AUP Exam 2

Construction Process

Construction Process

The process of building and financing a home is more complex than financing the purchase of an existing home.

Interim construction loan and permanent financing

A Fannie Mae single–closing transaction occurs when the mortgage includes both of the following:

cashout and limited cashout refinance

Select two that apply. Fannie Mae transaction types for two-closing construction-to-permanent financing may be which of the following?:

False

Fannie Mae allows the lender to add borrowers to the permanent financing when structuring a construction-to-permanent refinance transaction True of False

Nothing

For a construction-to-permanent loan structured as a single-closing purchase transaction, what should be entered in 3. Real Estate Owned?:

Add

For a construction-to-permanent loan structured as a single-closing refinance transaction, what button do you click on the 3. Real Estate Owned screen to create a record for the lot associated with the subject property?:

Can be treated as either a purchase or refinance

A Freddie Mac construction conversion mortgage:

180

When escrow holdbacks are permitting on a Freddie Mac construction to permanent loan, within how many days of the note date must improvements be satisfactorily completed? :

Conventional

When entering a construction conversion mortgage to LPA, the Mortgage Type should be entered as:

False

Acquisition cost is the sum of the documented costs of the construction excluding the sales price of the lot.: True or False

Attached condo unit

Which of the following property types is INELIGIBLE For Fannie Mae construction-to-permanent transactions?:

180

Fannie Mae construction-to-permanent financing allows an escrow holdback agreement for completion if all work is completed within ________ days of the mortgage note.

LTV ratio

The underwriter uses the total acquisition cost for a construction-to-permanent loan primarily to determine:

All of the above

Which of the following situations might result in a change order to the sales contract?

Upon home completion

The final construction draw is released at what point in the construction process?

All of the above

Which of the following expenses would be included in the acquisition cost?

False

Items purchased by the borrower out of pocket cannot be included in total acquisition cost calculations for construction-to-permanent loans.

Purchase

If the borrower is not the owner of record of the land prior to the closing of the interim construction financing, the Purpose of Loan field in LPA should be ______________.

They should be reviewed in chronological order

Which of the statements below is true about change orders?:

120

For Freddie Mac's construction conversion and renovation mortgages, within how many days of the effective date of permanent financing must verifications of employment and income be made?

Construction to conversion & Renovation

Select two that apply. Freddie Mac offers two types of construction-to-permanent financing. They are:

Area rug for living room

When calculating acquisition costs, which of the following would NOT meet the criteria for a “qualifying item” to be used in a construction-to-permanent loan?

Ensure the subject property indicator is checked. + Enter the estimated property value of the completed property in the Estimated Property Value field. + Select Retained from the drop-down list in the Status field.

Select three that apply. For a construction-to-permanent loan structured as either a single-closing or two-closing refinance, which of the following steps do you complete on the Property Information screen?:

Sales Contract Price +  Improvements, Renovations, and Repairs + Land Value

Select three that apply. For a construction-to-permanent loan structured as a two-closing refinance transaction, which fields should NOT have amounts because they should not be used for that transaction structure?:

If an amount is entered in either of these fields it will be included in the required funds

For a construction-to-permanent loan structured as a single- or two-closing refinance transaction, the Original Cost of Lot and Appraised Value of Lot fields should NOT be used because:

1. Review each change order to ensure no non-qualifying items are included.

2. Review the original contract details to ensure no non-qualifying items are included

3. Calculate the final construction contract price and review all change orders/addenda.

Select all that apply. Steps in establishing total acquisition costs for construction-to-permanent loans include the following:

All of the above

Change orders can result when a purchaser decides to _______ a contract of sale.

• Add an item to

• Delete an item from

• Upgrade an item on

• All of the above

• Building a new site-built home

• Purchasing and permanently affixing a new manufactured home

Select two that apply. Interim construction financing provides short-term funds for which of the following?

May occur before or after the closing of the interim construction financing

For Freddie Mac construction-to-permanent loans, underwriting:

Navigate to the Real Estate Owned section to ensure there is no entry for the lot.

When entering a single-closing purchase construction-to-permanent loan into DU, which of the following is the first step?:

• Possibly obtain documentation relief

• Obtain a credit risk evaluation

Select all that apply. Private investors may require lenders to submit a jumbo loan to an agency AUS in order to:

• Designated appraiser

• Specific list of qualified appraisers

• More seasoned appraiser

Select all that apply: Jumbo investors may require a second appraisal or an appraisal completed or reviewed by/from an:

Waiving the collateral review

A jumbo or non-conforming program may allow for flexibilities, including all of the following, EXCEPT:

• A minimum fico score

• Additional documentation requirements

Select all that apply. A jumbo investor may accept the AUS recommendation from DU or LPA with:

• Wide variations in housing and site improvements

• Absence of public utilities and services such as health and sanitation

• Shared school districts

Select all that apply. Which of the following are common characteristics of a rural market?

