Mortgage Loan Origination Activities 3 — Questions and Answers
Question 1: When a lender issues a loan commitment, what does this document signify?
- The borrower has accepted the loan terms and signed the note
- The lender has agreed to fund the loan subject to specified conditions (Correct answer)
- The property appraisal has been approved by the underwriter
- The title company has cleared all liens on the property
Correct answer: The lender has agreed to fund the loan subject to specified conditions
A loan commitment is a formal lender agreement to fund the mortgage, typically contingent on conditions such as a satisfactory appraisal and clear title.
Question 2: The Equal Credit Opportunity Act (ECOA) requires a lender to notify an applicant of a credit decision within how many days of receiving a completed application?
- 15 days
- 30 days (Correct answer)
- 45 days
- 60 days
Correct answer: 30 days
ECOA requires creditors to notify applicants of action taken on a credit application within 30 days of receiving a completed application.
Question 3: A lender's underwriter requests additional documentation 10 days after receiving a loan file. What is this request called?
- A deficiency notice
- A prior-to-close condition
- A stipulation or condition of approval (Correct answer)
- A re-verification of employment
Correct answer: A stipulation or condition of approval
Requests for additional items needed before loan approval are called stips or conditions of approval, and must be satisfied before closing.
Question 4: Which federal law prohibits lenders from denying mortgage loans based on the racial or ethnic composition of a neighborhood?
- Truth in Lending Act (TILA)
- Fair Housing Act (FHA) (Correct answer)
- Community Reinvestment Act (CRA)
- Home Mortgage Disclosure Act (HMDA)
Correct answer: Fair Housing Act (FHA)
The Fair Housing Act prohibits redlining and discrimination in residential lending based on race, color, national origin, religion, sex, familial status, or disability.
Question 5: During origination, a lender 'locks' a borrower's interest rate. If rates drop significantly before closing, the borrower typically:
- Automatically receives the lower rate
- May pay a float-down fee to access the lower rate if the lock includes a float-down option (Correct answer)
- Can cancel the lock penalty-free within 3 business days
- Must close at the locked rate regardless of market movement
Correct answer: May pay a float-down fee to access the lower rate if the lock includes a float-down option
Standard rate locks fix the rate for the lock period; borrowers can only benefit from rate drops if they purchased a float-down option at lock.
Question 6: For a purchase transaction, what is the MLO required to verify to confirm a borrower's source of funds for the down payment?
- Only a verbal confirmation from the borrower is required
- Bank statements showing sufficient funds and seasoning, plus explanation of large deposits (Correct answer)
- A signed gift letter if any portion comes from family
- Only the most recent 30 days of bank statements
Correct answer: Bank statements showing sufficient funds and seasoning, plus explanation of large deposits
Underwriters require asset statements (typically 2 months) showing sufficient funds and seasoning, plus written explanations for large or unusual deposits.
Question 7: Which origination activity is specifically prohibited under the SAFE Act for an individual acting as an MLO without a valid license or registration?
- Referring a borrower to a licensed mortgage company
- Taking a residential mortgage loan application or negotiating loan terms for compensation (Correct answer)
- Providing general information about mortgage products online
- Pre-qualifying a borrower based on income estimates
Correct answer: Taking a residential mortgage loan application or negotiating loan terms for compensation
The SAFE Act requires anyone who takes loan applications or negotiates residential mortgage terms for compensation to be licensed or registered as an MLO.
Mortgage Loan Origination Activities 3
When a lender issues a loan commitment, what does this document signify?