CMC Loan Processing and Underwriting Guidelines 2 — Questions and Answers
Question 1: Which document establishes the maximum allowable seller concessions for a conventional conforming loan with an LTV above 90%?
- Fannie Mae Selling Guide (Correct answer)
- HUD Handbook 4000.1
- VA Lenders Handbook
- USDA Rural Development Guidelines
Correct answer: Fannie Mae Selling Guide
Fannie Mae's Selling Guide limits seller concessions to 3% for conventional loans with LTV above 90%.
Question 2: A borrower's pay stub shows year-to-date earnings of $42,000 through June. What is the underwriter's calculated monthly income?
- $7,000 (Correct answer)
- $6,000
- $3,500
- $8,400
Correct answer: $7,000
$42,000 divided by 6 months (January–June) equals $7,000 per month.
Question 3: Under Fannie Mae guidelines, how long must a borrower be self-employed before that income can be used for qualification?
- 2 years (Correct answer)
- 1 year
- 6 months
- 3 years
Correct answer: 2 years
Fannie Mae requires a minimum two-year history of self-employment before the income can be considered stable and used for qualifying.
Question 4: What is the primary purpose of a 1008 Uniform Underwriting and Transmittal Summary?
- To summarize key loan data for underwriting review (Correct answer)
- To authorize the appraisal order
- To disclose closing costs to the borrower
- To verify employment with the employer
Correct answer: To summarize key loan data for underwriting review
The 1008 form provides a concise summary of loan, property, and borrower information for the underwriter's decision.
Question 5: A borrower has a $500 monthly student loan currently in deferment. Under FHA guidelines, how should the underwriter treat this debt?
- Include 1% of the outstanding balance as a monthly payment (Correct answer)
- Exclude it entirely since it is deferred
- Use the actual $500 payment
- Include 0.5% of the outstanding balance
Correct answer: Include 1% of the outstanding balance as a monthly payment
FHA requires underwriters to use 1% of the outstanding student loan balance as the monthly obligation when the loan is deferred.
Question 6: Which type of income requires the underwriter to average earnings over a 24-month period rather than using current rates?
- Commission income exceeding 25% of total income (Correct answer)
- Base salary income
- Social Security income
- Pension income
Correct answer: Commission income exceeding 25% of total income
When commission income exceeds 25% of total earnings, Fannie Mae requires a two-year average to account for its variable nature.
Question 7: An appraisal comes in $15,000 below the purchase price on a conventional loan. What is the underwriter's standard course of action?
- Base the loan on the appraised value, requiring the borrower to cover the difference (Correct answer)
- Automatically order a second appraisal
- Deny the loan immediately
- Allow the full purchase price if the borrower has strong credit
Correct answer: Base the loan on the appraised value, requiring the borrower to cover the difference
Conventional underwriting guidelines require the loan amount to be based on the lesser of the purchase price or appraised value.
CMC Loan Processing and Underwriting Guidelines 2
Which document establishes the maximum allowable seller concessions for a conventional conforming loan with an LTV above 90%?