CMC Mortgage Products and Lending Practices 2 — Questions and Answers
Question 1: A borrower wants to minimize monthly payments for the first 5 years and then plans to sell before the rate adjusts. Which loan product best fits this strategy?
- 30-year fixed-rate mortgage
- 5/1 ARM (Correct answer)
- FHA 203(k) loan
- USDA Rural Development loan
Correct answer: 5/1 ARM
A 5/1 ARM offers a fixed rate for 5 years, then adjusts annually, making it ideal for borrowers who plan to sell before the adjustment period begins.
Question 2: Under RESPA, the Good Faith Estimate (now replaced by the Loan Estimate) was required to be delivered to the borrower within how many business days of receiving the loan application?
- 1 business day
- 3 business days (Correct answer)
- 5 business days
- 7 business days
Correct answer: 3 business days
RESPA required the Good Faith Estimate to be delivered within 3 business days of receiving a completed loan application.
Question 3: Which of the following best describes a 'piggyback loan' structure?
- A loan that combines a fixed and ARM component in a single note
- A second mortgage used simultaneously with a first to avoid PMI (Correct answer)
- A construction loan that converts to permanent financing
- A bridge loan secured by two properties at once
Correct answer: A second mortgage used simultaneously with a first to avoid PMI
A piggyback loan pairs a first mortgage with a simultaneous second mortgage (commonly 80/10/10) so the borrower can avoid private mortgage insurance.
Question 4: What is the primary purpose of the Home Ownership and Equity Protection Act (HOEPA)?
- To regulate conforming loan limits set by the FHFA
- To protect consumers from predatory high-cost mortgage lending (Correct answer)
- To establish maximum LTV ratios for conventional loans
- To mandate escrow accounts on all federally backed loans
Correct answer: To protect consumers from predatory high-cost mortgage lending
HOEPA was enacted to protect consumers by imposing additional disclosure requirements and restrictions on high-cost mortgage loans.
Question 5: A reverse mortgage borrower must meet which of the following eligibility requirements?
- Must be at least 55 years old and have a credit score above 640
- Must be at least 62 years old and the home must be a primary residence (Correct answer)
- Must be retired and have no existing mortgage on the property
- Must have at least 50% equity and an income below the area median
Correct answer: Must be at least 62 years old and the home must be a primary residence
HECM reverse mortgages require borrowers to be at least 62 years old and must use the home as their primary residence.
Question 6: Which loan feature allows the lender to demand full repayment of a mortgage before the scheduled maturity date under specific circumstances?
- Prepayment penalty clause
- Due-on-sale clause
- Acceleration clause (Correct answer)
- Balloon payment provision
Correct answer: Acceleration clause
An acceleration clause permits the lender to demand immediate full repayment of the outstanding loan balance upon a triggering event such as default.
Question 7: A non-QM loan differs from a qualified mortgage primarily because it:
- Carries a higher LTV limit and lower FICO requirement
- Does not meet CFPB's ability-to-repay safe harbor standards (Correct answer)
- Is only available to first-time homebuyers
- Cannot be securitized in the secondary market
Correct answer: Does not meet CFPB's ability-to-repay safe harbor standards
Non-QM loans fall outside the CFPB's Qualified Mortgage definition, meaning they don't receive the same legal safe harbor protections regarding ability-to-repay.
CMC Mortgage Products and Lending Practices 2
A borrower wants to minimize monthly payments for the first 5 years and then plans to sell before the rate adjusts.
Which loan product best fits this strategy?