Chapter 31 — Self-Check Quiz

Twenty-five questions. Where the material is exam-relevant, the questions are written in the style of the SAFE MLO test. Answer them before opening the key.

Multiple choice

1. In a conventional wholesale transaction, whose money funds the loan at the closing table?

A. The mortgage brokerage's B. The wholesale lender's C. The borrower's, in escrow D. The eventual investor's, wired directly

2. Which of the following is true of a mortgage brokerage?

A. It owns the loan from closing until it is sold B. It never owns the loan C. It owns the loan only until the wholesale lender purchases it D. It owns the servicing rights but not the loan

3. An account executive is employed by:

A. The mortgage brokerage B. The wholesale lender C. The warehouse bank D. The title company

4. "Third-party originator" (TPO), from a lender's point of view, refers to:

A. Mortgage brokers only B. Correspondent lenders only C. Both brokers and correspondents — any originator that is not the lender's employee D. The settlement agent and the appraiser

5. A warehouse line advances 97.5% on a \$365,750 loan. How much of its own cash must the correspondent supply on funding day?

A. \$3,657.50 B. \$9,143.75 C. \$18,287.50 D. None; the line funds the entire loan

6. An individual takes residential mortgage loan applications for compensation at a federally insured credit union. Which is required?

A. A state MLO license and passage of the SAFE MLO test B. Registration with the NMLS, including a unique identifier and fingerprinting C. Both a state license and registration D. Neither

7. An originator leaves a national bank for an independent mortgage company. Before taking an application at the new employer, the originator must:

A. Do nothing; the unique identifier transfers with the individual B. Complete pre-licensing education, pass the SAFE MLO test, and obtain a state license C. Register with the NMLS a second time D. Wait ninety days

8. Table funding is best described as:

A. A settlement at which the borrower pays all costs in cash at the table B. A settlement at which a loan is funded by a contemporaneous advance from one party and simultaneously assigned to that party, while closing in another party's name C. Any closing conducted by an attorney D. A wholesale lender's purchase of a closed loan thirty days after settlement

9. Under Regulation X, a table-funded transaction is treated as:

A. A secondary-market transaction B. A loan origination C. Exempt from RESPA D. A servicing transfer

10. Which revenue source is available to a correspondent lender but never to a mortgage broker?

A. Compensation paid by the consumer B. Compensation paid by a lender C. Gain on the sale of the closed loan in the secondary market D. Origination charges shown in Section A

11. On a Closing Disclosure, lender-paid mortgage broker compensation generally appears:

A. Nowhere; lender-paid compensation is not disclosed B. As an itemized borrower charge in Section A C. In the "Paid by Others" column D. In the prepaid interest line

12. A retail creditor's own employee loan originator's compensation on a given loan is:

A. Itemized in Section A of the Closing Disclosure B. Shown in the "Paid by Others" column C. Not itemized on the borrower's disclosures D. Disclosed only if it exceeds 1% of the loan amount

13. A correspondent's loan sits on the warehouse line for 60 days at \$74.29 per day of carry before it is purchased. The carry cost is approximately:

A. \$742.90 B. \$1,337.22 C. \$4,457.40 D. \$21,945.00

14. A depository lender's structural advantage over a non-bank lender is best described as:

A. Lower interest rates on every product B. The ability to hold a loan in portfolio rather than being required to sell it C. Exemption from RESPA and TILA D. Faster underwriting turn times

15. The chapter's central operational disadvantage of the broker channel is that the broker is:

A. Prohibited from communicating with underwriting B. A customer of the underwriting department rather than a colleague of it C. Unable to lock a rate D. Paid only after the loan is sold to an investor

16. A brokerage moves a declined file from wholesale lender A to wholesale lender B on day 30. Which of the following does not transfer with the file?

A. The borrower's credit report B. The rate lock C. The purchase contract D. The borrower's income documentation

17. A warehouse bank imposes minimum tangible net worth and liquidity covenants primarily because:

A. It is required to by the S.A.F.E. Act B. The collateral securing its advances is only worth the advance if the loans remain saleable C. It intends to purchase the loans itself D. Regulation Z requires it

18. "Dwell time" on a warehouse line means:

A. The number of days from application to closing B. The average number of days a funded loan remains on the line before the investor purchases it C. The rate lock period D. The number of days a condition sits in an underwriter's queue

19. A correspondent commits loans for mandatory delivery. Compared with best-efforts delivery, mandatory delivery generally offers:

A. A better price and real risk if the loans do not close B. A worse price and no risk C. The same price with faster funding D. A better price with no obligation to deliver

20. Which statement about channel pricing is accurate?

A. The broker channel is always cheaper for the borrower B. The retail channel is always cheaper for the borrower C. Pricing varies by lender, by file, and by day, and no channel holds a fixed advantage D. Correspondents are prohibited from setting their own margins

Short answer

21. Name the four questions that define an origination channel.

22. Explain, in two sentences, why a loan nobody will buy is an existential problem for a correspondent rather than merely an unprofitable one.

23. State the business-model reason — not the licensing mechanics — that the S.A.F.E. Act requires licensing at non-banks and only registration at depositories.

24. A borrower comparing two Closing Disclosures sees mortgage broker compensation on one and no originator compensation on the other, and concludes the broker is more expensive. Explain in three sentences why that conclusion does not follow.

