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MBA CRU practice questions

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Question 1Residential Underwriting

For a conventional conforming loan, what is the maximum allowable total debt-to-income ratio when the borrower has strong credit, verified reserves, and no compensating risk factors?

  1. 50% Correct answer.
  2. 43%
  3. 36%
  4. 45%

Explanation

Fannie Mae's standard maximum back-end DTI for manually underwritten loans is 50 percent when credit, reserves, and other layered risk factors are acceptable. Ratios above that ceiling require documented compensating factors or automated approval. A 43 percent figure is often cited from qualified mortgage standards, not the conforming manual maximum.

Question 2Residential Underwriting

An underwriter is reviewing a purchase transaction where the borrower will occupy the property as a second home. Which appraisal or eligibility consideration most directly applies?

  1. The property must be within a reasonable distance of the borrower's principal residence or have a documented seasonal or recreational purpose Correct answer.
  2. The loan must be underwritten as an investment property with rental income offset
  3. The property must be a single unit with no homeowner association dues
  4. The borrower must document rental income from the property for at least two years

Explanation

Second-home eligibility depends on the property being a reasonable distance from the principal residence or having a clear seasonal or recreational use, and it must remain occupied by the borrower for part of the year. Rental income is not required and cannot be used to qualify unless the property meets investment criteria. A second home is not underwritten as an investment property.

Question 3Residential Underwriting

A self-employed borrower provides two years of personal returns showing declining net income, but the business returns show stable gross receipts. What is the most appropriate underwriting response?

  1. Use the most recent year's personal net income if it is lower than the average Correct answer.
  2. Require a co-borrower to offset the decline
  3. Average the two years of personal net income and proceed
  4. Disregard personal returns and qualify on business gross receipts

Explanation

When self-employment income trends downward, the underwriter uses the lower, most recent year rather than an average, because declining earnings indicate reduced repayment capacity. Gross receipts do not reflect the borrower's actual qualifying income. Adding a co-borrower is a possible mitigation but is not the required analytical response.

Question 4Residential Underwriting

A borrower receives a large one-time deposit into a checking account three weeks before closing. Which documentation best supports treating the funds as an acceptable source?

  1. A verbal statement from the borrower during the application interview
  2. A copy of the settlement statement from the sale of the borrower's prior home Correct answer.
  3. A credit report notation showing the deposit
  4. Two months of bank statements showing the account balance trend

Explanation

Large, non-recurring deposits must be sourced, and a settlement statement from a prior property sale is a standard acceptable document. Verbal statements and balance trends do not establish source. A credit report notation does not evidence the deposit's origin.

Question 5Residential Underwriting

A property is located in a FEMA-designated Special Flood Hazard Area and the community participates in the National Flood Insurance Program. What is the underwriting requirement?

  1. Flood insurance is required only until the loan is sold to the investor
  2. Flood insurance must be maintained for the life of the loan in an amount at least equal to the lesser of the outstanding principal balance or the maximum coverage available Correct answer.
  3. Flood insurance is required only when the borrower requests it
  4. Flood insurance is optional if the loan-to-value ratio is below 80 percent

Explanation

When the improved property securing the loan sits in a participating-community SFHA, flood insurance is mandatory and must be maintained for the life of the loan. Coverage must be at least the lesser of the outstanding principal balance or the maximum available under the program. LTV and secondary-market timing do not waive the requirement.

Question 6Residential Underwriting

An underwriter is calculating reserves for a two-unit primary residence. Which assets may generally be counted toward the reserve requirement?

  1. Proceeds from a pending cash-out refinance on another property
  2. A gift letter from a family member promising future funds
  3. Equity in the subject property derived from the appraised value
  4. The borrower's vested balance in a retirement account, discounted per investor guidance Correct answer.

Explanation

Vested retirement funds are an acceptable reserve source when discounted according to investor guidance for liquidation costs and taxes. Subject property equity is not a liquid reserve. Pending loan proceeds and unfunded gift promises are not counted.

Question 7Residential Underwriting

A borrower's credit report shows a disputed collection account with a balance of $2,400. How should the underwriter generally treat this account in the debt-to-income calculation?

