CMA - Certified Mortgage Advisor Underwriting and Risk Assessment Questions and Answers

Question 1

An underwriter is evaluating a loan application using the 'Three C's' of underwriting. Which of the following best represents the 'Capacity' component?

Accepted Answer

The borrower's debt-to-income ratio and employment stability.

Answer

Capacity refers to the borrower's ability to repay the loan. Underwriters primarily assess this by analyzing the borrower's income, employment history, and their debt-to-income (DTI) ratio to ensure they can handle the mortgage payments alongside their other financial obligations.

Question 2

A prospective homebuyer is purchasing a property for $400,000 and the property appraises for $410,000. They are seeking a loan for $320,000. What is the Loan-to-Value (LTV) ratio for this transaction?

Accepted Answer

80%

Answer

The Loan-to-Value (LTV) ratio is calculated by dividing the loan amount by the *lesser* of the property's appraised value or the sales price. In this case, the sales price ($400,000) is lower than the appraised value ($410,000). The calculation is $320,000 / $400,000 = 0.80, or 80%.

Question 3

Which of the following is a primary function of an Automated Underwriting System (AUS) like Fannie Mae's Desktop Underwriter (DU) or Freddie Mac's Loan Product Advisor (LP)?

Accepted Answer

To provide an initial recommendation based on a loan application's alignment with investor guidelines.

Answer

An Automated Underwriting System (AUS) is software that analyzes a loan application and provides an initial recommendation (e.g., Approve/Eligible, Refer/Caution) by comparing the borrower's data against the guidelines of investors like Fannie Mae or Freddie Mac. It does not issue a final approval, as a human underwriter must still verify the information and clear any conditions.

Question 4

A mortgage advisor is reviewing a client's tri-merge credit report. The scores are 720 (Equifax), 745 (Experian), and 715 (TransUnion). For conventional loan underwriting purposes, which score will typically be used?

Accepted Answer

The middle score (720)

Answer

When underwriting a mortgage, lenders pull a credit report from all three major bureaus (Equifax, Experian, and TransUnion). The representative score used for a single borrower is the middle of the three scores, not the highest, lowest, or average.

Question 5

A borrower has a gross monthly income of $8,000. Their proposed monthly housing expense (PITI) is $2,400. They also have a $500 monthly car payment and a $300 monthly student loan payment. What is the borrower's back-end debt-to-income (DTI) ratio?

Accepted Answer

40%

Answer

The back-end DTI ratio includes all recurring monthly debts, including the proposed housing payment. The calculation is: ($2,400 PITI + $500 car payment + $300 student loan) / $8,000 gross monthly income. This equals $3,200 / $8,000 = 0.40, or 40%.

(CMA) Certified Mortgage Advisor Practice Test

(CMA) Certified Mortgage Advisor Practice Test

CMA - Certified Mortgage Advisor Underwriting and Risk Assessment Questions and Answers