Mortgage Products and Lending Practices Flashcards
7 cards from real CMC practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Mortgage Products and Lending Practices flashcards as text
A borrower's debt-to-income ratio is 48% and they are applying for an FHA loan. Which statement is most accurate?
Answer: The loan may still be approved with compensating factors such as significant reserves
FHA guidelines allow DTI ratios above 43% and even up to 57% when strong compensating factors such as large cash reserves or excellent credit history are present.
Which type of second mortgage provides the borrower access to a revolving credit line based on home equity, rather than a lump-sum disbursement?
Answer: Home Equity Line of Credit (HELOC)
A HELOC functions like a credit card secured by home equity, allowing borrowers to draw, repay, and redraw funds up to a credit limit during the draw period.
Under the Community Reinvestment Act (CRA), regulated financial institutions are evaluated on their:
Answer: Efforts to meet the credit needs of all segments of their local communities, including low- and moderate-income areas
The CRA requires federally regulated banks to serve the credit needs of their entire community, including low- and moderate-income neighborhoods where they operate.
A 'teaser rate' on an ARM is best described as:
Answer: An artificially low initial interest rate offered below the fully indexed rate to attract borrowers
A teaser rate is an introductory rate on an ARM that is set below the fully indexed rate (index plus margin) to attract borrowers, but adjusts to a higher rate after the initial period.
Which federal law requires lenders to provide borrowers with a booklet titled 'Your Home Loan Toolkit' within 3 business days of receiving a loan application?
Answer: RESPA / TRID regulations
TRID (which implements RESPA and TILA) requires lenders to provide the CFPB's 'Your Home Loan Toolkit' booklet within 3 business days of a loan application.
A conforming loan limit is set annually by which federal entity?
Answer: The Federal Housing Finance Agency (FHFA)
The FHFA sets the conforming loan limits each year, which determine the maximum loan amounts eligible for purchase by Fannie Mae and Freddie Mac.
What is the primary risk to a lender in offering a portfolio loan compared to a conforming loan?
Answer: The lender retains all credit risk since the loan cannot be sold to GSEs
Because portfolio loans are kept on the lender's balance sheet and not sold to Fannie Mae or Freddie Mac, the lender bears the full credit and interest rate risk of the loan.