SAFE Processing and Underwriting 3

Question 1

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

Accepted Answer

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

Answer

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

Question 2

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

Accepted Answer

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

Answer

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

Question 3

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

Accepted Answer

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

Answer

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

Question 4

Which automated underwriting system is primarily used by Freddie Mac?

Accepted Answer

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

Answer

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

Question 5

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

Accepted Answer

3%

Answer

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

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