Chapter 7: Underwriting, Closing and the Secondary Market Flashcards
^^^Which of the following is another quick method to determine appraisals and uses uses annual gross incomethat includes the rent and any other generated income including money from Vending machines, washers and dryers, and parking? A. Cost approach B. Comparison Approach C. Gross Income Multiplier (GIM) D. Gross Rent Multiplier (GRM)
Answer C
The GIM is very similar to the GRM except that it uses annual gross income that includes the rent and any other generated income including money from vending machines, washers and dryers, and parking.
Market Value / Annual Gross Income = GIM
Which of the following type of FHA loan is a fixed rate loan? A. 203B B. 251 C. 203K D. 204C
Answer A
203b-fixed rate- 10 to 30 yrs
251-ARM
203k- purchase and rehab (construction)
234c-condominiums
The title company considers unpaid property taxes to be an: A. Encroachment B. Encumbrance C. Easement D. Engress
Answer B
An appraisal must be re-certified if it is older than: A. 1 month B. 4 months C. 6 months D. 12 months
Answer B
What might the results be for a loan officer, if within two months of granting a refinance loan, the borrowers went to another lender who offered a lower rate and refinanced again?
- The MLO’s company may have to pay a premium recovery.
- The wholesale broker agreement may automatically be cancelled.
- The initial investor could sue for interest not earned.
- The MLO could sue the borrowers for unethical behavior.
The MLO’s company may have to pay a premium recovery.
The borrowers wanted to expedite the home-buying process so they got a pre-approval. Which statement best describes their situation?
- They may or may not get the loan from the lender who gave the pre-approval.
- they will get the loan, but the interest rate may be different than originally quoted.
- They will definitely get the loan if they paid a non-refundable deposit to the lender.
- They will not get the loan, but now know what they qualify for.
They may or may not get the loan from the lender who gave the pre-approval.
^^^Which of the following is true when purchasing a non owner occupied rental property? A. Requires LP B. Requires manual underwriting C. Require DE D. Requires a down payment
B
A method of property description that Is the crudest of these and in which property lines are delineated based on natural landmarks such as rivers, trees and boulders is the A. Lot and Block Method B. Government Land Survey Method C. Monument Method D. Metes and Bounds Method
Answer C
The crudest of these approaches is the Monument Method in which property lines are delineated based on natural landmarks such as rivers, trees and boulders.
The most common property description method that occurs after a subdivision is platted is known as A. Lot and Block Method B. Government Land Survey Method C. Monument Method D. Metes and Bounds Method
Answer A
The Lot and Block Method is the most common and occurs after a
subdivision is platted. A plat map is a recorded drawing showing all the
blocks in a subdivision which have been subdivided into individual lots. Theplat map may also indicate streets, green areas, utility lines, etc.
What type of funding occurs when a lender obtains funds from a line ofcredit at a commercial bank? A. Credit lending B. Table funding C. Warehouse funding D. Temporary funding
Answer C
Warehouse funding occurs when a lender obtains funds for closing from aline of credit extended by a commercial bank.
A borrower wants to get an FHA loan, but a judgment appears on his credit report. Which of the following represents how the judgment will be treated?
- As long as the judgment was over one year ago, it has no bearing.
- With a letter of explanation, the borrower may be approved for an FHA loan.
- The judgment usually must be paid.
- If the judgment was over two years ago, it will have no bearing.
The judgment usually must be paid.
To determine the highest and best use of a property,
A. No encroachment
B. No Encumbrance
C. The use must be legally permissible, physically and functionally feasible.
D. The use must be legally permissible, physically possible and financially feasible.
Answer D
Many factors can affect market value, but the primary consideration is the highest and best use of the property. The use must be legally permissible (zoned for the use), physically possible (soil must be able to support any new foundation; property must have adequate drainage, etc.) and financially feasible (the income from the property must cover the cost of improvements).
How long before an appraisal needs to be re-certified and the appraiser need to do an external inspection? A. 4 months B. 6 months C. 12 months D. 30 days
Answer A
When an appraisal report will be more thanfour months old on the date of the note and mortgage, the appraiser must inspect the exterior of the property and review current market data to determine whether the property declined in value since the date of the original appraisal.
