Chapter 23 — Self-Check Quiz

Closing Day and Beyond

Twenty-six questions. Multiple choice and short answer, written in the style of the SAFE MLO test where the material is exam-relevant. Answer key is in the collapsed block at the bottom — work the whole quiz before opening it.

Multiple choice

1. At a residential closing, which party is authorized to decide whether the loan proceeds are released today?

  • A. The settlement agent
  • B. The lender's closer
  • C. The lender's funder
  • D. The notary

2. A buyer becomes the owner of the property when:

  • A. The security instrument is recorded
  • B. The deed is delivered to and accepted by the buyer
  • C. The lender's wire reaches the settlement agent
  • D. The county issues a new tax identification number

3. In a recorded set of instruments from a purchase closing, the correct recording order is:

  • A. Security instrument, then deed
  • B. Deed, then security instrument
  • C. Either order; recording is indexed by date only
  • D. Whichever the lender's funder specifies

4. "Dry funding" means:

  • A. The borrower brings a cashier's check rather than a wire
  • B. The loan funds without an escrow account
  • C. The lender reviews the executed closing package before releasing funds, so disbursement occurs after signing
  • D. The settlement agent disburses before the lender wires

5. Under RESPA, the escrow cushion a servicer may generally require is capped at:

  • A. One month of the total mortgage payment
  • B. One-sixth of the estimated total annual disbursements from the account
  • C. Two months of principal and interest
  • D. Three months of taxes only

6. On the Linden Street file, annual escrow disbursements are \$6,180.00. The maximum cushion is therefore:

  • A. \$515.00
  • B. \$770.00
  • C. \$1,030.00
  • D. \$1,545.00

7. The aggregate adjustment shown in the initial escrow section of a Closing Disclosure:

  • A. Is always a positive number added to the borrower's costs
  • B. Is zero or a credit, and never a charge
  • C. Represents the lender's fee for setting up the escrow account
  • D. Is the servicer's cushion

8. A borrower's loan closes October 24. The first regular payment is due:

  • A. November 1
  • B. November 24
  • C. December 1
  • D. December 24

9. Prepaid interest collected at the October 24 closing on the Linden Street file covers:

  • A. October 1 through October 31
  • B. October 24 through October 31
  • C. November 1 through November 30
  • D. October 24 through November 30

10. A consumer is purchasing a primary residence. Under Regulation Z, how long after consummation may the consumer rescind?

  • A. Three business days
  • B. Three calendar days
  • C. Seven business days
  • D. The consumer may not rescind; a residential mortgage transaction is excluded

11. Which of the following transactions carries a right of rescission?

  • A. A purchase-money loan on the borrower's primary residence
  • B. A refinance, with a new lender, of the borrower's primary residence
  • C. A refinance of an investment property the borrower does not occupy
  • D. A construction loan for the borrower's primary residence

12. For purposes of the right of rescission, "business day" means:

  • A. Any day the creditor's offices are open to the public
  • B. Monday through Friday only
  • C. All calendar days except Sundays and legal public holidays
  • D. All calendar days

13. A refinance with the same creditor, in which no new money is advanced beyond the unpaid balance of the existing loan:

  • A. Is fully rescindable
  • B. Is rescindable only as to any new money advanced
  • C. Is never rescindable under any circumstance
  • D. Is rescindable for seven business days

14. Under Regulation X, the servicer transferring servicing must send notice to the borrower:

  • A. Not less than 15 days before the effective date
  • B. Not more than 15 days after the effective date
  • C. Within 60 days after the effective date
  • D. At consummation only

15. During the 60-day period beginning on the effective date of a servicing transfer, a payment the borrower sends on time to the prior servicer:

  • A. May be charged a late fee but not reported to a credit bureau
  • B. May not be treated as late
  • C. Must be returned to the borrower uncashed
  • D. Is treated as a prepayment of principal

16. An early payment default primarily matters to a lender because:

  • A. The borrower's credit score falls
  • B. It triggers investor scrutiny and may support a repurchase demand under the loan's representations and warranties
  • C. The servicer loses the right to collect
  • D. It voids the title policy

