwriting Decision-Making & Loan Approval 3 — Questions and Answers
Question 1: An appraisal comes in $10,000 below the purchase price on a conventional loan. What is the underwriter's most appropriate action?
- Deny the loan automatically
- Base the LTV on the appraised value and re-evaluate eligibility (Correct answer)
- Allow the purchase price to stand if the borrower accepts it
- Order a second appraisal and use the higher value
Correct answer: Base the LTV on the appraised value and re-evaluate eligibility
Conventional guidelines require LTV to be calculated on the lower of appraised value or purchase price, so the underwriter must recalculate eligibility.
Question 2: Which condition would most likely trigger a referral to a fraud investigation unit during underwriting?
- A credit score slightly below the program minimum
- Inconsistent employment dates on the application versus the verification of employment (Correct answer)
- A gift letter that omits the donor's relationship to the borrower
- A debt-to-income ratio that exceeds the guideline maximum by 1%
Correct answer: Inconsistent employment dates on the application versus the verification of employment
Inconsistent employment dates between the application and VOE are a red flag for misrepresentation and a hallmark fraud indicator.
Question 3: A borrower's total monthly obligations are $2,200 and gross monthly income is $6,500. What is their back-end DTI?
- 30%
- 33%
- 34% (Correct answer)
- 38%
Correct answer: 34%
Back-end DTI = $2,200 / $6,500 = 33.85%, which rounds to approximately 34%.
Question 4: Under Fannie Mae guidelines, what minimum reserve requirement applies after closing for a borrower purchasing a primary residence with a fixed-rate mortgage?
- No reserves required (Correct answer)
- 1 month PITI
- 2 months PITI
- 6 months PITI
Correct answer: No reserves required
Fannie Mae does not mandate post-closing reserves for a primary residence fixed-rate purchase, though higher-risk loans may trigger DU reserve requirements.
Question 5: Which of the following best describes a 'suspended' underwriting decision?
- The loan is conditionally approved pending receipt of specific documents
- The loan is denied due to insufficient qualifying factors
- The underwriter cannot make a decision because critical information is missing or unverifiable (Correct answer)
- The loan is approved but placed on hold for rate lock expiration
Correct answer: The underwriter cannot make a decision because critical information is missing or unverifiable
A suspended decision means the underwriter lacks sufficient information to approve or deny and the file must be updated before a determination can be made.
Question 6: 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?
- Exclude it entirely from the DTI calculation
- Add $200 to the monthly obligations in the DTI (Correct answer)
- Offset the mortgage with 75% of the rental income only
- Use the full $1,300 rental income to offset the $1,500 mortgage
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 7: What does the term 'compensating factors' mean in the context of residential underwriting?
- Adjustments made to the appraised value to account for property deficiencies
- Positive loan attributes that offset risk when a guideline threshold is exceeded (Correct answer)
- Fees charged by the lender to compensate for elevated credit risk
- The process of balancing front-end and back-end DTI ratios
Correct answer: Positive loan attributes that offset risk when a guideline threshold is exceeded
Compensating factors are positive loan characteristics such as large reserves, low LTV, or strong credit history that justify approval despite a guideline exception.
CRU Underwriting Decision-Making & Loan Approval 3
An appraisal comes in $10,000 below the purchase price on a conventional loan.
What is the underwriter's most appropriate action?