Mortgage Loan Origination - ProSchools - Mortgage Processing, Part 1: Application and Part 2: Underwriting
FNMA, FHLMC and FHA appraisal guidelines provide that gross adjustments to comparable properties should not exceed $50,000. 25% of their sales price. 10% of their sales price. 15% of their sales price.
25% of their sales price. The correct answer is B. Comparables should be similar to the property being appraised. FNMA, FHLMC and FHA provide that the gross adjustment should not exceed 25% of the sales price of each comparable. They provide that the net adjustment should not exceed 15% of that sales price.
Which IRS form authorizes the lender to obtain income tax information? 1099 Schedule C W-2 8821 or 4506-T
8821 or 4506-T The correct answer is D. Instead of signed tax returns, the borrower may provide written permission to request copies of his income tax returns or income tax information on IRS form 8821 (Tax Information Authorization) or IRS form 4506-T (Request for Transcript of Tax Return).
Loan Processing
Act of preparing the application and supporting documents for UW
A self-employed person applying for a loan for which the business' legal business form is a partnership should usually provide the last two years' federal tax returns. a copy of a current business license. a year-to-date profit-and-loss statement. All of the above
All of the above The correct answer is D. Income information includes the last two years' federal tax returns, a year-to-date profit-and-loss statement prepared by his accountant and/or partnership tax returns, and a copy of a current business license.
The Schedule of Real Estate Owned on form 1003 includes which type of properties? Only the applicant's current residence All properties currently owned by the applicant All properties currently owned by the applicant on which there is an outstanding loan balance All past and current residences owned by the applicant
All properties currently owned by the applicant The correct answer is B. The Schedule of Real Estate Owned on form 1003 includes all properties currently owned by the applicant.
Why should a loan originator recommend a borrower obtain a professional inspection? It makes it easier to qualify for the loan. The seller is required to repair all defects detected by an inspector. It is required by the secondary market. An inspection can determine the effective life of the property's major elements
An inspection can determine the effective life of the property's major elements. The correct answer is B. The purpose of an inspection is to determine the condition and effective life of the major elements of the property, such as the roof, electrical system, etc.
Sales comparison
Appraisal approach based on recent prices paid for similar property in same area
Capitalization
Appraisal approach that converts net income to a value estimate
If the borrower is self-employed, he may need to verify his income by providing which of the following? A year-to-date profit-and-loss statement Tax returns Articles of Incorporation, typically filed with the state Both A and B
Both A and B The correct answer is D. If a borrower is currently self-employed, he may need to include the last two years' tax returns and balance sheets and a current year-to-date profit-and-loss statement.
Charge-off
Cancellation of debt that has not been repaid
Which of the following information about a borrower does not appear on a form 1003? Liabilities Assets Credit score Birthdate
Credit score The correct answer is C. The application consists of information provided by the borrower, such as his date of birth, assets, income and liabilities. It does not include his credit score.
The name of Fannie Mae's automated underwriting system is Rapid Response. Loan Prospector. Auto Underwriter. Desktop Underwriter.
Desktop Underwriter. The correct answer is D. Today, much underwriting is done using a computer-based, automated underwriting system, such as Fannie Mae's Desktop Underwriter system (hint: think of a fanny in the seat at a desk). Loan Prospector is Freddie Mac's system (hint: think of Freddy the prospector.)
Term: Prequalification
Discussion of borrower's qualifications prior tot taking a loan application
The existence of which of the following can prevent or delay the closing of a sale or loan? Encumbrance Easement Satisfaction Reconveyance
Encumbrance The correct answer is C. An encumbrance is an interest or right of a person who is not the owner, in a property. It can be a problem that must be cleared up prior to closing (e.g., a lien that must be paid off).
Which of the following is considered a liquid asset in determining the applicant's ability to make the down payment for a mortgage loan? Real estate that is to be sold Electronic equipment that is to be sold on the Internet Term insurance cash value Funds in a money market account
Funds in a money market account The correct answer is D. Liquid assets are assets that are cash or can readily be converted to cash at their market value. Money in a money market account or fund is readily available. If the insurance has cash value, it is a liquid asset; term insurance is insurance that does not have cash value. Real property and equipment are not considered liquid assets; if they need to be sold quickly, the seller will not receive market value.
Which of the following is true of the Uniform Residential Loan Application? It must be used for all residential loans, regardless of the size of the property. It is FNMA form 1003 or FHLMC form 65, and it may be used for conforming, nonconforming, FHA and VA loans. It is used only for FHA and VA loans. None of the above
It is FNMA form 1003 or FHLMC form 65, and it may be used for conforming, nonconforming, FHA and VA loans. The correct answer is B. FNMA 1003 and FHLMC 65 are the form for the Uniform Residential Loan Application. This may be used for loans that conform to Fannie Mae and Freddie Mac criteria as well as nonconforming, FHA and VA loans.