17. The initial escrow deposit collected at closing is best described to a borrower as:

  • A. A lender fee for administering taxes and insurance
  • B. A prepayment of the first year's mortgage interest
  • C. The borrower's own money, held in an account maintained for their benefit
  • D. A reserve required by the title company

18. A borrower asks whether they can waive escrows on a conventional loan at 95% loan-to-value. The best answer is:

  • A. Yes, for a small fee
  • B. Generally no; escrow waivers are typically unavailable above 80% loan-to-value, and separate restrictions apply to higher-priced mortgage loans
  • C. Yes, if the borrower agrees to pay taxes semiannually
  • D. Only if the servicer consents after the first year

19. The window between disbursement and the appearance of the new instruments in the land records is called:

  • A. The rescission period
  • B. The gap
  • C. The float
  • D. The trailing period

20. A post-close audit re-verifies employment, assets, credit, collateral, and disclosures on a sample of closed loans. This program is:

  • A. Optional, and generally performed only after a default
  • B. Required by the agencies' selling guides, with random statistical and targeted sampling
  • C. Performed by the settlement agent
  • D. Performed only on loans that were manually underwritten

Short answer

21. Explain, in two sentences, why the Linden Street escrow deposit collects five months of property taxes but only three months of homeowners insurance.

22. A borrower says: "We closed October 24 and our first payment isn't until December 1, so we got November free." Correct them in no more than three sentences, using the phrase in arrears.

23. The Linden Street escrow deposit is \$2,315.00. Show the arithmetic that produces it.

24. Name the four terms of a loan that a servicing transfer does not change, and state the one verification step you tell a borrower to take before sending a payment to a new address.

25. State the two mortgage-insurance milestones on the Linden Street loan — the payment number at which the borrower may request cancellation and the payment number at which coverage terminates automatically — and the dollar value to the borrower of acting at the earlier one.

26. A borrower's year-two escrow analysis produces a \$317.50 shortage on the Linden Street file and a new monthly escrow of \$587.50. Compute the new total payment, and state how much of the increase is temporary.

