Mortgage Underwriting Principles Questions and Answers

Question 1

An underwriter is analyzing a loan application where the borrower's debt-to-income (DTI) ratio is slightly above the standard guidelines for a conventional loan.
However, the borrower has a high credit score, significant cash reserves, and is making a large down payment.
These positive factors are known in underwriting as:

Accepted Answer

Compensating factors

Answer

Conditional approvals

Answer

Layered risks

Answer

Loan stipulations

Question 2

A loan officer submits an application to an Automated Underwriting System (AUS), and the finding is 'Refer/Eligible.' What is the most accurate interpretation of this result?

Accepted Answer

The AUS cannot issue a decision, and the loan must be reviewed by a human underwriter.

Answer

The loan is automatically approved, pending verification of documents.

Answer

The loan is denied and cannot be approved by the lender.

Answer

The loan meets the criteria for the program but is considered high risk.

Question 3

When underwriting a loan for a self-employed borrower who is a sole proprietor, which IRS form is most critical for verifying their business income and expenses?

Accepted Answer

Schedule C (Profit or Loss from Business)

Answer

Form 1120S (U.S. Income Tax Return for an S Corporation)

Answer

Form 1065 (U.S. Return of Partnership Income)

Answer

Form W-2 (Wage and Tax Statement)

Question 4

Which of the following would an underwriter consider the riskiest loan scenario, likely requiring a higher down payment and stricter qualifying criteria?

Accepted Answer

A purchase loan for a single-family investment property.

Answer

A rate-and-term refinance on a primary residence.

Answer

A purchase loan for a second home located 100 miles from the borrower's primary residence.

Answer

A cash-out refinance on a primary residence.

Question 5

Fannie Mae's Collateral Underwriter (CU) is a tool used in the underwriting process primarily to:

Accepted Answer

Assess the risk associated with the property appraisal.

Answer

Verify the borrower's income and employment stability.

Answer

Determine the borrower's final debt-to-income ratio.

Answer

Check for undisclosed liabilities on the borrower's credit report.

Question 6

During a final review of a loan file just before closing, an underwriter notices a recent, large, and undocumented deposit in the borrower's bank account. This discovery is considered a significant underwriting 'red flag' primarily because it could indicate:

Accepted Answer

The borrower recently sold personal assets to raise cash.

Answer

The borrower received a legitimate gift from a relative.

Answer

The funds are from an undisclosed and unacceptable loan.

Answer

The borrower received an annual bonus from their employer.