Chapter 19 — Exercises

Items marked † have worked solutions in the answers appendix. Everything else is for your own practice, your study group, or your manager. Where a problem needs figures, use the Linden Street file: qualifying income \$10,500.00/month; PITI + MI \$3,033.72; other monthly debts \$1,446.00; total obligations \$4,479.72; back-end 42.66%; loan amount \$365,750.00; rate 6.625%; P&I \$2,341.94; verified assets \$38,000.00; cash to close \$25,376.34.

A. Recall and definitions

1. In one sentence each, distinguish a conditional approval, a suspended file, and a denial. Which of the three is not a decision?

2. † Define prior-to-doc and prior-to-funding, then classify each of the following: (a) a homeowners insurance binder; (b) a verbal verification of employment; (c) a letter of explanation for a large deposit; (d) the title company's bring-down search; (e) an updated bank statement showing a payoff; (f) the borrower's signed final Form 1003.

3. What is a condition owner, and why is "the processing team" not one?

4. Name the decision date on a conditional approval and list two clocks it starts.

5. † Explain the difference between a documenting condition and an interrogating condition, and give the five words that usually reveal which one you are reading.

6. What is undisclosed debt monitoring, and how does it differ from a pre-closing credit refresh?

7. Why does a verbal verification of employment require an independently sourced phone number rather than the number on the borrower's paystub?

8. State the reference date against which most document-age windows are measured. Why do new loan officers get this wrong?

B. Applied reasoning and triage

9. † Stip-sheet triage. You receive this approval at 3:50 p.m. on a Wednesday. The contract closes in seventeen days. For each condition, assign (i) PTD or PTF, (ii) an owner from the five categories in §19.2, and (iii) the specific document that clears it. Then rank all nine by the order in which you would start them, and defend your top three.

  1  Most recent 30 days paystubs, both borrowers.
  2  Verification that the $8,200 deposit of the 14th is not borrowed; if borrowed,
     provide terms and include the payment in the ratios.
  3  Payoff statement and evidence of payoff for auto loan #____ (borrower elected
     to pay off to qualify).
  4  Evidence of hazard insurance, 12 months prepaid, mortgagee clause per lender.
  5  Condominium project documentation as required by the project review.
  6  Written verification of employment, co-borrower, prior employer, 2019–2023.
  7  Clear judgment of record against a party of similar name; title company to
     provide identity affidavit or evidence the judgment is not the borrower's.
  8  Verbal VOE both borrowers within lender window of note date.
  9  Credit refresh prior to funding; no new debt.

10. Three conditions are open on day 39 of a 45-day contract: an insurance binder (PTD), a verbal VOE (PTF), and a title identity affidavit (PTF). Your borrower asks whether the closing date is safe. Answer in three sentences, and say which of the three conditions your answer actually depends on.

11. † A condition reads: "Provide most recent paystub." Write the one written question you send the underwriter. Then explain, in two sentences, why guessing and why sending everything you have are both more expensive than asking.

12. Your file is suspended for a missing page of a six-page bank statement. Your underwriting queue is running two business days. Compute the total elapsed business days from your original submission to a decision, and name one risk of the resubmission that has nothing to do with time.

13. A refresh shows a new inquiry from an auto dealership on day 43, and no new tradeline. List everything you do, in order, and one thing you deliberately do not do.

14. † Rank these four conditions by the number of business days each typically costs when it goes wrong at the end of a file, and defend the ranking: (a) a wrong mortgagee clause on an insurance binder; (b) a verbal VOE that discovers a job change; (c) a bank statement that reveals a new \$4,000 deposit; (d) a title bring-down that finds a new lien.

15. Your borrower's employer was acquired eight days ago and HR has not migrated. The verbal VOE cannot be completed. Name three alternative approaches, and say which one you try first and why.

16. A processor tells you a condition "is with the borrower." What are the three specific questions you ask before you accept that answer?

C. Calculation

17. † Recompute the ratio. A borrower is approved at qualifying income \$8,400.00/month, housing payment \$2,268.00, and other debts \$714.00. A pre-closing refresh discovers a new installment account with a reported payment of \$389.00. (a) Compute the housing and back-end ratios before and after. (b) By how many percentage points did the back-end ratio move, and show that this equals the new payment divided by income. (c) The approval carried a 45.00% ceiling. How much monthly payment could this borrower have added before crossing it?

18. Using the Linden Street figures, compute the maximum new monthly payment the borrowers could have absorbed before crossing (a) 45.00% and (b) 50.00%. Then say which of these two purchases would have been survivable at a 50.00% ceiling and which would not: a \$611.00 furniture plan, or a car at approximately \$780.00 a month.

19. † **The two ways to spend \$5,200.** Show, with arithmetic, that applying \$5,200 to the Linden Street principal reduces the back-end ratio by about 0.32 percentage points while applying it to the furniture payoff reduces it by 5.82. Use \$2,341.94 of P&I on \$365,750 to scale the payment. State the general principle in one sentence.

20. Reserves on the Linden Street file were \$12,623.66 after closing, against PITI of \$3,033.72. Compute reserves in months before and after the \$5,200 payoff, and compute the largest payoff the borrowers could have made and still funded the \$25,376.34 cash to close.

