Processing and Underwriting Flashcards

During loan processing, what does a Verification of Employment (VOE) confirm?

Answer: The borrower's current employment status and income

A VOE is sent directly to the employer to verify the borrower's job title, length of employment, and income.

What is the purpose of the 4506-C form in mortgage underwriting?

Answer: To request tax transcripts from the IRS

The IRS Form 4506-C allows lenders to obtain official tax return transcripts directly from the IRS to verify the borrower's reported income.

An underwriter issues a 'suspended' decision on a loan application. What does this mean?

Answer: More information is needed before a decision can be made

A suspended decision means the underwriter lacks sufficient information to make a credit decision and is requesting additional documentation.

Which document establishes the chain of ownership for a property prior to the current sale?

Answer: Abstract of title

An abstract of title is a historical summary of all legal documents affecting the property, establishing ownership history.

What DTI ratio component includes all monthly debt obligations plus the proposed housing payment?

Answer: Back-end ratio

The back-end (or total) DTI ratio divides all monthly debt payments—including the new mortgage PITI—by gross monthly income.

A borrower receives rental income from an investment property. How many years of rental income history do underwriters typically require?

Answer: 2 years

Conventional guidelines generally require a two-year history of rental income documented on tax returns to count it as qualifying income.

What is 'layering of risk' in mortgage underwriting?

Answer: When multiple risk factors exist simultaneously on one loan file

Layering of risk occurs when a single file has multiple risk factors—such as high LTV, low credit score, and high DTI—increasing the overall default probability.