Chapter 19 — Self-Check Quiz

Twenty-six questions. Multiple choice first, short answer second. Answer key in the collapsed block at the bottom — write your answers down before you open it.

Multiple choice

1. A conditional approval is best described as: a) a binding commitment to fund the loan b) a statement of the terms on which the lender will commit, issued on facts true as of a stated date c) a pre-approval issued after underwriting review d) a denial that can be reversed by supplying documents

2. Which of the following may be satisfied after closing documents are prepared? a) evidence of homeowners insurance b) a letter of explanation sourcing a large deposit c) a verbal verification of employment d) a mortgage insurance certificate

3. A file returned "suspended — unable to determine qualifying income" means: a) the loan was denied and adverse action notice requirements apply b) the loan was approved subject to income documentation c) no credit decision has been made d) a counteroffer has been extended

4. The Linden Street conditional approval issued on day 28 carried: a) 9 prior-to-doc and 2 prior-to-funding conditions b) 7 prior-to-doc and 4 prior-to-funding conditions c) 11 prior-to-doc conditions d) 6 prior-to-doc and 5 prior-to-funding conditions

5. The nine prior-to-doc conditions on the Linden Street file cleared between day 29 and day 33. How many business days is that? a) five b) four c) three d) two

6. Why can a pre-closing credit refresh not be run on the day the conditional approval issues? a) the credit report has not expired yet b) it would violate the Fair Credit Reporting Act c) it answers a question about the note date, and running it early tells you nothing about the note date d) the borrower's authorization is not yet valid

7. The primary reason a lender requires a pre-closing credit refresh is: a) to protect the borrower from over-borrowing b) because the lender warrants that the loan met guidelines as of the note date c) because credit reports expire after 30 days d) because Regulation B requires it

8. A refresh shows one new inquiry and no new tradeline. The correct response is: a) deny the loan b) treat the inquiry as a debt and add an estimated payment to the ratios c) obtain a short signed statement from the borrower saying whether the inquiry resulted in new credit d) ignore it — an inquiry is never relevant

9. On the Linden Street file, adding a \$611.00 monthly payment moved the back-end ratio from 42.66% to: a) 46.14% b) 48.48% c) 50.48% d) 47.66%

10. After the \$5,200.00 payoff, reserves after closing fell from \$12,623.66 to: a) \$7,423.66, or 2.45 months of PITI b) \$7,423.66, or 3.45 months of PITI c) \$6,423.66, or 2.12 months of PITI d) \$8,623.66, or 2.84 months of PITI

11. A borrower on a nine-month promotional retail plan pays \$3,000 against a \$5,200 balance. The reported monthly payment: a) falls proportionally b) is recalculated by the creditor within 30 days c) does not change — only payoff and closure of the account removes the payment d) is removed from the credit report entirely

12. A 15-day lock extension at 0.250 point on a \$365,750 loan costs: a) \$457.19 b) \$914.38 c) \$1,828.75 d) \$3,657.50

13. Which is a prior-to-doc condition? a) the title company's bring-down search b) clearing a mechanic's lien shown at Schedule B-II of the title commitment c) the borrower's signed final Form 1003 at the closing table d) the recorded security instrument returned to the investor

14. The most useful reason to distinguish PTD from PTF is that: a) PTF conditions are more likely to be waived b) PTD conditions gate the Closing Disclosure, so a delay costs the days it sits plus the disclosure clock c) PTF conditions are cleared by the underwriter rather than the closer d) PTD conditions require a letter of explanation

15. A letter of explanation should: a) provide context about the borrower's household circumstances so the underwriter understands b) answer exactly what was asked, name the attached proving document, be dated and signed, and stop c) be drafted by the loan officer and signed by the borrower d) be at least one full page so the underwriter takes it seriously

16. A borrower's signed letter of explanation contains an obvious typo in the date. You should: a) correct it — a date typo is not material b) initial the correction yourself and note it in the file c) have the borrower sign a corrected letter d) submit it and let the underwriter decide

17. Which document-age window is measured against the note date rather than the application date? a) only the credit report b) only the appraisal c) essentially all of them d) none — all windows run from application

18. A verbal verification of employment must use: a) the phone number on the borrower's most recent paystub b) a phone number the borrower supplies in writing c) an independently sourced employer phone number d) any number, provided the call is logged

Short answer

19. Distinguish a documenting condition from an interrogating condition, and name three words in a condition's text that signal the second kind.

