©BRAINBARTER 2024/2025
CMB Exam – Study Questions With 100%
Verified Answers
According to federal law, which of the following transactions are subject to the three-day right of
rescission? - answer✔Primary residence for rate/term and/or cash-out refinance.
What federal law governs right of rescission? - answer✔Truth in Lending Act
What are 3 borrower qualifications unique to the VA loan product? - answer✔1. Certificate of
Eligibility
2. Active or previous duty service w/ entitlement available
3. VA loans do not use a front-end ratio, but instead use residual income to qualify the borrower.
Right of Rescission - answer✔A provision in the federal Truth-in-Lending Act that allows
borrowers to cancel certain kinds of loans within three days of signing.
This is provided to consumers in refinance transactions on their primary residence as well as
providing non-borrowers that also have ownership interest in the primary property subject to the
loan. - answer✔Right of Rescission
What does USDA require regarding a non-purchasing spouse in a community property state? -
answer✔The non-purchasing spouse's obligations must be considered in the DTI unless excluded
by state law. Lenders must provide a credit report for the non-purchasing spouse, collections and
judgments are also included and data entry is required in USDA's AUS engine "GUS".
Name 3 community property states - answer✔Arizona, California, Idaho, Louisiana, Nevada,
New Mexico, Texas, Washington and Wisconsin.
What formula is used to calculate the front end DTI ratio? - answer✔PITI / Monthly Income
What formula is used to calculate the back end DTI ratio? - answer✔PITI + Monthly debt /
Monthly Income
What are 4 expectations of an appraiser during their inspection of a property? - answer✔Fannie
requires the appraiser:
* conduct a complete visual inspection of the accessible areas of the interior and exterior of the
property.
* responsibility to note any adverse conditions that were apparent during the inspection.
, ©BRAINBARTER 2024/2025
* expected to consider and describe the overall condition and quality of the property
* identify items that require immediate repair as well as items where maintenance may have been
deferred or which may not require immediate repair.
If an appraiser observes an adverse property condition, what must the appraiser do? -
answer✔Fannie does not consider the appraiser to be an expert in all fields. In these situations
when an appraiser cannot determine if the condition requires immediate repair, the property must
be appraised subject to and an inspection must be completed by a qualified professional. The
appraiser would then complete the as is or final inspection to incorporate the results, measure the
impact and decide on the final opinion of market value.
How is VA residual income calculated? - answer✔Residual income is calculated as net effective
income (gross income less taxes, social security, and defined reductions) less monthly shelter
expense. VA has calculated guidelines for residual income based on income, family size, and
location on a VA table;
What is Mortgage Servicing? - answer✔The contractual right to receive mortgage payments
from mortgagors for a fee and remit pieces of those payments (Principle, interest, taxes and
insurance) to appropriate recipients).
Define Fair Value/Market Value for mortgage servicing - answer✔the amount a servicing
portfolio is worth when offered for sale, in the open market, to a reasonably knowledgeable
buyer, given a sufficient time to analyze the portfolio and enough information upon which to
base a bid.
Define Economic Value for mortgage servicing - answer✔the amount a servicing portfolio is
worth to a specific entity given its unique operating environment.
Define Book Value for mortgage servicing - answer✔the amount a particular servicing portfolio
is worth as reflected on the balance sheet.
What is impairment of value in relation to mortgage servicing? - answer✔The unamortized
portion of the MSA that represents the book value of the portfolio.
Define liquidation value in mortgage servicing - answer✔the amount a servicing portfolio is
worth if sold by a creditor or other liquidation scenario.
What influences market value of a servicing portfolio? - answer✔* timing of payments
* rep/warrants associated with the nominal proce
* buy-back provisions normally found in Purchase and sale agreements regarding fraud
originations
Define regulatory value of mortgage servicing - answer✔amount a particular servicing portfolio
is worth under risk-based capital regulations. Requires institutions to mark-to-market and adjust
book values on MSA's quarterly.
, ©BRAINBARTER 2024/2025
Name the steps in the valuation process for a servicing portfolio - answer✔1. Divide portfolio
into like-kind subsets for strategies
2. ID relevant characteristics and project them for the life of the portfolio regarding each strategy
(from #1)
3. Convert the characteristics into income flows
4. project operating costs
5. Estimate probability loans will repay
6. Determine best yield requirement (discount rate) for each strategy, net present value the
prepayment adjusted cash flow for each strategy
7. Add results together
8. Review results for reasonableness.
Name some characteristics in servicing that can be categorized as predictable - answer✔* service
fee
* average loan balance
* P&I constants
* T&I constants
* interest paid on escrows
Name some characteristics in servicing that can be characterized as judgmental - answer✔*
prepayment expectations
* investment horizons
* earnings rates on escrows
* inflationary effects on servicing costs
* impact of regulatory changes
What three income components relate to servicing value? - answer✔service fees, other income
and float income
Name 6 portfolio management techniques to use in hedging and mitigate prepayment risks -
answer✔1. selling hedges
2. product hedges
3. LTV hedges
4. seasoned portfolio hedges
5. production hedges
CMB Exam – Study Questions With 100%
Verified Answers
According to federal law, which of the following transactions are subject to the three-day right of
rescission? - answer✔Primary residence for rate/term and/or cash-out refinance.
