A borrower is told her $760,000 loan cannot be conforming "because it is over three quarters of a million". What is missing from that reasoning?
Correct Answer
B) Check high-cost-area limits before classifying the loan
Why this is correct: Conforming loans are those eligible for purchase by Fannie Mae and Freddie Mac, and they must adhere to loan limits set by the FHFA (Federal Housing Finance Agency). These limits are higher in designated high-cost areas. Therefore, a key step in classifying a loan is to "Check high-cost-area limits before classifying the loan." Why the other choices are wrong: "Apply a different loan-program rule without checking the file facts" is wrong because conforming loan limits are a specific requirement; applying another rule is incorrect. "Ignore product, occupancy, LTV, or eligibility limits because the borrower prefers the loan" is wrong because the loan limit is a legal maximum, not subject to borrower preference. "Use the same treatment for all mortgage products without comparing program requirements" is wrong because jumbo loans, FHA loans, etc., have different limit structures; they cannot be treated the same. Exam tip: When you see "conforming loan limits," immediately think: 1) base limit, and 2) high-cost area limit. Always verify which applies to the property location.
Why This Is the Correct Answer
The correct response is "Check high-cost-area limits before classifying the loan" because FHFA conforming loan limits define maximum principal amounts for Fannie Mae and Freddie Mac acquisition.
Why the Other Options Are Wrong
Option A: Apply a different loan-program rule without checking the file facts.
Apply a different loan-program rule without checking the file facts. is not correct because it does not apply the rule tested by this file scenario.
Option C: Ignore product, occupancy, LTV, or eligibility limits because the borrower prefers the loan.
Ignore product, occupancy, LTV, or eligibility limits because the borrower prefers the loan. is not correct because it does not apply the rule tested by this file scenario.
Option D: Use the same treatment for all mortgage products without comparing program requirements.
Use the same treatment for all mortgage products without comparing program requirements. is not correct because it does not apply the rule tested by this file scenario.
Memory Technique
conforming loan limits: identify the rule being tested, then choose the action that documents or applies that rule before the file moves forward.
Exam Tip
Match the file facts to conforming loan limits; do not choose an exception or shortcut that skips the required rule.
Common Mistakes to Avoid
- -Choosing an internal exception instead of the governing rule
- -Treating preliminary or informal facts as a substitute for required documentation
- -Answering from a familiar but unrelated mortgage topic
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