Which of the following can can make a recommendation to approve/eligible? A. Loan Prospector (LP) B. Desktop Underwriter (DU) C. Daniel’s Underwriting System (DUS) D. LP and DU
D
Which of the following can underwrite and close loans for FHA insure w/o prior submission
A. Direct Endorsement Lender (DE)
B. Desktop Underwriter
C. Loan Prospector
D. None of the above
Answer A
Which of the following is designation from the FHA is enabled to approve FHA residential loans for a-lender and proceed to closing without prior approval for mortgage insurance(MIP) from the FHA? A. Loan Prospector (LP) B. Desktop Underwriter (DU) C. Daniel’s Underwriting System (DUS) D. Direct Endorsement Underwriter (DE)
Answer D
Who makes the final decision as to whether a loan will be funded?A. The automated underwriting system
B. The lender
C. The real estate agent
D. The closing agent
Answer B
A borrower with other financed properties will need how much additional reserve if they have one to four financed properties?
A. 2% of the aggregate UPB (Unpaid Balance Principal)
B. 4% of the aggregate UPB (Unpaid Balance Principal)
C. 6% of the aggregate UPB (Unpaid Balance Principal)
D. 8% of the aggregate UPB (Unpaid Balance Principal)
A
A one-time closing cost to either the seller or borrower. A. Title Insurance Binder B. Title Insurance Premium C. Survey D. Hazard Insurance
Answer B
The most common type of legal description for residential subdivisions: A. The monument method B. Lot and block C. Metes and bounds D. Government land survey method
Answer B
The Lot and Block Method is the most common and occurs after asubdivision is platted.
Surveys are NOT certified to: A. Lenders B. Title insurers C. Buyers D. Real estate broker
Answer D
Surveys are certified to lenders, title Insurers and buyers.
The system electronically evaluates each individual loan application along with the appropriate credit report information and provides the lender with a recommendation as to whether or not the loan meets the criteria for loan approval is A. Loan Prospector (LP) B. Desktop Underwriter (DU) C. Daniel’s Underwriting System (DUS) D. LP and DU
Answer B
Which of the following is true of appraisals from VA?
A. Holds the lender responsible, and appraiser paid a flat fee
B. Requires appraisers to perform a limited home inspection report with the appraisal
C. Approved appraisers operate on a rotation system
D. The appraiser is paid a fee based on the value of the property
Answer C
VA-approved appraisers operate on a rotation system controlled by the VA.
^^^Your borrower wants to buy an investment property. Which of the following would be used in calculating the housing ratio? A. Primary residence utilities B. Investment property utilities C. Primary residence payment D. Investment property reserves
A. Primary residence payment
Which of the following is NOT true about the VOE?
- It must be provided for all employed applicants, and must be fully completed, signed, and dated .
- It must be sent directly by the processor to the employer.
- It must be signed by the personnel department or the borrower’s superior.
- It can be sent electronically to the borrower to be presented to the lender.
It can be sent electronically to the borrower to be presented to the lender.
A commitment that lists all the known defects on the home is known as a A. Title Insurance Binder B. Title Insurance Premium C. Survey D. Hazard Insurance
Answer A
A title insurance binder is a commitment that lists all the known defects. Theinsurance policy itself is issued after closing
Which of the following is true of appraisals from FHA?
A. Holds the lender responsible, and appraiser paid. Flat fee
B. Requires appraisers to perform a limited home inspection report with the appraisal
C. Approved appraisers operate on a rotation system
D. The appraiser is paid a fee based on the value of the property
Answer B
The FHA requires appraisers to perform a limited home inspection report with the appraisal,
which of the following occurs when the lender deals directly with theborrower without any middlemen? A. Direct investor funding B. Table funding C. Warehouse funding D. Retail Funding
Answer A
Direct investor funding occurs when the lender deals directly with the borrower without any middlemen.
