Mortgage Loan Origination Process 3 — Questions and Answers
Question 1: Which of the following is NOT one of the six items that trigger a completed mortgage application under TRID?
- Borrower's Social Security number
- Subject property address
- Estimated value of the property
- Borrower's employment history for the past two years (Correct answer)
Correct answer: Borrower's employment history for the past two years
The six TRID application triggers are: name, income, SSN, property address, estimated value, and loan amount — employment history is not one of them.
Question 2: What is the role of an Automated Underwriting System (AUS) such as Fannie Mae's Desktop Underwriter during origination?
- To generate the Loan Estimate document automatically
- To provide a risk assessment and preliminary eligibility recommendation (Correct answer)
- To order the property appraisal on behalf of the lender
- To calculate the borrower's escrow payment amounts
Correct answer: To provide a risk assessment and preliminary eligibility recommendation
AUS tools like Desktop Underwriter analyze application data and issue an Approve/Eligible or Refer recommendation to guide underwriters.
Question 3: A borrower has a front-end DTI of 31% and a back-end DTI of 45%. Which ratio is most likely to concern a conventional loan underwriter?
- Front-end DTI of 31%
- Back-end DTI of 45% (Correct answer)
- Both ratios equally
- Neither ratio since both are within FHA limits
Correct answer: Back-end DTI of 45%
Conventional guidelines typically cap back-end DTI at 43–45%; a 45% back-end ratio is at the edge of acceptable limits.
Question 4: During origination, what does the term 'conditions' refer to in an underwriter's approval?
- Interest rate conditions tied to market index movements
- Specific outstanding items the borrower must satisfy before closing (Correct answer)
- Environmental hazard conditions found during the appraisal
- Credit score thresholds required for final approval
Correct answer: Specific outstanding items the borrower must satisfy before closing
Conditional approval means the loan is approved subject to specific conditions (e.g., proof of insurance, updated pay stubs) the borrower must clear.
Question 5: Which party is responsible for ordering the appraisal in a typical residential mortgage origination under current AMC rules?
- The borrower directly contacts a licensed appraiser
- The real estate agent selects the appraiser
- The lender orders through an Appraisal Management Company (AMC) or an independent process (Correct answer)
- The seller's lender orders the appraisal
Correct answer: The lender orders through an Appraisal Management Company (AMC) or an independent process
Post-2010 rules under the Dodd-Frank Act require lenders to use an independent process — typically an AMC — to maintain appraiser independence.
Question 6: What is 'overlays' in the context of mortgage origination?
- Additional fees layered on top of closing costs by title companies
- Lender-specific requirements stricter than agency minimum guidelines (Correct answer)
- Government regulations that overlay state lending laws
- Insurance coverage added on top of primary hazard insurance
Correct answer: Lender-specific requirements stricter than agency minimum guidelines
Overlays are internal lender policies (e.g., minimum 640 credit score) that exceed the minimum guidelines set by Fannie Mae or FHA.
Question 7: In the loan origination workflow, what typically triggers the transition from 'processing' to 'underwriting'?
- The borrower signs the initial disclosures
- The processor submits the complete loan file for credit decision (Correct answer)
- The appraisal report is ordered from the AMC
- The rate is locked by the loan officer
Correct answer: The processor submits the complete loan file for credit decision
Once the processor has gathered and verified all required documents, the complete file is submitted to underwriting for the credit decision.
Mortgage Loan Origination Process 3
Which of the following is NOT one of the six items that trigger a completed mortgage application under TRID?