Income approach

When appraising a two-to four-unit property, the strongest indicator of value is the:

Minimum down payment requirements

Both fannie mae and freddie mac support affordable homeownership in declining markets by requiring which of the following actions?

True

Data entry and submission steps for submitting jumbo loans to Loan Product Advisor are no different than those used for a conforming loan submission.

• Analyze reliable asset and income data

• Provide a thorough collateral review

• Determine ability to manage credit

Select all that apply. Which of the following principles always apply when underwriting jumbo loans?

• Local economy

• Current market conditions

• Neighborhood

Select all that apply. Which of the following circumstances can affect property values?

False

The subject property is located on twenty acres of land, so the appraiser evaluates five acres of a parcel. This evaluation is eligible for sale to Fannie Mae and Freddie Mac.

• Ensure the inclusion of listings and contract sales by the appraiser in addition to the most recent closed sales to accurately portray market conditions.

• Review the appraisal report for compliance with standards of property analysis and evaluation of subject as marketable collateral for the mortgage loan.

• Follow established quality controls to safeguard against improper actions or conduct by employees, agents or third-party originators that may "compromise the accuracy of the appraisal report."

Select all that apply. According to agency expectations of both parties in the mortgage and valuation process, what is the lender responsible for?

$10,000

Almost identical homes sit in close proximity to one another. Property A includes a large barn that cost $25,000 to build. Property B does not include a barn. Property A sold for $250,000 while Property B sold for $240,000. According to the contributory value approach, what is the correct sales comparison adjustment?

• Ability to Repay

• Willingness to repay

Select all that apply. What factors are the focus when examining borrower risk for a jumbo loan?

True

A jumbo loan is a home loan that is ineligible for purchase by Fannie Mae and Freddie Mac because it is too large.

$98,800

Your appraiser derives the average gross rent multiplier from six nearby comparables as 123.5. Projected gross rents for the subject property of the mortgage loan you are underwriting is $9,600 per annum. What is the estimated market value for this property according to the income approach?

Housing debt-to-income

Jumbo lenders often establish a single ratio analysis rather than using:

• Lender-funded mortgage insurance

• Single-ratio or residual income qualifying

• Varying reserves

Select all that apply. Jumbo investors may offer flexibilities and restrictions that may include:

• The total gross rent possible

• The sales price

Select all that apply. What two pieces of financial information are required to calculate the gross rent multiplier for a property?

• They have been successful in assessing risk for the mortgage loans purchased by their respective companies

• They have not achieved the same market acceptance from other private sector jumbo investors that has been accorded to Fannie Mae and Freddie Mac

Select all that apply. Some private sector investors have developed their own proprietary automated underwriting systems. Which of the following are true about the use of these systems?

• Modeling System

• Statistical tool

Select two. A credit score is a numeral value or a categorization derived from a/the:

1950s

Credit scoring was first developed in the_______.

• Written instruction of the consumer

• Permissible purposes

Select two. Only a person or business with________may gain access to another person’s credit report.

• They are an accurate and reliable tool for predicting mortgage delinquencies

• They facilitate faster credit decisions

• They remove human bias in risk assessment

Select three. Advantages of credit scores include:

• FICO credit scores for each borrowers

• One report from each of the three major credit repositories

Select two. Which of the following do GSEs Fannie Mae and Freddie Mac require for both automated and manually underwritten mortgage loans?

Consumer Reporting Agency (CRA) model

Analyzes information in a borrower’s consumer credit file

Behavior scoring model

Examines internal data from a serviver’s billing file on existing loans

Application model

Usually calculated directly by a lender and is based on information in the lender’s file

• Alimony payments

• Income

• Age

Select three. What factors are not considered in a credit score?

1. How well the consumer has paid back in the past (most)

2. How much the consumer currently owes on debts

3. What kinds of credit the consumer has 

4. How long the consumer has had credit (least)

Fico factors ranked from most to least important

Less risk

Compared to a consumer that uses 75% of total available credit, a consumer that uses 25% of total available credit represents:

Four

At least how many reason codes must be listed with each FICO credit score?

The scores are normalized so that they will be consistent

A FICO score from one nationwide credit reporting company is equivalent to the same numerical score from another because:

• No traditional credit

• Thin Credit

Select two. The FICO Expansion Score was introduced for consumers that have:

Mortgage Score

Which credit risk model examines borrower and loan characteristics?

