Certificate in Mortgage Advice (CertMA)

Correct: In judicial foreclosure states, strict adherence to procedural requirements is mandatory. Failing to file a required Affidavit of Compliance or similar proof of loss mitigation efforts is a substantive defect. Courts will typically dismiss the foreclosure action, requiring the lender to re-file the case once the deficiency is cured. This results in ‘timeline slippage,’ which increases the carrying costs of the non-performing asset and adds to the total legal spend.

Incorrect: The other options are incorrect because regulatory reporting (option b) is based on the actual payment status of the loan, not the status of legal documentation. Interest rate reductions for an entire region (option c) are not a standard legal remedy for individual foreclosure procedural errors. While a servicer may face penalties or be forced to restart a process, the immediate and automatic forfeiture of the property title to the borrower (option d) is not a standard legal consequence for a missing affidavit in the foreclosure process.

Takeaway: Failure to comply with state-specific pre-foreclosure documentation requirements typically leads to judicial dismissals, significantly increasing the time and expense required to recover the collateral.

Correct: State laws frequently impose additional disclosure requirements that go beyond federal mandates, such as specific notices regarding state-level fair housing laws or predatory lending protections. These do not replace federal requirements but must be provided alongside them to ensure the MLO is compliant with both jurisdictions. Federal law typically sets the floor for consumer protection, while states are permitted to provide higher levels of protection through additional disclosures.

Incorrect: Federal law does not automatically preempt state law; it only does so if the state law is inconsistent with federal law, and even then, state laws providing greater consumer protection are typically upheld. State disclosures are not limited to subprime products; they apply based on the state’s legislative jurisdiction and often apply to all residential mortgage loans. Omitting federal disclosures is a violation of federal law, regardless of state-level overlap, as federal mandates like TRID are non-negotiable.

Takeaway: Mortgage loan originators must comply with both federal and state-specific disclosure requirements, as state laws often provide additional layers of consumer protection that are not preempted by federal standards.

Correct: Under the Equal Credit Opportunity Act (ECOA) and Regulation B, a credit scoring system is legally permissible only if it is ’empirically derived, demonstrably and statistically sound.’ This requires the lender to perform periodic validation using accepted statistical principles to ensure the model accurately predicts creditworthiness and does not create an illegal disparate impact on protected classes. Ongoing validation is the primary control to ensure the model remains compliant as economic conditions and applicant demographics shift.

Incorrect: Adjusting the model to prioritize loan-to-value ratios does not address the legal requirement for the credit scoring model itself to be statistically sound and empirically derived. While manual secondary reviews for denied applications are a good secondary control, they do not rectify a non-compliant or statistically unsound automated scoring system. Switching to a third-party model does not absolve the lender of its regulatory responsibility; the lender remains liable for ensuring that any tool used in its credit decisions complies with fair lending laws.

Takeaway: To comply with ECOA, mortgage lenders must ensure their credit scoring models are periodically validated to remain empirically derived and statistically sound.

Correct: When an appraisal is issued “subject to” specific repairs or conditions, the appraiser is stating the value is only valid once those conditions are met. To satisfy this, a Form 1004D (Appraisal Update and/or Completion Report) is required to provide professional verification that the work is finished, ensuring the collateral meets the lender’s and the secondary market’s requirements for safety, soundness, and structural integrity.

Incorrect: Accepting a borrower’s letter of intent is insufficient because it provides no objective proof that the collateral’s value has been realized. Revising the report to “as-is” with a cost-to-cure deduction is often inappropriate for structural or safety issues and may violate Appraisal Independence Requirements (AIR) if the lender pressures the appraiser to change the reporting basis. Having the Mortgage Loan Originator (MLO) perform the inspection creates a conflict of interest and violates the principle that only a qualified, independent professional should verify property conditions affecting value.

Takeaway: Properties appraised “subject to” repairs must have those repairs verified by a qualified appraiser via a completion report before the loan can be finalized.

Correct: Lenders and their service providers must ensure that mortgage loans comply with the specific requirements of secondary market investors (such as Fannie Mae or Freddie Mac), which may dictate insurance standards for high-risk areas. Additionally, while earthquake insurance is not federally mandated, many states have specific laws requiring lenders or insurers to provide disclosures regarding the availability of earthquake insurance to borrowers during the application process.