20. Define condition owner, and explain why a stip sheet's "source" column (borrower / third party / lender) is not the same thing.

21. Your file is suspended for one missing page. Your underwriting queue runs two business days. Compute the total elapsed business days from your original submission to a decision, and name one non-time risk of resubmission.

22. State the "Wednesday rule" from §19.7 in your own words, and explain what specific coincidence let the Linden Street file survive a Friday discovery.

23. The Linden Street borrowers could have spent \$5,200 two ways on day 44: retiring the furniture account, or increasing the down payment. Give the ratio improvement each buys, to two decimals, and state the general principle in one sentence.

24. Condition 11 was written on day 28. The furniture was financed on day 41. Explain, in three sentences, why this is the strongest available argument for prior-to-funding conditions.

25. The chapter says the day-44 event was "not a borrower integrity problem." State the two sentences the loan officer failed to say, and on which days each was owed.

26. Name the two documents that cleared condition 12, and explain why both were required rather than either one alone.

Answer key — open only after you have written your answers **1. (b)** A conditional approval states the terms on which a lender will commit; it is not the commitment. It is issued by a named underwriter, on facts true as of the decision date, and it expires. **2. (c)** The verbal verification of employment is prior-to-funding. (a), (b), and (d) are all prior-to-doc — each affects either a number on the Closing Disclosure or the credit decision. **3. (c)** Suspense is a *non-decision*. No adverse action has occurred; the Equal Credit Opportunity Act's notice requirements attach to a decision, not to a request for more information. Chapter 25 covers the notices. **4. (a)** Nine PTD, two PTF — and by source, six borrower, two third party, three lender. **5. (c)** Three. Day 29 (Thursday), day 30 (Friday), day 33 (Monday). Days 31 and 32 were a weekend. Nine conditions in three business days. **6. (c)** A PTD condition asks whether the file is what it claims to be; a PTF condition asks whether it still is. A refresh run on day 33 would have come back perfectly clean and told you nothing, because the furniture account did not exist until day 41. **7. (b)** The lender represents that the loan met guidelines **as of the note date**. If the debt-to-income at closing differs materially from the ratio the file was approved at, the loan may not be what the investor bought, and the lender can be required to repurchase it. **8. (c)** An inquiry is not a debt. Get a short signed statement answering the one question — did this result in new credit, yes or no — and nothing more. Over-conditioning on an inquiry frightens borrowers and produces defensive letters that volunteer new problems. **9. (b) 48.48%.** \$4,479.72 + \$611.00 = \$5,090.72; \$5,090.72 ÷ \$10,500.00 = 48.48%. The move is 5.82 percentage points, which is exactly \$611.00 ÷ \$10,500.00. **10. (a)** \$12,623.66 − \$5,200.00 = \$7,423.66. \$7,423.66 ÷ \$3,033.72 = 2.45 months. The payoff consumed 1.71 months of reserves. **11. (c)** On a fixed-term promotional plan the contractual payment does not fall when the balance falls. Paying \$3,000 against it removes zero dollars of monthly obligation. Only payoff **and closure** removes the payment — which is why the condition asked for both. **12. (b) \$914.38.** \$365,750 × 0.0025 = \$914.375, rounded to \$914.38. On the Linden Street file the lender paid it as a tolerance cure, so it never touched the borrowers' cash to close. **13. (b)** Clearing a lien of record is curative work that changes what the security instrument attaches to, so it is prior-to-doc — condition 7 on the Linden Street sheet. The bring-down search (a) is prior-to-funding by definition; (c) is an at-closing item; (d) is post-closing. **14. (b)** A PTD condition costs the days it sits **plus** everything the disclosure clock adds behind it. A PTF condition that sits two days costs two days. That is why PTD conditions are the schedule and PTF conditions are the checklist. **15. (b)** Answer the exact question, name the attached document, sign, date, stop. Every extra sentence is a place for