800 Flashcards
What is the required pass
rate for the NMLS Test and
how long is it?
75% of 115 questions. The test has 125 questions with 10 questions that are ungraded.
What is important to
remember about taking the test?
Read the questions twice, slowly, but do not take over 30 seconds per question the first time through.
What is the requirement under Fair Lending, Fair Housing, and ECOA?
All consumers have the right to apply for a loan unless they are under 18 years of age
Which Law and Regulation is
Home Ownership Equity Protect Act (HOEPA) under?
Truth in Lending Act (TILA) and REG Z
Which items are restricted
under HOEPA?
Predatory Lending, Abusive Lending Practices, Negative Amortization, Prepayment Penalties, Balloon Lending, Subprime Lending, Equity
Stripping, and not meeting Ability to Repay (ATR)
requirements.
What is the minimum period
for a Balloon mortgage?
A 30-year amortized loan that is due in 60 months.
What is the Average Prime
Offered Rate?
APOR – an index that is published weekly. It is added to High-Cost and Higher-Priced Triggers.
Who publishes the APOR
Index?
FFIEC, the Federal Financial
Institutions Examination Council
What is the Regulation for
High-Cost Loans?
Section 1026.32
What are the three triggers for High-Cost Lending?
High-cost lending is governed by the Home Ownership and Equity Protection Act (HOEPA), which identifies “high-cost” mortgages based on three specific triggers. If any of these thresholds are exceeded, the loan is classified as high-cost, and additional disclosures and restrictions apply to protect the borrower. The three triggers are:
1. APR Trigger: • A loan is considered high-cost if the Annual Percentage Rate (APR) exceeds the average prime offer rate (APOR) for a comparable transaction by: • 6.5 percentage points for a first-lien mortgage (for loans over $50,000). • 8.5 percentage points for a first-lien mortgage on personal property or a loan amount less than $50,000. • 8.5 percentage points for subordinate liens (such as second mortgages). 2. Points and Fees Trigger: • A loan is considered high-cost if the total points and fees paid by the borrower exceed: • 5% of the loan amount for loans over $24,000. • For loans under $24,000, the threshold is the lesser of 8% of the loan amount or a specified dollar amount (set annually, around $1,200). 3. Prepayment Penalty Trigger: • A loan is high-cost if it includes a prepayment penalty: • That is in effect for more than 36 months after closing. • That exceeds 2% of the amount prepaid.
If a loan meets any of these triggers, it becomes subject to stricter regulations, including additional consumer protections, restrictions on terms, and the requirement for special disclosures to the borrower.
What are the triggers for
Higher-Priced lending?
High-priced lending is governed by the Truth in Lending Act (TILA) under the Higher-Priced Mortgage Loan (HPML) rules. These loans are considered higher-priced if certain thresholds are exceeded, which trigger additional requirements and protections for borrowers. The three key triggers are:
-
APR Trigger:
- A loan is considered higher-priced if the Annual Percentage Rate (APR) exceeds the average prime offer rate (APOR) for a comparable transaction by:
- 1.5 percentage points for first-lien mortgages.
- 2.5 percentage points for jumbo loans (first-lien loans exceeding the conforming loan limit).
- 3.5 percentage points for subordinate-lien mortgages (e.g., second mortgages).
- A loan is considered higher-priced if the Annual Percentage Rate (APR) exceeds the average prime offer rate (APOR) for a comparable transaction by:
-
Escrow Requirement:
- Higher-priced loans must have an escrow account for property taxes and insurance for at least five years (for most loans secured by a first lien on the borrower’s primary residence).
-
Ability to Repay/Verification of Income:
- Lenders are required to verify the borrower’s ability to repay the loan. This includes reviewing and verifying income, assets, and employment status before approving the loan.
These triggers ensure that higher-priced loans come with additional consumer protections, including limitations on risky features, mandatory escrows, and stricter underwriting requirements to help prevent borrower default.
How do you calculate whether a loan exceeds the Higher-Priced mortgage limits?
Add the APOR index to 1.5% on a first mortgage. The Annual Percentage Rate (APR) cannot exceed the two numbers together.
What are the requirements for a High-Cost Loan?
Tax and insurance escrows for the first five years of
the loan, mandatory counseling and possibly two appraisals. Cannot use an Appraisal Waiver from
Fannie or Freddie. No Balloons are allowed.
What are the requirements for a Higher-Priced Loan?
Tax and insurance escrows for the first five years of the loan. Cannot use an Appraisal Waiver from Fannie or Freddie.
Prepayment Penalties are not allowed by which agencies?
Fannie Mae, Freddie Mac,
USDA, FHA, and VA
What is collateral?
Property that is used as security against a debt
What is Net Monthly Income?
Take-home pay after taxes and payroll deductions.
What is a non-liquid asset?
A type of asset that is not easily turned into cash. Real estate is considered non-liquid.
What are the 5 parts of ECOA?
Age, Discrimination, Underwriting, Appraisal and Adverse Action.
What is the minimum age under ECOA to obtain a mortgage loan?
18 years or older
ECOA has discriminatory items. What can’t you do with them?
You cannot use them to make or decline a loan.
What are the discriminatory items under ECOA?
Sex, Marital Status, Race, Color, Age, Religion, National Origin, Public Assistance, and Sexual Orientation.
What can you ask on Marital Status?
Married, unmarried, or separated.
Which 4 areas should you never ask about?
Race, Color, Religion and Nationality.
What is the requirement for Public Assistance?
It must be considered, even though you may not be able to use it for qualifying.
How long, after a complete underwriting package is delivered to the underwriter, does a decision have to be made?
30 days, but this may be extended if the package is not complete.
How many days before closing must the appraisal be delivered to the borrower?
Three business days before, unless there is an appraisal waiver issued, then the borrower must be informed that an appraisal will not be done unless they request it.
How long after a loan is declined or cancelled must an adverse action notice be sent?
30 days from the decision, explaining the reason.
Under the Fair Housing Act, what are three protected bases that are different from those covered by ECOA?
- Disability
- Familial Status
- Age
Why is Disability considered discriminatory under Fair Housing Act?
You cannot discriminate against a borrower because they are physically or mentally disabled
Why is Familial Status considered under Fair Housing Act?
