A borrower sees a prepayment penalty disclosed on the Closing Disclosure that was not part of the agreed loan. What should the borrower and creditor do before consummation?
Correct Answer
A) Review and correct the discrepancy; adding a prepayment penalty can trigger a new three-business-day waiting period
Why this is correct: The Closing Disclosure must accurately reflect the final loan terms agreed upon by the borrower and creditor. If a prepayment penalty appears on the Closing Disclosure but was not part of the agreement, it is a material discrepancy that must be corrected before consummation. Importantly, adding a prepayment penalty is one of the specific changes that requires the creditor to provide a corrected Closing Disclosure and restart the three-business-day waiting period before the loan can close. Why the other choices are wrong: The choice "Ignore it because the note controls after signing" is wrong because the borrower should not sign documents with incorrect terms, and the waiting period rule applies. The choice "Move the penalty to the escrow section" is wrong; you cannot simply misplace a fee to avoid disclosure rules. The choice "Close first and discuss it with the servicer later" is wrong because consummation should not occur with a known, significant error in the disclosed terms. Exam tip: An added prepayment penalty is a red-flag change that triggers a new three-day wait. Always correct major discrepancies before closing.
Why This Is the Correct Answer
Why this is correct: The Closing Disclosure must accurately reflect the final loan terms agreed upon by the borrower and creditor. If a prepayment penalty appears on the Closing Disclosure but was not part of the agreement, it is a material discrepancy that must be corrected before consummation. Importantly, adding a prepayment penalty is one of the specific changes that requires the creditor to provide a corrected Closing Disclosure and restart the three-business-day waiting period before the loan can close. Why the other choices are wrong: The choice "Ignore it because the note controls after signing" is wrong because the borrower should not sign documents with incorrect terms, and the waiting period rule applies. The choice "Move the penalty to the escrow section" is wrong; you cannot simply misplace a fee to avoid disclosure rules. The choice "Close first and discuss it with the servicer later" is wrong because consummation should not occur with a known, significant error in the disclosed terms. Exam tip: An added prepayment penalty is a red-flag change that triggers a new three-day wait. Always correct major discrepancies before closing.
More Origination Questions
Before the team acts on a servicing handoff check, a closing coordinator must address Asset Verification and Reserves. Which response is most defensible?
An MLO is reviewing procedures for a case where a cost changes after the Closing Disclosure has already been provided. What is the proper handling?
During a post-application update, a quality-control reviewer encounters a Credit Analysis and Evaluation issue. Which response should avoid a shortcut that would misapply the rule?
A construction-to-permanent loan will disburse in 5 draws over 11 months before the permanent phase begins. Which Regulation Z appendix provides a disclosure method for multiple-advance construction transactions?
Before closing, the team discovers that a borrower asks which upfront charge can be collected before intent to proceed. What is the safest compliant answer?
A construction loan agreement allows advances only after documented completion of specified work. A builder requests the next draw, but no completion evidence has been provided. What should occur?
Before releasing the final construction draw, which combination most directly supports project completion and clear collateral?
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A construction-to-permanent note states that conversion requires completion, a certificate of occupancy, and no unresolved liens. Construction is finished, but a mechanic's lien remains. What should happen?
A branch manager asks about a loan file because a processor wants to omit known monthly obligations from underwriting. What should happen?
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