  1. Exclude it entirely because it is disputed
  2. Include only half the balance as a conservative estimate
  3. Exclude it if the borrower provides a written explanation
  4. Include it in the DTI calculation or require evidence of resolution Correct answer.

Explanation

Disputed accounts are typically included in the DTI unless the borrower provides documentation that the dispute is valid and the account will not become the borrower's obligation. A written explanation alone does not remove the obligation. Partial inclusion is not a recognized approach.

Question 8Residential Underwriting

Which appraisal approach is most appropriate for underwriting a loan on a single-family detached home in an established neighborhood with abundant recent comparable sales?

  1. Income approach
  2. Sales comparison approach Correct answer.
  3. Gross rent multiplier method
  4. Cost approach

Explanation

The sales comparison approach is the primary method for owner-occupied residential properties with active comparable sales. The cost approach is used when improvements are new or unusual, and the income approach applies to properties valued on rental earnings. The gross rent multiplier is a screening tool, not a standard residential appraisal approach.

Question 9Residential Underwriting

A borrower is refinancing to consolidate credit card debt. The new loan will pay off $30,000 in revolving balances. How should the underwriter treat those balances in the DTI calculation?

  1. Include the full balances as monthly debt payments
  2. Exclude them because they will be paid off at closing Correct answer.
  3. Exclude them only if the borrower signs a letter of intent
  4. Include the minimum monthly payments only if the accounts remain open

Explanation

Debts paid off at or before closing with verified funds from the transaction are excluded from the DTI because the obligation will be extinguished. The payoff must be documented on the closing disclosure. A letter of intent alone is insufficient.

Question 10Residential Underwriting

A borrower has a 30-day late mortgage payment reported 18 months ago and no other derogatory credit. How should this be evaluated under a layered-risk framework?

  1. It must be ignored because it is more than 12 months old
  2. It disqualifies the borrower from any automated approval
  3. It is a minor derogatory item that may be offset by strong compensating factors Correct answer.
  4. It is a major derogatory event requiring a mandatory downgrade

Explanation

A single 30-day late payment outside the recent period is a minor derogatory item and can be offset by compensating factors such as reserves and stable income. It is not a major event like foreclosure or bankruptcy. Age alone does not require ignoring it, and it does not automatically bar automated approval.

Question 11Residential Underwriting

What is the standard maximum loan-to-value ratio for a rate-and-term refinance of an owner-occupied single-family home underwritten through the automated system with strong credit?

  1. 97% Correct answer.
  2. 90%
  3. 100%
  4. 80%

Explanation

Standard conforming guidance permits up to 97 percent LTV on a rate-and-term refinance of an owner-occupied single-family residence when automated findings support it. Purchase transactions also reach 97 percent, but the refinance ceiling is the relevant figure here. Higher LTVs require specific program eligibility.

Question 12Residential Underwriting

A borrower's employment history shows a two-year gap followed by six months at a new employer in the same field. What is the most appropriate underwriting treatment?

  1. Use only the prior job's income for qualification
  2. Deny the loan because of the employment gap
  3. Require a two-year waiting period before the income can be used
  4. Accept the income if the gap is explained and the current position is verified and stable Correct answer.

Explanation

An employment gap does not automatically disqualify a borrower; the underwriter should obtain a written explanation and verify that the current position is stable and likely to continue. A two-year waiting period is not a standard requirement. Prior income is not used when current income is verified.

Question 13Residential Underwriting

An underwriter is reviewing a condominium project for conforming eligibility. Which project characteristic most directly raises a concern about the project's financial stability?

  1. A homeowner association with fully funded reserves
  2. A high percentage of units owned by a single investor entity Correct answer.
  3. A project with completed construction and no litigation
  4. A high percentage of owner-occupied units

Explanation

Concentration of ownership in a single investor entity raises concerns about project control, rental concentration, and the association's ability to fund maintenance. High owner occupancy, funded reserves, and no litigation are positive characteristics. Project review focuses on these risk indicators.

Question 14Residential Underwriting

A borrower is receiving a gift for the down payment on a primary residence. What documentation is generally required?

