CMA Closing and Settlement Procedures 1 — Questions and Answers
Question 1: What federal law requires lenders to provide borrowers with a Closing Disclosure at least three business days before loan consummation?
- TILA-RESPA Integrated Disclosure (TRID) rule (Correct answer)
- Equal Credit Opportunity Act (ECOA)
- Fair Housing Act
- Homeowners Protection Act
Correct answer: TILA-RESPA Integrated Disclosure (TRID) rule
The TRID rule, effective October 2015, mandates lenders deliver the Closing Disclosure a minimum of three business days before closing.
Question 2: Which document at closing replaces the old HUD-1 Settlement Statement for most mortgage transactions?
- Truth-in-Lending Disclosure
- Closing Disclosure (CD) (Correct answer)
- Loan Estimate
- Notice of Right to Cancel
Correct answer: Closing Disclosure (CD)
The Closing Disclosure replaced the HUD-1 Settlement Statement under TRID for most closed-end consumer mortgage transactions.
Question 3: What is the primary role of a title company during a mortgage closing?
- Approve the borrower's creditworthiness
- Conduct the appraisal of the property
- Ensure clear title transfer and disburse closing funds (Correct answer)
- Set the final interest rate
Correct answer: Ensure clear title transfer and disburse closing funds
Title companies perform title searches, issue title insurance, and manage the escrow and disbursement of funds at closing.
Question 4: Which closing cost item represents prepaid interest from the closing date to the end of the month?
- Origination fee
- Per diem interest (Correct answer)
- Escrow reserve
- Recording fee
Correct answer: Per diem interest
Per diem (daily) interest covers the interest that accrues between the loan closing date and the first day of the following month.
Question 5: When a borrower has the right of rescission under TILA, how many business days do they have to cancel a refinance transaction on their primary residence?
- 1 business day
- 3 business days (Correct answer)
- 5 business days
- 7 business days
Correct answer: 3 business days
Under TILA, borrowers have a three-business-day right of rescission on refinance transactions secured by their primary residence.
Question 6: What does a title insurance lender's policy protect?
- The borrower against title defects discovered after closing
- The lender's interest against title defects up to the loan amount (Correct answer)
- The real estate agent against commission disputes
- The appraiser against valuation errors
Correct answer: The lender's interest against title defects up to the loan amount
A lender's title insurance policy protects the lender's financial interest in the property against title defects up to the outstanding loan balance.
CMA Closing and Settlement Procedures 1
What federal law requires lenders to provide borrowers with a Closing Disclosure at least three business days before loan consummation?