Which of the following is true regarding the service release premium? It is disclosed on the HUD-1 Settlement Statement. It is not paid to the originating mortgage broker. It is a flat fee. It is paid when the interest rate in the loan is less than the par rate.
It is not paid to the originating mortgage broker. The correct answer is A. It is not paid to the originating mortgage broker. It is based on the loan size as it is a percentage of the loan. Because the purchase of the loan occurs after closing, the SRP is not disclosed in the HUD-1 Settlement Statement.
Which of the following is a claim of a creditor in a property? Easement Encroachment Lien Adverse possession
Lien The correct answer is A. A lien is a claim of a creditor. A mortgage creates a voluntary lien against the property of the mortgagor.
The name of Freddie Mac's automated risk assessment program is Loan Processor. Loan Prospector. Desktop Underwriter. FICO
Loan Prospector. The correct answer is B. The name of Freddie Mac's automated risk assessment program is Loan Prospector (hint: think of Freddy the prospector). Desktop Underwriter is Fannie Mae's program (hint: think of a fanny in the seat at the desk).
If an applicant for a loan is a resident alien, he should have a copy of his birth certificate. a copy of his Social Security card. two pieces of photo ID. None of the above
None of the above The correct answer is D. If the applicant is a resident alien, he should have a copy of his Certificate of Resident Alien Status (green card).
In determining base income, when should overtime, bonuses and commissions be entered? Only if the applicant has been at his present job for two years None of the above: Overtime, bonuses, and commissions are not permissible sources of income Only if this income is received on a consistent basis and can be verified by the employer Only if the applicant has a written contract for the income sources
Only if this income is received on a consistent basis and can be verified by the employer The correct answer is C. Overtime, bonuses and commissions should be entered only if this income is received on a consistent basis and can be verified by the employer.
A mortgage broker can be asked to provide loan prequalification or preapproval. Which of the following is true regarding these activities? Preapproval is granted only after a property has been appraised and inspected. Prequalification indicates that the buyer is qualified for the loan needed to purchase the identified property. Preapproval provides assurance that the borrower can obtain a loan. Preapproval is a letter provided after analysis of the applicant's credit, including verification of income and assets.
Preapproval is a letter provided after analysis of the applicant's credit, including verification of income and assets. The correct answer is D. Prequalification is an estimate of the loan amount for which the buyer can qualify based on his income under the lender's standards. The preapproval letter is provided after analysis of the applicant's credit. However, prequalification provides no assurance that the borrower can obtain a loan, as it is subject to such conditions as the applicant's financial condition and creditworthiness not changing significantly before closing, a property being found of a value to support the loan, and a title report indicating marketable title.
Underwriting
Process of deciding whether to make a loan
Origination
Process of making or origination a new loan
Which of the following is true of the recording of mortgage documents? Only the note is recorded. Recording provides actual notice of a document's existence. Recording of a mortgage establishes its lien priority. Both the note and the mortgage are recorded.
Recording of a mortgage establishes its lien priority. The correct answer is C. The note is not recorded. The mortgage or trust deed is recorded in order to provide constructive (not actual) notice that the property is encumbered by a lien and establish the priority of that lien in relation to any other liens against the property. Constructive notice exists when information is available to an interested person. Actual notice occurs when a person actually knows the document exists and what its contents are.
Existing liens and mortgages are recorded in Schedule A of a title commitment. Schedule B of a title commitment. a deed. the Requirements section of a title commitment.
Schedule B of a title commitment. The correct answer is B. A title commitment is divided into several sections (Schedule A, Schedule B Exceptions, Requirements, and Exclusions) and should be accompanied by the underlying documents. Schedule A sets forth the search date, the amount of insurance coverage, the name of the insured, and the legal description of the property being insured. Schedule B lists the specific exceptions from coverage that the title company discovered during its title search, including all liens, such as mortgages, and easements.
For a sole proprietorship, the income, expenses and taxable profits are reported on IRS form 1120. Schedule C attached to IRS form 1040. IRS form 1065. Schedule E attached to IRS form 1040.
Schedule C attached to IRS form 1040. The correct answer is B. For a sole proprietorship, the income, expenses and taxable profits are reported on Schedule C, the Profit or Loss from Business, on his individual tax return (IRS form 1040). IRS form 1065, the Partnership Return of Income, is used to report the profit or loss for a partnership, limited partnership or limited liability company. Schedule E is used to report each member's or partner's share of that profit or loss. IRS form 1120 is the corporation tax return, used for reporting a corporation's income and losses.