Incorrect: Requiring seismic retrofit certificates for all older properties is not a universal regulatory requirement for loan approval and is often a matter of local building code rather than mortgage law. Automatically including earthquake premiums in the Loan Estimate for any state with historical seismic activity is incorrect because earthquake insurance is generally optional and should only be disclosed as a requirement if the lender or investor specifically mandates it for that loan. There is no ‘National Earthquake Insurance Program’ (NEIP) that mandates coverage for conventional loans; unlike flood insurance, which is managed via the NFIP, earthquake insurance is primarily handled through private insurers or state-run entities like the California Earthquake Authority.

Takeaway: Lenders must ensure compliance with secondary market investor standards and state-specific disclosure laws when managing earthquake and natural disaster insurance risks.

Correct: Under the National Bank Act and the principle of federal preemption, nationally chartered banks are permitted to ‘export’ the interest rates of their home state to borrowers in other states. This allows them to follow the usury laws of the state where the bank is headquartered rather than the state where the borrower or property is located, provided the bank is a national association.

Incorrect: RESPA focuses on settlement costs and disclosures, not interest rate caps or usury preemption. A borrower’s signature on a HOEPA disclosure does not grant a lender the right to violate state usury laws; HOEPA actually adds restrictions rather than removing them. TILA and the ATR standards govern disclosures and underwriting quality but do not provide a general preemption of state usury limits.

Takeaway: National banks can leverage federal preemption to apply the usury laws of their home state to loans made across state lines, bypassing more restrictive local interest rate caps.

Correct: Under the Ability-to-Repay (ATR) rule and TILA-RESPA Integrated Disclosure (TRID) requirements, lenders must make a reasonable, good-faith determination of a borrower’s ability to repay the loan. This includes considering the monthly payment for property taxes that the consumer will be required to pay. In jurisdictions where taxes are reassessed upon sale, using the seller’s old tax rate is misleading and can lead to severe payment shock. The most professional and compliant approach is to use the most accurate projection of future taxes for both qualification and disclosure purposes.

Incorrect: Using the seller’s current tax bill is incorrect because it fails to account for known, non-speculative increases in housing costs, which undermines the accuracy of the DTI ratio. Waiving the escrow account does not remove the tax liability; it merely hides the cost from the monthly mortgage statement, which does not mitigate the borrower’s actual financial risk or the lender’s risk of default. Applying a flat 10% buffer is an arbitrary measure that may still significantly underrepresent the actual tax increase in ‘point-of-sale’ jurisdictions, leading to inaccurate disclosures and poor risk assessment.

Takeaway: Mortgage professionals must use the most accurate, anticipated property tax figures in DTI calculations to ensure compliance with ATR standards and prevent borrower payment shock.

Correct: Under standard mortgage underwriting guidelines (such as those from Fannie Mae and Freddie Mac), student loans in deferment or forbearance must still be included in the debt-to-income ratio, typically using a percentage of the outstanding balance (e.g., 1%) or the actual payment if it will cover the interest and principal. Furthermore, unlike installment loans which can sometimes be excluded if fewer than ten payments remain, automobile leases must almost always be included in the DTI calculation regardless of the remaining term, as they are viewed as recurring obligations that the borrower will likely replace with a new lease or loan.

Incorrect: Excluding student loans solely because they are deferred is a violation of Ability-to-Repay (ATR) standards, as the debt remains a legal obligation. While installment debts with fewer than ten payments can occasionally be excluded if they do not significantly impact cash flow, this exception generally does not apply to leases. Affidavits of intent are insufficient to override the requirement to include verified recurring debts in the qualification process.

Takeaway: Total debt obligations must account for deferred student loans and all lease payments to ensure a compliant and accurate assessment of a borrower’s long-term ability to repay a mortgage loan.

Correct: In mortgage underwriting for loans intended for sale to GSEs like Fannie Mae or Freddie Mac, the standard practice is to use the ‘middle score’ from a Tri-Merge Credit Report. When three scores are available, the median score (the one in the middle when ranked numerically) is used. In this scenario, the scores are 690, 710, and 720; therefore, 710 is the representative score. Furthermore, mortgage lenders use specific FICO models (such as FICO Score 5, 4, and 2) rather than the VantageScore model often found in consumer apps.

Incorrect: Averaging the scores is incorrect because industry standards and GSE guidelines require the use of the median score, not a mathematical mean. Using the highest score (720) is incorrect as it does not follow the median score requirement and would result in an inaccurate risk assessment according to secondary market standards. Utilizing the VantageScore is incorrect because, while it is a valid credit scoring model for consumers, it is not currently the standard model accepted for conventional mortgage underwriting by GSEs.

Takeaway: For mortgage qualification, lenders must use the median score from a Tri-Merge Credit Report using specific FICO models rather than consumer-facing VantageScores or score averages.