When an assignor keeps the servicing rights this is known as:
A. Selling a loan with escrow impounds
B. Selling a loan with servicing released
C. Selling a loan with servicing retained
D. Selling a loan pro norma
Answer C
The assignor can keep the servicing rights (selling a loan with servicing retained), or it can sell the servicing rights along with the mortgage and note to the assignee (selling aloan with servicing released).
In a completion escrow account, what is the minimum estimated repair Cost held in trust by the lender? A. 50 % B. 90 % C. 120 % D. 200 %
Answer C
The lender establishes a “completion escrow” for the postponed
improvements, by withholding from the purchase proceeds funds equal to atleast 120 percent of the estimated cost for completing the improvements.
Which of the following type of FHA purchase and construction loan? A. 203B B. 251 C. 203K D. 204C
Answer C
203b-fixed rate- 10 to 30 yrs
251-ARM
203k- purchase and rehab (construction)
234c-condominiums
^^^A drawing of the property showing the perimeter boundaries andmarking the location of the house and other improvement is known as a A. Title Insurance Binder B. Title Insurance Premium C. Survey D. Hazard Insurance
Answer C
An outstanding claim on a property that limits the ability to sell theproperty is a: A. Title defect B. Subordination C. Penalty D. Fault fee
Answer A
^^^The Verification of Deposit (VOD) is also known as FNMA form:
- W-2.
- 1099
- 1031
- 1006
1006
What automatic underwriting system is used for VA and FHA loans? A. Loan Prospector (LP) B. Desktop Underwriter (DU) C. Daniel’s Underwriting System (DUS) D. LP and DU
Answer D
both DU and LP can be used for Conventional FHA or VA mortgage loans
The principle of value that focuses on the most profitable, legal use towhich a property can be put is: A. Principle of Satisfaction B. Principle of Substitution C. Principle of Highest and Best Use D. Principle of Conformity
Answer C
You want to open a mortgage brokerage and have talked to several lenders. Before you started doing business with them, what would you need to have?
- Wholesale broker agreements
- An attorney on retainer
- An in-house underwriter
- A processor with experience
Wholesale broker agreements
^^^The written Verification of Employment (VOE), is also known as FNMA form: A. 1005 B. 1099 C. 1006 D. 1031
1005
Which item is NOT included in the calculation that determines the annual percentage rate?
(a) The broker’s origination fee
(b) The lender’s discount points
(c) The mortgage insurance premium
(d) The title insurance premium
Answer D
Lenders must verify employment for the most recent two full years. Borrowers mustprovide a written explanation for employment gaps:
(a) that span one or more months.
(b) that caused an adverse credit history.
(c) resulting from time spent in the military.
(d) that occurred during the most recent three years.
A
which of the following occurs when a lender obtains funds for closing from aline of credit extended by a commercial bank. A. Direct investor funding B. Table funding C. Warehouse funding D. Retail Funding
Answer C
Warehouse funding occurs when a lender obtains funds for closing from a line of credit extended by a commercial bank. The lender pledges the mortgage and note as collateral for the funds, and the bank will hold them fora short period of time until they are sold to a permanent investor.
Which form is used as the standard settlement form? A. HUD-1/Closing Disclosure B. FHA Closing Statement C. U.S.A. Settlement Statement D. National Closing Statement
Answer A
Which of the following is asking for the manner in which title will be held?
- Periodic tenancy
- Tenancy for years
- Common Joint tenancy
- Joint tenants with full rights of survivorship
Joint tenants with full rights of survivorship
The highest and best use of the property is NOT:A. Legally permissible
B. Physically possible
C. Financially feasible
D. Based on possible future zoning changes
Answer D
Which of the following is true of appraisals from Fannie Mae?
A. Holds the lender responsible, and appraiser paid. Flat fee
B. Requires appraisersto perform a limited home inspection report with the appraisal
C. Approved appraisers operate on a rotation system
D. The appraiser is paid a fee based on the value of the property
Answer A
Fannie Mae holds the lender responsible for the quality of the appraisal. The appraiser is paid a flat fee for the report, and not a fee based on the value of the property.
