FREE CMC Loan Processing and Underwriting Questions and Answers

Question 1

An underwriter is analyzing a self-employed borrower's loan application.
The borrower has been self-employed for seven years and has provided the most recent year's tax returns, which show a stable income.
According to Fannie Mae guidelines, which of the following is the most accurate assessment of the provided documentation?

Accepted Answer

The underwriter may accept one year of tax returns since the borrower has been self-employed for more than five years.

Answer

Two years of tax returns are always mandatory for self-employed borrowers, regardless of their history.

Answer

The borrower must provide an audited profit and loss statement in lieu of a second year of tax returns.

Answer

Bank statements for the past 24 months can be substituted for the second year of tax returns.

Question 2

A loan processor is calculating a borrower's back-end debt-to-income (DTI) ratio. The borrower has a gross monthly income of $6,000. Their monthly obligations include a $1,500 proposed mortgage payment (PITI), a $400 car payment, a $200 student loan payment, and a $100 minimum credit card payment. What is the borrower's back-end DTI ratio?

Accepted Answer

35%

Answer

25%

Answer

37%

Answer

42%

Question 3

During the underwriting review of a borrower's bank statements, which of the following would be the biggest 'red flag' requiring further investigation and a letter of explanation?

Accepted Answer

A large, un-sourced cash deposit made one week prior to the loan application.

Answer

Regular monthly direct deposits from a known employer.

Answer

Consistent monthly payments to a credit card account listed on the credit report.

Answer

A one-time transfer from a verified savings account to a checking account.

Question 4

A mortgage loan is subject to the TILA-RESPA Integrated Disclosure (TRID) rule. After the initial Closing Disclosure (CD) has been delivered to the borrower, which of the following events would trigger a new three-day waiting period before the loan can be consummated?

Accepted Answer

The Annual Percentage Rate (APR) on a fixed-rate loan increases by more than 0.125%.

Answer

A clerical error discovered on the CD, such as a misspelled street name.

Answer

A decrease in the seller credit for repairs, resulting in a small increase in the borrower's cash-to-close.

Answer

The borrower decides to purchase a home warranty at the closing table.

Question 5

Which of the following best describes the primary role of a loan processor in the mortgage origination workflow?

Accepted Answer

To gather and verify all necessary documentation to assemble a complete file for the underwriter.

Answer

To make the final credit decision and approve or deny the loan application.

Answer

To market loan products to potential borrowers and take the initial application.

Answer

To order the appraisal and make the final determination of the property's value.

Question 6

In mortgage underwriting, the 'Three Cs' are a fundamental framework for assessing borrower risk. Which of the following is NOT one of the traditional 'Three Cs' of underwriting?

Accepted Answer

Compensation

Answer

Credit

Answer

Capacity

Answer

Collateral