Mortgage Loan Origination Process 2 — Questions and Answers
Question 1: Which federal law requires lenders to provide a Loan Estimate within three business days of receiving a mortgage application?
- Truth in Lending Act (TILA)
- RESPA Section 6
- TRID (TILA-RESPA Integrated Disclosure) rule (Correct answer)
- Equal Credit Opportunity Act
Correct answer: TRID (TILA-RESPA Integrated Disclosure) rule
The TRID rule, effective October 2015, requires lenders to deliver a Loan Estimate within three business days of application receipt.
Question 2: During loan origination, what does the term 'pre-qualification' primarily rely on?
- A full credit report pull and verified income documents
- A hard inquiry on the borrower's credit file
- Self-reported borrower information without formal verification (Correct answer)
- An appraisal of the subject property
Correct answer: Self-reported borrower information without formal verification
Pre-qualification is an informal assessment based on unverified, self-reported data from the borrower.
Question 3: A borrower's 'debt-to-income ratio' (DTI) during origination compares monthly debt payments to which figure?
- Net monthly income after taxes
- Annual gross income divided by 12
- Gross monthly income before taxes and deductions (Correct answer)
- Take-home pay plus any bonuses
Correct answer: Gross monthly income before taxes and deductions
DTI is calculated by dividing total monthly debt obligations by gross monthly income (before taxes).
Question 4: What is the primary purpose of the 'three-day waiting period' after a borrower receives the Closing Disclosure?
- To allow the underwriter to complete the final credit review
- To give the borrower time to review final loan terms before closing (Correct answer)
- To enable the title company to prepare closing documents
- To allow the lender to lock in the final interest rate
Correct answer: To give the borrower time to review final loan terms before closing
The mandatory three-business-day waiting period lets borrowers compare the Closing Disclosure to their Loan Estimate before signing.
Question 5: Which origination step involves verifying that the subject property's value supports the requested loan amount?
- Title search
- Appraisal (Correct answer)
- Income verification
- Flood certification
Correct answer: Appraisal
An independent appraisal is ordered to confirm the property's market value meets or exceeds the loan amount.
Question 6: What does 'lock-in' refer to during the mortgage origination process?
- Freezing the borrower's credit report to prevent new inquiries
- Committing to a specific interest rate for a defined period (Correct answer)
- Locking the loan file so underwriting changes are prohibited
- Securing a down payment in an escrow account
Correct answer: Committing to a specific interest rate for a defined period
A rate lock commits the lender to honor a specific interest rate for a set period, protecting the borrower from rate increases.
Question 7: Under RESPA, within how many business days must a lender provide a borrower with a Loan Estimate after receiving a completed application?
- 1 business day
- 3 business days (Correct answer)
- 5 business days
- 7 business days
Correct answer: 3 business days
RESPA and TRID require delivery of the Loan Estimate within three business days of receiving a complete application.
Mortgage Loan Origination Process 2
Which federal law requires lenders to provide a Loan Estimate within three business days of receiving a mortgage application?