FREE CMC Loan Processing and Underwriting Questions and Answers

Question 1

An underwriter receives an application for a conventional loan.
The borrower has a 15% down payment and a credit score of 750.
According to standard guidelines, what type of mortgage insurance will be required, and when can the borrower typically request its cancellation?

Accepted Answer

Private Mortgage Insurance (PMI), which can be requested for cancellation when the loan-to-value (LTV) ratio reaches 80%.

Answer

Upfront Mortgage Insurance Premium (UFMIP), which cannot be canceled.

Answer

Annual Mortgage Insurance Premium (MIP), which can be canceled after 11 years.

Answer

Lender-Paid Mortgage Insurance (LPMI), which is automatically removed when the LTV reaches 78%.

Question 2

A loan officer submits an application through Fannie Mae's Desktop Underwriter (DU). The system returns a finding of 'Refer with Caution'. What is the most accurate interpretation of this result and the underwriter's next step?

Accepted Answer

The loan has significant risk factors, but may be eligible for a manual underwrite if compensating factors exist.

Answer

The loan is automatically denied and cannot be reconsidered.

Answer

The loan meets all eligibility criteria and only needs verification of documents.

Answer

The loan is approved, but requires a higher interest rate and a larger down payment.

Question 3

During the underwriting review of a property appraisal for a purchase transaction, which of the following would be the biggest red flag requiring further investigation?

Accepted Answer

The sales prices of the comparable properties are all significantly lower than the subject property's contract price, with minimal adjustments.

Answer

The appraisal uses three comparable sales all within the last three months and within one mile of the subject property.

Answer

The appraiser made a positive adjustment for the subject property's superior condition compared to the comparables.

Answer

The effective date of the appraisal is two days prior to the underwriter's review.

Question 4

A lender receives a loan application on Monday, March 2nd. The applicant provides all necessary information except for their two most recent pay stubs. On Wednesday, March 4th, the lender sends a written Notice of Incompleteness. According to Regulation B (ECOA), what must this notice include?

Accepted Answer

The specific information required, a reasonable time to provide it, and a disclosure that failure to provide it will result in no further consideration.

Answer

A statement that the application is denied due to missing information.

Answer

A counter-offer with modified loan terms pending receipt of the missing documents.

Answer

An approval conditioned on the subsequent receipt of the pay stubs within 30 days.

Question 5

An underwriter is calculating a borrower's back-end Debt-to-Income (DTI) ratio. The borrower has a gross monthly income of $8,000. Their proposed PITI is $2,200. They also have a $450 monthly car payment, a $250 monthly student loan payment, and a credit card with a $5,000 balance and a $100 minimum monthly payment. What is the borrower's back-end DTI ratio?

Accepted Answer

43.8%

Answer

27.5%

Answer

37.5%

Answer

35.0%

Question 6

Which of the following events would trigger a new three-business-day waiting period for the Closing Disclosure after it has been initially delivered to the borrower?

Accepted Answer

The loan product changes from a fixed-rate mortgage to an adjustable-rate mortgage.

Answer

A clerical error is discovered on the disclosure.

Answer

The seller provides a $500 credit for a minor repair discovered during the final walk-through.

Answer

The fee for the appraisal, which the borrower paid upfront, was understated by $25.