Mortgage Mortgage Underwriting Principles Questions and Answers 3

Question 1

What is the purpose of the three-day right of rescission under TILA for refinance transactions?

Accepted Answer

To allow borrowers time to cancel the transaction after closing

Answer

To give the lender time to verify employment

Answer

To provide an appraisal review period

Answer

To allow the title company to record the deed

Question 2

An underwriter discovers that a borrower's credit report shows a recent collection account. What is the most appropriate next step?

Accepted Answer

Request a letter of explanation from the borrower

Answer

Immediately deny the loan application

Answer

Ignore it if the balance is under $500

Answer

Approve the loan with a higher interest rate

Question 3

Which loan feature is prohibited under the Ability-to-Repay (ATR) rule for Qualified Mortgages?

Accepted Answer

Interest-only payment periods

Answer

Fixed interest rates

Answer

Fully amortizing payment schedules

Answer

Monthly escrow requirements

Question 4

When calculating income for underwriting, how is overtime pay typically treated?

Accepted Answer

It is averaged over two years and included if likely to continue

Answer

It is always excluded from qualifying income

Answer

It is counted at full value regardless of history

Answer

It is only included for government-backed loans

Question 5

What is the significance of the loan-to-value (LTV) ratio in underwriting decisions?

Accepted Answer

It measures the loan amount relative to the property value and affects risk assessment

Answer

It determines the borrower's monthly payment amount

Answer

It calculates the total closing costs for the transaction

Answer

It establishes the minimum credit score required for approval

Question 6

Which type of mortgage fraud involves inflating the property's value to obtain a larger loan?

Accepted Answer

Property flipping scheme with inflated appraisals

Answer

Straw buyer fraud

Answer

Occupancy fraud

Answer

Income misrepresentation