Mortgage Underwriting Principles 5

Question 1

A borrower applies for a VA loan and has no remaining entitlement. What option is available to obtain a VA loan?

Accepted Answer

The borrower may use a bonus entitlement or restore entitlement by selling the prior property

Answer

VA loans are unavailable without remaining entitlement

Answer

The borrower can pay down existing VA loan principal

Answer

The lender may waive the entitlement requirement

Question 2

Which automated underwriting system (AUS) is used primarily by Freddie Mac?

Accepted Answer

Loan Prospector / Loan Product Advisor (LPA)

Answer

Desktop Underwriter (DU)

Answer

Total Mortgage Scorecard

Answer

CLUES

Question 3

A borrower receives child support income. What documentation is needed for it to be used as qualifying income?

Accepted Answer

Court order or divorce decree and 12 months of receipt history with evidence of continuance for 3 years

Answer

A notarized letter from the paying parent

Answer

Three months of bank statements only

Answer

No documentation is required for court-ordered support

Question 4

What does the term 'ability to repay' (ATR) require lenders to do under the Dodd-Frank Act?

Accepted Answer

Make a reasonable, good-faith determination that the borrower can repay the loan

Answer

Guarantee that the borrower will repay the loan

Answer

Deny loans to borrowers with DTI above 43%

Answer

Offer only fixed-rate qualified mortgages

Question 5

An underwriter conditions a file for 'satisfactory completion' of a new roof. Which appraisal report type is most appropriate for this situation?

Accepted Answer

Subject-to appraisal conditioned on completion of repairs

Answer

As-is appraisal with no conditions

Answer

Drive-by (exterior-only) appraisal

Answer

Desk review of the original appraisal

Question 6

Which scenario would most likely result in a 'refer with caution' finding from an FHA AUS (Total Scorecard)?

Accepted Answer

A borrower with a 580 credit score, 55% DTI, and minimal reserves

Answer

A borrower with a 720 credit score and 35% DTI

Answer

A borrower with a 640 credit score and 12 months of rental history

Answer

A borrower refinancing with 20% equity and stable employment

Question 7

What is the primary function of a mortgage underwriter's 'conditions prior to closing' (CTC) list?

Accepted Answer

To specify outstanding items the borrower must satisfy before the loan can fund

Answer

To list all disclosures the borrower must sign at closing

Answer

To document the underwriter's final approval decision

Answer

To communicate the loan amount to the title company