NSA Loan Document Knowledge 2 — Questions and Answers
Question 1: What does the Closing Disclosure (CD) replace under TRID rules?
- The HUD-1 Settlement Statement (Correct answer)
- The Note
- The Deed of Trust
- The Right of Rescission notice
Correct answer: The HUD-1 Settlement Statement
TRID replaced the HUD-1 Settlement Statement with the Closing Disclosure for most residential mortgage transactions.
Question 2: Which document establishes the lender's security interest in the property?
- Promissory Note
- Deed of Trust or Mortgage (Correct answer)
- Closing Disclosure
- Truth in Lending disclosure
Correct answer: Deed of Trust or Mortgage
The Deed of Trust (or Mortgage in some states) is the security instrument that pledges the property as collateral for the loan.
Question 3: The APR on a loan disclosure differs from the interest rate because it includes:
- Only the principal balance
- Fees and costs spread over the loan term (Correct answer)
- The property tax amount
- The homeowner's insurance premium
Correct answer: Fees and costs spread over the loan term
APR (Annual Percentage Rate) incorporates certain fees and costs into the rate to reflect the true cost of borrowing.
Question 4: What is the purpose of the Compliance Agreement signed at closing?
- Authorizes the lender to sell the loan
- Allows the borrower to refinance at any time
- Obligates the borrower to cooperate in correcting errors in loan documents (Correct answer)
- Confirms the borrower's employment status
Correct answer: Obligates the borrower to cooperate in correcting errors in loan documents
The Compliance Agreement requires the borrower to cooperate in correcting clerical or administrative errors discovered after closing.
Question 5: On a Closing Disclosure, Section A lists:
- Prepaids and escrow items
- Origination charges (Correct answer)
- Services the borrower can shop for
- Taxes and government fees
Correct answer: Origination charges
Section A of the Closing Disclosure covers origination charges, including origination fees and points paid to the lender.
Question 6: A 'balloon payment' loan means the borrower must:
- Pay extra principal each month
- Make a large lump-sum payment at the end of the loan term (Correct answer)
- Pay interest only for the life of the loan
- Refinance after five years automatically
Correct answer: Make a large lump-sum payment at the end of the loan term
A balloon payment is a large final payment due at the end of a loan term after a period of smaller regular payments.
Question 7: Which document at closing informs the borrower of the total interest paid over the life of the loan?
- Promissory Note
- Loan Estimate
- Closing Disclosure (Correct answer)
- Hazard Insurance disclosure
Correct answer: Closing Disclosure
The Closing Disclosure includes the Total Interest Percentage (TIP) and total interest paid over the loan term.
NSA Loan Document Knowledge 2
What does the Closing Disclosure (CD) replace under TRID rules?