CMPS Client Assessment & Loan Structuring 3 — Questions and Answers
Question 1: A married couple files taxes jointly and one spouse has significant student loan debt in income-driven repayment. How should the planner calculate the monthly debt obligation for DTI purposes?
- Use the actual IDR payment shown on credit report (Correct answer)
- Use 1% of the student loan balance
- Ignore deferred student loans entirely
- Use 2% of the student loan balance
Correct answer: Use the actual IDR payment shown on credit report
For income-driven repayment plans, most conventional guidelines allow use of the actual documented monthly payment if greater than zero.
Question 2: What is the primary purpose of conducting a financial needs analysis before recommending a mortgage product?
- To meet compliance requirements for loan origination
- To understand the client's complete financial picture and recommend the most suitable product (Correct answer)
- To determine the maximum loan amount the client qualifies for
- To satisfy underwriting documentation requirements
Correct answer: To understand the client's complete financial picture and recommend the most suitable product
A financial needs analysis ensures the mortgage recommendation aligns with the client's overall financial goals, not just their qualification limits.
Question 3: A borrower receives annual bonuses that represent 30% of their total compensation. How should this income be treated for qualification?
- Exclude bonus income entirely as it is not guaranteed
- Average the bonus income over 2 years if it has a 2-year history and is likely to continue (Correct answer)
- Include 100% of the most recent year's bonus
- Use 50% of the most recent bonus only
Correct answer: Average the bonus income over 2 years if it has a 2-year history and is likely to continue
Bonus income with a 2-year history can be averaged and included in qualifying income when the employer confirms it is likely to continue.
Question 4: Which of the following is a key indicator that a client may benefit from a cash-out refinance rather than a HELOC?
- The client needs ongoing access to funds over several years
- The client wants a fixed rate and a lump sum for a specific one-time expense (Correct answer)
- The client prefers interest-only payments initially
- The client's home has appreciated significantly but they have no specific use for the funds
Correct answer: The client wants a fixed rate and a lump sum for a specific one-time expense
A cash-out refinance is preferable when the client needs a fixed, lump-sum amount with predictable repayment, as opposed to revolving credit access.
Question 5: A client's net worth statement shows significant assets but low documented income. Which loan option is most appropriate to explore?
- FHA loan with gift funds
- Asset depletion or asset-based income qualification (Correct answer)
- VA loan with co-borrower
- USDA guaranteed loan
Correct answer: Asset depletion or asset-based income qualification
Asset depletion programs allow lenders to convert verified assets into an imputed monthly income stream for qualification purposes.
Question 6: When reviewing a client's credit report, which factor has the greatest weight in FICO score calculation?
- Length of credit history
- Credit mix
- Payment history (Correct answer)
- New credit inquiries
Correct answer: Payment history
Payment history accounts for approximately 35% of a FICO score, making it the single most influential factor.
Question 7: A borrower has two mortgages: a primary residence and a rental property. How should the rental income be treated in a new loan application?
- Rental income is always excluded from qualifying income
- Rental income may be used if documented on Schedule E with a 2-year history, net of expenses (Correct answer)
- 100% of rental income shown on the lease agreement can be used
- Rental income can only be used if the property has no mortgage
Correct answer: Rental income may be used if documented on Schedule E with a 2-year history, net of expenses
Schedule E rental income averaged over 2 years, after allowable expenses and depreciation add-back, is the standard qualifying income methodology.
CMPS Client Assessment & Loan Structuring 3
A married couple files taxes jointly and one spouse has significant student loan debt in income-driven repayment.
How should the planner calculate the monthly debt obligation for DTI purposes?