CMA Closing Process and Settlement 1 — Questions and Answers
Question 1: What federal law requires lenders to provide borrowers with a Loan Estimate within three business days of receiving a loan application?
- RESPA
- TILA-RESPA Integrated Disclosure (TRID) (Correct answer)
- ECOA
- HMDA
Correct answer: TILA-RESPA Integrated Disclosure (TRID)
TRID (the TILA-RESPA Integrated Disclosure rule) mandates that lenders deliver a Loan Estimate to borrowers within three business days of application.
Question 2: What document replaces the HUD-1 Settlement Statement for most residential mortgage transactions closed after October 2015?
- Loan Estimate
- Closing Disclosure (Correct answer)
- Truth-in-Lending Statement
- Good Faith Estimate
Correct answer: Closing Disclosure
The Closing Disclosure replaced the HUD-1 Settlement Statement under TRID, detailing all final loan terms and closing costs.
Question 3: How many business days before closing must a lender provide the Closing Disclosure to the borrower?
- One business day
- Two business days
- Three business days (Correct answer)
- Five business days
Correct answer: Three business days
Under TRID, borrowers must receive the Closing Disclosure at least three business days before the consummation of the loan.
Question 4: What are 'prepaid items' in a mortgage closing?
- Fees paid to the lender for originating the loan
- Upfront payments for items like homeowner's insurance, property taxes, and prepaid interest (Correct answer)
- Third-party settlement charges
- Discount points paid to lower the interest rate
Correct answer: Upfront payments for items like homeowner's insurance, property taxes, and prepaid interest
Prepaid items are costs collected at closing for expenses paid in advance, such as the first year's insurance premium and initial escrow deposits.
Question 5: What is an escrow account in the context of mortgage servicing?
- An account holding earnest money during contract negotiation
- A lender-managed account that collects monthly payments for property taxes and insurance (Correct answer)
- A reserve fund held by the title company
- A savings account funded by the seller at closing
Correct answer: A lender-managed account that collects monthly payments for property taxes and insurance
An escrow account (impound account) is maintained by the servicer to collect and pay property taxes and homeowner's insurance on the borrower's behalf.
Question 6: What does 'title insurance' protect against in a mortgage transaction?
- Property damage from natural disasters
- Loss from defects in the title or ownership disputes discovered after purchase (Correct answer)
- Default by the borrower on the mortgage
- Decline in property market value
Correct answer: Loss from defects in the title or ownership disputes discovered after purchase
Title insurance protects lenders and owners against financial loss from title defects, liens, or ownership disputes that exist prior to the policy issuance.
CMA Closing Process and Settlement 1
What federal law requires lenders to provide borrowers with a Loan Estimate within three business days of receiving a loan application?