Loans Loan Processor 2 — Questions and Answers
Question 1: A borrower's pay stubs show overtime income for 8 months. How should a loan processor treat this income for qualifying purposes?
- Average it over 24 months if the employer confirms it will continue (Correct answer)
- Exclude it entirely since it has not been received for 2 full years
- Count 100% of the most recent month's overtime
- Use the highest monthly amount from the 8-month period
Correct answer: Average it over 24 months if the employer confirms it will continue
Overtime income can be used if averaged over 24 months when it is likely to continue, or over the actual receipt period if less than 24 months with employer confirmation.
Question 2: Which document is used to verify a borrower's Social Security Number and identity during the loan processing stage?
- Social Security card or government-issued photo ID (Correct answer)
- Utility bill and bank statement
- W-2 from the most recent tax year
- IRS Form 4506-C
Correct answer: Social Security card or government-issued photo ID
A Social Security card or government-issued photo ID (such as a driver's license or passport) is used to verify identity and SSN.
Question 3: What is a 'merged credit report' in the context of mortgage loan processing?
- A report combining data from all three major credit bureaus into one document (Correct answer)
- A report that merges the borrower's and co-borrower's credit histories
- A corrected credit report after disputes are resolved
- A credit report authorized by the secondary market
Correct answer: A report combining data from all three major credit bureaus into one document
A merged (tri-merge) credit report pulls data from Experian, Equifax, and TransUnion into a single report used by mortgage lenders.
Question 4: A borrower lists rental income on their application. What document does a processor typically require to verify active rental income?
- Executed lease agreement and two years of tax returns showing Schedule E (Correct answer)
- Only the current month's bank deposit showing rent received
- A letter from the tenant confirming monthly payment amount
- A property management company's verbal confirmation
Correct answer: Executed lease agreement and two years of tax returns showing Schedule E
An executed lease agreement plus Schedule E on federal tax returns is the standard documentation to verify and calculate qualifying rental income.
Question 5: What does LTV stand for and why is it critical to a loan processor?
- Loan-to-Value ratio; it determines risk level and whether PMI is required (Correct answer)
- Lender Total Verification; it confirms all documents are complete
- Loan Transfer Value; it sets the amount after closing costs
- Liability-to-Value ratio; it measures debt against assets
Correct answer: Loan-to-Value ratio; it determines risk level and whether PMI is required
LTV (Loan-to-Value) is the loan amount divided by the property's appraised value, affecting interest rates, PMI requirements, and loan program eligibility.
Question 6: Which federal law requires a lender to provide a Loan Estimate to a borrower within three business days of receiving a loan application?
- TILA-RESPA Integrated Disclosure (TRID) rule (Correct answer)
- Equal Credit Opportunity Act (ECOA)
- Fair Housing Act (FHA)
- Home Mortgage Disclosure Act (HMDA)
Correct answer: TILA-RESPA Integrated Disclosure (TRID) rule
TRID requires lenders to deliver a Loan Estimate within three business days of receiving a completed loan application.
Question 7: A borrower has a collection account for $450 that is not paid. The loan is FHA. What is the processor's typical next step?
- Review FHA guidelines to determine if the collection must be paid off or a payment plan established before closing (Correct answer)
- Ignore it because the balance is under $500
- Automatically deny the file and inform the borrower
- Request the borrower dispute the collection with the credit bureau
Correct answer: Review FHA guidelines to determine if the collection must be paid off or a payment plan established before closing
FHA has specific guidelines on unpaid collections; the processor must verify whether the collection affects eligibility and whether payoff or a payment plan is required.
Loans Loan Processor 2
A borrower's pay stubs show overtime income for 8 months.
How should a loan processor treat this income for qualifying purposes?