Practice Test Geeks(SAFE) Certified Secure and Fair Enforcement Mortgage Loan Originator Practice Test
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Processing and Underwriting Flashcards

7 cards from real SAFE practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 Processing and Underwriting flashcards as text

  1. What is the primary purpose of Private Mortgage Insurance (PMI) on a conventional loan?

    Answer: To protect the lender against borrower default when LTV exceeds 80%

    PMI protects the lender—not the borrower—from loss if the borrower defaults when the down payment is less than 20%.

  2. Under the Homeowners Protection Act, when can a borrower request cancellation of PMI?

    Answer: When the loan balance reaches 80% LTV based on original value

    The HPA allows borrowers to request PMI cancellation when the principal balance reaches 80% of the original purchase price or appraised value.

  3. In underwriting, what does 'seasoning' of funds refer to?

    Answer: The length of time funds have been in the borrower's account

    Seasoning refers to funds that have been in a borrower's account long enough (typically 60 days) that they don't require source documentation.

  4. Which automated underwriting system is primarily used by Freddie Mac?

    Answer: Loan Prospector (LP) / Loan Product Advisor (LPA)

    Freddie Mac's automated underwriting system is called Loan Product Advisor (LPA), formerly known as Loan Prospector (LP).

  5. What is the maximum seller concession allowed on a conventional loan with an LTV above 90%?

    Answer: 3%

    For conventional loans with LTV above 90%, Fannie Mae and Freddie Mac limit seller concessions to 3% of the purchase price.

  6. A processor receives the appraisal and notices the value is lower than the contract price. What is the term for this situation?

    Answer: Low appraisal / appraisal shortfall

    When the appraised value comes in below the agreed purchase price, it is called a low appraisal or appraisal shortfall, requiring renegotiation or additional cash from the buyer.

  7. What is the purpose of a flood zone determination in mortgage processing?

    Answer: To determine if the property requires flood insurance under NFIP rules

    Lenders must determine whether a property is in a Special Flood Hazard Area (SFHA); if so, federal law requires flood insurance as a condition of the loan.