This system responses are: approve a mortgage, refer it or refer it with caution to the lender’s underwriter. A. Loan Prospector (LP) B. Desktop Underwriter (DU) C. Daniel’s Underwriting System (DUS) D. LP and DU
B Fannie Mae DU
A Point of Beginning is used in what type of survey? A. Government Land Survey B. Plat Map C. Metes and Bounds D. Circle Grid
Meets and Bound
Which of the following is a flexible, automated underwriting system that analyzes salaried, commission and self-employed borrowers for their credit worthiness and their ability to repay the debt? A. Loan Prospector (LP) B. Desktop Underwriter (DU) C. Daniel’s Underwriting System (DUS) D. Limited Portfolio (LP)
Answer B
What type of valuation takes into account annual rent as well as other generated income? A. Sales Comparison B. Cost C. GRM D. GIM
D
Which of the following approach is best for new construction homes? A. Sales Comparison B. Cost Approach C. Income Capitalization D. GMP
Answer:
In the Cost Approach, the appraiser estimates the cost to reproduce or replacethe structures as if they were new; he subtracts a value for depreciation
because the structure is not new, and adds in the value of the land and
improvements such as landscaping or a driveway.
Which is true of properties underwriting by Destop Underwriter?
A. Maximum number of properties allowed is Four including primary residency
B. Maximum number of properties allowed is Five including primary residency
C. Maximum number of properties allowed is Six including primary residency
D. Maximum number of properties allowed is Ten including primary residency
D
Which of the following type of FHA condominium loan? A. 203B B. 251 C. 203K D. 204C
Answer: D FHA Loan program types: 203b-fixed rate- 10 to 30 yrs 251-ARM 203k- purchase and rehab (construction) 234c-condominiums
A borrower with other financed properties will need how much additional reserve if they have seven to ten financed properties?
A. 2% of the aggregate UPB (Unpaid Balance Principal)
B. 4% of the aggregate UPB (Unpaid Balance Principal)
C. 6% of the aggregate UPB (Unpaid Balance Principal)
D. 8% of the aggregate UPB (Unpaid Balance Principal)
Answer C
• 6% of the aggregate UPB if the borrower has seven to ten financed properties (DU only).
^^^All of the following apply to a mortgagor’s title insurance policy EXCEPT:
A. It is for the amount of the purchase price
B. It is based on loan amount
C. It is optional
D. It is not transferable
C
Which of the following appraisal approach is best for income producing homes? A. Sales Comparison B. Cost Approach C. Income Capitalization D. GMP
Answer C
Which of the following is a flexible, automated underwriting system that analyzes salaried, commission and self-employed borrowers for their credit worthiness and their ability to repay the debt? A. Loan Prospector (LP) B. Desktop Underwriter (DU) C. Daniel’s Underwriting System (DUS) D. Limited Portfolio (LP)
Answer B
Desktop Underwriter is a flexible, automated underwriting system that analyzes salaried, commission and self-employed borrowers for their credit worthiness and their ability to repay thedebt.
^^^Included with the application is a “Continuation Sheet.” What is the purpose of this form?
- To note the financial obligations of the buyer and seller
- Space for information or explanations for which there isn’t sufficient room on the application
- List the verifications associated with income
- Provide a summary of the entire transaction
Space for information or explanations for which there isn’t sufficient room on the application
Which appraisal method subtracts a value for depreciation? A. Sales Comparison B. Cost C. Income Capitalization D. Gross Income Multiplier
B
Which is true of manual underwriters?
A. Maximum number of properties allowed is Four including primary residency
B. Maximum number of properties allowed is Five including primary residency
C. Maximum number of properties allowed is Six including primary residency
D. Maximum number of properties allowed is Ten including primary residency
C
Which of the following type of FHA ARMs loan? A. 203B B. 251 C. 203K D. 204C
Answer: B
203b-fixed rate- 10 to 30 yrs
251-ARM
203k- purchase and rehab (construction)
234c-condominiums
A yield spread premium occurs when:
- an interest rate is charged above the par rate and is a credit to the borrower.