Answer key **1. C.** The lender's **funder** reviews the executed package, confirms funding conditions, and releases the money. The closer builds the package; the settlement agent disburses what it receives; the notary certifies signatures. (§23.1, §23.3) **2. B.** Title passes on **delivery and acceptance of the deed**. Recording gives constructive notice to the world and protects that ownership against later claims — it does not create it. (§23.4) **3. B.** Deed first, then the security instrument. The buyers cannot pledge property they do not yet own; recording the mortgage first creates a defect somebody has to cure later. (§23.4) **4. C.** Dry funding: the executed package goes back to the lender for review before money moves, so the borrowers may sign one day and the loan disburses later. Whether a transaction is wet or dry is a matter of state law and local practice — verify it, do not assume it. (§23.3) **5. B.** One-sixth of the estimated total annual disbursements, which is equivalent to **two months** of the escrow portion of the payment. Servicers may take less, and some states cap it lower. (§23.5) **6. C.** \$6,180.00 ÷ 6 = **\$1,030.00**, which is 2 × \$515.00. Note that (B) \$770.00 is the *tax item's* cushion alone and (A) \$515.00 is one month — both are real numbers on this file and both are the wrong answer to this question. (§23.5) **7. B.** The aggregate adjustment reconciles item-by-item accounting to aggregate accounting. Because aggregate accounting can never require *more* than single-item analysis, the line is **zero or a credit** and never a charge. (§23.5) **8. C.** December 1 — the first day of the second month following closing, so that the payment can cover a full month of interest in arrears. (§23.6) **9. B.** October 24 through October 31 — **8 days** at \$66.3861 = **\$531.09**. November is covered by the December 1 payment. (§23.6) **10. D.** **The consumer may not rescind.** A loan to acquire the consumer's principal dwelling is a residential mortgage transaction and is excluded from the right of rescission. This is the single most-missed distinction in Part IV; the stem is written so that a candidate who has memorized "three business days" answers without reading the word *purchasing*. (§23.7) **11. B.** A refinance with a **new** lender on the borrower's **principal dwelling**. (A) and (D) are residential mortgage transactions and excluded; (C) is not a principal dwelling. (§23.7) **12. C.** All calendar days except Sundays and legal public holidays — the "precise" definition. This is why a Monday signing pushes disbursement to Friday and why a holiday inside the window moves it further. (§23.7) **13. B.** Rescindable only as to the **new money** advanced beyond the unpaid balance. A same-creditor refinance with no new advance falls within the exemption. (§23.7) **14. A.** Not less than **15 days before** the effective date. The receiving servicer must send notice not more than 15 days **after**. A combined notice sent in the earlier window is permitted, and notice at settlement can satisfy the requirement. (§23.10) **15. B.** It **may not be treated as late** — no late fee, and no adverse credit report on account of that payment — for the 60-day period beginning on the effective date of transfer. (§23.10) **16. B.** It triggers investor scrutiny and can support a **repurchase** demand under the representations and warranties the lender made when it sold the loan (Chapter 14). On the chapter's illustrative figures, one repurchase erases the gain on nine clean loans. (§23.9) **17. C.** The borrower's own money, in an account maintained for their benefit, which will be spent on their tax bill and their insurance premium. **It is not a fee.** (§23.5) **18. B.** Escrow waivers are generally unavailable above 80% loan-to-value under agency guidelines, are often priced when available, and Regulation Z separately requires escrows on higher-priced mortgage loans secured by a first lien on a principal dwelling for a set period, with narrow exemptions. Verify current requirements. (§23.5) **19. B.** The gap — the interval between disbursement and the instruments appearing in the land records. The title industry addresses it with gap coverage and indemnities (Chapter 21). (§23.4) **20. B.** Required by the agencies' selling guides, using a random statistical sample plus targeted selections, with defined cycle times and reporting. Every early payment default gets pulled. (§23.8) --- **21.** The month counts follow the disbursement calendar and the two-month cushion. The tax bill is disbursed in the ninth month of the escrow year, so the account will have received only nine of the twelve months it needs: $12 - 9 + 2 = 5$. The insurance renewal is disbursed in the eleventh month, because the borrowers paid twelve months of premium at closing, so the account has almost a full year to accumulate: $12 - 11 + 2 = 3$. (§23.5) **22.** Nothing was skipped. Mortgage interest is paid **in arrears**, so the December 1 payment pays for November — and the eight days from October 24 through October 31 were already paid at the closing table, \$531.09 of prepaid interest. Set aside \$3,033.72 in November even though no bill arrives. (§23.6) **23.** Taxes: 5 × \$385.00 = \$1,925.00. Insurance: 3 × \$130.00 = \$390.00. Total \$1,925.00 + \$390.00 = **\$2,315.00**. The aggregate adjustment line on this file's disclosure reads \$0.00. (§23.5) **24.** A servicing transfer does not change the **rate** (6.625%), the **term** (360 payments), the **payment amount** (\$3,033.72), or the **due date** (the first of the month) — and it does not change the escrow arrangement, which moves over with its balance. The verification step: **call the number on the borrower's most recent existing statement, never a number printed in the new letter.** (§23.10) **25.** The balance reaches 80% of the original \$385,000 value — \$308,000 — at payment **125**, when the borrower may **request** cancellation in writing. It reaches 78% — \$300,300 — at payment **137**, when coverage terminates automatically. Acting at 125 saves twelve payments of \$176.78 = **\$2,121.36**. (§23.8) **26.** \$2,341.94 P&I + \$587.50 escrow + \$176.78 mortgage insurance + \$26.46 shortage recovery (\$317.50 ÷ 12) = **\$3,132.68**, an increase of **\$98.96**. The **\$26.46** is temporary — it comes off after twelve months, leaving \$3,106.22, which is \$72.50 above year one and reflects the actual increase in taxes and insurance. Principal and interest never moved. (§23.5)