Practice Test Geeks(CU) Certified Underwriter Practice Test
← All CU Flashcard Decks

Financial and Credit Analysis Flashcards

7 cards from real CU practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 Financial and Credit Analysis flashcards as text

  1. Under Regulation B (ECOA), which factor is explicitly prohibited from use in a credit underwriting decision?

    Answer: Race or national origin

    The Equal Credit Opportunity Act prohibits lenders from using race, color, religion, national origin, sex, marital status, or age in credit decisions.

  2. A company's working capital has been negative for three consecutive quarters. What is the primary underwriting concern?

    Answer: The company may be unable to meet its short-term obligations

    Persistent negative working capital (current liabilities exceeding current assets) signals potential short-term liquidity stress and inability to cover near-term obligations.

  3. When a loan is classified as 'substandard' under bank regulatory guidelines, it means:

    Answer: The loan has a well-defined weakness that jeopardizes repayment but loss is not yet certain

    Substandard loans have identifiable weaknesses that, if unaddressed, could result in loss, but some possibility of repayment remains.

  4. Which of the following best describes 'sensitivity analysis' in credit underwriting?

    Answer: Testing how changes in key assumptions affect the borrower's ability to repay

    Sensitivity analysis tests how variations in revenue growth, margins, or interest rates impact projected cash flows and debt service coverage.

  5. A lender is reviewing a borrower's tax returns and notices that Schedule K-1 income is significantly higher than W-2 wages. What should the underwriter consider?

    Answer: K-1 income may include non-cash or paper distributions and requires careful analysis for recurring cash income

    K-1 income from pass-through entities may include non-cash items such as depreciation add-backs or paper gains, so underwriters must isolate recurring cash distributions.

  6. In commercial real estate underwriting, which metric is used to determine how much of the property's revenue remains after operating expenses but before debt service?

    Answer: Net operating income (NOI)

    Net operating income (NOI) equals effective gross income minus operating expenses (excluding debt service and taxes), and is the key metric for CRE underwriting.

  7. Which of the following actions would most likely improve a commercial borrower's debt-service coverage ratio without taking on new revenue?

    Answer: Refinancing short-term high-rate debt into long-term lower-rate debt

    Refinancing into lower-rate, longer-term debt reduces annual debt service, thereby improving the DSCR without any change in operating income.