  1. Only a verbal confirmation from the loan officer
  2. Proof that the donor is a relative
  3. A promissory note from the borrower to the donor
  4. A gift letter signed by the donor, evidence of transfer, and evidence of the donor's ability to give Correct answer.

Explanation

Gift funds for a primary residence require a signed gift letter stating the amount and that no repayment is expected, documentation of the transfer, and evidence the donor has the ability to provide the funds. A promissory note would convert the gift into a loan and change its treatment. Relationship alone is not the documentation standard.

Question 15Residential Underwriting

A property's appraisal comes in below the purchase price. The borrower will cover the difference in cash. What is the underwriting implication?

  1. The loan amount is based on the lower of the purchase price or appraised value, so the borrower must bring additional funds Correct answer.
  2. The loan amount remains based on the purchase price because the borrower has cash
  3. The appraisal must be replaced with a new one before closing
  4. The transaction must be restructured as an investment property

Explanation

When the appraised value is below the purchase price, the LTV is calculated using the lower of the two, which reduces the maximum loan amount and increases the borrower's required cash contribution. The borrower's willingness to pay cash does not change the valuation basis. A new appraisal is not automatically required.

Question 16Residential Underwriting

Which of the following best describes the purpose of a title insurance commitment in the underwriting process?

  1. It establishes the property's appraised value
  2. It guarantees the borrower's creditworthiness
  3. It confirms the borrower's employment history
  4. It identifies liens and encumbrances that must be cleared before closing Correct answer.

Explanation

A title commitment discloses the current ownership, liens, and encumbrances and states the requirements that must be met to issue a clean policy at closing. It does not address credit, value, or employment. Clearing title exceptions is a standard pre-closing condition.

Question 17Residential Underwriting

A borrower has a student loan in deferment with a documented monthly payment of zero. How should the underwriter generally treat this obligation?

  1. Exclude it if the deferment extends beyond five years
  2. Include a calculated payment based on the loan balance and applicable guidance Correct answer.
  3. Include the full balance as a monthly obligation
  4. Exclude it because no payment is currently due

Explanation

Deferred student loans are still obligations and must be included using a calculated payment, typically a percentage of the outstanding balance or the documented future payment. A zero payment during deferment does not remove the debt. The full balance is not treated as a monthly payment.

Question 18Residential Underwriting

An underwriter notices that the borrower's bank statement shows a pattern of overdrafts in the most recent two months. What is the most appropriate action?

  1. Exclude the account from the asset calculation
  2. Automatically deny the loan
  3. Request a written explanation and evaluate whether the pattern reflects insufficient funds management Correct answer.
  4. Ignore overdrafts if the ending balance is positive

Explanation

Frequent overdrafts can signal cash-flow strain and should be explained by the borrower and weighed against reserves and payment history. A positive ending balance does not erase the pattern. Automatic denial is disproportionate, and excluding the account does not address the risk.

Question 19Residential Underwriting

Which factor most directly determines whether a borrower's income can be considered stable for qualifying purposes?

  1. A two-year history of consistent or increasing earnings supported by documentation Correct answer.
  2. The size of the down payment
  3. The borrower's credit score
  4. The borrower's tenure at the current employer only

Explanation

Income stability is assessed through a documented history of consistent or increasing earnings, typically over two years, along with the likelihood of continuance. Tenure alone is one input but not the full test. Credit score and down payment affect risk but do not establish income stability.

Question 20Residential Underwriting

A borrower is purchasing a duplex and will occupy one unit while renting the other. How is the rental income from the second unit generally treated?

  1. It is counted only after two years of receipt
  2. It may be used to offset the mortgage payment subject to documented market rent and investor guidance Correct answer.
  3. It is excluded entirely because the property is owner-occupied
  4. It is counted in full without any adjustment

Explanation

For an owner-occupied two-unit property, rental income from the non-occupied unit may be used to offset the payment when supported by a market rent analysis and consistent with investor guidance. It is not excluded, nor is it counted without adjustment. A two-year receipt history is not required for a new purchase.

