CMA Closing Process and Settlement 2 — Questions and Answers
Question 1: What is the 'right of rescission' in mortgage lending?
- The lender's right to call the loan due upon default
- A borrower's right to cancel a refinance or home equity loan within three business days of closing (Correct answer)
- The right to dispute appraisal findings
- The right to lock a mortgage rate for 30 days
Correct answer: A borrower's right to cancel a refinance or home equity loan within three business days of closing
Under TILA, borrowers have a three-business-day right to rescind (cancel) certain refinance and home equity transactions on their primary residence.
Question 2: What is a 'cash-to-close' figure on a Closing Disclosure?
- The total loan amount being financed
- The total funds the borrower must bring to settlement to complete the transaction (Correct answer)
- The lender's origination fee
- The seller's net proceeds from the sale
Correct answer: The total funds the borrower must bring to settlement to complete the transaction
Cash to close is the total amount the borrower needs to pay at closing, including the down payment and closing costs minus any credits.
Question 3: Under RESPA Section 8, which of the following is prohibited?
- Charging origination fees
- Requiring title insurance
- Paying or receiving kickbacks or referral fees for settlement services (Correct answer)
- Collecting escrow deposits
Correct answer: Paying or receiving kickbacks or referral fees for settlement services
RESPA Section 8 prohibits giving or accepting any fee, kickback, or thing of value in exchange for referrals of settlement service business.
Question 4: What is 'wet funding' in mortgage closing?
- A closing where loan documents are signed and funds are disbursed on the same day (Correct answer)
- A closing conducted via remote online notarization
- A closing that occurs before the appraisal is completed
- A closing requiring the seller to carry back financing
Correct answer: A closing where loan documents are signed and funds are disbursed on the same day
Wet funding means the lender releases funds on the same day documents are signed, common in most US states.
Question 5: What is a 'dry closing'?
- A closing with no title insurance requirement
- A closing where documents are signed but funds are disbursed at a later date (Correct answer)
- A closing held without an escrow company
- A closing conducted entirely online
Correct answer: A closing where documents are signed but funds are disbursed at a later date
In a dry closing, all documents are executed but funds are not released until certain post-signing conditions are met, common in some states like California.
Question 6: Which party typically orders the title search in a residential mortgage transaction?
- The borrower independently
- The seller's real estate agent
- The title company or closing attorney, usually engaged by the lender or escrow officer (Correct answer)
- The county recorder's office
Correct answer: The title company or closing attorney, usually engaged by the lender or escrow officer
A title company or closing attorney conducts a title search through public records to verify clear ownership and identify any liens or encumbrances.
CMA Closing Process and Settlement 2
What is the 'right of rescission' in mortgage lending?