Mortgage Loan Origination Activities
What this domain tests
The origination workflow and the controls that keep it compliant: taking the application, disclosures, processing, underwriting, closing, and funding.
The workflow
- Prequalification vs. preapproval: a prequalification is an informal estimate; a preapproval follows documentation review and is more reliable.
- Application and intent to proceed: after disclosures, the consumer signals intent; only then may fees be collected (the credit-report fee excepted).
- Processing: order title, appraisal, flood determination, and verifications; the appraisal must be ordered independently of sales pressure.
- Underwriting: automated and manual review, conditions, and a clear-to-close.
- Closing and funding: CD delivery, closing, disbursement, and notice of servicing transfer.
Documentation and records
The loan file should support every decision: income and asset documentation, credit explanation letters, gift letters, and evidence of changed circumstances that justify redisclosure. Records must be retained under Regulation Z and Regulation B for the required periods.
Worked example
A borrower is preapproved at 43% DTI. During processing, the borrower takes a new auto loan, raising the back-end ratio to 49%. The processor re-pulls credit, documents the new debt, and the file is re-underwritten; the LO cannot ignore the new obligation or re-run AUS with stale data. The loan is restructured with a larger down payment to bring DTI within guidelines.
Traps
- Ordering the appraisal or collecting processing fees before intent to proceed.
- Treating a prequalification letter as a commitment to lend.
- Failing to document a changed circumstance before issuing a revised LE.
- Communicating an approval before all conditions are cleared.