21. † A 15-day lock extension on this file cost 0.250 point. Compute the dollar cost. Then compute what a 0.125-point extension and a 0.500-point extension would have cost on the same loan amount, and express each as a number of months of the \$60.14 payment difference between 6.625% and 6.375% from Chapter 1.

22. A promotional retail plan reports a balance of \$4,320.00 and a contractual payment of \$540.00 on a nine-month term. Show why \$4,320 ÷ 9 does not equal \$540.00, state which figure the underwriter uses, and compute the ratio impact of each on a \$9,000.00 monthly income.

D. Documents you write

23. † Write the letter. Underwriting condition: "Provide letter of explanation and documentation for the \$3,150.00 deposit credited March 12 to checking ...8802. If borrowed, provide terms and include payment in ratios." The borrower tells you it was the proceeds of selling a motorcycle to a co-worker, who paid by cashier's check. Write the letter of explanation, name the attachments, and keep it under six sentences.

24. Rewrite this letter so it will clear:

Hi, the deposit was from selling my motorcycle I think in March sometime, my
coworker bought it and paid me. We also got some money back from our taxes
around then and my mom gave us a little for the baby. Let me know what else you
need, we are just trying to get this done before our lease ends.

Then list every new condition the original version would have created.

25. Write the single message you send the Linden Street borrowers on day 28 listing only the six conditions sourced from them. Name a document for each, not a concept, and keep the whole message under 150 words.

26. † Write the exception request. A lender overlay requires three months of reserves above 90% loan-to-value. After a payoff your borrower has 2.45 months. Using the five-part structure in §19.8, write the one-page request. You may use the Linden Street compensating factors.

27. Write the day-5 no-new-credit sentence in your own words, in under 120 words, so that a borrower would correctly classify a "nine months, no payments" furniture plan as covered by it. Then write the one-line version you repeat on the clear-to-close call.

E. Read this and find the problem

28. A condition response is uploaded as a single 41-page PDF labeled "docs" against condition 3 of nine. Name three separate things that will go wrong, and estimate the cost in business days.

29. † An approval header reads: qualifying income \$9,300.00/mo; housing payment \$2,520.00; other monthly debts \$1,672.00; total obligations \$4,092.00; housing 27.10%; total debt 44.00%. Check every figure. What did you find, and what do you do about it before touching a single condition?

30. A borrower's letter of explanation says: "The \$6,000 came from my father, it's a gift, we will pay him back when we can." Identify the contradiction, state what it does to the file, and describe how you handle the conversation without coaching the borrower toward any particular answer.

F. Judgment and ethics

31. A borrower emails you a signed letter of explanation with the wrong date on it — an obvious typo. Changing it would take four seconds. State what you do, and what the rule is. Then state what you would do if the error were a figure rather than a date.

32. † An underwriter declines an overlay exception on your file. Your branch manager offers to call the underwriting director, "who owes me one." Evaluate this offer on three dimensions: the outcome for this file, the outcome for your next twenty files, and the fair-lending exposure of exceptions granted on the basis of who asks. What do you do?

G. Exam-style

33. Which of the following may be satisfied after closing documents are prepared? (a) evidence of hazard insurance; (b) a letter of explanation for a large deposit; (c) a verbal verification of employment; (d) an updated appraisal.

34. A file returned "suspended — unable to determine qualifying income" is best described as: (a) an adverse action requiring notice; (b) a counteroffer; (c) a file on which no credit decision has been made; (d) a conditional approval.

35. † A pre-closing credit refresh reveals a new tradeline. Which of the following is the lender's primary reason for requiring the refresh? (a) to protect the borrower from over-borrowing; (b) because the lender warrants the loan met guidelines as of the note date; (c) because credit reports expire in 30 days; (d) because the Equal Credit Opportunity Act requires it.

36. A borrower changes jobs three weeks before closing, to a higher-paying position in the same field. Which is true? (a) It is irrelevant because income increased; (b) it must be disclosed and the file re-underwritten; (c) it voids the appraisal; (d) it is only relevant on FHA loans.

H. The Loan File

37. † Day 33. The Linden Street file is documentation-complete on day 33: nine prior-to-doc conditions cleared in three business days, two prior-to-funding conditions open and unworkable until the week of closing, a lock with nine days left on it, and a contract closing date of day 45. (a) List everything that can go wrong between day 33 and day 45, and mark which items the loan officer controls. (b) Write the call you make to the buyer's agent on day 33 — under eighty words. (c) Assume the parties agree to close on day 38. Rebuild the last week of the calendar: when do the verbal VOE and the credit refresh run, and what does the borrowers' day-41 furniture purchase do to that version of the file?

38. Rebuild the day-28 stip sheet as a working schedule. Assign each of the eleven conditions an owner and a due date as if the approval arrived this morning, targeting the day-45 closing. Then compare your plan against the actual "cleared" column in the chapter's Loan File table and name the one condition where your schedule beats the file's real performance — and say honestly whether it would have changed anything.

39. † Extend the file. Assume the furniture bill had been \$13,000 rather than \$5,200 and the payment \$1,444.00 rather than \$611.00. Recompute the back-end ratio, determine whether the payoff option exists at all given \$38,000 of verified assets and \$25,376.34 of cash to close, and write the three-sentence call you make to the borrowers on day 44.