Commitment Letter
States the loan terms and explains the procedure for closing
Which of the following would not appear on a credit report? An open credit line The name of a co-borrower on an existing account Monthly loan payments The current balances of outstanding accounts
The name of a co-borrower on an existing account The correct answer is B. The report states whether the account has a joint account holder or co-borrower, but the report does not name that person. The credit report also shows personal information, credit information, and inquiries. Personal information can include the consumer's name, current and previous addresses, telephone number, reported variations of his Social Security number, date of birth and current and previous employers. Credit information includes specific account information, such as the date opened, credit limit or loan amount, balance and monthly payment and payment pattern. Inquiries show who has received information from the credit report and who was given the consumer's name recently.
A borrower should expect to provide federal tax returns and W-2 forms for how many previous years? Six Three Two Five
Two The correct answer is C. Along with other documents, borrowers should expect to provide the last two years' federal tax returns and W-2 forms to verify income.
When at least 25% of an applicant's income is from commissions, which of the following is included for employment verification? Two months' pay stubs Quarterly estimated tax payments for the current year One year's tax returns Two years' tax returns deducting non-reimbursed business expenses as reported on IRS form 2106
Two years' tax returns deducting non-reimbursed business expenses as reported on IRS form 2106 The correct answer is D. If commission income is at least 25% of the borrower's income, the underwriter will want the most recent two years' personal tax returns deducting non-reimbursed business expenses as reported on IRS form 2106 for verification of gross income.
Form 1003
Used to gather info and assist in complying w/ discrimination laws
After a loan is sold in the secondary market, the originating lender may be required to repurchase the loan because of a prepayment penalty. an alienation clause. a change in the index rate for an ARM. a buyback agreement.
a buyback agreement. The correct answer is D. A loan that is sold in the secondary market may be subject to a buyback or repurchase agreement. This provides that the investor may return the loan to the originating lender if the borrowers default within a specified period of time, there is evidence of loan fraud, or the loan does not comply with regulatory requirements.
If one of the borrowers will be unable to attend the loan closing the closing agent can sign the documents on behalf of the missing borrower. a person with authorization granted in a power of attorney can sign on behalf of the missing borrower. the closing is not affected, as only one borrower need sign the loan documents. the closing must be delayed.
a person with authorization granted in a power of attorney can sign on behalf of the missing borrower. The correct answer is B. At closing, all borrowers must sign the loan documents, unless any have given a specific power of attorney to another person authorizing that person to sign on behalf of the absent borrower.
A fee imposed on a borrower who repays all or part of the principal of a loan before it is due is a termination fee. a mortgage payment. a loan pay-off. a prepayment penalty.
a prepayment penalty. The correct answer is D. A prepayment penalty is a fee assessed, pursuant to the terms of the loan agreement, on a borrower who repays all or part of the principal of a loan before it is due.
When the originating lender sells the rights to collect the payments the price charged in the sale is called a yield spread premium. a service release premium. discount points. a buydown.
a service release premium. The correct answer is D. When selling the servicing rights to a loan, the originating lender may obtain a service release premium (SRP) from the purchaser. Loan servicing includes all activities performed to ensure the loan is paid in a timely manner and to preserve the lender's legal claim to repayment, including sending statements to and collecting payments from a borrower; attempting to collect late payments; handling escrow account funds; and foreclosing, if necessary.
The following are all appraisal approaches EXCEPT comparative market analysis. cost. income. sales comparison.
comparative market analysis. The three approaches are income (for rental property), sales comparison (for homes and land) and cost (for everything else). A comparative market analysis is used by real estate agents to estimate sales prices for owners wanting to list their properties for sale.
All of the following are considered liquid assets on the Uniform Residential Loan Application EXCEPT stocks and bonds net cash value of a life insurance policy current home equity bank accounts
current home equity The correct answer is C. Liquid assets are assets that are cash or can be quickly converted to cash at their current value. They can include the deposit made on the purchase of the property, money held in bank accounts, life insurance net cash value, and stocks and bonds.
For purposes of completing FNMA form 1003, a first-time homebuyer is a person who is purchasing security property in which he will reside and who had no ownership interest (sole or joint) in a residential property during the 24 months prior to purchasing the security property. during the past 12 months. ever. during the three years prior to purchasing the security property.
during the three years prior to purchasing the security property. The correct answer is D. A first-time homebuyer is an individual who is purchasing the security property, will reside in the security property, and had no ownership interest (sole or joint) in a residential property during the three-year period preceding the date of the purchase of the security property.
