Mortgage Loan Processing Quiz
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Questions and Answers

What is the primary purpose of processing a mortgage loan?

  • To conduct the appraisal of the property.
  • To determine the interest rate for the borrower.
  • To gather and verify information for lending decisions. (correct)
  • To finalize the loan amount.

    • Which individuals are primarily responsible for processing tasks in mortgage loans?

  • Lending specialists or the MLO, depending on the lender. (correct)
  • Only the mortgage loan originator (MLO).
  • Legal advisors and property inspectors.
  • Appraisers and MLOs exclusively.

    • How is a home appraisal primarily determined?

  • Based on the homeowner's opinion of their property's value.
  • Using a standardized formula provided by financial institutions.
  • Through a simple comparison of current market rates.
  • By analyzing recent sales of similar homes and inspecting the property. (correct)

    • When is a home appraisal typically ordered in the mortgage process?

    <p>Immediately after the borrower expresses intent to proceed with the loan.</p> Signup and view all the answers

    What may trigger the need for corrections and re-disclosures during mortgage processing?

    <p>Emerging facts and changes in circumstances.</p> Signup and view all the answers

    What documentation is typically provided by the borrower to verify income?

    <p>Last two years' W-2 forms and recent pay stubs</p> Signup and view all the answers

    How must Verification of Employment (VOE) forms be handled?

    <p>They must be sent directly from the lender to the employer.</p> Signup and view all the answers

    What is required for income from alimony or child support to be considered in qualifying for a loan?

    <p>The income must be reliable and received consistently.</p> Signup and view all the answers

    What types of documents are generally used to verify self-employment income?

    <p>Current profit and loss statements and tax returns</p> Signup and view all the answers

    What must be verified for Social Security retirement income?

    <p>Current benefit verification letter from the Social Security Administration</p> Signup and view all the answers

    Which document is NOT typically required to verify assets?

    <p>Recent credit report</p> Signup and view all the answers

    What is a requirement for non-cash or non-liquid assets if they are used for a down payment?

    <p>Confirmation of an actual transfer of the asset</p> Signup and view all the answers

    What information is collected by lenders before sending verification requests?

    <p>An authorization form signed by the applicant</p> Signup and view all the answers

    What is a Verification of Deposit (VOD) used for?

    <p>To verify the borrower’s assets with a financial institution</p> Signup and view all the answers

    What is the purpose of Automated Underwriting System (AUS) findings?

    <p>To describe acceptable types of verification for employment, income, and assets</p> Signup and view all the answers

    Which condition is NOT required for a streamline refinance to be approved?

    <p>The borrower must take cash out through the refinance loan.</p> Signup and view all the answers

    What is the role of an Appraisal Management Company (AMC) in the appraisal process?

    <p>Facilitate communication between the lender and appraiser.</p> Signup and view all the answers

    Under TILA/Reg Z, which of the following is NOT considered a prohibited activity concerning appraisers?

    <p>Asking the appraiser to provide errors in the appraisal.</p> Signup and view all the answers

    What is included in the criteria for determining the maximum loan amount in a residential mortgage?

    <p>The lesser of the sales price or appraised value.</p> Signup and view all the answers

    Which method is NOT commonly used in traditional appraisals?

    <p>Replacement Approach</p> Signup and view all the answers

    What approach to appraisal is primarily based on the potential rental income of a property?

    <p>Income Approach</p> Signup and view all the answers

    When must the lender provide a copy of the appraisal to the applicant?

    <p>Before the loan closing or three business days prior, whichever is earlier.</p> Signup and view all the answers

    Which of the following statements is incorrect regarding the independence of appraisers?

    <p>Appraisers can select properties for appraisal as per lender's request.</p> Signup and view all the answers

    Which type of property appraisal is more likely to utilize the Income Approach?

    <p>2-4 unit residential properties</p> Signup and view all the answers

    Which of the following is NOT a permitted contact between residential mortgage lender personnel and appraisers?

    <p>Influencing appraisers to adjust property value assumptions.</p> Signup and view all the answers

    What is the main purpose of an appraisal in residential mortgages?

    <p>To determine the risk level for the lender.</p> Signup and view all the answers

    What constitutes the 'Market Approach' in property appraisal?

    <p>Comparing the subject property to recently sold properties.</p> Signup and view all the answers

    When does the borrower typically pay for the appraisal in a home purchase?

