NSA Loan Documents and Procedures 2 — Questions and Answers
Question 1: The Promissory Note in a loan package is primarily a borrower's promise to do what?
- Maintain homeowner's insurance
- Repay the loan according to stated terms (Correct answer)
- Keep the property in good condition
- Pay property taxes on time
Correct answer: Repay the loan according to stated terms
The Promissory Note is the borrower's legally binding promise to repay the loan under the interest rate, schedule, and terms specified.
Question 2: Which document in a loan package conveys a security interest in the property to the lender?
- Promissory Note
- Truth in Lending disclosure
- Deed of Trust or Mortgage (Correct answer)
- Closing Disclosure
Correct answer: Deed of Trust or Mortgage
The Deed of Trust (or Mortgage) pledges the property as collateral, giving the lender a security interest if the borrower defaults.
Question 3: In a Deed of Trust state, who holds legal title to the property during the loan term?
- The borrower
- The lender
- The trustee (Correct answer)
- The title company
Correct answer: The trustee
In a Deed of Trust arrangement, a neutral third-party trustee holds legal title until the loan is paid in full.
Question 4: What is the purpose of the Right of Rescission notice provided at closing for a refinance?
- It allows the lender to cancel the loan within 3 days
- It gives the borrower 3 business days to cancel the transaction (Correct answer)
- It notifies the title company of the closing date
- It discloses the loan's APR to the borrower
Correct answer: It gives the borrower 3 business days to cancel the transaction
Under TILA, borrowers on refinances of their primary residence have a 3-business-day right to cancel (rescind) the transaction.
Question 5: How many copies of the Notice of Right to Cancel must the NSA typically provide to each borrower at a refinance closing?
- One copy per loan package
- Two copies per borrower (Correct answer)
- One copy per transaction
- Three copies per household
Correct answer: Two copies per borrower
Each borrower who has the right of rescission must receive two copies of the Notice of Right to Cancel so they retain one and return one.
Question 6: The Initial Escrow Statement discloses what information to the borrower?
- The lender's servicing transfer rights
- Projected escrow payments for taxes and insurance in the first year (Correct answer)
- The borrower's credit score used for underwriting
- The title insurance premium breakdown
Correct answer: Projected escrow payments for taxes and insurance in the first year
The Initial Escrow Statement shows the estimated monthly escrow deposits and anticipated disbursements for property taxes and insurance during the first year.
Question 7: When a borrower initials each page of the Promissory Note, what is the primary purpose?
- To confirm they understand the APR
- To acknowledge they received a copy
- To verify no pages were added or removed after signing (Correct answer)
- To waive their right of rescission
Correct answer: To verify no pages were added or removed after signing
Initialing each page confirms the document's integrity and that no pages were substituted or inserted after the borrower reviewed and signed.
NSA Loan Documents and Procedures 2
The Promissory Note in a loan package is primarily a borrower's promise to do what?