A borrower's creditworthiness would be evaluated based on all of the following EXCEPT collateral. capacity. family stability. credit history (character).
family stability. The correct answer is C. The four C's of mortgage credit are credit history (character), capacity, capital and collateral. Character is reflected by the applicant's credit history, showing whether he has repaid past credit debt in a timely manner. Capacity relates to whether the amount of income is sufficient in relation to the amount of debt. Capital refers to the cash needed at closing to cover the down payment and closing costs. Collateral relates to the property used as security for the loan.
If a loan cannot be fully funded until certain conditions have been met, then all funds will be returned to the lender, and the transaction will be terminated unless the conditions are satisfied within 30 days. funds will be held in a trust account until the conditions are met. the transaction is immediately terminated and the borrower is charged a termination fee. funds will be held in an escrow account until the lender authorizes their release.
funds will be held in an escrow account until the lender authorizes their release. The correct answer is D. If a loan is approved, the final stage in creating the mortgage loan is the loan closing, which includes disbursing mortgage funds as instructed by the lender. However, if the loan cannot be fully funded until certain conditions have been met, funds will be held in an escrow account until the lender authorizes their release.
Co-borrower information must be provided on the Fannie Mae 1003 when the co-borrower has income being used for loan qualification. is a minor. has a credit score that is below average. is the borrower's spouse.
has income being used for loan qualification. The correct answer is A. Co-borrower information must be provided on Fannie Mae 1003 when the income or assets of a person other than the borrower (including the borrower's spouse) will be used as a basis for loan qualification.
In underwriting, among other factors, the borrower's capacity is analyzed. The borrower's capacity refers to his ability to make the monthly loan payments. the maximum loan-to-value ratio he can obtain. his ability to acquire the needed down payment. his credit history.
his ability to make the monthly loan payments. The correct answer is C. In the borrower analysis, capacity refers to the ability to make the loan payments. Collateral refers to the value of the property securing the loan. Capital refers to the cash or other assets available for the down payment. Character or credit history refers to his willingness to make payments, as evidenced by his credit history.
A mortgage loan originator may supply information to the government regarding an applicant's ethnicity, sex or race for monitoring purposes based on visual observation in selected geographic locations. on FHA and VA loans only. under no circumstances. if the borrower chooses not to disclose it.
if the borrower chooses not to disclose it. The correct answer is D. Section X of the loan application is included to aid the federal government in monitoring compliance with the Equal Credit Opportunity Act. If an applicant does not provide this information, federal regulations require the lender to note the applicant's ethnicity, sex and race on the form, based on the lender's visual observation or the applicant's surname.
An originating lender may be required to return the SRP if the index rate increases more than 2% in any year. if the borrower defaults within the first three months. if the borrower repays the loan anytime prior to its maturity. if the borrower is late on any payment within the first six months.
if the borrower defaults within the first three months. The correct answer is B. A repurchase agreement may provide that the originating lender must return the service release premium if the borrower defaults within a specified period or pays off the loan within a specified period.
In the Assets and Liabilities section of the Uniform Residential Loan Application, "cash deposit" refers to any deposits made on rented housing. the total cash balance in all checking, savings and investment accounts of the applicant. money on deposit with a real estate broker or closing agent toward the purchase of the property. Both B and C
money on deposit with a real estate broker or closing agent toward the purchase of the property. The correct answer is C. Cash deposit refers to money the applicant has on deposit with a real estate broker or closing agent toward the purchase of the property.
An applicant must be informed that information about sex, race and ethnicity is being requested on the loan application in order to ensure credit is granted proportionally to each ethnic group in the area. ensure that a lender does not unfairly favor any ethnic group. gather census data. monitor compliance with federal statutes prohibiting that type of discrimination.
monitor compliance with federal statutes prohibiting that type of discrimination. The correct answer is D. An applicant must be informed that the information is being requested by the federal government to monitor compliance with federal statutes that prohibit discrimination against applicants on the basis of race, ethnicity or sex.
The section of the Uniform Residential Loan Application titled, "Information for Government Monitoring Purposes" is included to aid the federal government in monitoring compliance with the Fair Lending Act. must note the applicant's sex, race and ethnicity, based on the lender's visual observation or the applicant's surname if the applicant refuses to provide the information. is mandatory, to assure compliance with federal laws. is required to be completed only if the applicant is in a protected class.
must note the applicant's sex, race and ethnicity, based on the lender's visual observation or the applicant's surname if the applicant refuses to provide the information. The correct answer is B. This section is included to aid the federal government in monitoring compliance with the Equal Credit Opportunity Act. Because supplying this information is strictly voluntary, an applicant who does not wish to do so should check the box provided to indicate his decision. If an applicant does not provide this information, federal regulations require the loan originator to note the applicant's sex and race on the form, based on the loan originator's visual observation or the applicant's surname.
