Mixed Deck — All CMP Topics Flashcards

What is the maximum number of financed properties a borrower may have simultaneously and still qualify for a conventional investment property loan under standard Fannie Mae guidelines?

Answer: 10

Fannie Mae allows borrowers to finance up to 10 properties simultaneously, including their primary residence, under its multiple financed properties policy.

Which credit scoring model is most commonly used by mortgage lenders to evaluate borrower creditworthiness?

Answer: FICO Score

Mortgage lenders primarily use FICO Scores, which are required by Fannie Mae and Freddie Mac for conventional loan underwriting.

Which of the following is the most accurate description of pre-qualification?

Answer: An informal estimate of borrowing potential

Pre-qualification is an initial, informal step where a lender provides an estimate of how much a borrower might be able to borrow. It's based on a brief review of income and debts, often without a credit check or verification of documents. This differs from pre-approval, which involves a more thorough review and often a credit check, providing a stronger indication of borrowing power.

Why is compliance with the Equal Credit Opportunity Act (ECOA) important?

Answer: To ensure fairness and legal lending practices

The Equal Credit Opportunity Act (ECOA) is a federal law that prohibits creditors from discriminating against applicants based on race, color, religion, national origin, sex, marital status, age, or because they receive public assistance. Compliance with ECOA is crucial for mortgage professionals to ensure fair and equitable treatment for all borrowers. This prevents discriminatory lending practices and upholds legal and ethical standards.

When calculating a borrower's total monthly debt for the DTI ratio, which of the following is generally EXCLUDED?

Answer: Monthly utilities and grocery expenses

DTI calculations include contractual debt obligations like loans and credit card minimum payments. They do not include discretionary living expenses such as utilities, groceries, or entertainment costs.

What is the purpose of a Mortgage Only credit report versus a tri-merge report?

Answer: It is a limited report pulled mid-transaction to verify no new credit has been opened

A Mortgage Only or update report is often pulled close to closing to confirm the borrower hasn't opened new credit or incurred new debt since the original tri-merge report.

A conventional loan that exceeds the FHFA conforming loan limits is commonly referred to as a:

Answer: Jumbo loan

Loans exceeding FHFA conforming limits are called jumbo loans; they cannot be sold to Fannie Mae or Freddie Mac and typically carry stricter underwriting requirements.

What is a 'rapid rescore' and when would a mortgage processor request one?

Answer: An expedited update to credit bureau records that reflects recent payoffs or corrections, improving the score quickly

A rapid rescore allows a mortgage processor to submit documented account changes to the bureaus for quick score updates, often used when a borrower needs to reach a score threshold.

What is one key requirement of the Truth in Lending Act (TILA)?

Answer: Disclose loan costs and APR to the borrower

One key requirement of the Truth in Lending Act (TILA) is that lenders must clearly and conspicuously disclose loan costs and the Annual Percentage Rate (APR) to the borrower. This disclosure enables consumers to understand the true cost of borrowing and compare different credit offers. TILA aims to promote the informed use of consumer credit by ensuring transparency in lending terms.

What helps establish trust early in the mortgage process?

Answer: Be honest and transparent from the start

Being honest and transparent from the start is crucial for establishing trust in the mortgage process. This involves clearly communicating all terms, conditions, and potential challenges, setting realistic expectations for the borrower. Openness builds credibility, reduces client anxiety, and fosters a reliable relationship, which is foundational for a smooth transaction.

Under the Fair Credit Reporting Act (FCRA), how long can a Chapter 7 bankruptcy remain on a consumer's credit report?

Answer: 10 years from filing date

Under the FCRA, a Chapter 7 bankruptcy can remain on a credit report for up to 10 years from the filing date.

Why is it important to disclose all fees upfront?

Answer: To maintain transparency and borrower trust

It is crucial to disclose all fees upfront to maintain transparency and build borrower trust in the mortgage process. This practice ensures that clients have a complete understanding of the total cost of their loan without any hidden surprises. Upfront disclosure empowers borrowers to make informed financial decisions and helps prevent disputes, aligning with consumer protection regulations.

Which of the following is a primary responsibility of the settlement agent during the loan closing process?

Answer: Ensuring closing documents are executed correctly, and managing the disbursement of funds to all parties.

The settlement agent (or closing agent) acts as a neutral third party whose main roles are to facilitate the signing of legal documents, receive and disburse funds according to the lender's instructions and the sales contract, and ensure the new deed and mortgage are properly recorded.

Which of the following items is a critical point of comparison between the appraisal report and the loan application for a mortgage processor?

Answer: The seller's name and the property address

A mortgage processor must verify that key details are consistent across all documents. This includes ensuring the seller's name on the appraisal matches the owner of public record and the purchase contract, and that the property address is identical on the appraisal, application, and title report to ensure the correct property is being financed and appraised.

According to the TILA-RESPA Integrated Disclosure (TRID) rule, when must the initial Loan Estimate be provided to a mortgage applicant?

Answer: Within 3 business days of the lender's receipt of the loan application.

The TRID rule mandates that lenders must deliver or place in the mail the initial Loan Estimate to the consumer no later than the third business day after receiving the consumer's completed loan application.

What does the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act) require?

Answer: Licensing and registration of mortgage originators

The Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act) requires the licensing and registration of mortgage loan originators (MLOs). This federal law mandates that MLOs meet specific educational, testing, and background check requirements. The SAFE Act aims to enhance consumer protection and reduce fraud by ensuring that individuals working in the mortgage industry are qualified and accountable.

What is a 'limited review' for a condominium, and when is it available?

Answer: A streamlined condo project approval available for lower LTV loans on established projects without full project review

A limited review is a Fannie Mae/Freddie Mac option for established condo projects where the loan meets certain LTV thresholds, requiring less documentation than a full project review.

What is 'credit layering' as it relates to mortgage risk assessment?

Answer: The accumulation of multiple risk factors on a single loan file that increases overall default risk

Credit layering refers to multiple compounding risk factors (e.g., low credit score + high LTV + low reserves) on one loan file, which significantly increases default risk.

A Closing Protection Letter (CPL) is issued by the title insurance underwriter primarily to protect which party against misconduct by the closing agent?

Answer: The lender and sometimes the borrower

A Closing Protection Letter indemnifies the lender (and in some cases, the borrower) against actual losses caused by the closing agent's fraud, dishonesty, or failure to follow written closing instructions. It does not protect the seller, real estate agents, or appraiser.

How long must a borrower typically wait after a Chapter 7 bankruptcy discharge before qualifying for a conventional conforming loan under Fannie Mae guidelines?

Answer: 4 years

Fannie Mae requires a 4-year waiting period after a Chapter 7 bankruptcy discharge before a borrower is eligible for a new conventional loan.