25. Identify three of the questions the CFPB's mini-correspondent guidance framework asks about whether an entity is genuinely acting as a creditor.

Answer key **1. B.** The wholesale lender funds and closes in its own name. The brokerage never advances funds. **2. B.** It never owns the loan — not for a minute. Its product is the assembled file; its customer is a lender. **3. B.** The AE is the wholesale lender's salesperson, and the broker is the AE's customer. The AE has never met the borrower. **4. C.** TPO covers any originator delivering loans to a lender without being its employee — brokers through the wholesale desk and correspondents through the correspondent desk. Large lenders run both under one "TPO division." **5. B. \$9,143.75.** \$365,750.00 × 0.975 = \$356,606.25 advanced; the 2.5% haircut is \$365,750.00 − \$356,606.25 = **\$9,143.75**. That is the correspondent's own capital, and it comes back only when the investor purchases the loan. **6. B.** Registration. A credit union is a federally insured depository; its originators are registered with the NMLS — unique identifier, fingerprints, background check — and are not state licensed and do not take the SAFE MLO test. The trap in the stem is that the *activity* is identical to a licensed originator's; the answer follows the *employer*, not the activity. (Ch. 3 owns the mechanics.) **7. B.** Registration is not portable. The unique identifier follows the individual, but the authority to originate does not. Education, testing, and a state license come first. **8. B.** Regulation X's definition: a settlement at which a loan is funded by a contemporaneous advance of loan funds and an assignment of the loan to the person advancing them. **9. B.** A loan origination, not a secondary-market transaction — which is why RESPA's origination and referral rules apply to it. **10. C.** Gain on sale. A broker never owns the loan, so it can never sell one. Brokers can be paid by the consumer *or* by a lender (never both on the same transaction — see Ch. 26), and origination charges in Section A belong to the creditor. **11. C.** The "Paid by Others" column, generally with a designation identifying the lender as the payer. Borrower-paid broker compensation instead appears as an itemized charge in Section A. **12. C.** Not itemized. This asymmetry is real: a broker's compensation is disclosed and a creditor's employee's is not. It measures visibility, not cost. **13. C. \$4,457.40.** 60 × \$74.29 = \$4,457.40. (Carrying the daily rate unrounded — \$356,606.25 × 0.075 ÷ 360 = \$74.29296875 — gives \$4,457.58. This book quotes the rounded daily figure throughout so every step is reader-verifiable; either convention is defensible, but do not mix them.) Choice B is the 18-day carry; choice D is the loss on an unsaleable loan at 94.000. **14. B.** Portfolio capability. A depository can hold a loan on its own balance sheet, which makes possible products no non-bank can offer at all. It buys that flexibility at the cost of heavier overlays and slower product change. **15. B.** A customer, not a colleague. Everything else about the channel's operational cost follows from that sentence — no hallway, no internal escalation above the AE, no standing in the queue. **16. B.** The rate lock. A lock is a contract with one specific lender. The moved file gets a new lock at today's market, which on a file whose lock was already short of the closing date is not a small thing. **17. B.** The advance is secured by a note, and a note is worth the advance only if somebody will buy it. Covenants protect against the scenario in which the collateral and the borrower's solvency deteriorate together. **18. B.** Average days from funding to investor purchase. It converts a line's *size* into an annual funding *capacity*, which is why post-closing speed is a revenue line. **19. A.** Mandatory delivery prices better and obligates the correspondent to deliver a stated amount by a stated date whether or not the underlying loans close; a shortfall must be covered or paired off. Pull-through (Ch. 29) becomes a liability rather than a statistic. **20. C.** Pricing varies by lender, by file, and by day. Anyone claiming a fixed channel advantage is selling something; the honest practice is to price the actual file and look. **21.** Who takes the application; who underwrites it; whose money funds it at the closing table; whose name is on the note. **22.** The correspondent funded the loan with borrowed money that accrues interest daily and must be repaid — so an unsaleable loan is not a missed profit, it is an unretired advance secured by collateral nobody wants. On the chapter's illustrative figures, a loan sold at 94.000 leaves a \$21,945.00 hole against a \$5,063.41 net gain on a clean loan, which is the net gain on more than four of them. **23.** Depositories already had a prudential supervisor in the building — capital rules, safety-and-soundness examination, deposit insurance and the standards attached to it. Independent mortgage companies did not; supervision was uneven, state by state, with no common registry, and an originator could fail in one state on Friday and open in the next on Monday. The S.A.F.E. Act built licensing where supervision was missing and required only registration where it already existed. The divide follows the *institution*, not the person. **24.** Both companies are paid; only one is required to show it. The retail creditor's largest revenue line — the gain when the loan is sold — appears on no disclosure the borrower ever sees, and its employee originator's compensation is not itemized anywhere. The only honest comparison is at a common rate, or of total cost over a stated holding period at each offer's own rate. **25.** Any three of: Does the entity have a real, adequate warehouse facility, and who provides it? Who makes the underwriting decision — does the entity have delegated authority? Who draws the closing documents and is named as creditor? Does the entity bear risk after closing (repurchase, indemnification, early payment default)? Does it perform post-closing quality control? Is it selling essentially every loan to the party that funds its line? *(Verify the current guidance; it is periodically revised.)*