A credit report does not show the borrower's Social Security number. derogatory payment history. unpaid judgments. payments to creditors that have not been reported to a repository.
payments to creditors that have not been reported to a repository. The correct answer is B. A repository is a credit reporting agency. Each agency can report oonly n data it has received. Therefore, information that a borrower is in default on a loan will not appear on his credit report, unless the creditor has reported it to the credit agency.
The declarations section of the Uniform Residential Loan Application asks about bankruptcy. An applicant must answer "Yes" or "No" to whether a bankruptcy has occurred during the past _______ years. five seven There is no time limit. three
seven The correct answer is B. The question asks, "Have you been declared bankrupt within the past seven years?"
The document that includes all borrower information is the HUD-1. the 1003. the 1210. the 1004.
the 1003. The correct answer is B. The 1003 is the loan application that contains all pertinent data about the applicant.
The guidelines for the professional conduct of appraisers are set in the PAC. the USPAP. the POC. the PCPAP.
the USPAP. The correct answer is B. The conduct of appraisers is guided by the Uniform Standards of Professional Appraisal Practices (USPAP). Under USPAP, an appraiser must perform assignments ethically and competently, with impartiality, objectivity and independence.
Form 1003 is the Summary Statement. the Good Faith Estimate. the Uniform Residential Loan Application. the HUD-1 Settlement Statement.
the Uniform Residential Loan Application. The correct answer is C. Fannie Mae Form 1003 (also called Freddie Mac 65) is the Uniform Residential Loan Application.
Freddie Mac Form 65 is the Statement of Assets and Liabilities. the Uniform Underwriting and Transmittal Summary. the Operating Income Statement. the Uniform Residential Loan Application.
the Uniform Residential Loan Application. The correct answer is D. The Uniform Residential Loan Application has two form numbers: Fannie Mae Form 1003 and Freddie Mac Form 65.
A standard consumer credit report will always display the name of a joint account holder. the current balance and payment history for the past five years for any open account. the consumer's name and Social Security number. a five-year history of residence.
the consumer's name and Social Security number. The correct answer is C. The consumer's name and Social Security number appear on each credit report. Typically, the payment history is shown for two years, not five. Although the report will show whether an account has a joint account holder or a co-signer, it will not name that person.
The appraisal approach in which the replacement value is calculated is the sales comparison approach. the gross rent multiplier approach. the income approach. the cost approach.
the cost approach. The correct answer is A. In the cost approach, the appraiser provides separate values for the land and for the building and adds them together to arrive at the total value of the property. The value of the building is calculated by estimating the cost to replace the building with a new structure and deducting the building's depreciation (i.e., factors that make it worth less than a new building).
The appraisal approach most suited to residential property is the cost approach. the capitalization approach. the gross rent multiplier approach. the market data approach.
the market data approach. The correct answer is A. The market data approach, also called the sales comparison approach, is best used for properties where comparisons may be made based on sales prices, such as for homes.
Property appraisals are used to determine the physical condition of the property. the condition of the title to the property. the market value of the property. the borrower's ability to repay the loan.
the market value of the property. The correct answer is A. An appraisal is an estimate of the market value, ordered so the lender is assured that the property securing the loan provides adequate security.
For an appraisal of a residence, the minimum number of comparables required by FNMA is five. two. three. one.
three. The correct answer is C. FNMA and FHLMC require a minimum of three closed comparable sales to be analyzed, with minus-dollar adjustments made for superior differences and plus-dollar adjustments made for inferior differences.
The minimum number of comparables needed for a residential mortgage appraisal is four. six. one. three.
three. The correct answer is D. The minimum number of comparables needed for a residential mortgage appraisal is three.
In an appraisal, adjustments are made to comparable properties. only if there are no similar properties. to the subject property. to both subject and comparable properties, depending on which property is better.
to comparable properties. The correct answer is A. All comparable properties differ in some respect. Therefore, there will be adjustments. All adjustments are made to the comparables in order to arrive at the value of the subject property.
A borrower will usually be asked to provide monthly bank statements for the past ______ months. two six three zero (Bank statements are rarely, if ever, requested by a lender evaluating a loan application.)
two The correct answer is A. A borrower should be prepared to provide copies of the last two months' bank statements, along with other documents.