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

Veterans can restore entitlement by selling the home secured by the prior VA loan or, in some cases, use remaining bonus (second-tier) entitlement.

Question 2

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

Accepted Answer

Loan Prospector / Loan Product Advisor (LPA)

Answer

Freddie Mac uses Loan Product Advisor (LPA), while Fannie Mae uses Desktop Underwriter (DU) as their respective AUS platforms.

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

Child support income requires a court order, evidence it has been received consistently for 12 months, and at least 3 years of continuance remaining.

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

ATR requires lenders to make a good-faith, documented determination that borrowers have the financial ability to repay the loan before consummation.

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

A subject-to appraisal values the property as if the specified repairs have been completed, allowing the loan to close contingent on that work.

Mortgage Practice Test