CMC Residential and Commercial Financing 2 — Questions and Answers
Question 1: A borrower's debt-to-income (DTI) ratio is 48%. Which loan program is most likely to allow this ratio for a conventional mortgage?
- FHA with compensating factors
- Fannie Mae with DU approval and compensating factors (Correct answer)
- VA with standard underwriting
- USDA Rural Development loan
Correct answer: Fannie Mae with DU approval and compensating factors
Fannie Mae's Desktop Underwriter (DU) can approve DTIs above 45% when strong compensating factors are present.
Question 2: In commercial real estate lending, what does the term 'recourse' mean?
- The lender can only foreclose on the property
- The borrower is personally liable for the debt beyond the collateral (Correct answer)
- The lender must give borrower time to cure default
- The loan can be transferred to another borrower
Correct answer: The borrower is personally liable for the debt beyond the collateral
A recourse loan allows the lender to pursue the borrower's personal assets if the collateral is insufficient to cover the debt after foreclosure.
Question 3: Which of the following best describes a 'blanket mortgage' in commercial financing?
- A mortgage covering multiple properties under a single loan (Correct answer)
- A loan with no prepayment penalty
- An adjustable-rate mortgage tied to Treasury index
- A loan requiring no down payment
Correct answer: A mortgage covering multiple properties under a single loan
A blanket mortgage uses multiple properties as collateral under one loan, commonly used by developers and investors.
Question 4: What is the primary difference between a fixed-rate mortgage and a hybrid ARM?
- Fixed-rate loans are only for primary residences
- Hybrid ARMs have an initial fixed period before converting to adjustable rates (Correct answer)
- Fixed-rate loans always have lower interest rates
- Hybrid ARMs require a higher credit score
Correct answer: Hybrid ARMs have an initial fixed period before converting to adjustable rates
A hybrid ARM (e.g., 5/1 ARM) offers a fixed rate for an initial period then adjusts periodically based on an index.
Question 5: A commercial property generates $180,000 NOI and is valued at $2,000,000. What is the capitalization rate?
- 8.0%
- 9.0% (Correct answer)
- 10.0%
- 11.1%
Correct answer: 9.0%
Cap rate = NOI ÷ Property Value = $180,000 ÷ $2,000,000 = 9.0%.
Question 6: Under the Home Mortgage Disclosure Act (HMDA), which data point must lenders report regarding loan pricing?
- Loan origination fee only
- Rate spread between the loan APR and the Average Prime Offer Rate (APOR) (Correct answer)
- Total closing costs as a percentage of loan amount
- Borrower's credit score tier
Correct answer: Rate spread between the loan APR and the Average Prime Offer Rate (APOR)
HMDA requires reporting the rate spread (APR minus APOR) for higher-priced loans to monitor fair lending compliance.
Question 7: Which loan type is specifically designed for the purchase and renovation of a single-family property using one loan?
- 203(k) Rehabilitation Loan
- USDA Direct Loan
- HomeStyle Renovation Mortgage
- Both A and C (Correct answer)
Correct answer: Both A and C
Both FHA 203(k) and Fannie Mae HomeStyle Renovation Mortgage combine purchase and renovation costs into a single loan.
CMC Residential and Commercial Financing 2
A borrower's debt-to-income (DTI) ratio is 48%.
Which loan program is most likely to allow this ratio for a conventional mortgage?