Loans Loan Processor 3 — Questions and Answers
Question 1: What is the purpose of IRS Form 4506-C in the mortgage loan process?
- It authorizes the lender to obtain the borrower's tax transcripts directly from the IRS (Correct answer)
- It requests a Social Security Number verification from the SSA
- It certifies that the borrower has filed taxes for the past two years
- It provides a summary of the borrower's W-2 income
Correct answer: It authorizes the lender to obtain the borrower's tax transcripts directly from the IRS
Form 4506-C (Income Verification Express Service) allows lenders to request tax return transcripts from the IRS to verify income accuracy.
Question 2: A loan processor notices that the appraisal was completed six months ago. What should the processor do?
- Check the lender's guidelines, as most conventional loans require appraisals to be no older than 12 months, but some programs may require a recertification (Correct answer)
- Automatically order a new full appraisal regardless of loan type
- Accept the appraisal since it is under one year old
- Request an appraisal waiver from the underwriter
Correct answer: Check the lender's guidelines, as most conventional loans require appraisals to be no older than 12 months, but some programs may require a recertification
Appraisal validity periods vary by loan type and lender guidelines; a recertification of value may be required if the appraisal is aging.
Question 3: What is a 'gift letter' and when is it required during loan processing?
- A signed statement confirming donated funds are not a loan, required when down payment or closing cost funds come from a gift (Correct answer)
- A letter from the seller discounting the purchase price
- A lender's letter approving funds from a retirement account
- A document verifying cash reserves deposited within the last 60 days
Correct answer: A signed statement confirming donated funds are not a loan, required when down payment or closing cost funds come from a gift
A gift letter documents that gifted funds do not need to be repaid, satisfying lender requirements when borrowers use monetary gifts for down payment or closing costs.
Question 4: When processing a loan for a self-employed borrower, which income calculation method is most commonly used for qualifying income?
- Two-year average of net business income from tax returns, adjusted per lender guidelines (Correct answer)
- The most recent month's gross revenue from bank statements
- The borrower's stated monthly income on the 1003 application
- The highest annual income from the past five years
Correct answer: Two-year average of net business income from tax returns, adjusted per lender guidelines
Self-employed income is typically calculated by averaging two years of net business income from tax returns, with certain additions and deductions per agency guidelines.
Question 5: What is a 'title search' and why does a loan processor order one?
- An examination of public records to confirm the property's legal ownership and identify any liens or encumbrances (Correct answer)
- A search of the borrower's credit report for outstanding judgments
- A review of the property's zoning classification for lending purposes
- An inspection of the physical condition of the property being financed
Correct answer: An examination of public records to confirm the property's legal ownership and identify any liens or encumbrances
A title search reviews public records to ensure the seller has clear ownership and no undisclosed liens, judgments, or claims exist on the property.
Question 6: A borrower's bank statement shows a large deposit of $8,000 not explained by payroll. What must the processor do?
- Obtain a written explanation and supporting documentation from the borrower to source the deposit (Correct answer)
- Ignore it if the borrower has sufficient funds for closing after the deposit
- Flag it as potential fraud and deny the file immediately
- Accept it if the amount is less than 25% of the down payment
Correct answer: Obtain a written explanation and supporting documentation from the borrower to source the deposit
Large undocumented deposits must be sourced with a written explanation and supporting documentation to ensure funds are not borrowed and to comply with anti-money-laundering requirements.
Question 7: Which loan type typically requires a pest inspection (termite report) as a standard processing requirement?
- VA loans, as the VA mandates a termite inspection in most states (Correct answer)
- Conventional Fannie Mae loans for all property types
- FHA loans for condominiums only
- USDA loans in urban areas only
Correct answer: VA loans, as the VA mandates a termite inspection in most states
VA guidelines require a termite inspection in most states to protect the veteran and the property used as collateral.
Loans Loan Processor 3
What is the purpose of IRS Form 4506-C in the mortgage loan process?