What federal law governs right of rescission? - answer✔Truth in Lending Act
What are 3 borrower qualifications unique to the VA loan product? - answer✔1. Certificate of
Eligibility
2. Active or previous duty service w/ entitlement available
3. VA loans do not use a front-end ratio, but instead use residual income to qualify the borrower.
Right of Rescission - answer✔A provision in the federal Truth-in-Lending Act that allows
borrowers to cancel certain kinds of loans within three days of signing.
This is provided to consumers in refinance transactions on their primary residence as well as
providing non-borrowers that also have ownership interest in the primary property subject to the
loan. - answer✔Right of Rescission
What does USDA require regarding a non-purchasing spouse in a community property state? -
answer✔The non-purchasing spouse's obligations must be considered in the DTI unless excluded
by state law. Lenders must provide a credit report for the non-purchasing spouse, collections and
judgments are also included and data entry is required in USDA's AUS engine "GUS".
Name 3 community property states - answer✔Arizona, California, Idaho, Louisiana, Nevada,
New Mexico, Texas, Washington and Wisconsin.
What formula is used to calculate the front end DTI ratio? - answer✔PITI / Monthly Income
What formula is used to calculate the back end DTI ratio? - answer✔PITI + Monthly debt /
Monthly Income
What are 4 expectations of an appraiser during their inspection of a property? - answer✔Fannie
requires the appraiser:
* conduct a complete visual inspection of the accessible areas of the interior and exterior of the
property.
* responsibility to note any adverse conditions that were apparent during the inspection.
, ©BRAINBARTER 2024/2025
* expected to consider and describe the overall condition and quality of the property
* identify items that require immediate repair as well as items where maintenance may have been
deferred or which may not require immediate repair.
If an appraiser observes an adverse property condition, what must the appraiser do? -
answer✔Fannie does not consider the appraiser to be an expert in all fields. In these situations
when an appraiser cannot determine if the condition requires immediate repair, the property must
be appraised subject to and an inspection must be completed by a qualified professional. The
appraiser would then complete the as is or final inspection to incorporate the results, measure the
impact and decide on the final opinion of market value.
How is VA residual income calculated? - answer✔Residual income is calculated as net effective
income (gross income less taxes, social security, and defined reductions) less monthly shelter
expense. VA has calculated guidelines for residual income based on income, family size, and
location on a VA table;
What is Mortgage Servicing? - answer✔The contractual right to receive mortgage payments
from mortgagors for a fee and remit pieces of those payments (Principle, interest, taxes and
insurance) to appropriate recipients).
Define Fair Value/Market Value for mortgage servicing - answer✔the amount a servicing
portfolio is worth when offered for sale, in the open market, to a reasonably knowledgeable
buyer, given a sufficient time to analyze the portfolio and enough information upon which to
base a bid.
Define Economic Value for mortgage servicing - answer✔the amount a servicing portfolio is
worth to a specific entity given its unique operating environment.
Define Book Value for mortgage servicing - answer✔the amount a particular servicing portfolio
is worth as reflected on the balance sheet.
What is impairment of value in relation to mortgage servicing? - answer✔The unamortized
portion of the MSA that represents the book value of the portfolio.
Define liquidation value in mortgage servicing - answer✔the amount a servicing portfolio is
worth if sold by a creditor or other liquidation scenario.
What influences market value of a servicing portfolio? - answer✔* timing of payments
* rep/warrants associated with the nominal proce
* buy-back provisions normally found in Purchase and sale agreements regarding fraud
originations
Define regulatory value of mortgage servicing - answer✔amount a particular servicing portfolio
is worth under risk-based capital regulations. Requires institutions to mark-to-market and adjust
book values on MSA's quarterly.
, ©BRAINBARTER 2024/2025
Name the steps in the valuation process for a servicing portfolio - answer✔1. Divide portfolio
into like-kind subsets for strategies
2. ID relevant characteristics and project them for the life of the portfolio regarding each strategy
(from #1)
3. Convert the characteristics into income flows
4. project operating costs
5. Estimate probability loans will repay
6. Determine best yield requirement (discount rate) for each strategy, net present value the
prepayment adjusted cash flow for each strategy
7. Add results together
8. Review results for reasonableness.
Name some characteristics in servicing that can be categorized as predictable - answer✔* service
fee
* average loan balance
* P&I constants
* T&I constants
* interest paid on escrows
Name some characteristics in servicing that can be characterized as judgmental - answer✔*
prepayment expectations
* investment horizons
* earnings rates on escrows
* inflationary effects on servicing costs
* impact of regulatory changes
What three income components relate to servicing value? - answer✔service fees, other income
and float income
Name 6 portfolio management techniques to use in hedging and mitigate prepayment risks -
answer✔1. selling hedges
2. product hedges
3. LTV hedges
4. seasoned portfolio hedges
5. production hedges
