Mortgage Loan Origination Process 5 — Questions and Answers
Question 1: What is the meaning of 'clear to close' (CTC) in the mortgage origination process?
- The title company has cleared the property of all encumbrances
- The underwriter has satisfied all conditions and the loan is approved for closing (Correct answer)
- The borrower has cleared their credit report of all derogatory items
- The Closing Disclosure has been delivered and the waiting period has begun
Correct answer: The underwriter has satisfied all conditions and the loan is approved for closing
CTC means all underwriting conditions have been satisfied and the lender authorizes the closing agent to proceed with the loan closing.
Question 2: Which document replaces the HUD-1 Settlement Statement and Good Faith Estimate for most residential mortgages originated after October 3, 2015?
- Mortgage Disclosure Improvement Act (MDIA) forms
- Closing Disclosure and Loan Estimate under TRID (Correct answer)
- Universal Residential Loan Application (Form 1003)
- Affiliated Business Arrangement Disclosure
Correct answer: Closing Disclosure and Loan Estimate under TRID
TRID replaced the HUD-1 and GFE with the Closing Disclosure and Loan Estimate respectively on October 3, 2015.
Question 3: During origination, a borrower's employment is verified via a Verification of Employment (VOE). What specific information does the VOE typically confirm?
- The borrower's credit score and debt obligations
- Current employment status, start date, position, and income (Correct answer)
- The borrower's rental history and landlord references
- The property's compliance with zoning regulations
Correct answer: Current employment status, start date, position, and income
A VOE confirms the borrower's employer, start date, job title, base salary or hourly rate, and current employment status.
Question 4: What is the function of 'discount points' that a borrower may pay at origination?
- They are fees paid to the government to register the mortgage lien
- They are prepaid interest that permanently lowers the loan's interest rate (Correct answer)
- They cover the lender's underwriting and processing fees
- They fund the escrow impound account for taxes and insurance
Correct answer: They are prepaid interest that permanently lowers the loan's interest rate
Each discount point equals 1% of the loan amount and is prepaid interest that reduces the note rate, typically by 0.25% per point.
Question 5: A lender issues a 'revised Loan Estimate' to a borrower. Which of the following is a valid changed circumstance that allows this revision?
- The lender decides to increase its profit margin on the loan
- The borrower's credit score drops between application and underwriting
- An Act of God causes the property to be damaged before closing (Correct answer)
- The borrower requests a different loan officer to handle the file
Correct answer: An Act of God causes the property to be damaged before closing
A natural disaster that damages the property is a valid changed circumstance allowing the lender to issue a revised Loan Estimate.
Question 6: What is the primary risk to a lender when originating a loan without verifying the borrower's stated income?
- The loan cannot be sold on the secondary market
- Increased risk of borrower default due to income misrepresentation (Correct answer)
- Violation of the Community Reinvestment Act
- The appraisal becomes invalid without income verification
Correct answer: Increased risk of borrower default due to income misrepresentation
Without income verification, borrowers who overstated their income may be unable to repay, dramatically increasing default risk for the lender.
Question 7: In the origination process, which step directly follows the underwriter issuing a conditional approval?
- The lender orders a new appraisal to confirm the earlier valuation
- The processor and borrower work to satisfy each outstanding condition (Correct answer)
- The loan is immediately submitted to the secondary market for purchase
- The closing agent schedules the closing date without further review
Correct answer: The processor and borrower work to satisfy each outstanding condition
After a conditional approval, the processor coordinates with the borrower to gather documents that satisfy each underwriting condition before the file returns to underwriting for final sign-off.
Mortgage Loan Origination Process 5
What is the meaning of 'clear to close' (CTC) in the mortgage origination process?