, Question 1
A mortgage loan originator is evaluating a borrower with a mid-score of 640
and a debt-to-income (DTI) ratio of 50%. The loan is a conventional
conforming loan with 10% down payment. According to Fannie Mae's Selling
Guide (as of 2023), which of the following is the most accurate assessment of
eligibility?
A. The loan is eligible because the minimum credit score for a 90% LTV
loan is 620 and DTI up to 50% is allowed with compensating factors.
B. The loan is ineligible because the maximum DTI for a 90% LTV loan
with a 640 score is 45% unless there are significant reserves.
C. The loan is eligible if the borrower has at least 12 months of reserves
and a documented extenuating circumstance.
D. The loan is ineligible because the minimum credit score for any loan
with LTV > 80% is 660.
Correct Answer: A - The loan is eligible because the minimum
credit score for a 90% LTV loan is 620 and DTI up to 50% is
allowed with compensating factors.
RATIONALE
Fannie Mae allows a maximum DTI of 50% for manually
underwritten loans with a 640 credit score and 90% LTV, provided
compensating factors are documented. Option B is incorrect because
45% is not a hard limit; higher DTIs are permitted with factors. Option
C misstates reserve requirements, and Option D is false as the
minimum score is 620 for fixed-rate loans with LTV > 80%.
Page 2
, Question 2
A self-employed borrower's tax returns show a net profit of $80,000, but the
business uses a simplified employee pension (SEP) plan contribution of
$15,000 and depreciation of $10,000. The underwriter is calculating qualifying
income. What is the borrower's adjusted gross income for underwriting
purposes?
A. $80,000
B. $95,000
C. $90,000
D. $105,000
Correct Answer: C - $90,000
RATIONALE
Qualifying income for self-employed borrowers starts with net profit,
then adds back non-cash deductions like depreciation ($10,000) but
does not add back SEP contributions because they are voluntary
retirement contributions. Thus, $80,000 + $10,000 = $90,000. Options
A, B, and D incorrectly include or exclude items.
Question 3
Which of the following scenarios would most likely trigger a red flag for
potential mortgage fraud under the Fraud Prevention and Detection guidelines?
A. A borrower's employer confirms employment but the borrower's
position title differs slightly from the application.
B. A recent college graduate with limited credit history provides a 10%
down payment from a gift.
C. A property's sales price is 20% above the list price, and the appraiser's
value exactly matches the sales price.
D. A borrower has a 720 credit score and a DTI of 35%.
Correct Answer: C - A property's sales price is 20% above the list
price, and the appraiser's value exactly matches the sales price.
Page 3
, RATIONALE
A sales price significantly above list price with an appraisal that
exactly matches the contract price is a classic fraud indicator
(appraisal inflation). Options A, B, and D are common, non-fraudulent
scenarios. Option A might warrant clarification but is not a major red
flag.
Question 4
In a community property state, a borrower is purchasing a home with a
non-borrowing spouse who has significant debts. How should the underwriter
treat the non-borrowing spouse's debts when the borrower is applying for a
conventional loan?
A. Include all non-borrowing spouse's debts in the DTI calculation
because community property debts are shared.
B. Exclude the non-borrowing spouse's debts entirely since they are not
on the loan.
C. Include the non-borrowing spouse's debts only if the borrower resides
in a community property state and the debts are community property
obligations.
D. Include only the non-borrowing spouse's debts that are also in the
borrower's name.
Correct Answer: C - Include the non-borrowing spouse's debts
only if the borrower resides in a community property state and
the debts are community property obligations.
RATIONALE
In community property states, debts incurred during marriage are
typically community debts, and Fannie Mae requires inclusion of
those debts in the borrower's DTI if the borrower resides in the
community property state. Option A is too broad; Option B ignores
the requirement; Option D is incorrect because debts solely in the
spouse's name can still be community obligations.
Page 4
A mortgage loan originator is evaluating a borrower with a mid-score of 640
and a debt-to-income (DTI) ratio of 50%. The loan is a conventional
conforming loan with 10% down payment. According to Fannie Mae's Selling
Guide (as of 2023), which of the following is the most accurate assessment of
eligibility?
A. The loan is eligible because the minimum credit score for a 90% LTV
loan is 620 and DTI up to 50% is allowed with compensating factors.
B. The loan is ineligible because the maximum DTI for a 90% LTV loan
with a 640 score is 45% unless there are significant reserves.
C. The loan is eligible if the borrower has at least 12 months of reserves
and a documented extenuating circumstance.
D. The loan is ineligible because the minimum credit score for any loan
with LTV > 80% is 660.
Correct Answer: A - The loan is eligible because the minimum
credit score for a 90% LTV loan is 620 and DTI up to 50% is
allowed with compensating factors.
RATIONALE
Fannie Mae allows a maximum DTI of 50% for manually
underwritten loans with a 640 credit score and 90% LTV, provided
compensating factors are documented. Option B is incorrect because
45% is not a hard limit; higher DTIs are permitted with factors. Option
C misstates reserve requirements, and Option D is false as the
minimum score is 620 for fixed-rate loans with LTV > 80%.
Page 2
, Question 2
A self-employed borrower's tax returns show a net profit of $80,000, but the
business uses a simplified employee pension (SEP) plan contribution of
$15,000 and depreciation of $10,000. The underwriter is calculating qualifying
income. What is the borrower's adjusted gross income for underwriting
purposes?
A. $80,000
B. $95,000
C. $90,000
D. $105,000
Correct Answer: C - $90,000
RATIONALE
Qualifying income for self-employed borrowers starts with net profit,
then adds back non-cash deductions like depreciation ($10,000) but
does not add back SEP contributions because they are voluntary
retirement contributions. Thus, $80,000 + $10,000 = $90,000. Options
A, B, and D incorrectly include or exclude items.
Question 3
Which of the following scenarios would most likely trigger a red flag for
potential mortgage fraud under the Fraud Prevention and Detection guidelines?
A. A borrower's employer confirms employment but the borrower's
position title differs slightly from the application.
B. A recent college graduate with limited credit history provides a 10%
down payment from a gift.
C. A property's sales price is 20% above the list price, and the appraiser's
value exactly matches the sales price.
D. A borrower has a 720 credit score and a DTI of 35%.
Correct Answer: C - A property's sales price is 20% above the list
price, and the appraiser's value exactly matches the sales price.
Page 3
, RATIONALE
A sales price significantly above list price with an appraisal that
exactly matches the contract price is a classic fraud indicator
(appraisal inflation). Options A, B, and D are common, non-fraudulent
scenarios. Option A might warrant clarification but is not a major red
flag.
Question 4
In a community property state, a borrower is purchasing a home with a
non-borrowing spouse who has significant debts. How should the underwriter
treat the non-borrowing spouse's debts when the borrower is applying for a
conventional loan?
A. Include all non-borrowing spouse's debts in the DTI calculation
because community property debts are shared.
B. Exclude the non-borrowing spouse's debts entirely since they are not
on the loan.
C. Include the non-borrowing spouse's debts only if the borrower resides
in a community property state and the debts are community property
obligations.
D. Include only the non-borrowing spouse's debts that are also in the
borrower's name.
Correct Answer: C - Include the non-borrowing spouse's debts
only if the borrower resides in a community property state and
the debts are community property obligations.
RATIONALE
In community property states, debts incurred during marriage are
typically community debts, and Fannie Mae requires inclusion of
those debts in the borrower's DTI if the borrower resides in the
community property state. Option A is too broad; Option B ignores
the requirement; Option D is incorrect because debts solely in the
spouse's name can still be community obligations.
Page 4
