, Question 1
A mortgage loan originator (MLO) is completing an application for a borrower
who will receive a seller credit of 3% of the purchase price. The borrower is
obtaining a conventional 97% LTV loan. Which statement best describes the
permissible use of the seller credit under current Fannie Mae guidelines?
A. Seller credits may cover the borrower's closing costs, prepaid items,
and discount points, but cannot exceed the borrower's actual
out-of-pocket costs.
B. Seller credits are limited to 3% of the sales price and can be used to
fund the borrower's down payment.
C. Seller credits may cover closing costs and prepaid items but cannot be
used to reduce the loan amount or fund the down payment.
D. Seller credits are unlimited for conventional loans as long as the
appraisal supports the sales price.
Correct Answer: C - Seller credits may cover closing costs and
prepaid items but cannot be used to reduce the loan amount or
fund the down payment.
RATIONALE
Seller credits (interested party contributions) may cover closing costs,
prepaids, and discount points but cannot be used toward down
payment or to reduce the loan amount; they are also subject to
LTV-based caps (3% for 97% LTV). Option A is incorrect because
credits can exceed out-of-pocket costs up to the cap; B is wrong
because credits cannot fund down payment; D is false as caps apply.
Question 2
Under the TRID rule, if a creditor provides a revised Loan Estimate because
the borrower locked their rate, what is the deadline for delivering the revised
LE?
A. Within 3 business days of the rate lock.
Page 2
, B. On the date the rate is locked.
C. Within 1 business day of the rate lock.
D. No revised LE is required for rate locks; a new Closing Disclosure
suffices.
Correct Answer: B - On the date the rate is locked.
RATIONALE
When a borrower locks a rate, the creditor must provide a revised
Loan Estimate on the date the rate is locked. Options A, C, and D are
incorrect because they misstate the timing requirement or incorrectly
claim no revised LE is needed.
Question 3
A self-employed borrower's tax returns show a net loss after depreciation and
mileage deductions, but the business shows strong cash flow. Which
underwriting approach is most appropriate for a conventional loan?
A. Use the net loss as qualifying income because cash flow is strong.
B. Add back non-cash deductions such as depreciation and mileage to
determine qualifying income.
C. Average the net income and cash flow over two years to smooth
volatility.
D. Disqualify the borrower because tax returns show a loss.
Correct Answer: B - Add back non-cash deductions such as
depreciation and mileage to determine qualifying income.
RATIONALE
Non-cash deductions like depreciation and mileage can be added back
to net income to determine qualifying income for self-employed
borrowers. Option A is wrong because net loss cannot be used; C is
not standard practice; D is too absolute as add-backs may qualify the
borrower.
Page 3
, Question 4
Which of the following best describes the difference between a Qualified
Mortgage (QM) and a rebuttable presumption QM under the ATR/QM rule?
A. Rebuttable presumption QM applies to loans with APR exceeding
APOR by 1.5% for first liens, while safe harbor QM applies to
lower-priced loans.
B. Rebuttable presumption QM requires the borrower to prove the lender
violated ATR, while safe harbor QM provides a conclusive presumption
of compliance.
C. Rebuttable presumption QM is only available for FHA loans, while
safe harbor QM is for conventional loans.
D. Rebuttable presumption QM applies when the loan is a higher-priced
mortgage loan (HPML), and safe harbor QM applies to all other QMs.
Correct Answer: B - Rebuttable presumption QM requires the
borrower to prove the lender violated ATR, while safe harbor QM
provides a conclusive presumption of compliance.
RATIONALE
Rebuttable presumption QM shifts the burden to the borrower to prove
the lender violated the ATR requirement, whereas safe harbor QM
provides a conclusive presumption of compliance. Option A misstates
the APR threshold; C and D incorrectly limit the categories.
Question 5
An MLO is reviewing a loan file where the borrower's total monthly debts
include a $500 student loan in deferment. According to Fannie Mae guidelines,
how should this obligation be treated for DTI calculation?
A. Exclude it because it is in deferment for at least 12 months.
B. Include 1% of the outstanding balance as the monthly payment unless
the credit report shows a different payment.
