Chapter 16 — Self-Check Quiz

Twenty-six questions. The multiple-choice items are written in the style of the SAFE MLO test where the material is exam-relevant. Every FHA factor, threshold, and band used here is illustrative — on the job, verify current figures with HUD.

Answer key is in the collapsed block at the bottom. Work the whole quiz before you open it.

Multiple choice

1. The Federal Housing Administration: - A. originates loans to qualified borrowers through approved branches - B. insures approved lenders against loss on qualifying mortgages - C. guarantees timely payment of principal and interest to security investors - D. purchases closed loans from lenders and pools them into securities

2. Claims on FHA-insured loans are paid from: - A. the general fund of the Treasury - B. the Ginnie Mae guaranty fund - C. the Mutual Mortgage Insurance Fund - D. the originating lender's warehouse reserve

3. HUD's consolidated rulebook for single-family FHA lending is: - A. the Selling Guide - B. Handbook 4000.1 - C. the TOTAL Mortgage Scorecard User Guide - D. Regulation X

4. A mortgagee letter that changes FHA's annual MIP factor will most commonly take effect based on: - A. the application date - B. the date the loan closes - C. the date the FHA case number is assigned - D. the date the appraisal is completed

5. Under the illustrative structure in this chapter, a borrower with a minimum decision credit score of 562 has a minimum required investment of: - A. 3.5% of adjusted value - B. 5% of adjusted value - C. 10% of adjusted value - D. none — the borrower is ineligible

6. FHA's minimum required investment is computed as a percentage of: - A. the purchase price - B. the appraised value - C. the lesser of purchase price or appraised value - D. the greater of purchase price or appraised value

7. On a 30-year FHA loan with a loan-to-value at origination of 96.50%, annual MIP is collected for: - A. 11 years - B. until the loan balance reaches 78% of original value - C. the life of the loan - D. 5 years, then the borrower may request cancellation

8. On a 30-year FHA loan with a loan-to-value at origination of exactly 90.00%, annual MIP is collected for: - A. 11 years - B. the life of the loan - C. until the borrower requests cancellation - D. 30 years, but at a reduced factor after year 11

9. A borrower closes an FHA loan at 95% LTV. Five years later the balance has been paid down and the home has appreciated, so the loan is at 62% of current value. The borrower's annual MIP: - A. terminates automatically under the Homeowners Protection Act - B. may be cancelled on written request with a current appraisal - C. continues, because the duration category was set at origination - D. drops to the 11-year band effective on the anniversary

10. FHA's upfront mortgage insurance premium: - A. must be paid in cash at closing - B. may be financed, and is included in the LTV used for program eligibility - C. may be financed, and is excluded from the LTV used for program eligibility - D. is charged only on loans above 90% LTV

11. A borrower buys at \$260,000 with a 3.5% minimum required investment and a financed UFMIP of 1.75%. The base loan amount is: - A. \$250,900.00 - B. \$251,000.00 - C. \$255,290.75 - D. \$260,000.00

12. Using the figures in question 11, the total loan amount is: - A. \$250,900.00 - B. \$255,290.75 - C. \$260,000.00 - D. \$264,550.00

13. The annual MIP factor on an FHA loan is determined by: - A. the borrower's minimum decision credit score - B. the loan amount, the term, and the LTV - C. the borrower's debt-to-income ratio - D. the lender's rate sheet

14. The 31%/43% qualifying ratios in FHA policy are: - A. an absolute maximum for all FHA loans - B. the benchmark for manually underwritten files, exceedable with documented compensating factors - C. the thresholds a file must meet to receive a TOTAL Scorecard Accept - D. the ratios above which a second appraisal is required

15. Which of the following would require a file with a TOTAL Accept to be downgraded to manual underwriting? - A. a back-end ratio above 43% - B. a minimum decision credit score below 640 - C. a mortgage payment delinquency within the last 12 months - D. a financed UFMIP

16. A seller offers to pay the buyer's 3.5% minimum required investment on an FHA purchase. This is: - A. permitted, up to the interested-party contribution limit - B. permitted if routed through a nonprofit organization - C. prohibited — a seller may not fund the MRI directly or indirectly - D. permitted only on new construction

17. An FHA appraisal differs from a conventional appraisal principally because it: - A. uses a different valuation methodology - B. also certifies the property against HUD's minimum property requirements - C. may not use the sales comparison approach - D. is ordered by HUD rather than by the lender

18. Peeling exterior paint on a home built in 1969 is most likely to result in: - A. a value adjustment on the appraisal grid - B. an appraisal completed "subject to" repair - C. an ineligible property with no cure - D. no action, as paint is cosmetic

19. CAIVRS is checked to identify: - A. undisclosed liabilities on the credit report - B. delinquency or default on federal debt - C. properties that have changed hands within 90 days - D. appraisers on HUD's exclusion list

20. A CAIVRS hit on the seller of the subject property: - A. has no effect — only borrowers are screened - B. requires a letter of explanation from the seller - C. may stop the transaction, because parties to the transaction are screened - D. requires a second appraisal

21. A borrower purchasing a home from their sibling is engaged in: - A. an interested-party contribution - B. an identity of interest transaction - C. a prohibited transaction - D. a streamline transaction

22. An FHA streamline refinance requires: - A. a new appraisal on all paths - B. that the existing loan be FHA-insured - C. full income documentation on all paths - D. a minimum decision credit score of 620

23. A borrower streamline-refinances an FHA loan originally closed at 96.50% LTV. The MIP duration category on the new loan will most likely be: - A. 11 years, because the balance has been paid down - B. the life of the loan, because there is no new appraisal and the LTV is computed on the original value - C. determined by the new appraised value - D. eliminated, because the borrower has already paid UFMIP once

24. "Net tangible benefit," in the FHA streamline context, means: - A. the lender's profit on the transaction must be disclosed - B. the refinance must produce a defined, measurable improvement for the borrower - C. the borrower must receive cash at closing - D. the appraised value must have increased

Short answer

25. In two sentences, explain to a borrower why the money they "save" on an FHA down payment against a 5% conventional down payment is not the whole story. Use the Linden Street figures.

