SAFE - Certified Secure and Fair Enforcement Mortgage Loan Originator Loan Processing and Underwriting Questions and Answers

Question 1

A borrower has a gross monthly income of $7,000. Their proposed PITI is $2,100. They also have a $500 monthly car payment, a $300 student loan payment, and a $100 minimum credit card payment. What is their total (back-end) debt-to-income ratio?

Accepted Answer

42.9%

Answer

The total or back-end debt-to-income (DTI) ratio is calculated by adding all of the borrower's monthly debt obligations (including the proposed housing payment) and dividing that sum by the gross monthly income. In this case: ($2,100 PITI + $500 car + $300 student loan + $100 credit card) / $7,000 = $3,000 / $7,000 = 0.4285, or 42.9%.

Question 2

When an underwriter is reviewing a property appraisal for a purchase transaction, what is their primary objective?

Accepted Answer

To determine if the property represents acceptable collateral for the loan amount requested.

Answer

The underwriter's main goal in reviewing the appraisal is to assess the risk to the lender by confirming that the property's market value is sufficient to secure the loan. While they check for compliance and accuracy, the core purpose is to validate the collateral.

Question 3

An underwriter reviewing a borrower's bank statements notices a single, uncharacteristic cash deposit of $25,000 made last week. Which of the following actions is the underwriter most likely to take?

Accepted Answer

Request a signed letter of explanation from the borrower and documentation to source the funds.

Answer

Underwriters must source and season all large, non-payroll deposits to ensure they are from an acceptable source and not an undisclosed loan. The standard procedure is to issue a loan condition requiring the borrower to explain the deposit in writing and provide supporting documentation (e.g., a gift letter, bill of sale for an asset).

Question 4

Which of the following BEST describes the function of an Automated Underwriting System (AUS) such as Fannie Mae's Desktop Underwriter (DU) or Freddie Mac's Loan Product Advisor (LPA)?

Accepted Answer

It analyzes a loan application against investor guidelines to provide a preliminary risk assessment and credit recommendation.

Answer

An AUS is a software tool that provides an initial evaluation of a loan file's risk by comparing the borrower's data to the investor's (e.g., Fannie Mae, Freddie Mac) guidelines. It returns a recommendation, such as 'Approve/Eligible,' but it does not constitute a final loan approval, which still requires verification and review by a human underwriter.

Question 5

A loan processor receives the Standard Flood Hazard Determination Form (SFHDF) for a property, which indicates it is located in a Special Flood Hazard Area (SFHA). What does this finding require?

Accepted Answer

The borrower must purchase and maintain flood insurance for the life of the loan.

Answer

The Flood Disaster Protection Act mandates that for any property located in a Special Flood Hazard Area (SFHA) securing a federally related mortgage, the borrower must obtain and maintain flood insurance coverage throughout the term of the loan.

(SAFE) Certified Secure and Fair Enforcement Mortgage Loan Originator Practice Test

(SAFE) Certified Secure and Fair Enforcement Mortgage Loan Originator Practice Test

SAFE - Certified Secure and Fair Enforcement Mortgage Loan Originator Loan Processing and Underwriting Questions and Answers