Chapter 17 : Mortgage Underwriting and Borrower Qualification

Question 1

Which of the following best describes debt service?

(1) The making of mortgage payments by the borrower.
(2) The initiation of a mortgage loan.

Answer 1

Answer:

(1) The making of mortgage payments by the borrower.

Question 2

Define credit analysis.

Answer 2

A credit analysis is an investigation of a loan applicant’s ability to repay a potential loan.

Question 3

The period in time between the date mortgage funds are advanced and the beginning of the first payment period is known as the _______ _______ ________.

Answer 3

Answer:
The period in time between the date mortgage funds are advanced and the beginning of the first payment period is known as the interest adjustment period.

Question 4

What is a subprime mortgage?

Answer 4

A subprime mortgage is a mortgage that is granted to a loan candidate who is considered high-risk due to a combination of poor or limited credit rating, non-verifiable income, previous consumer proposal, and/or bankruptcy.

Question 5

The percentage of lending value which determines the maximum loan available is known as the loan-to-value ratio.

(1) True
(2) False

Answer 5

The percentage of lending value which determines the maximum loan available is known as the loan-to-value ratio.

Answer : True

Question 6

Define mortgage loan default insurance.

Answer 6

Mortgage loan default insurance insures the lender in the event where the borrower cannot make his or her loan payments.

Question 7

Finish the following sentence:

Lending value is…

Answer 7

Finish the following sentence:
Lending value is…

…a long term conservative estimate of the value of the property pledged as security for a loan.

Question 8

What is an arm’s length transaction?

Answer 8

An arm’s length transaction is a transaction in which the parties involved are not inclined toward making voluntary concessions to each other.

Question 9

What is the purpose of a safety margin?

Answer 9

A safety margin ensures that the net operating income (NOI) of a property is sufficient to cover the required mortgage payments.

Question 10

Gross debt service ratio is equal to the percentage of ______ income that is the maximum amount a mortgagor is allowed to pay ________ in principal, interest, and _______ taxes.

Answer 10

Gross debt service ratio is equal to the percentage of gross income that is the maximum amount a mortgagor is allowed to pay annually in principal, interest, and property taxes.