You cannot discriminate because of the size of family or if a woman is pregnant
Why is age not considered discriminatory under Fair Housing Act?
Reverse mortgages require a borrower to be 62 years of age or older, and a 55 and over subdivision requires the borrower or purchaser of property to be 55 and over
What is the Reg Letter for Fair Credit Reporting Act?
REG V
How many free credit reports does every consumer have the right to get each year?
At least one
Which credit score do you use when considering a borrower?
Three credit scores are issued on each credit report for each borrower: High, Middle, and Low. You will use the Middle unless the program states differently
Which credit score do you use if the loan is declined because of credit and there are three borrowers?
Lowest of the Middle score for all the borrowers.
Example: Borrower 1 has a score of 780, borrower 2
has a credit score of 720, and borrower 3 has credit
score of 660. You would use 660.
What additional information is required on the Credit Score Disclosure?
Listing of all three national credit agencies, with
contact information, so the borrower can contact
them in case of an error or dispute. Agencies are
Experian, TransUnion, and Equifax
What are the three national Credit Agencies?
- Experian
- TransUnion
- Equifax
Which law did the Fact Act amend?
Fair Credit Report Act (FCRA)
What is a fraud alert?
An alert put on the credit report, indicating the
borrower may have had their identity stolen or
credit card or bank accounts compromised
What happens with a Credit Freeze?
No one will be able to access the borrower’s
credit without them unfreezing their account.
Credit issuers will be able to report credit
payments
What is the cost for a fraud alert or credit freeze?
Zero cost and should be applied to
all three credit agencies
What is Truncation?
When credit card, debit card, or bank deposit
receipts are given, they cannot show more than
the last four digits of the account numbers
What are the two parts of Red Flag Rules?
(1) Before the request for change of personal information, the company must send a letter or email asking if the person requested the change.
(2) All employees are to be trained on how to identify a breach of security and what the company’s requirement is once the breach has been determined.
Which agency regulates Red Flags?
Federal Trade Commission (FTC)
What is a Homeowner’s Warranty?
A warranty and insurance program that insures a new home for ten years against major structural defects
If a breach is determined, what is the requirement?
It must be reported to Compliance Officer or Senior Officer and, 30 days from that point, the company must send a notice to all people in their database notifying them of the breach and what the company has done to protect them
What does GLB stand for?
Gramm-Leach-Bliley
What is the REG for Gramm-Leach-Bliley?
REG P
What is the main emphasis of Gramm-Leach-Bliley?
Privacy of consumers’ personal information
What does NPPI stand for?
Non-Public Personal Information
What is “Opt-Out” under GLB?
The consumer has the right to opt-out of a company sharing, selling, or giving their NPPI to anyone. The Opt-out stays on as long as their name is in the company’s data base.
What is Phishing or Pre-Texting?
Obtaining personal information by illegal process, like a text, claiming to be from the IRS, asking for your SSN
What is required under Safe Guard Rules?
Whenever you are not using your files, they are to be locked up in a desk drawer or filing cabinet. If your files are on a computer, there must be a lock out after a few minutes.
What regulates Safe Guard Rules?
FTC – Federal Trade Commission
What is the required retention of Loan Information?
3 years for all loan files and 5 years for the CD
Can the hard files be destroyed?
Once the files are digitized, they can be destroyed, but that does not mean throwing them away
Who is required to file a HMDA report?
All companies that underwrite or fund loans must file a HMDA report annually. This includes banks, credit unions, and mortgage bankers.
What does HMDA stand for?
Home Mortgage Disclosure Act
What is the REG letter for HMDA?
Reg C
Which agency is responsible for overseeing HMDA data?
FFIEC - Federal Financial Institutions Examination Council
What does CRA stand for?
Community Reinvestment Act
What does CRA require?
To encourage depository institutions to help meet the credit needs of the communities in which they operate
Do Mortgage Brokers have to report HMDA data?
No, because brokers do not underwrite or fund loans
When does the HMDA data have to be reported?
In 2019, by March 1st of each year. In 2020, it is quarterly.
What does PENCIL stand for?
P= Property address E=Estimated value N= Name C = Credit or Social Security number I = Income L = Loan amount
When is an application considered a loan?
When you have collected all the items in PENCIL
What agency regulates and enforces Do-Not-Call?
FTC – Federal Trade Commission
How often do you have to pull new data from the Do-Not-Call website if you are using the data to solicit consumers?
The data cannot exceed 31 days. The data incudes phone numbers for any person that registers their phone number with DNC.
How long are you to retain your solicitation records?
2 years from the date of solicitation
What times can you solicit?
8:00am – 9:00pm, depending on where the person being solicited is located
What are the 2 exemptions for solicitations under Do-Not-Call?
- 18 months for someone with whom you have an existing business relationship
- 90 days for a Pre-qualification
What is an in-house Do-Not-Call List?
If a consumer sends a letter or an email to the company
indicating they want no solicitations, the company must put that person on an internal do-not-call list, so not one contacts that person. This overrides the 18 month and 90-day exemption.
What are the 8 items covered under TILA?
1) MDIA – Mortgage Disclosure Improvement Act
2) Advertising
3) HOEPA
4) Loan Estimate (LE)
5) Annual Percentage Rate (APR)
6) Qualified Mortgage (QM)
7) Loan Officer Compensation
8) CHARM Booklet
What Does MDIA stand for?
Mortgage Disclosure Improvement Act
What does Mortgage Disclosure Improvement Act (MDIA) cover?
MDIA is a part of Reg Z and covers timing and delivery
requirements for initial disclosures, LE, intent to proceed, and changes to the mortgage loan program, prepayment penalty, or APR calculations. MDIA also addresses when the CD needs to be issued, as well as the waiting period involved.
What is a Changed Circumstance?
Any borrower-requested change due to an extraordinary event beyond anyone’s control. A new LE must be received by the borrower within three business days from the change.
What are the requirements for advertising under TILA?
All marketing materials must have the company name,
company NMLS number, phone number, address, equal housing logo, and an APR. All advertising must be kept for two years from the last date used.
What is the definition of Annual Percentage Rate (APR)?
APR is expressed as a percentage that represents the total costs paid over the term of a loan. This includes any fees or mortgage insurance associated with the transaction.
What does APR stand for?
Annual Percentage Rate – the cost of the loan over the life of the loan, quoted as a percentage rate
What is a CHARM booklet?
A booklet that is required for all ARM loans. It is issued at least three days from the signed application
What is the Loan Estimate (LE)?
A disclosure of all terms and costs of the loan, to be issued when you have all the items under PENCIL, and within three business days of the signed application
What does QM stand for?
Qualified Mortgage – all conforming conventional loans must meet the standards
What are the two ways a conventional conforming loan can meet QM Standards?
Option #1: 43% maximum DTI and maximum
3% in fees.
Option #2: Approved eligible from Fannie or Freddie and meet the Higher-Priced Lending triggers
What is Safe Harbor?
If you meet either of the two options under QM that showed you proved Ability to Repay requirement, you are protected from a lawsuit
What is the punishment if you do not meet QM Standards?
Up to three years interest, all loan costs, and legal costs for both sides
If an MLO is paid commissions, what can the commissions based on?
Basis points under your Loan Originator Agreement, times the loan amount. No terms or costs of the loan can be counted.
What does UDAAP stand for?
Unfair, Deceptive, or Abusive Acts or Practices
What Does Unfair, Deceptive, or Abusive Acts or Practices state?
It is unlawful for any provider of consumer financial products or services or a service provider to engage in any unfair, deceptive, or abusive act or practice
If a company pays a bonus or retirement donation, what are the criteria for determining the amount?
Number of loans, dollar amount originated for a specific time, and/or the closing rate on your applications. Bonuses are limited to 10% of the last 12 months’ compensation.
What does Reg N Cover?
Mortgage Acts and Practices
What does Mortgage Acts and Practices require?
If you don’t have a program or rate, do not advertise it, and do not use Bait and Switch tactics, or language or terms that would indicate to a borrower you do not want them to apply
What is Bait and Switch?
Advertising a lower rate or a program that may not exist to entice consumers, and then when they call, you offer them another less-attractive program.
What is not included in Digital Delivery?
Faxing or e-mail. Docu-sign or E-sign are acceptable where the person can be verified, and the documents are time stamped as they are sent back and forth.
What are the requirements for Digital Delivery?
The borrower must give you written approval, have the right to go back to hard copy, and you must determine, to the best of your ability, if the borrower is technically able to do the process
What does CFPB stand for?
Consumer Financial Protection Bureau
What are duties of the Consumer Financial Protection Bureau?
They have the power to write, implement regulations, investigate, and issues fines or other penalties as needed
Who does the CFPB answer to?
The President
What is a Consumer?
Someone who obtains a financial product or service from a financial institution that is to be used primarily for personal, family, or household purposes, like applying for a loan (whether they accept the loan or not).
How many days do you have to send an adverse action notice?
30 days, mailed or verbal
TILA Trigger terms
Balance, term, APR (rate), payment
Flood Insurance
Stays until the loan is paid off
How many months reserves are needed for non-owner-occupied properties?
6 months
What is excessive value?
An appraisal term to express a value higher than the highest in the neighborhood
What is the flood insurance requirement?
Enough to cover the loan amount
What is the hazard insurance requirement?
Enough to cover the loan amount
What are the payment options for ARMs?
15 years, 30 years, Negative/Minimum
Servicing loan estimates need to be given within what time frame?
3 days
What are the manufactured home financing
requirements?
Home must be on a permanent foundation and
the land must be titled as real property. The HUD Data Plate must be on the home
What is the VA back-end ratio?
41%, including housing, utilities, and all other debts
How much hazard insurance is required on a reverse
mortgage?
100% of the loan amount
What is the minimum down payment?
FHA: 3.5%
Conventional: 3%
What does the cost approach include?
Depreciation, Square Footage, and Replacement Cost
With the Sales Comparison Approach, what adjustments are allowed?
Net adjustments of 15% and gross adjustments of
25% to comparables
What do riders include?
PUD, ARM, Balloon Payment, Prepayment Penalty
What is a Hybrid Loan?
A loan that performs like a fixed and adjustable-rate
loan. It has a fixed rate for an initial period before turning into an ARM
What is a non-warrantable condo?
FNMA will not do the loan
Condo-conversion= non warrantable
HOA, 51% owner occupied
FHA loans are only for what types of properties?
Owner-Occupied Properties
What is a grace period?
A period of extra time allowed for making a payment without incurring a late penalty
What does Title VII include?
Discrimination, Sexual Harassment, Hostile Workplace
What is the FHA loan verification of child support?
Divorce decree and 3 months of cancelled checks
What are the types of title policies?
Final, Termite, Engineer Certification of Foundation
What must happen in order to transfer an FHA case number?
Request must come from borrower
What is the UFMIP %? (Up Front Mortgage Insurance Premium - FHA)
1.75%
How is monthly MIP calculation done?
On base loan amount before UFMIP
What is the active-duty vet 1st time funding fee at 100%?
2.3%
What is the FHA loan minimum living time before resale?
91 days from consummation with second appraisal
How is a GLBA notice delivery given out?
Mailed, given personally, or faxed
How do tenants in common mortgages work?
Each owner has their own share of the property that they can pass on in their will
What information is covered in the privacy rule of GLBA?
Non-public information, including any information an individual gives you to get a financial product or service; i.e., credit reports, banking info, unlisted home telephone numbers
What is on the deed of trust agreement?
Metes and bounds, legal description, attached riders, name of borrower
What is an ongoing business relationship?
Customer
How long is the FIRREA statute of limitations loan fraud?
10 years
How often must the aggregate accounting escrow be reviewed?
Every 12 months, cushion up to 2 months
What is a Chain of Title?
The ownership history of a piece of land, from its first owner to the present one
Which types of loans are Assumable?
VA, FHA if stated in the deed
How much is title insurance coverage on reverse?
150% of original loan amount
What is AQB?
National appraiser group
What percentage of a VA loan is guaranteed?
Up to 50% of a loan up to $45,000.
Between $45,000 and $144,000, the minimum is
$22,500 and the max of up to 40% of the
loan up to $36,000.
What is a notice of transfer?
Includes toll free number of new and old servicer and effective date, 15 days before transfer
When are LE requirements not required?
They are not required on commercial loans, loans denied within three days, or bridge/swing loans
What is a “due on sale” clause?
A clause in a loan or promissory note that stipulates that the full balance of the loan may be called due (repaid in full) upon sale or transfer of ownership of the property used to secure the note
How often do telemarketers update the DNC?
31 days
After someone requests you to put them on your DNC list, how many days do you have to do so?
30 days
How long does a conventional loan owner agree to occupy the
property?
1 year
What are the guidelines for
appraisers?
USPAP
Where is the Prepayment
penalty disclosed?
Rider to trust deed LE/CD
Which loan requires a large final loan payment, as it does not fully amortize?
Balloon
What is included in typical
property inspections?
Verification that required repairs have been made, termite, well, septic, and roof
Joint Tenants
Ownership automatically
transferred on death to other
owners, cannot be a corporation
What is a Bridge loan?
A loan which occurs between the termination of one mortgage and the
beginning of the next.
What affects mortgage
interest rates?
Unemployment report,
consumer price index, federal reserve board
What affects PMI?
LTV, ARM, Term, FLCO
What is an indemnity
agreement?
With a real estate indemnity agreement, one party is pledging to protect another from any kind of financial loss or from a lawsuit of some kind
What is the required
fire/hazard insurance amount?
Enough to cover the loan
amount
What is LIBOR?
London Inter Bank Offered
Rate
What is the max seller paid
closing costs for Conventional,
FHA/USDA, and VA loans?
Down: S. P.
Conv:
<10% 3%
10-25% 6%
25+ % 9%
FHA/USDA: 6%
VA: 4%
What is the right of rescission?
A right, set forth by TILA, of a borrower to cancel a home
equity or line of credit with a new lender, or to cancel a
refinance transaction done with another lender other
than the current mortgagee, within three days of closing
Which form states that the borrower must occupy the property as primary residence within 60 days?
FNMA FHLML Form 3072
What are the different
appraisal types?
Cost: Cost to replace; usually newer construction
Income: Income producing properties
Sales Comparison (Market): Compare to other similar properties
When was the Dodd-Frank
Act created?
2010
What are Mortgage-Backed Securities?
A type of asset-backed security that is secured by a mortgage or collection of mortgages
Lower-cost MI with loan level price adjustment
Borrower with high credit scores. The borrower can have lower MI but FNMA will pay less for the loan.
What does plain language title insurance do?
Protects the buyer:
- Rights of claims of 3rd parties
- Easements or claims of it not in the public record
- Forced removal of existing structure
- Mechanics lien coverage (unrecorded)
What is the appraiser trainee period?
12 months
Who are the big players
on the Secondary Market?
FNMA, FHLMC, and
GNMA
Someone on the DNC list contacts you. How long can you continue to call?
3 months
What are the high-cost
limits with APR and point
fees?
APR:
6.5 on 1st or 8.5% on 1st less than 501c or 2nd
Points Fees:
5% + on $20,000+ loan or
8% on less than $20,000
Where can acceptable down payments come from?
- Selling an asset
- An employer
- Family
- A fiancé
Which financial and non-financial companies are covered by the Bank Secrecy Act?
Banks, Credit Unions, Mortgage Bankers, and Mortgage Brokers
Who is required to take the
AML and Fraud Training?
All staff and management
How often does the AML and fraud training have to be done?
Once a year
Does fraud or money laundering have to be proven or just detected?
Only detected
If AML or fraud is detected,
who do you report it to?
Compliance officer or Senior
Officer
What is the name of the report that is to be filed if fraud or AML is detected?
SAR – Suspicious Activity
Report
Which government agency is responsible for the Bank Secrecy Act?
FinCEN - Financial Crimes
Enforcement Network
If a SAR is reported, how long does the file have to be kept in a secure place?
5 years
Can the borrower be told a SAR has been reported on them?
No – information on SARs is to be kept confidential for a five year period
Who is allowed to see the file once it has been reported as a SAR?
Police Authority or anyone
approved by FinCEN to see the information
Who is the person responsible for SAR files and releasing information?
Compliance Officer or Senior Officer
What is the penalty for
violating the Bank Secrecy Act?
A person convicted of money laundering can face up to 20 years in prison and a fine of up to $500,000
What is required under the
U.S. Patriot Act?
All borrowers are required to show personal identification: either a driver’s license or passport
What does OFAC stand for?
Office of Foreign Asset Control
What is required if a borrower is on the OFAC watch list?
The lender must call OFAC and report the person and ask what is to be done with the loan
What does HPA stand for?
Homeowners Protection Act
What is required under the
Homeowners Protection Act?
All loans about 80% LTV must have Mortgage Insurance if they are
Conventional Conforming Loans
What is the purpose of
Private Mortgage Insurance?
To provide security to the lender in case of default. Also allows borrower to
make a smaller down payment
What does MIP stand for?
Mortgage Insurance Premium for FHA Loans
Under the Homeowners
Protection Act, what is available to the borrower at 80% LTV?
The borrower can request that the PMI be dropped but it is at the option of the lender
When is PMI required to be
dropped under the
Homeowners Protection
78% Loan to Value (LTV)
What does QM stand for?
Qualified Mortgage
What is one of the options for a loan to meet QM standards?
Approved eligible from Fannie Mae or Freddie Mac and higher-priced lending standards are met
What is the penalty if you close a Conventional Conforming loan without QM approval?
Up to three years interest, all loan costs, and legal costs for both sides of the lawsuit
What does Safe Harbor mean?
The lender has proven the
borrower has the Ability to Repay (ATR)
What does LO Comp stand for?
Loan Officer Compensation
What law is LO Comp covered under?
TILA – Truth in Lending Act
What can commissions be paid on?
Basis points of the loan amount.
80 basis point loan officer X a $200,000 = $1,600 commission
What items can LO
Compensation be paid on?
Loan amount only
What is the limit of bonus money that can be paid to MLO?
10% of the last twelve months
compensation
What are the two ways that
compensation can be paid?
By the customer or the mortgage company, but not both
What does TRID stand for?
TILA, RESPA Integrated
Disclosure
What are the two booklets
required within three business days of the signed application?
Loan Tool Kit for all purchases and CHARM booklet for all ARM Products
What is the requirement for
the Intent to Proceed?
When the borrower brings the signed Intent to Proceed to the company, the borrower indicates they are obligated to the loan
When can an appraisal be
ordered?
When the borrower signs and delivers the Intent to Proceed
How many days from the signed application are the initial disclosures, including the LE, to be delivered?
3 business days
How many days does the borrower have to wait to close after the signed Intent to Proceed is delivered to the lender?
7 business days
What is a Regulatory Authority?
An entity that has the power
to regulate the mortgage industry
What are the four ways the initial disclosures can be delivered to the borrower?
Electronic signature, in person, mail, or overnight
What is required to use
electronic signatures?
Borrower’s written authorization, ability to go back to hard copy if they wish, and determining whether they are able to do
electronic signatures
What is a Changed
Circumstance?
Any change requested by the borrower (loan amount, locking the loan, program, etc.) or a natural disaster
How many days does a new Loan Estimate (LE) have to be delivered after a Changed Circumstance?
3 business days
How many business days before closing is the Final Loan Estimate (LE) required to be received by the borrower?
No less than 4 business days
How many business days before the closing does the borrower have to receive the Initial Closing Disclosure?
3 business days
What are the 3 things that would require a new CD and a three-business day delay in the closing?
- Mortgage program change
- prepayment penalty added
- APR tolerances are exceeded (1/8% on a
fixed or 1/4% on an ARM)
What is the definition of
Consummation?
When the borrower becomes obligated to the loan
What is a business day for the closing?
Any day the business is open, not including Sunday or federal holidays
What are the 3 stages of a mortgage loan life cycle?
- Borrowers consideration
- Primary market
- Secondary market
What items are considered
ZERO tolerance items?
Appraisal, origination fee,
lender fee, and transfer
taxes
What are the 3 categories for fees on the LE?
- Zero tolerance
- 10% tolerance
- No tolerance
What is covered under 10%
tolerance?
Title policy or lender required inspection or recording fees
What does 10% tolerance
mean?
When you quote title or lender required inspection
or recording fees, and the amount is higher than
quoted, the borrower is liable for 10% and you are
responsible for the balance
When is an MLO or company not liable under the 10% tolerance?
When the borrower selects their own title or inspection company
What does no tolerance
mean?
No liability for the MLO and
company because the borrower selects the items
What items are included in the no tolerance items on the LE?
Attorney’s fees, realtor fees,
Homeowners insurance, escrows, per diem interest
How do you calculate per diem interest?
Principal balance * interest rate (note rate) / 360 days on conventional loans, or 365 on a government loan =
interest per day
What is the Lien Priority?
The chronological order in which liens are filed against a property. Lenders want first priority.
What does HUD stand for?
Housing and Urban
Development
What are the responsibilities
of HUD?
Manage Federal Housing Administration (FHA) and monitor companies and MLOs for Fair Lending, Fair Housing, and complying with ECOA
What does ECOA Stand for?
Equal Credit Opportunity Act
What is the Reg letter for
ECOA?
Reg B
What is the Reg Letter for Fair Credit Reporting Act?
Reg V
Which 3 laws does the Federal Trade Commission (FTC) regulate?
- Red Flags
- Safeguard Rules
- Do-Not-Call
On the Loan Estimate (LE), can the Interest Rate be quoted as a fraction? (i.e. 3 7/8%)
Only decimal format (i.e.
3.875%)
On the Loan Estimate, if “Yes” is shown for Loan Amount, Interest Rate and P&I payment, what does that mean?
The loan is an Adjustable-Rate Mortgage (ARM)
What is a Prepayment Penalty?
If you attempt to pay the loan off in the first two or three years, there could be a penalty
Who is required to complete the Loan ID on the Loan Estimate?
The company funding the loan
What items may be included in the escrow portion of your monthly mortgage payment?
Real Estate taxes, Homeowners Insurance, Flood Insurance, or HOA
fees if the property is a condo
On the loan estimate, what is included in the estimated closing costs?
All the costs and fees that will be paid by the borrower at closing
When a borrower locks their loan, what does that mean?
The interest rate and fees are locked, as long as the loan is funded by the expiration date
What are the different lock
options for loans?
15, 30, 45, or 60 days. The lock period will cost more as the lock gets longer.
Can a mortgage broker issue an extended lock agreement?
No, only a lender that funds loans can issue an extended lock agreement
What is an extended lock?
A lock of interest rates and fees for a period longer than 60 days
What 4 items must be on an extended lock agreement?
- Program
- Interest rate
- Cost of the lock
- Expiration date
How many days from the issue date of the loan estimate does the borrower have to bring the signed Intent to Proceed to the
lender to protect their costs?
10 business days
What happens if the borrower does not return the signed Intent to Proceed to the lender within 10 days of the issue
date of the LE?
The costs of the loan are subject to change and the LE continues to be active
What must be put on the top-left side of page 3 of the Loan Estimate?
The lender that is funding the loan
What must be put on the top-right side of page 3 of the Loan Estimate?
If the loan is originated by a
Mortgage Broker, their contact information is to be listed
What 3 comparisons are
required on page 3 of the Loan Estimate?
- Total cost for the first 5 years
- Annual Percentage Rate (APR)
- Total Interest Percentage (TIP)
What is Annual Percentage
Rate (APR)?
The cost of the loan, including interest rate and all costs over the life of the loan
What does TIP stand for?
Total Interest Percentage
What does TIP tell you?
The total interest paid over
the life of the loan
How is Total Interest
Percentage calculated?
P&I payment, times the number of payments on the loan, then subtract the principal balance (total interest paid over the life of the loan), divided by the principal = TIP
When is the appraisal to be
delivered to the borrower?
No less than three business
days before the closing
Can a borrower appeal an
appraisal?
Yes, with information that shows the reason; they cannot just say they feel the property is worth more
What is the rule on how much Homeowners Insurance is required?
The lower of the value of the property or the mortgage amount.
When must a Late Payment be applied?
After the 15th of the month, a fee of 5% of the P&I payment can be added to the amount due for the
month
What items are required to
refinance a loan?
Value of the property, credit,
and income
What does Servicing mean?
The collection of monthly payments, paying the investor, and setting aside the escrow money into separate accounts other than operating accounts for the servicer. Paying taxes and insurances as they come due.
Do the signatures on Loan
Estimate obligate the
borrower to the loan?
No, the signatures only indicate the borrower received a copy of the LE. The signed Intent to Proceed is the document
that obligates the borrower.
What is a Mortgage Broker?
A company that originates a loan but cannot underwrite or fund a loan. A MB cannot claim they are a mortgage
lender.
What type of properties are
covered under the laws of TILA, RESPA, ECOA, and HMDA?
1-4 family residences. Any residential is not correct. Units more than 4 units may
be residential but are not covered under the laws.
What is a third-party provider?
Any company that provides a service for the origination of a mortgage loan, like appraisals, title insurance, or
credit reports
Can a mortgage be called a
TPO?
Yes, they could be called a
third-party originator
When can the foreclosure
process begin?
When the loan is 120 days
delinquent
What is covered under the
Initial Escrow Disclosure?
How the escrows are collected and the servicer’s
responsibilities
What circumstances can result in a declination?
Credit, insufficient assets, the borrower does not have sufficient income, or the
appraisal is not high enough to make the loan
What is required to be in the Adverse Action notice?
The reason for the cancellation or declination
What is Comparative evidence of Disparate Treatment?
When similar applicants receive different treatment that cannot be explained by
non-discriminatory factors
What is evidence of Disparate Impact?
When a policy or practice
negatively impacts individuals on a prohibited
basis
What is the responsibility of a Cosigner?
They are as responsible as the borrowers when the loan becomes delinquent or goes into foreclosure. The cosigner’s credit will be affected the same as the borrower’s credit
What are the types on income eligible to be used in
underwriting?
Any income that can be verified and has a two-year history and the potential of lasting for three years in
the future
If the borrower refuses to
volunteer their ethnicity, what are you to do as an MLO?
You cannot require the borrowers to provide the information, but you are required to complete the information based on your
observation of the borrowers
What are the core items of the Truth in Lending Act (TILA)?
MDIA, Advertising, APR, LE,
HOEPA, CHARM Booklet,
QM, and LO Compensation
What are the limitations for
seller/lender concessions?
3% on a conventional conforming loan over 90%, and 6% on loans
between 75% and 90%
What are permissible fees and charges?
Any fees that the borrower is charged to obtain the loan and are disclosed on
the LE
Which loans require a Right of Rescission?
Owner occupied primary
residences
How many copies of the Right of Rescission are to be given to the borrowers and owners of the property?
2 copies to each person
How many of the people that were given the Right of Rescission are required to rescind the loan?
1 person
When does the Right of
Rescission start?
3 complete business days after the closing
What are the two fee
thresholds?
3% on Qualified Mortgage and 5% on a High Cost Loan
Where does the origination fee go on page 2 of the LE?
Under Loan Costs
What is required to be on the Annual Escrow Analysis report?
How much the borrower has paid in and how much was paid on their behalf for taxes and insurances and if there is an overage or shortage
What is required if there is an overage on the escrow analysis?
If the amount is over $50.00, the overage must be paid to the borrower within 30 days
What is required if there is a
shortage on the escrow
analysis?
The borrower must pay it in one lump sum within 30 days or spread it over the
next 12 months
What is the Acceleration
Clause?
If the borrower is delinquent and it reaches 120 days, the lender has the right to call the balance due
What is the Alienation Clause?
If the borrower sells their house and does not notify the lender or allow the new buyer to take over the mortgage, the lender has
the right to start foreclosure
Which loan products will not
allow assumptions?
Conventional conforming or
USDA loans
Which loan products will allow assumptions?
FHA and VA, if the new buyer is approved by the lender. If it is a VA
loan, the new buyer must be a veteran.
What is an assumption?
The new buyer can take over the original borrower’s loan and continue to make
the payments, but only on FHA and VA loans
What is required to be
reported on your HMDA
report?
All loans that meet the definition of a legal loan whether declined, approved, or cancelled
What is a Tri-Merge credit
report?
A credit report that has
information from Experian,
TransUnion and Equifax
What is a Deed?
A written instrument by which land is conveyed
When a credit report is reviewed, what are the items that should be checked against the application?
Social Security number, residency history, employment history, payment history, and debts that are on the application
When are you allowed to pull credit?
When the borrower authorizes you in writing or on a pre-qual, if the borrower discloses their SSN and you document it in your records
What is the definition of a
creditor?
Any company or business that advances credit to a consumer
How long does a Chapter 11 or 13 bankruptcy show on the credit report?
7 years
How long does a Chapter 7
bankruptcy show on the credit report?
10 years
What is the fine for Red Flag
violations?
$3,500, plus $2,500 for FTC
violations
What are the penalties if you violate Dodd-Frank Tier One, Federal Consumer Financial laws?
$5,639 per violation per day
What are the penalties if you violate Dodd-Frank Tier two, Federal Consumer Financial laws?
$28,139 per day for each
violation
What are the penalties if you violate Dodd-Frank Tier three, Federal Consumer Financial laws?
$1,127,779 maximum per
violation
What are the requirements for Conventional Conforming loans over 80% LTV?
All loans over 80% must have escrows and PMI mortgage insurance
What is the definition of a
Conventional Conforming Loan?
97%
What are the debt-to-income
ratios on a Conventional
Conforming Loan?
28% for Housing (up-front) and 36% for overall debt (back-end)
Do Fannie Mae and Freddie
Mac allow non-owner-occupied loans?
Yes, at lesser loan-to-value and may have increased rates and fees
What is the Underwriting
system for Fannie Mae?
DU – Desktop Underwriter
What does approve eligible
mean?
A loan that has been run through the Fannie or Freddie underwriting systems that says they
will be accept the loan if the documents match what was put into the system
What is allowed for down payment on Conventional Conforming, FHA, USDA,
and VA loans?
Verified liquid assets, a gift from a blood relative,
employer or close friend with no repayment required, or down payment assistance from agencies helping first-time homebuyers
What does USDA stand for?
United States Department of
Agriculture
What are the underwriting
ratios for a USDA loan?
29% for housing and 41% for overall debt
What are the restrictions on
USDA loans?
The home must be in areas of less than 35,000 people, income limitations, and all
loans must be underwritten and funded by USDA
What does FHA stand for?
Federal Housing Agency
Does FHA insure or guarantee loans?
Yes, they insure and will
pay a claim after the lender forecloses
What is the maximum Loan-to-Value on FHA loans?
96.5%
What is the maximum loan
amount allowed?
It is set by the government at the end of each year and set for areas in each state
What are the debt-to-income ratios on FHA
loans?
31% for housing and 43% for overall debt. (overall means mortgage payment and all other debt payments)
What is CAIVRS?
A database that shows liens, defaults, and debt owed to federal agencies, including
government insured student loans. This needs to be checked for FHA loans
What is the upfront premium for FHA loans?
1.75%; this may be added
into the loan amount
What is the renewal premium on FHA loans?
.85% of the loan amount divided by 12 = the amount added to the monthly payment
What is the maximum
loan-to-value on VA
loans?
100% if the veteran has 100% benefits
What is a DD214?
The document that tells you the veteran has benefits, but does not say how much
What is the COE?
Certificate of Eligibility, which provides proof of a veteran’s service and tells the lender that an applicant has met the minimum service requirement. This will determine the amount of down payment required, if any.
Does VA insure or guaranty
loans?
Guaranty loans (up to a maximum of $144,000)
What is the debt-to-income ratio for VA loans?
41% overall; they don’t have a housing ratio
What are non-conforming
loans?
Any loan that cannot be sold to Fannie Mae or Freddie Mac
Who sets the underwriting
rules, programs, and pricing
for non-Conforming loans?
The companies buying the
loans
What is “payment shock”?
A borrower who is renting for $900 a month and now buying a home with a payment of $1,300 a month with no reserves to show where the extra $400 a month is coming from
What is a non-traditional loan?
Any loan that is not 30-
year fixed
Is a 40-year amortized loan
considered conforming or non-conforming?
Non-conforming – any loan above 30 year fixed cannot be sold to Fannie or Freddie
What is a Purchase
Money Second?
A second mortgage that is used to eliminate Mortgage Insurance. Terms like 80/10/10 mean an 80% first mortgage, a 10% second,
and a 10% down payment.
Can the interest rate change on a fixed-rate mortgage?
No- it is fixed for the life of the loan
What are the five parts of an ARM loan?
Program, caps, margin,
index, and fully-indexed
rate
What program is a 5/1 ARM?
Initial interest rate fixed for 5
years and then an annual
adjustment
What does a 2/5 cap mean?
The 2 is the adjustment cap, meaning the interest rate cannot go up or go down any more than 2%.
The 5 is the life cap,
which requires you to add the starting rate to the life cap of 5 which equals the highest the interest rate can go over the life of the loan
What is the margin on an ARM loan?
The only number on an ARM loan that does not change over the life of the loan and it is the floor, meaning the interest rate cannot go below the margin.
What is the most common
index today?
LIBOR – London Interbank
Offered Rate
What 2 numbers do you add together to obtain the Fully-Indexed Rate?
Margin and index
How long before the interest adjustment is the first ARM disclosure to be sent to the borrower?
7months before the adjustment is required
What 3 items are required to calculate the mortgage payment?
- Remaining balance
- Interest rate
- Remaining term
Which law covers Balloon
Loans and what is the
minimum balloon?
HOEPA – Home Owners Equity Protection Act. The minimum balloon is five years.
What does 360/180 mean?
15- year balloon
What are the 5 parts of a
Reverse Mortgage?
- Negative amortization
- Borrower pays their
own taxes and insurance - Must be 62 or older
- Mandatory counseling
- Non-recourse mortgage
What does a non-recourse
mortgage mean on a Reverse Mortgage?
At the end of the mortgage, if the balance is higher than the value, and the borrowers have passed, the government absorbs the deficiency
What is the minimum age to
obtain a Reverse Mortgage?
62 years of age. If the spouse is only 60, the spouse cannot be on the loan.
What does HELOC stand for?
Home Equity Line of Credit
Is interest charged if you do
not draw any proceeds?
No, only after you draw money; you will then pay interest from the day of the draw till the end of the month, and pay interest on the balance at the end of each month
Are principal payments
required on HELOCs?
They are at the option of the
borrower whether to pay
principal each month
Is the interest rate fixed or
floating on HELOCs?
The interest rate floats,
usually based on the Prime
Rate
What is the difference between a 2nd mortgage and a HELOC?
On a 2nd, all the proceeds are paid out at closing, while on a HELOC, the borrower chooses when to draw
principal
What are the two types of
Construction Loans?
Construction with a Permanent take out and Construction Permanent
How many loans are on a
Construction Permanent?
One loan and one set of
closing costs
In an Interest Only Loan, what is the amount you pay each month?
Only interest is paid, but the borrower must qualify for the full principal & interest payment
What would the balance be on an Interest Only loan if the loan were $100,000 and it is 5 years later?
$100,000. The principal balance stays the same because you are only required to pay interest.
What is Table Funding?
Any loan that the originating
company is having the lender
fund, predominately for Brokers
What are the APR Tolerances?
1/8 on a fixed rate loan
¼% on an ARM Loan.
If you exceed either, a new LE or CD must be issued within three business days.
What is Yield Spread Premium (YSP) and Servicing Released
Premium (SRP)?
The amount a company receives from the lender that funds the loan
Which loans are considered
Federal Loans?
Conventional conforming, FHA, VA, USDA
What is Premium Pricing?
The amount above PAR that can be used to pay the borrower’s closing costs. Not
discount points, just costs and fees.
What is Accrued Interest?
If your payment is due on May 1st, you are paying interest for April. Accrued interest is the interest you pay on the mortgage each
month.
What is a Conveyance?
Transfer of ownership via a
Deed
What is a 2-1 Temporary Buydown? If the interest/note rate is 5%, what are the payment rates?
Usually for two years. A buydown account is
established by the seller or the borrower. The first year the payment rate is 2% below the note rate and the second year it would 1% below the interest rate. The borrower is qualified at the note rate.
