CMP - Certified Mortgage Processor Loan Closing and Funding Questions and Answers — Questions and Answers
Question 1: A mortgage loan is closing in a state that follows "dry funding" practices. What does this mean for the disbursement of loan proceeds?
- The loan funds are disbursed on the same day the closing documents are signed.
- The borrower must bring all certified funds to the closing table before any documents can be signed.
- Funds are not disbursed until after all closing documents have been fully reviewed and approved by the lender post-signing. (Correct answer)
- The title company is solely responsible for funding the loan from its own accounts and seeking reimbursement later.
Correct answer: Funds are not disbursed until after all closing documents have been fully reviewed and approved by the lender post-signing.
In dry funding states, the signing of the closing documents and the actual disbursement of funds are separate events. After the borrower signs the paperwork, the package is returned to the lender for a final review. Only after the lender gives final approval are the funds wired to the settlement agent for disbursement.
Question 2: A borrower is closing on a home purchase on November 15th. The seller has already paid the full annual property tax bill of $4,800 for the entire calendar year. How will this typically be reflected on the Closing Disclosure?
- A debit to the seller and a credit to the buyer for the full $4,800.
- The buyer will reimburse the seller for the unused portion of the taxes, resulting in a debit for the buyer and a credit for the seller. (Correct answer)
- No adjustment is necessary because the taxes have already been paid for the year.
- A credit to the buyer for the remaining days of the year, paid by the lender.
Correct answer: The buyer will reimburse the seller for the unused portion of the taxes, resulting in a debit for the buyer and a credit for the seller.
Property taxes are prorated at closing to ensure buyers and sellers only pay for the time they own the property. Since the seller prepaid the taxes for the entire year, the buyer must reimburse the seller for the portion of the year they will own the home (from November 15th to December 31st). This appears as a debit to the buyer and a credit to the seller on the Closing Disclosure.
Question 3: The three-business-day right of rescission, which allows a borrower to cancel the transaction after closing without penalty, applies to which of the following loan scenarios?
- A purchase loan for a primary residence.
- A refinance transaction on a primary, owner-occupied residence. (Correct answer)
- A purchase loan for an investment property.
- A refinance transaction on a second home.
Correct answer: A refinance transaction on a primary, owner-occupied residence.
The right of rescission is a consumer protection under the Truth in Lending Act (TILA) that applies specifically to the refinance of a borrower's principal dwelling, as well as home equity loans and HELOCs. It does not apply to purchase transactions, investment properties, or second homes.
Question 4: While performing a final review of the Closing Disclosure (CD) just before the closing appointment, a processor notices the county recording fee is $50 higher than what was quoted on the Loan Estimate and is outside of tolerance. What is the most appropriate immediate action?
- Approve the loan for funding and request a refund for the borrower after closing.
- Cancel the closing and issue a revised Loan Estimate to the borrower.
- Proceed with the closing as scheduled, as the amount is minimal.
- Contact the settlement agent immediately to correct the fee on the CD before the borrower signs. (Correct answer)
Correct answer: Contact the settlement agent immediately to correct the fee on the CD before the borrower signs.
Accuracy on the Closing Disclosure is critical. If a fee is incorrect or out of tolerance, the processor's immediate responsibility is to work with the settlement agent to have the document corrected before the borrower signs. Proceeding with an incorrect CD can lead to compliance violations and post-closing issues.
Question 5: Which of the following is a primary responsibility of the settlement agent during the loan closing process?
- Verifying the borrower's income and employment status on behalf of the lender.
- Issuing the final loan approval and Clear to Close.
- Ensuring closing documents are executed correctly, and managing the disbursement of funds to all parties. (Correct answer)
- Negotiating repairs between the buyer and seller based on the appraisal report.
Correct answer: Ensuring closing documents are executed correctly, and managing the disbursement of funds to all parties.
The settlement agent (or closing agent) acts as a neutral third party whose main roles are to facilitate the signing of legal documents, receive and disburse funds according to the lender's instructions and the sales contract, and ensure the new deed and mortgage are properly recorded.
Question 6: An underwriter has cleared a file to close, but has included a "prior-to-funding" (PTF) condition. Which of the following is the BEST example of a PTF condition?
- A copy of the fully executed purchase contract.
- The completed appraisal report for the subject property.
- A verbal verification of employment (VVOE) completed on the day of disbursement. (Correct answer)
- The borrower's initial loan application (Form 1003).
Correct answer: A verbal verification of employment (VVOE) completed on the day of disbursement.
Prior-to-funding (PTF) conditions are the final items required just before the lender will release the loan proceeds. A verbal verification of employment on the day of funding is a common PTF condition to ensure the borrower's employment status has not changed at the last minute. The other items are required much earlier in the underwriting process.
CMP - Certified Mortgage Processor Loan Closing and Funding Questions and Answers
A mortgage loan is closing in a state that follows "dry funding" practices.
What does this mean for the disbursement of loan proceeds?