a new condition to grow — including the sincere ones. **16. (c)** You may never alter a signed borrower document — not a date, not a figure, not a word. If a signed letter is wrong, the borrower signs a new one. Chapter 27 explains what altering a signed document actually is in the terms the law uses. **17. (c)** Essentially all of them. New loan officers think in terms of the application date; underwriting thinks in terms of the note date, and nobody mentions the difference until the closer does, on the day it matters. **18. (c)** An independently sourced number — a directory, the employer's published main line, or a verification service. A number supplied by an interested party verifies nothing. **19.** A **documenting** condition asks you to produce evidence of something the file already asserts ("provide the most recent 30 days' paystubs"); nobody doubts it, and it costs time but never approval. An **interrogating** condition asks whether something is true, and has a version of the answer that changes the loan ("source the \$4,900 deposit; **if borrowed**, provide terms and include the payment in the ratios"). Signal words: *if*, *unless*, *must not exceed*, *subject to*, *may not*. **20.** A **condition owner** is the single named person responsible for seeing that the condition gets cleared — one person, with a phone number. The **source** column names who *produces* the document. The source produces the paper; the owner makes the paper arrive, and on a well-run file the owner of all eleven conditions is the loan officer, delegating some and following every one. **21.** Two days in the queue, roughly half a day to find and upload the page, two more days in the queue: **about four and a half business days for one missing page.** The non-time risk: the file may be assigned to a different underwriter, who reads it fresh and may condition differently. Nothing about the second pass is guaranteed to resemble the first. **22.** Run anything that can produce bad news on a midweek morning, when the counterparties who fix bad news are at their desks — not at four o'clock on a Friday. The coincidence: the fix that day 44 happened to require was the only kind that works on a Sunday, because the borrowers could pay a retailer online, alone, against a website that never closes. A failed verbal verification needs an employer; a new lien needs a title company; a judgment needs a court. Any of those found at 2:40 on a Friday costs the whole weekend. **23.** Retiring the furniture account returns obligations to \$4,479.72 and the ratio to 42.66% — an improvement of **5.82 percentage points.** Applying \$5,200 to principal reduces P&I by \$5,200 × (\$2,341.94 ÷ \$365,750) = **\$33.30**, so obligations fall to \$5,057.42 and the ratio to 48.17% — an improvement of **0.32 percentage points**, with the \$611 debt still in place and \$5,200 more cash required at the table. **Per dollar, retiring a short-term installment debt is roughly eighteen times more powerful than adding to the down payment.** **24.** Sixteen days separate the writing of that condition from the event it exists to catch, and there is no version of the file in which it could have been satisfied any earlier. A prior-to-doc condition asks whether the file is what it claims to be; a prior-to-funding condition asks whether it still is. Every proposal to run condition 11 early is a proposal to stop asking the second question. **25.** **Day 5:** a no-new-credit warning specific enough to cover a store display advertising nine months with no payments — because "don't make any big purchases" does not describe a plan with nothing due today. **Day 33:** *we are finished, can everyone close early?* — asked of the buyer's agent on the day the file became documentation-complete, with nine days still on the lock and a closing date twelve days out. **26.** A **zero-balance letter** and a **paid-in-full statement**. The condition required payoff *and closure*: a paid-in-full statement shows the balance was retired, while the zero-balance letter from the creditor evidences the account's status going forward. On an account that can be re-drawn, paying it to zero without closing it leaves an open line — and the underwriter is documenting a condition that must still be true on the note date, not just on the day the payment posted.