- an interest rate is charged below the par rate and is a credit to the borrower.
- an interest rate that is equal to the lender’s par rate is charged.
- the mortgage rate is bought down.
an interest rate is charged above the par rate and is a credit to the borrower.
Which of the following approach is best for residential homes? A. Sales Comparison B. Cost Approach C. Income Capitalization D. GMP
Answer A
In the Sales Comparison Approach, the appraiser researches a minimum ofthree closed sales that are similar in characteristics to the subject property (the property being appraised).
An appraisal is valid for how long? A. 4 months B. 6 months C. 12 months D. 30 days
Answer C
The property must have been appraised within the 12 months that precede thedate of the note and mortgage
A method of property description that was developed after the Revolutionary War and is based on a grid of intersecting lines that divide a state into townships, ranges and sections is the A. Lot and Block Method B. Government Land Survey Method C. Monument Method D. Metes and Bounds Method
Answer B
The Government Land Survey Method was developed after the
Revolutionary War and is based on a grid of intersecting lines that divide state into townships, ranges and sections.
A fee charged to the borrower by lenders to cover such costs as preparation of documents and other services provided by the primary lender and computed as a percentage of the loan is known as:
- Closing fee
- an origination fee.
- yield spread premium.
- discount point(s).
Origination fee
The national trade association and voice of the abstract and title insurance industry is: A. TICOA B. ATC C. ALTA D. TITLE NOW
Answer C
The American Land Title Association (ALTA), founded in 1907, is thenational trade association and voice of the abstract and title insurance
industry, and it standardized the forms used by the title companies.
which of the following occurs when the lender uses borrowed money from an investorto fund the loan, and after closing, the mortgage and note are immediately assigned to that investor. A. Direct investor funding B. Table funding C. Warehouse funding D. Retail Funding
Answer B
Table funding occurs when the lender uses borrowed money from an investorto fund the loan, and after closing, the mortgage and note are immediately assigned to that investor. Funds for closing are usually wired to the closing agent’s escrow account.
^^^A property description method that is the most accurate and involves a surveyor measuring the distance and direction between the metal plaques in the corners of the property is known as A. Lot and Block Method B. Government Land Survey Method C. Monument Method D. Metes and Bounds Method
Answer D
The Metes and Bounds Method is the most accurate and involves a surveyor measuring the distance (metes) and direction (bounds) between the metal plaques in the corners of the property. The direction of a boundary line is expressed using compass directions and is given in degrees, minutes and seconds. Distances are measured in feet. The surveyor must start and end hismeasurements at the same place (the Point of Beginning (POB)).
Which of the following is an acceptable source of funds at closing? A. Sweat equity B. Cash on hand C. Personal check D. Wire transfer
Answer C
Typical sources of funds are checking and savings accounts, vested
retirement funds, trust accounts, stocks, bonds, mutual funds and personalgifts (under certain circumstances).
When a lender sells a mortgage loan to another lender this is called: A. Assignment of mortgage B. Note transfer C. Vendor selling D. Linking a mortgage
Answer A
When a lender sells a mortgage loan to an investor, this is called an
assignment of mortgage and is recorded to give constructive notice of thetransfer of ownership of the mortgage and note.
^^^Which of the following is used to determine a ballpark figure for the value of a property based on the average sale price and rents of the area’s comparable properties? A. Sales Comparison B. Cost Approach C. Income Capitalization D. Gross Rent Multiplier (GMP)
Answer D
The GRM is an additional way to quickly determine a ballpark figure for the value of a property based on the average sale price and rents of the area’s comparable properties.
Market Value / Monthly Rent = Neighborhood Gross Rent Multiplier (GRM)
A borrower with other financed properties will need how much additional reserve if they have five to six financed properties?
A. 2% of the aggregate UPB (Unpaid Balance Principal)
B. 4% of the aggregate UPB (Unpaid Balance Principal)
C. 6% of the aggregate UPB (Unpaid Balance Principal)
D. 8% of the aggregate UPB (Unpaid Balance Principal)
Answer B
4% of the aggregate UPB if the borrower has five to six financed properties