Question 21Residential Underwriting

A borrower's file shows a recent bankruptcy discharge 18 months ago. Under a layered-risk framework, which factor would most support approval?

  1. A co-borrower with no credit history
  2. Documented re-established credit and substantial reserves since discharge Correct answer.
  3. A larger loan amount relative to income
  4. A high loan-to-value ratio

Explanation

After a bankruptcy, re-established credit and significant reserves are the strongest compensating factors because they demonstrate restored capacity and cushion. High LTV and a larger loan relative to income increase risk. A co-borrower without credit history does not offset the concern.

Question 22Residential Underwriting

Which document is used to verify that the borrower's funds for closing are actually available and have been transferred to the closing agent?

  1. The promissory note
  2. The verification of deposit
  3. The closing disclosure Correct answer.
  4. The initial loan estimate

Explanation

The closing disclosure reflects the final loan terms and the funds required to close, and it is paired with evidence of transfer to the closing agent. The loan estimate is an early disclosure, not proof of funds. A verification of deposit shows balances but not the transfer, and the promissory note is the borrower's obligation.

Question 23Residential Underwriting

An underwriter is evaluating a borrower whose income includes a documented annual bonus received for three consecutive years. How should the bonus be treated?

  1. Exclude it because bonuses are not guaranteed
  2. Include only the most recent bonus in full
  3. Include the average of the documented bonuses if continuance is likely Correct answer.
  4. Include the bonus only if it exceeds 25 percent of base salary

Explanation

A bonus with a consistent multi-year history and a reasonable expectation of continuance may be included, typically averaged over the documented period. Bonuses are not excluded solely because they are variable. Using only the most recent year or imposing an arbitrary percentage threshold is not standard practice.

Question 24Residential Underwriting

A loan is secured by a property with a shared well rather than a public water supply. What underwriting concern does this raise?

  1. The appraisal must use the cost approach
  2. The borrower must obtain flood insurance
  3. The property may not meet standard property eligibility requirements without evidence of a safe, adequate, and transferable water supply Correct answer.
  4. The loan automatically becomes a non-conforming loan

Explanation

A shared well can raise property eligibility concerns because the water supply must be safe, adequate, and transferable with the property. This requires documentation such as well tests and shared-well agreements. It does not automatically make the loan non-conforming, trigger flood insurance, or dictate the appraisal approach.

Question 25Residential Underwriting

A borrower applies for a loan on a property that will be used as an investment and has a signed lease. How is the lease income generally treated?

  1. It is excluded until the borrower has owned the property for two years
  2. It is counted only if the tenant has a credit score above 700
  3. It may be used subject to a market rent analysis and an investor-specific rental income calculation Correct answer.
  4. It is counted at the full lease amount with no adjustment

Explanation

For investment properties, lease income may be used when supported by a market rent analysis and calculated according to investor guidance, which typically applies a vacancy factor. Full lease income without adjustment overstates capacity. Tenant credit score and a two-year ownership requirement are not the governing tests.

Question 26Residential Underwriting

In residential underwriting, which document establishes the borrower's legal obligation to repay and states the interest rate and payment terms?

  1. The promissory note Correct answer.
  2. The deed of trust
  3. The closing disclosure
  4. The title commitment

Explanation

The promissory note is the borrower's written promise to repay and it sets out the principal amount, interest rate, payment schedule, and prepayment terms. The security instrument merely pledges the property as collateral, while title and disclosure documents serve different purposes.

Question 27Residential Underwriting

A borrower's total monthly housing expense (PITI) is $1,800 and total monthly debts including housing are $2,700, against gross monthly income of $7,500. What is the total debt-to-income ratio?

  1. 42%
  2. 36% Correct answer.
  3. 30%
  4. 24%

Explanation

Total DTI divides all monthly obligations, including the proposed housing payment, by gross monthly income. Here $2,700 divided by $7,500 equals 0.36, or 36%. The 24% figure reflects only the housing payment and is the front-end ratio, not total DTI.

Question 28Residential Underwriting

Which credit score model is most commonly used by the government-sponsored enterprises when underwriting conventional conforming loans?