    <p>Before the appraisal is conducted.</p> Signup and view all the answers

    What does the Cost Approach estimate when appraising a property?

    <p>The cost to replace or construct the property minus depreciation.</p> Signup and view all the answers

    Study Notes

    Mortgage Loan Processing

    • Loan processing prepares for lending decisions, gathering and verifying information and conducting preliminary evaluations.
    • Changes in information may require corrections and re-disclosures.
    • Mortgage Loan Originators (MLOs) need to understand processing steps to inform applicants.
    • Processing may involve specialists, or the MLO can handle it depending on the lender.

    Documentation and Verification

    Appraisals

    • Appraisals are performed by state-licensed/certified appraisers to estimate property value.
    • Home appraisals are opinions on market value based on recent sales, property inspection, and appraiser judgment.
    • Appraisals are usually ordered after the loan proposal is indicated.
    • Some transactions may not require appraisals if property value is corroborated by automated valuation models (AVMs).
    • Streamline refinances, which refinance loans without cash-out risk, interest rate/payment reduction, or matching the same agency/investor, might not need appraisals.
    • If a recent appraisal exists, the lender may accept an update/recertification instead of a full appraisal.
    • The appraisal helps determine loan risk based on the property's value which is the lower of sales price or appraised value (purchases), or appraised value (refinances).
    • Under TILA/Reg Z, lenders must protect appraiser independence, preventing influences.
    • Examples of these prohibited influences include influencing appraisal value, withholding or threatening to withhold appraisal fees due to value, conditioning appraiser future assignments on transaction approval or influencing the appraiser's future services (e.g. future work dependence on specific value).
    • Lending personnel must be kept separate from appraisers and appraisal processes.
    • Appraisal Management Companies (AMCs) help lenders ensure separation.
    • AMCs are regulated and oversee appraisers, recruit/select/retain appraisers, hire appraisers manage appraisal processes/confirm payments, and review/verify appraisal work.
    • Lender personnel can interact with appraisers to ask for additional comparable sales information, clarity about valuation conclusions, correction of appraisal errors.
    • Traditional appraisals use the Market, Income, and Cost Approaches.
    • The Market Approach compares recently sold similar properties to adjust for present or absent property features to determine market value.
    • The Income Approach estimates value based on rental potential. This is often not relevant for single-family homes but relevant for 2-4 unit residential properties.
    • The Cost Approach estimates value based on construction cost, less depreciation.
    • Appraisals are typically paid for by the buyer in purchase transactions, and the homeowner in refinance transactions.
    • Lenders must provide appraisal copies promptly or three business days before consummation, whichever is earlier. There are exceptions for high-risk loans.

    Verifying Borrower Qualifications

    • Lenders verify borrower ability to repay a loan.
    • MLOs acquire documentation at the time of application.
    • The lender will gather the rest of the documentation as needed during the processing.
    • Income and employment are verified through applicant-provided or third-party information.
    • Typical verification of income includes two years of W-2 forms, recent paystubs, and a phone confirmation of employment.
    • Lenders can send "Verification of Employment" (VOE) forms to employers.
    • VOEs cannot be delivered to the employer directly by the borrower and must be delivered by the lender.
    • Alimony and child support are verifiable as income sources for qualification, if reliable and consistent.
    • Non-salary income (tips, commissions, self-employment) is verified with tax returns, profit/loss statements, and balance sheets from the past two years.
    • Retirement or disability income is verified with benefit verification letters or statements from providers.
    • Assets are verified through statements from financial institutions, or borrower-provided documentation.
    • Checking accounts include the most recent two months' bank statements, and unusual deposits/balances are examined.
    • Investment/retirement accounts must show a vested balance.
    • Non-cash assets requiring downpayment verification must show actual transfer of the asset.
    • Lenders use "Verification of Deposit" (VOD) forms for asset verification. VODs cannot be handed directly to the bank and must be handled by the lender.
    • Borrower authorization is required for third-party information release (employer, banks).
    • Automated Underwriting Systems (AUS) describe acceptable verification types for application information.

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    Description

    This quiz covers essential concepts in mortgage loan processing, including the roles of Mortgage Loan Originators, documentation verification, and the appraisal process. Understanding these components is crucial for making informed lending decisions and guiding applicants effectively. Test your knowledge on the steps involved in processing mortgage loans.

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