Loans Loan Processor 5 — Questions and Answers
Question 1: What is a 'verbal verification of employment' (VVOE) and when is it typically completed in the loan process?
- A phone call to the borrower's employer to confirm current employment, typically completed within a few business days before closing (Correct answer)
- An email sent to HR confirming employment at the time of application
- A written statement from the borrower about their job history
- A credit bureau inquiry that verifies employer information
Correct answer: A phone call to the borrower's employer to confirm current employment, typically completed within a few business days before closing
VVOE is a phone verification to the employer to confirm the borrower is still employed, completed just before loan closing to catch any last-minute employment changes.
Question 2: A borrower recently changed jobs and is now a salaried employee. They were previously self-employed for five years. How should the processor handle income qualification?
- Qualify using the new salaried income if the income is stable, in the same field, and the borrower has a current pay stub and offer letter (Correct answer)
- Use only the self-employment income averaged over two years
- Deny qualification because employment changed within the past year
- Average the self-employed and salaried income together for the qualifying amount
Correct answer: Qualify using the new salaried income if the income is stable, in the same field, and the borrower has a current pay stub and offer letter
A transition from self-employment to salaried employment in the same field can qualify using the new salary with supporting documentation showing stability.
Question 3: What is 'flood zone determination' and why does a processor order it?
- A certification identifying whether the property is in a FEMA-designated flood zone, required to determine if flood insurance is mandatory (Correct answer)
- An appraisal add-on that values the property based on its flood risk
- A title search component that reveals historical flood damage
- An environmental report ordered by the local municipality
Correct answer: A certification identifying whether the property is in a FEMA-designated flood zone, required to determine if flood insurance is mandatory
Flood zone determination identifies if the property lies in a Special Flood Hazard Area (SFHA), which triggers mandatory flood insurance requirements under federal law.
Question 4: Which document outlines all the closing costs, prepaid items, and cash required to close, and must be delivered to the borrower at least three business days before closing?
- Closing Disclosure (CD) (Correct answer)
- Loan Estimate (LE)
- HUD-1 Settlement Statement
- Good Faith Estimate (GFE)
Correct answer: Closing Disclosure (CD)
The Closing Disclosure details final loan terms and all costs and must be provided at least three business days before consummation under TRID rules.
Question 5: A loan processor identifies that the property's appraised value came in lower than the purchase price. What is the most immediate action?
- Notify the loan officer and borrower, and explore options such as renegotiating the price, increasing the down payment, or requesting a reconsideration of value (ROV) (Correct answer)
- Immediately cancel the loan application
- Order a second appraisal without notifying the borrower
- Proceed with the original loan amount using the contract price
Correct answer: Notify the loan officer and borrower, and explore options such as renegotiating the price, increasing the down payment, or requesting a reconsideration of value (ROV)
A low appraisal impacts LTV and loan eligibility; the processor must promptly communicate it and work with all parties to determine the best path forward.
Question 6: What is 'private mortgage insurance' (PMI) and at what LTV threshold is it typically required on a conventional loan?
- Insurance protecting the lender if the borrower defaults, required when LTV exceeds 80% (Correct answer)
- Insurance covering the property's replacement cost, required at all LTV levels
- Insurance protecting the borrower's down payment, required when LTV exceeds 95%
- A government-mandated insurance premium required on all conforming loans
Correct answer: Insurance protecting the lender if the borrower defaults, required when LTV exceeds 80%
PMI protects the lender against borrower default and is required on conventional loans when the down payment is less than 20% (LTV above 80%).
Question 7: A loan processor receives the initial title commitment and sees an outstanding judgment lien against the seller. What should the processor do?
- Flag the lien to the loan officer and require the seller to pay off or provide a subordination agreement for the lien before closing (Correct answer)
- Ignore it if the judgment is less than $1,000
- Accept the title commitment and proceed to closing
- Ask the borrower to assume responsibility for the seller's judgment
Correct answer: Flag the lien to the loan officer and require the seller to pay off or provide a subordination agreement for the lien before closing
Outstanding liens against the seller must be resolved before closing to ensure the buyer receives clear title and the lender has a valid first-lien position.
Loans Loan Processor 5
What is a 'verbal verification of employment' (VVOE) and when is it typically completed in the loan process?