  1. A business credit score
  2. A FICO score based on the classic FICO model Correct answer.
  3. A generic consumer education score
  4. A tenant screening score

Explanation

Conforming conventional loans typically rely on classic FICO scores, and the representative score is selected according to the number of borrowers and available scores. Consumer education scores and business or tenant scores are not accepted for mortgage underwriting.

Question 29Residential Underwriting

An underwriter is reviewing a purchase transaction in which the seller agrees to pay 3% of the buyer's closing costs. How is this seller concession generally treated?

  1. It is ignored because the seller is not a party to the loan
  2. It is treated as an interested-party contribution subject to applicable limits Correct answer.
  3. It is added to the borrower's qualifying income
  4. It is treated as a second lien on the property

Explanation

Seller-paid costs are interested-party contributions and are limited by loan-to-value tier under conventional guidelines. They reduce the borrower's required funds but do not become income and do not create a lien.

Question 30Residential Underwriting

Which of the following best describes the role of mortgage insurance in a conventional loan with a down payment below 20%?

  1. It replaces the need for a property appraisal
  2. It protects the lender against loss if the borrower defaults Correct answer.
  3. It eliminates the borrower's obligation to pay property taxes
  4. It guarantees the borrower's employment will continue

Explanation

Mortgage insurance shifts a portion of default loss from the lender or investor to an insurer, which is why higher-LTV conventional loans require it. It does not verify income, substitute for an appraisal, or affect tax obligations.

Question 31Residential Underwriting

A borrower's file contains a notice of federal tax lien filed four years ago and released last year. What is the underwriter's primary concern?

  1. Whether the borrower filed taxes electronically
  2. Whether the property taxes are escrowed
  3. Whether the borrower used a paid preparer
  4. Whether the lien was paid and released and whether any repayment plan affects qualifying Correct answer.

Explanation

A released tax lien indicates the obligation was satisfied, but the underwriter must confirm the release and check for any ongoing installment agreement that creates a monthly obligation. Filing method and preparer identity do not affect credit risk.

Question 32Residential Underwriting

When calculating available funds to close, which of the following is generally an acceptable source of the borrower's own funds?

  1. A projected future paycheck not yet received
  2. A verified checking account balance Correct answer.
  3. A pending insurance claim
  4. An unsecured personal loan

Explanation

Verified depository account balances are acceptable own funds when documented with statements. Funds that are not yet received, borrowed unsecured debt, and contingent claims are not counted as available assets.

Question 33Residential Underwriting

Which property characteristic would most likely require the underwriter to order a specialized inspection or further review before lending on a rural property?

  1. The property has a fenced rear yard
  2. The property relies on a private septic system Correct answer.
  3. The property has a paved driveway
  4. The property is served by public electricity

Explanation

Private septic systems require evidence of adequate function and local compliance because a failing system can affect habitability and value. Paved driveways, public utilities, and fencing are ordinary features that do not trigger specialized review.

Question 34Residential Underwriting

A self-employed borrower reports income on a partnership return but the underwriter needs to confirm the borrower's share. Which document is most directly relevant?

  1. The borrower's W-2 from an unrelated employer
  2. The partnership's Schedule K-1 issued to the borrower Correct answer.
  3. The property's rent roll
  4. The borrower's auto insurance declaration

Explanation

A Schedule K-1 reports the partner's distributive share of partnership income, which the underwriter uses to analyze self-employment earnings. W-2s, rent rolls, and insurance declarations do not document partnership income.

Question 35Residential Underwriting

An underwriter is analyzing commission income that represents 40% of a borrower's total earnings. What is the most appropriate approach?

  1. Exclude all commission income from qualifying
  2. Average the commission over at least two years and confirm it is likely to continue Correct answer.
  3. Count only the most recent month's commission
  4. Treat commission as a one-time asset

Explanation

Commission income that is a meaningful share of total earnings is typically averaged over a two-year history and must be shown to be stable and likely to continue. Using a single month or excluding it entirely misstates the borrower's capacity.

Question 36Residential Underwriting

A borrower has a 401(k) account and wants to use it for reserves. What condition generally applies?