C. Include the fully amortizing payment based on the original loan terms.
Page 4
A mortgage loan originator (MLO) is completing an application for a borrower
who will receive a seller credit of 3% of the purchase price. The borrower is
obtaining a conventional 97% LTV loan. Which statement best describes the
permissible use of the seller credit under current Fannie Mae guidelines?
A. Seller credits may cover the borrower's closing costs, prepaid items,
and discount points, but cannot exceed the borrower's actual
out-of-pocket costs.
B. Seller credits are limited to 3% of the sales price and can be used to
fund the borrower's down payment.
C. Seller credits may cover closing costs and prepaid items but cannot be
used to reduce the loan amount or fund the down payment.
D. Seller credits are unlimited for conventional loans as long as the
appraisal supports the sales price.
Correct Answer: C - Seller credits may cover closing costs and
prepaid items but cannot be used to reduce the loan amount or
fund the down payment.
RATIONALE
Seller credits (interested party contributions) may cover closing costs,
prepaids, and discount points but cannot be used toward down
payment or to reduce the loan amount; they are also subject to
LTV-based caps (3% for 97% LTV). Option A is incorrect because
credits can exceed out-of-pocket costs up to the cap; B is wrong
because credits cannot fund down payment; D is false as caps apply.
Question 2
Under the TRID rule, if a creditor provides a revised Loan Estimate because
the borrower locked their rate, what is the deadline for delivering the revised
LE?
A. Within 3 business days of the rate lock.
Page 2
, B. On the date the rate is locked.
C. Within 1 business day of the rate lock.
D. No revised LE is required for rate locks; a new Closing Disclosure
suffices.
Correct Answer: B - On the date the rate is locked.
RATIONALE
When a borrower locks a rate, the creditor must provide a revised
Loan Estimate on the date the rate is locked. Options A, C, and D are
incorrect because they misstate the timing requirement or incorrectly
claim no revised LE is needed.
Question 3
A self-employed borrower's tax returns show a net loss after depreciation and
mileage deductions, but the business shows strong cash flow. Which
underwriting approach is most appropriate for a conventional loan?
A. Use the net loss as qualifying income because cash flow is strong.
B. Add back non-cash deductions such as depreciation and mileage to
determine qualifying income.
C. Average the net income and cash flow over two years to smooth
volatility.
D. Disqualify the borrower because tax returns show a loss.
Correct Answer: B - Add back non-cash deductions such as
depreciation and mileage to determine qualifying income.
RATIONALE
Non-cash deductions like depreciation and mileage can be added back
to net income to determine qualifying income for self-employed
borrowers. Option A is wrong because net loss cannot be used; C is
not standard practice; D is too absolute as add-backs may qualify the
borrower.
Page 3
, Question 4
Which of the following best describes the difference between a Qualified
Mortgage (QM) and a rebuttable presumption QM under the ATR/QM rule?
A. Rebuttable presumption QM applies to loans with APR exceeding
APOR by 1.5% for first liens, while safe harbor QM applies to
lower-priced loans.
B. Rebuttable presumption QM requires the borrower to prove the lender
violated ATR, while safe harbor QM provides a conclusive presumption
of compliance.
C. Rebuttable presumption QM is only available for FHA loans, while
safe harbor QM is for conventional loans.
D. Rebuttable presumption QM applies when the loan is a higher-priced
mortgage loan (HPML), and safe harbor QM applies to all other QMs.
Correct Answer: B - Rebuttable presumption QM requires the
borrower to prove the lender violated ATR, while safe harbor QM
provides a conclusive presumption of compliance.
RATIONALE
Rebuttable presumption QM shifts the burden to the borrower to prove
the lender violated the ATR requirement, whereas safe harbor QM
provides a conclusive presumption of compliance. Option A misstates
the APR threshold; C and D incorrectly limit the categories.
Question 5
An MLO is reviewing a loan file where the borrower's total monthly debts
include a $500 student loan in deferment. According to Fannie Mae guidelines,
how should this obligation be treated for DTI calculation?
A. Exclude it because it is in deferment for at least 12 months.
B. Include 1% of the outstanding balance as the monthly payment unless
the credit report shows a different payment.
C. Include the fully amortizing payment based on the original loan terms.
Page 4