1. Evaluate primary risk

2. Evaluate contributory risk

3. Determine comprehensive risk

There are three basic steps for assessing comprehensive risk. Put the three steps in the order in which they are performed

• Presence of co-borrower

• Mortgage term

• Previous mortgage payment history

Select three. Which of the following are influential contributory risk factors on mortgage default?

• Credit Score

• Type of property

• LTV

Select three. Which of the following typically generates a loan-level price adjustment on a loan?

Transactor

Low-risk category; defined a someone that pays their credit card in full every month

Partial payer

Moderate to low-risk category; defined as someone that actively pays down their balances monthly

Revolver

High-risk; defined as someone that carries a balance and typically makes only minimum payment on their credit card

Sally will be considered a lower risk than Chris

Sally pays off her credit card balance monthly; Chris makes only the minimum payment due most every month. Which statement is true?

Poor Credit Score

A borrower has been car shopping over an extended time due to their work schedule resulting in credit reports being pulled roughly twice a month. This would most likely result in:

• Beyond the borrower’s control

• An isolated occurrence

• An event that creates a large decrease in income or increase in expenses

Select three. An extenuating circumstance is:

CRAs collect financial information about consumers from collection agencies, creditors, and public records

Which of the following statements is true of consumer reporting agencies?

Revolver

Which of the following three categories of borrowers represent the highest risk to a lender based on their trended credit history?

• Consumers who distrust the credit/banking system

• Immigrants to the united states

• New credit users

Select three. Which of the following groups of consumers are less likely than the general population to have a credit score?

Reason

A credit score does not factor in the ________ that the borrower went into default. For this reason, lenders may take extenuating circumstances into account.

• A consistent design blueprint

• Periodic redevelopments

Select two. Newer versions of credit scoring models that could be used consistently among the three CRAs over time without the need for major alterations was achieved through:

• Provide a composite view of a borrower at a specific point in time.

• Assess a borrower's credit behavior patterns, past and present.

• Predict future credit performance and how likely a potential borrower is to repay future debts

Select three. Credit scores are used in mortgage lending to do which of the following?

• Portfolio management

• Loan administration

• Loan production

Select three. Credit scores are used in which of the following areas of mortgage lending?

• Are listed in order of their impact on the score

• Describe the most influential reasons why higher credit scores were not granted

Select two. Credit score reason codes:

Low

A ________ credit score may result in a loan-level pricing adjustment.

• Providing faster credit decisions

• Removing human bias

• Instilling confidence to extend credit

Select three. Credit scores benefit mortgage lenders by:

Fair credit reporting act

Which of the following Congressional acts requires mortgage lenders to provide borrowers with their credit scores and the factors affecting the score?

When “inquiries” is the fifth reason that influenced the credit score

When is it necessary for a CRA to list five reason codes on a consumer’s credit report?

Both positive and negative data

What do predictive variables analyze?

• Considered trade secrets

• Proprietary to each agency

Select two. All credit scores are calculated by computerized statistical models. These statistical models are complicated formulas that analyze consumer information and produce a numerical score. The formulas are based on factors that have been proven to predict credit behavior and are:

• Keeping revolving balances below 50% of the high credit limit

• Paying bills on time

• Not opening unnecessary accounts

Select three. Which of the following are acceptable methods for improving a credit score?

Risk of consumer bankruptcy

In addition to the credit or FICO score, there are other risk models, such as those that produce bankruptcy scores. Bankruptcy scores measure:

• As credit data changes

• With any key activity

• As balances change

Select three. Credit files change:

• An account belonging to a “Jr” reported on his father’s credit report

• Identity theft

• Paying an account in full prior to the date reported

Select three. Which of the following circumstances contribute to inaccurate scores?

• Length of credit history

• How the consumer handled credit in the past

Select two. Which of the following factors are considered in most scoring systems?

More; more

Lenders who use credit scores have _____ confidence and will typically offer credit to _____ people

Different types of consumers have varying characteristics that are predictive of risk

What problem is addressed by the use of scorecard segmentation?

Upper Range

As the LTV/CLTV reaches 95%, how must the credit score range be rated to maintain acceptable risk for most investors?

• Whether the consumer receives welfare

• Consumer’s marital status

Select two. Under US law, which of the following factors may NOT be considered in ANY credit scoring model?

Consumer credit information is run through the one scorecard that best fits that consumer's profile. The resulting score is the consumer's credit score

How does each CRA use scorecard segmentation to determine a borrower's credit score?

• Using expansion scoring

• Using a nontraditional credit report

• Documenting a nontraditional credit history

Select three. Which of the following are options for qualifying a borrower who has no credit score when underwriting a loan?

• Public records

• Collections agencies

• Creditors

Select three. CRAs collect information about consumers from: