Question 1

Traditional home mortgage underwriting is said to rest on three elements, the "three C's." The housing expense ratio is one tool that lenders will use to address concerns associated with which of the "three C's?"

Accepted Answer

A)  Collateral 
B)  Creditworthiness 
C)  Capacity 
D)  Capability

Question 2

The Federal National Mortgage Association (Fannie Mae) was originally established to provide a secondary market for FHA-insured and VA-guaranteed loans. All of the following statements regarding Fannie Mae are true EXCEPT:

Accepted Answer

A)  Fannie Mae lends money directly to homebuyers 
B)  Fannie Mae was once a private, self-supporting company with publicly traded stock that has now been placed into conservatorship by the United States government following the mortgage crisis of 2007-2008. 
C)  Fannie Mae fully guarantees timely payment of interest and principal to investors. 
D)  Fannie Mae is authorized to buy both conventional home loans and government-sponsored residential mortgages.

Question 3

When the contract rate at closing is less than the current market rate (i.e., interest rates have increased since the time of the loan commitment), the mortgage banker will have to sell the newly originated loan at a discount. This scenario best depicts the mortgage banker's exposure to which of the following risks?

Accepted Answer

A)  Interest rate risk. 
B)  Fallout risk. 
C)  Default risk. 
D)  Liquidity risk.

Question 4

Total mortgage debt outstanding as of the third quarter of 2015 approached $13.7 trillion. Which of the following types of mortgage loans accounts for the greatest percentage of mortgage debt outstanding?

Accepted Answer

A)  Residential (1-4 family) 
B)  Apartment (multifamily) 
C)  Commercial 
D)  Farm

Question 5

The emergence of mortgage securities propelled the development of mortgage companies, an entity significantly different from the thrifts and banks that previously dominated the mortgage landscape. Which of the following parties is responsible for providing mortgage origination services and initial funding within this new framework?

Accepted Answer

A)  Mortgage banker 
B)  Mortgage broker 
C)  Portfolio lender 
D)  Security analyst

Question 6

When the mortgage banker originates a home loan, she actually creates two assets: the loan and the servicing rights. When the mortgage bank sells the servicing right to the loan, it historically has had a value of:

Accepted Answer

A) 0.25-0.50 percent of the loan. 
B) 0.75-1.25 percent of the loan. 
C) 1.50-2.25 percent of the loan. 
D) 2.75-3.25 percent of the loan.

Question 7

Recently, mortgage banking has become the natural method for doing mortgage lending. Within the mortgage lending process, which of the following roles serves as the primary revenue source for mortgage banks?

Accepted Answer

A)  Loan commitment 
B)  Loan funding 
C)  Loan servicing 
D)  Loan sales

Question 8

Despite many innovations in the lending process that made mortgage loans more accessible and affordable to the general public, many potential borrowers faced considerable barriers in qualifying for a loan and making a down payment. Which of the following types of loans was designed for a borrower with weak credit, those who seek 100 percent financing, or who cannot document their income?

Accepted Answer

A)  Conventional prime home loan 
B)  Affordable housing loan 
C)  Subprime mortgage loan 
D)  Bridge loan

Question 9

The development of Fannie Mae and Freddie Mac established the framework for a liquid secondary market for residential mortgages. In 2015, the share of all residential mortgage loans owned or securitized by Fannie Mae and Freddie Mac approached approximately:

Accepted Answer

A)  5% 
B)  16% 
C)  46% 
D)  76%

Question 10

In analyzing a borrower's credit worthiness, the lender will typically examine the borrower's FICO score (a product developed by the Fair Isaac Corporation). High quality (prime) borrowers are those with a credit score above:

Accepted Answer

A)  350 
B)  620 
C)  660 
D)  850

Question 11

Let's suppose that a lender has established a 90 percent loan-to-value ratio cutoff as one of its primary underwriting criteria. If a borrower is willing to make a down payment of $125,000 on a home recently appraised at $550,000, which of the following best describes the lender's decision on whether or not to approve the loan along this dimension?

Accepted Answer

A)  The lender approves the loan because the LTV ratio is less than 90 percent 
B)  The lender denies the loan because the LTV ratio is less than 90 percent 
C)  The lender approves the loan because the LTV ratio is greater than 90 percent 
D)  The lender denies the loan because the LTV ratio is greater than 90 percent

Exam 11: Sources of Funds for Home Mortgages