Mortgage Loan Origination Activities — Study Notes

SAFE MLO domain weight ~27% · the largest domain on the test

Application — the URLA (Form 1003)

The Uniform Residential Loan Application (Fannie Mae Form 1003 / Freddie Mac Form 65) captures borrower information, employment, income, assets, liabilities, declarations and demographic (HMDA) data.
The six TRID application items — name, income, SSN, property address, estimated value, loan amount — define when an "application" exists and the disclosure clock starts.
Pre-qualification is an informal estimate; pre-approval involves verified documentation and a credit decision subject to conditions.
Only a reasonable credit report fee may be charged before the borrower receives the LE and indicates intent to proceed.

Qualification — the ratios

Housing (front-end) ratio: monthly housing expense (PITI + association dues) ÷ gross monthly income. Conventional guideline ~28%.
Total DTI (back-end) ratio: housing expense plus all recurring monthly debts ÷ gross monthly income. Conventional guideline ~36%; FHA benchmarks ~31/43; automated underwriting can approve higher with compensating factors.
Use gross (pre-tax) income; count debts with more than ~10 months remaining; alimony/child support count when they will continue.
LTV = loan amount ÷ lesser of sales price or appraised value. Combined LTV (CLTV) adds subordinate liens.

Income & asset documentation

Salaried: recent pay stubs, W-2s (typically 2 years), verbal/written VOE.
Self-employed (≥25% ownership): generally 2 years of tax returns; income is averaged and analyzed for stability.
Overtime, bonus, commission: usually require a ~2-year history and likelihood of continuance.
Gift funds: allowed from acceptable donors with a signed gift letter (no repayment expected) and documented transfer.
Reserves: months of PITI the borrower retains after closing — a common compensating factor.

Disclosures along the way

Within 3 business days of application: Loan Estimate, plus the homeownership counseling list and (for ARMs) the CHARM booklet; the special information booklet for purchases.
Before consummation: Closing Disclosure received at least 3 business days prior.
Changed circumstances allow a revised LE within 3 business days of learning the change — fee tolerance is then measured against the revised figures.
See the federal law notes for tolerance buckets and CD re-disclosure triggers.

Appraisals & property

Appraisal independence: no one with an interest in the transaction may coerce, instruct, or attempt to influence the appraiser's value conclusion. Selecting from an appraiser panel via an AMC is the common control.
Borrowers receive copies of appraisals promptly upon completion or 3 business days before closing (Reg B).
Flood insurance is mandatory when the improved property lies in a FEMA Special Flood Hazard Area in a participating community.
Common approaches to value: sales comparison (primary for residential), cost, and income approaches.

Closing & afterwards

Consummation is when the borrower becomes contractually obligated — typically signing day; it need not equal disbursement.
Rescission (refis of a principal dwelling): ends at midnight of the third business day after consummation, delivery of the notice, or delivery of material disclosures, whichever is latest. Funding waits until it expires.
Per-diem interest is collected from closing to month-end; first payment usually due the first of the second month after closing.
Escrow accounts collect 1/12 of annual taxes and insurance monthly, with a maximum 2-month cushion.

Originator conduct rules to remember

Compensation may not vary with loan terms (other than amount); no dual compensation (Reg Z LO comp rule).
Provide the NMLS unique identifier on applications and correspondence.
No steering a consumer to a loan to increase originator compensation when it is not in the consumer's interest.
Fees must reflect services actually performed — no padding, no unearned splits (RESPA §8).

Memorize-these numbers

Six application items → LE in 3 business days; CD 3 business days before consummation
Conventional guideline ratios 28/36; FHA 31/43
Self-employed: 2 years returns; variable income: ~2-year history
Escrow cushion: 2 months max; rescission: 3 business days

For exam preparation reference only — condensed summaries, not legal or underwriting advice. Agency guidelines and regulations change; verify against current official sources. Independent study aid, not affiliated with or endorsed by NMLS or CSBS.