  1. Only the vested balance may be counted, with evidence of access Correct answer.
  2. The full account balance counts regardless of vesting
  3. The account cannot be considered at all
  4. The account must be liquidated before closing

Explanation

Retirement accounts can typically count toward reserves only to the extent of the vested balance, and the borrower must be able to access the funds. Counting unvested amounts or requiring liquidation misapplies the guideline.

Question 37Residential Underwriting

A borrower is purchasing a home with an accessory dwelling unit and expects rental income from it. What is the most appropriate underwriting treatment?

  1. Rental income is counted only after two years of receipt
  2. Rental income is automatically counted at the borrower's stated amount
  3. Rental income is never allowed on a primary residence
  4. Rental income may be considered only with an appraisal supporting market rent and applicable requirements Correct answer.

Explanation

For an ADU on a primary residence, rental income can generally be considered when an appraiser supports the market rent and program rules are met. Borrower estimates and blanket prohibitions are both incorrect.

Question 38Residential Underwriting

An underwriter discovers that the borrower's down payment was deposited in a lump sum two weeks before application. What is the appropriate next step?

  1. Obtain documentation of the source of the large deposit Correct answer.
  2. Count the deposit as income
  3. Require the borrower to close the account
  4. Disregard the deposit because it is already in the account

Explanation

Large or unusual deposits must be sourced to confirm the funds are the borrower's own and are not undisclosed debt or borrowed money. Ignoring the deposit, treating it as income, or closing the account does not resolve the sourcing question.

Question 39Residential Underwriting

A borrower has a home equity line of credit with a $50,000 limit and a $0 balance. How should the underwriter generally treat this account?

  1. Treat it as a gift from the lender
  2. Count the entire limit as a cash asset
  3. Include a payment based on the full drawn limit in the debt calculation Correct answer.
  4. Exclude it entirely because the balance is zero

Explanation

Open-ended accounts such as HELOCs are typically evaluated using the full available limit to account for the borrower's potential obligation. A zero balance does not eliminate the contingent liability, and a credit line is never an asset.

Question 40Residential Underwriting

A borrower's credit report shows a collection account paid in full six months ago. How should the underwriter generally view this item?

  1. It remains a derogatory item with reduced weight because it is now satisfied Correct answer.
  2. It automatically disqualifies the borrower
  3. It must be ignored completely because it is paid
  4. It should be added to the borrower's monthly debts

Explanation

A paid collection remains part of the credit history but carries less weight than an open unpaid collection. It is not added as a recurring monthly debt, and it does not automatically disqualify the borrower.

Question 41Residential Underwriting

An underwriter is evaluating a borrower whose income is paid hourly and whose hours fluctuate seasonally. What analysis best supports a sound decision?

  1. Use the lowest single pay period as the qualifying income
  2. Assume the current hourly rate will apply to unlimited overtime
  3. Review a two-year history to determine an average or stable level of hours and earnings Correct answer.
  4. Use the highest single pay period as the qualifying income

Explanation

For fluctuating hourly earnings, a two-year history is analyzed to establish a representative average or stable level. Selecting a single peak or trough period, or assuming unlimited overtime, produces an unreliable figure.

Question 42Residential Underwriting

A borrower is receiving rental income from an investment property that has been owned and rented for three years. What documentation generally supports its continued treatment?

  1. The original purchase contract only
  2. A utility bill for the property
  3. A verbal statement from the borrower
  4. The most recent tax return schedules and a current lease Correct answer.

Explanation

Rental income on a schedule of real estate is typically supported by tax return schedules showing reported rents and expenses, along with a current lease. A verbal statement, utility bill, or purchase contract alone does not establish rental income.

Question 43Residential Underwriting

An underwriter is assessing whether a borrower's gift funds for closing are acceptable. Which condition is most important?

  1. The gift must be documented with a gift letter and evidence of transfer Correct answer.
  2. The gift must be repaid within one year
  3. The donor must be a family member by blood only
  4. The gift must be deposited after closing

Explanation

Gift funds require a signed gift letter confirming no repayment is expected, plus documentation showing the transfer from the donor's account. Repayment terms, strict blood relation, or post-closing deposit would defeat the purpose of the requirement.

Question 44Residential Underwriting

A borrower's proposed housing payment increases total DTI from 38% to 45%. Which compensating factor would most strengthen the file?

  1. A larger requested loan amount
  2. A higher credit card limit
  3. A shorter employment history at the current job
  4. Substantial verified reserves after closing Correct answer.

Explanation

Verified reserves provide a cushion against payment shock and are a recognized compensating factor for higher ratios. A higher credit limit, a larger loan, or less employment stability would weaken rather than strengthen the file.

Question 45Residential Underwriting

An underwriter is reviewing a property located in a designated flood zone. What is the primary underwriting implication?

  1. Flood insurance is generally required and the cost affects the borrower's housing expense Correct answer.
  2. The loan automatically becomes ineligible
  3. The borrower must obtain earthquake insurance
  4. The appraisal must be waived

Explanation

Properties in designated flood zones generally require flood insurance, and the premium becomes part of the housing expense used in qualifying. Flood zone location does not automatically make a loan ineligible, nor does it relate to earthquake coverage.

Question 46Residential Underwriting

A borrower with a prior short sale three years ago applies for a new conventional loan. What is the most relevant underwriting consideration?

  1. Whether the prior home had a garage
  2. The applicable waiting period and any reestablished credit since the event Correct answer.
  3. Whether the borrower's current employer is large
  4. Whether the borrower used a real estate agent

Explanation

A short sale is a significant derogatory event subject to a waiting period, and the underwriter evaluates reestablished credit and any extenuating circumstances. Agent involvement, property features, and employer size are not relevant to this determination.

Question 47Residential Underwriting

An underwriter is reviewing an appraisal that values the property using only the sales comparison approach for a condominium in a market with many recent comparable sales. Which statement best reflects sound practice?

  1. The sales comparison approach is appropriate when sufficient comparable sales exist Correct answer.
  2. The income approach is required for owner-occupied units
  3. The cost approach must always be the sole method used
  4. No approach is needed when the borrower has good credit

Explanation

When adequate recent comparable sales are available, the sales comparison approach is the most reliable indicator of market value for residential units. The cost and income approaches are used selectively, and borrower credit does not eliminate the need for valuation.

Question 48Residential Underwriting

A borrower's file shows a recent undisclosed debt appearing on a supplemental credit report before closing. Why does this matter for underwriting?

  1. It can raise the debt-to-income ratio and must be included in the final credit decision Correct answer.
  2. It is irrelevant because the loan was already approved
  3. It increases the appraised value
  4. It reduces the borrower's property taxes

Explanation

Undisclosed debt discovered before closing changes the borrower's obligations and may push DTI above program limits, so it must be evaluated in the final decision. It does not affect taxes or appraised value, and prior approval does not make it irrelevant.

Question 49Residential Underwriting

An underwriter must decide whether to count income from a borrower who recently returned from a two-year absence to the same industry. Which principle best guides the decision?

  1. The gap is irrelevant if the borrower has good credit
  2. Only the pre-gap income should be used
  3. Any employment gap permanently disqualifies the borrower
  4. The gap must be explained and the current income must be shown to be stable and likely to continue Correct answer.

Explanation

A return to the same industry after a gap can be acceptable when the gap is explained and current earnings are documented as stable and continuing. Permanent disqualification, using stale pre-gap income, or ignoring the gap entirely all misapply the stability principle.

Question 50Residential Underwriting

A borrower's total DTI is at the program maximum, and the file also shows limited reserves and a recent late payment. How should the underwriter interpret these layered risks?

  1. Limited reserves are irrelevant when DTI is at the maximum
  2. The combination of layered risks weakens the file even though each factor alone may be acceptable Correct answer.
  3. The late payment cancels the DTI concern automatically
  4. Each factor should be evaluated in isolation and ignored if individually within limits

Explanation

Layered-risk analysis recognizes that multiple marginal factors compound risk even when each individually meets a guideline. Evaluating factors in isolation, or assuming one factor cancels another, understates the combined risk.