FiCEP Housing and Mortgage Counseling 5 — Questions and Answers
Question 1: A client received a Notice of Default (NOD) 45 days ago and has not contacted their servicer. As their housing counselor, what is the most urgent action to recommend?
- File for Chapter 13 bankruptcy immediately
- Contact the mortgage servicer to request a loss mitigation application (Correct answer)
- List the home for sale at current market value
- Wait for the servicer to offer a modification before responding
Correct answer: Contact the mortgage servicer to request a loss mitigation application
Contacting the servicer to request loss mitigation is critical because federal rules require servicers to evaluate borrowers before proceeding to foreclosure.
Question 2: Which loan feature specifically protects borrowers from payment shock by capping how much an adjustable-rate mortgage payment can increase in a single adjustment period?
- Prepayment penalty clause
- Periodic adjustment cap (Correct answer)
- Negative amortization limit
- Teaser rate provision
Correct answer: Periodic adjustment cap
Periodic adjustment caps limit the amount an ARM's interest rate can change at each scheduled adjustment, preventing sudden large payment increases.
Question 3: A first-time homebuyer client qualifies for a USDA Rural Development guaranteed loan. What is the maximum allowable LTV ratio for this loan type?
- 80%
- 90%
- 96.5%
- 100% (Correct answer)
Correct answer: 100%
USDA guaranteed loans allow up to 100% financing, meaning eligible rural borrowers can purchase with no down payment.
Question 4: When assessing a client's readiness for homeownership, which debt-to-income (DTI) ratio does FHA use as a general qualifying guideline for total monthly obligations?
- 28%
- 36%
- 41% (Correct answer)
- 50%
Correct answer: 41%
FHA generally uses a back-end DTI guideline of 41%, though compensating factors may allow approval at higher ratios.
Question 5: A borrower accepts a deed-in-lieu of foreclosure. What is a key advantage of this option compared to a standard foreclosure?
- The borrower retains ownership of the property for 12 months
- It typically causes less severe damage to the borrower's credit than foreclosure (Correct answer)
- The lender is required to forgive any remaining deficiency balance
- The borrower receives fair market value cash payment from the lender
Correct answer: It typically causes less severe damage to the borrower's credit than foreclosure
A deed-in-lieu typically has a less severe negative impact on credit and may resolve the default faster than a lengthy foreclosure process.
Question 6: What does the term 'underwater mortgage' refer to in housing counseling contexts?
- A mortgage with an interest rate above the current market rate
- A loan balance exceeding the current market value of the property (Correct answer)
- A mortgage that has been sold to a secondary market investor
- A loan with negative equity due to missed payments and accrued fees
Correct answer: A loan balance exceeding the current market value of the property
An underwater or upside-down mortgage occurs when the outstanding loan balance is greater than the home's current market value.
Question 7: A client completed a short sale and asks about the tax implications of the forgiven debt. Which IRS form would the lender typically issue to report the cancelled debt amount?
- Form 1099-INT
- Form 1099-C (Correct answer)
- Form 1098
- Form W-2G
Correct answer: Form 1099-C
Lenders issue IRS Form 1099-C (Cancellation of Debt) to report forgiven debt amounts, which the IRS may treat as taxable income.
FiCEP Housing and Mortgage Counseling 5
A client received a Notice of Default (NOD) 45 days ago and has not contacted their servicer.
As their housing counselor, what is the most urgent action to recommend?