26. Your colleague says: "Harlow Street can't work — FHA caps you at 43 percent back-end." Identify the error and state the two conditions that actually make that file approvable.

Answer key — work the quiz first **1. B.** FHA insures approved lenders against loss. It does not lend (that is the mortgagee), does not guarantee securities (that is Ginnie Mae), and does not buy loans (that is Fannie/Freddie and the aggregators). §16.1 **2. C.** The Mutual Mortgage Insurance Fund. §16.1 **3. B.** HUD Handbook 4000.1. The Selling Guide is Fannie Mae's; Regulation X implements RESPA. §16.2 **4. C.** The FHA case number assignment date. This is why case-number hygiene is not clerical work. §16.2, §16.7 **5. C.** 10% of adjusted value under the illustrative 500–579 band. Verify current thresholds with HUD — and note that most lenders' overlays stop well above 562. §16.3 **6. C.** The lesser of purchase price or appraised value — FHA calls it the **adjusted value**. §16.4 **7. C.** The life of the loan. Above 90% LTV at origination, there is no termination. §16.5 **8. A.** 11 years. The band is "90.00% or less," so exactly 90.00% falls in the eleven-year band — which is precisely why a borrower one dollar over the line pays for nineteen additional years. §16.5 **9. C.** It continues. The duration category is set by the LTV at origination and is never revisited. The Homeowners Protection Act does not apply to FHA loans, so A and B are conventional answers to an FHA question. §16.5 **10. C.** UFMIP may be financed, and program LTV is computed on the **base** loan amount, before the financed UFMIP. §16.5 **11. A.** \$260,000 × 0.035 = \$9,100.00 MRI; \$260,000 − \$9,100.00 = **\$250,900.00** base loan. (\$250,900 ÷ \$260,000 = 96.50%.) §16.4 **12. B.** UFMIP = \$250,900.00 × 0.0175 = \$4,390.75. Total loan = \$250,900.00 + \$4,390.75 = **\$255,290.75**. (Monthly MIP at 0.55% would be \$255,290.75 × 0.0055 ÷ 12 = \$117.01.) §16.5 **13. B.** Loan amount, term, and LTV — **not** credit score. This insensitivity to score is the structural reason FHA wins for lower-score borrowers. §16.3, §16.10 **14. B.** The benchmark for **manually underwritten** files. §16.3 **15. C.** A mortgage payment delinquency within the last 12 months is a recurring downgrade trigger. A high ratio, a low score, and a financed UFMIP are not, by themselves, downgrades. §16.3 **16. C.** Prohibited. A seller may contribute toward closing costs, prepaids, and points up to the interested-party contribution limit, but may not fund the minimum required investment — and B describes the structure Congress prohibited in the Housing and Economic Recovery Act of 2008. §16.4 **17. B.** It also certifies the property against HUD's minimum property requirements. §16.6 **18. B.** An appraisal completed "subject to" repair. Pre-1978 construction brings the lead-based paint rule into play, and this is the single most common FHA repair condition. §16.6 **19. B.** Delinquency or default on federal debt. §16.7 **20. C.** Parties to the transaction — not only borrowers — are screened, and a hit on a non-borrower party can stop the file. §16.7 **21. B.** An identity of interest transaction, which generally restricts the maximum LTV unless a defined exception applies. §16.8 **22. B.** The existing loan must be FHA-insured. This is the requirement that eliminates most callers. §16.9 **23. B.** The life of the loan. No new appraisal means the LTV is computed on the **original** appraised value, so the original band usually repeats — which is why a streamline is generally not an exit from life-of-loan MIP. §16.9, §16.5 **24. B.** A defined, measurable improvement for the borrower — a specified reduction in combined rate and MIP, a move to a fixed rate, or a term reduction. It is a test with a threshold, not a judgment call. §16.9 **25. Model answer.** "FHA's three and a half percent saves you \$5,775.00 against the five percent conventional down payment — but FHA adds a \$6,501.69 upfront insurance premium to your loan, which is \$726.69 *more* than the cash you saved, and you pay interest on it for thirty years. And the monthly insurance on the FHA structure never comes off, which over the term is \$38,155.54 more than the conventional loan, where it ends automatically at payment 137." §16.5, §16.10 **26. Model answer.** The error is that 31%/43% is the base cell of the ratio table for **manually underwritten** FHA files; it is not a cap on FHA approvals, and a file with an Approve/Eligible from the TOTAL Scorecard is not measured against it. The two conditions that make Harlow Street approvable at 41.48%/51.00% are (1) an **Approve/Eligible from TOTAL**, and (2) **documented compensating factors in the file** — documented, not asserted in a cover letter. §16.3