Mortgage Loan Originator (MLO) Licensing Practice Test

What does a wet settlement indicate in a loan transaction?

1. Funds are disbursed after all documents are executed

2. Funds are held until the loan is approved

3. No funds are exchanged at the meeting

4. A deposit is required to complete the transaction

The correct answer is: Funds are disbursed after all documents are executed

A wet settlement indicates that funds are disbursed immediately upon the execution of all necessary documents during the closing meeting. This means that once all parties have signed the relevant paperwork for the loan and the transaction, the funds change hands right away, allowing the purchase or refinance to proceed without delay. This process ensures that the buyer receives the funds they need to complete their purchase, or that the seller receives their payment, which can be crucial for the timely completion of the transaction. In contrast, the other options pertain to different scenarios in loan transactions. In a situation where funds are held until the loan is approved, it represents a more cautious approach often found in underwriting processes, but it does not qualify as a wet settlement. The description where no funds are exchanged at the meeting would imply a dry settlement, while a deposit requirement does not specifically connect to the immediate disbursement of funds upon document execution, which is the essence of a wet settlement.