Loan Origination Process Flashcards

Which federal law requires lenders to provide a Loan Estimate within three business days of receiving a mortgage application?

Answer: TRID (TILA-RESPA Integrated Disclosure) rule

The TRID rule, effective October 2015, requires lenders to deliver a Loan Estimate within three business days of application receipt.

During loan origination, what does the term 'pre-qualification' primarily rely on?

Answer: Self-reported borrower information without formal verification

Pre-qualification is an informal assessment based on unverified, self-reported data from the borrower.

A borrower's 'debt-to-income ratio' (DTI) during origination compares monthly debt payments to which figure?

Answer: Gross monthly income before taxes and deductions

DTI is calculated by dividing total monthly debt obligations by gross monthly income (before taxes).

What is the primary purpose of the 'three-day waiting period' after a borrower receives the Closing Disclosure?

Answer: To give the borrower time to review final loan terms before closing

The mandatory three-business-day waiting period lets borrowers compare the Closing Disclosure to their Loan Estimate before signing.

Which origination step involves verifying that the subject property's value supports the requested loan amount?

Answer: Appraisal

An independent appraisal is ordered to confirm the property's market value meets or exceeds the loan amount.

What does 'lock-in' refer to during the mortgage origination process?

Answer: Committing to a specific interest rate for a defined period

A rate lock commits the lender to honor a specific interest rate for a set period, protecting the borrower from rate increases.

Under RESPA, within how many business days must a lender provide a borrower with a Loan Estimate after receiving a completed application?

Answer: 3 business days

RESPA and TRID require delivery of the Loan Estimate within three business days of receiving a complete application.

Which of the following is NOT one of the six items that trigger a completed mortgage application under TRID?

Answer: Borrower's employment history for the past two years

The six TRID application triggers are: name, income, SSN, property address, estimated value, and loan amount — employment history is not one of them.

What is the role of an Automated Underwriting System (AUS) such as Fannie Mae's Desktop Underwriter during origination?

Answer: To provide a risk assessment and preliminary eligibility recommendation

AUS tools like Desktop Underwriter analyze application data and issue an Approve/Eligible or Refer recommendation to guide underwriters.

A borrower has a front-end DTI of 31% and a back-end DTI of 45%. Which ratio is most likely to concern a conventional loan underwriter?

Answer: Back-end DTI of 45%

Conventional guidelines typically cap back-end DTI at 43–45%; a 45% back-end ratio is at the edge of acceptable limits.

During origination, what does the term 'conditions' refer to in an underwriter's approval?

Answer: Specific outstanding items the borrower must satisfy before closing

Conditional approval means the loan is approved subject to specific conditions (e.g., proof of insurance, updated pay stubs) the borrower must clear.

Which party is responsible for ordering the appraisal in a typical residential mortgage origination under current AMC rules?

Answer: The lender orders through an Appraisal Management Company (AMC) or an independent process

Post-2010 rules under the Dodd-Frank Act require lenders to use an independent process — typically an AMC — to maintain appraiser independence.

What is 'overlays' in the context of mortgage origination?

Answer: Lender-specific requirements stricter than agency minimum guidelines

Overlays are internal lender policies (e.g., minimum 640 credit score) that exceed the minimum guidelines set by Fannie Mae or FHA.

In the loan origination workflow, what typically triggers the transition from 'processing' to 'underwriting'?

Answer: The processor submits the complete loan file for credit decision

Once the processor has gathered and verified all required documents, the complete file is submitted to underwriting for the credit decision.

A borrower is self-employed. Which documents are typically required during origination to verify their income?

Answer: Two years of personal and business tax returns plus a year-to-date P&L

Self-employed borrowers must typically provide two years of personal and business tax returns plus a year-to-date profit and loss statement.

What is the purpose of a 'gift letter' during the mortgage origination process?

Answer: To confirm that down payment funds received as a gift do not require repayment

A gift letter certifies that funds given to help with the down payment are a true gift with no repayment obligation, satisfying lender requirements.

Under ECOA, within how many days must a lender notify an applicant of adverse action on a mortgage application?

Answer: 30 days

The Equal Credit Opportunity Act requires lenders to provide adverse action notice within 30 days of receiving a completed application.

Which origination scenario best illustrates 'steering' under RESPA and CFPB guidelines?

Answer: A loan officer directing a borrower to a higher-cost product to earn a larger commission

Steering occurs when a loan originator directs a borrower into a less-suitable, higher-cost loan product for the originator's financial benefit.

What is the significance of the 'application date' in the TRID origination timeline?

Answer: It triggers the three-business-day window to deliver the Loan Estimate

Once all six TRID application triggers are received, the application date starts the three-business-day clock for issuing the Loan Estimate.

A borrower's credit report shows a 30-day late payment from 18 months ago. How might an underwriter typically address this during origination?

Answer: Require a written explanation (Letter of Explanation) from the borrower

Underwriters commonly require a Letter of Explanation (LOX) for derogatory credit events so they can assess whether it represents an ongoing pattern.