What does SAFE stand for?
Secure and Fair Enforcement – the licensing law that covers all originating companies and Mortgage Loan Originators
Who must be registered with NMLS?
All MLOs employed by banks, credit unions, mortgage bankers, and
mortgage brokers
What does NMLS stand for?
Nationwide Multistate
Licensing System and Registry
Who must be licensed?
All mortgage bankers, mortgage brokers and all mortgage loan originators that work for either company
Can you work or be licensed with more than one originating company?
Your license only allows you to originate for one financial or non-financial company
What is an MU1?
MU1 is the application for a
mortgage company.
Do you receive a state license or federal license?
State license only; there is no such thing as a federal or national license. You must be licensed in each state where you want to originate
Can you be licensed in a state where your company is not licensed?
No, you can apply for a license in any state where your company is licensed. Banks and Credit Unions are exempt from licensing and
can originate in any state.
What are the duties of the
NMLS?
Approve all education providers and courses.
Prepare and maintain a national test. Provide a
service for the MLOs and owners of companies to
obtain a background check.
What makes up the 20 hours of the pre-licensing course?
3 hours of law
3 hours of ethics
2 hours of non-traditional
12 hours of mortgage topics
What makes up the 8-hour CE course that is required each year?
3 hours of Law, 2 hours of ethics, 2 hours of non-traditional lending, and one hour of another mortgage topic
What are the requirements for gift funds for FHA loans?
Gift funds can come from the borrower’s family members, employer, close friend, or a charitable organization
What is the term of your
license?
One calendar year: January
1st through December 31st
When do you have to pay your licensing renewal fees?
Between November 1st
and December 31st
What happens if you do not
renew by December 31st?
Your license lapses and you must take a Late CE class and pay a renewal fee and penalties by March 1st. Until your license is reinstated, you cannot originate loans. If you do not complete your renewal by March 1st, your license is suspended.
What is the consumer access website?
Once you are licensed, your information will be on the consumer access website so the consumer can check who you are working for and if you have any complaints or violations
What are the two groups that oversee NMLS?
CSBS – Conference of State Bank Supervisors
AARMR – American
Association of Residential Mortgage Regulators
What does USC stand for and what does it do?
Uniform State Content - allows MLOs that pass the National Test to apply for a license in any state where your company is approved
What does the SAFE Act allow each state to do?
License mortgage bankers and mortgage brokers and complete audits and
examinations of the companies if they suspect the consumer is at risk
What does sponsorship
require you to do?
The company you will be employed by needs to request that your NMLS number be moved under their company NMLS
number
When a company or MLO receives a notice of violation or complaint, what is the requirement?
They must supply all documents in response
to the complaint or violation within 30 days or they are assumed to be guilty and the state will assess the fines as they see fit
If an applicant for a license has a non-financial felony, what is the soonest they could apply for a license?
7 years from the date of conviction
If an applicant for a license has a financial felony, what is the soonest they could apply for a license?
They cannot, as they are
banned for life
If an applicant for a license has had a license revoked, what is the soonest they could apply for a license?
They cannot, as they are
banned for life
What is the 1003?
Uniform Residential Loan Application: The document where you collect the data to assist in underwriting
When verifying assets for closing, what items are included?
Down payment and closing costs
Can long term/retirement assets be used for the two months’ reserve for escrows?
Yes, and they don’t have to be cashed; they just have to show they are available
What are the requirements for gift funds for conventional loans?
Gift funds can only come from a relative: Spouse,
child, other dependent, or anyone related by blood, marriage, adoption, or legal guardianship; and there can be no expectation of repayment
What are Concessions?
Voluntarily yielding to a demand for the sake of a settlement in a real-estate
transaction, such as closing costs
What are the 3 questions you cannot ask on an application?
- Religion
- Nationality
- Whether they receive child support or alimony
How may MLOs accept loan
applications?
- Face to Face
- Phone
- Computer
Who is allowed to offer and
negotiate terms of a loan?
Only those who are licensed as an MLO working for a Mortgage Broker or Mortgage Banker
What is the “AUTHORIZATION TO
RELEASE MORTGAGE
INFORMATION”?
A form which, when signed by the borrower(s),
authorizes a third party to receive information about them and their mortgage, for things like verification of employment, deposits, etc.
What methods are used to
verify assets?
Two months bank statements, investment statements, and/or a Verification of Deposit
What methods are used to verify employment?
W-2, 1099, Tax returns with
4506T, and/or Verification of
Employment
What are the mandatory items on the Loan Estimate (LE)?
Terms of the product, all costs and fees, comparisons, and mortgage process explanations
What information is required on the Adjustable-Rate Mortgage (ARM) disclosure?
Which type of program, caps (adjustment and life), margin, index, fully-indexed rate, and how the adjustments are
calculated
What does AML stand for?
Anti-Money Laundering
What does CHARM stand for?
Consumer Handbook on
Adjustable Rate Mortgages
For a Reverse Mortgage, what must the disclosure tell the borrowers?
Negative Amortization, taxes and insurance to be paid
by the borrower, must be 62 or older to apply for the
mortgage, mandatory counseling, and the borrower could lose their home if they do not comply with all of the requirements of the loan
What are the 5 items included in the “Zero Tolerance” items on the LE?
- Appraisal
- Origination fee
- Discounts
- Lender fee
- Transfer taxes
What items are included in the“10% Tolerance” items?
Title, recording fees, lender required inspection. The borrower selects these and you no longer have any liability.
Which items are included in
“No Tolerance”?
Realtor fees, Attorney fees,
Escrows, Homeowners Insurance, Flood Insurance, Prepaid Interest
When do the early disclosures after application have to be delivered?
No more than 3 business days from signed application. If they are mailed, you must show
proof that they were mailed within the three day requirement.
When does the early Closing Disclosure have to be delivered to the borrowers?
No less than 3 business days before closing
When do the fees and charges expire from the issue date of the Loan Estimate (LE)?
10 business days, if the signed Intent to Proceed has not been delivered to the lender
When would you not have to give an LE?
When you do not have all the items under PENCIL (Property address, estimated value, name, credit, income, or loan amount)
Who created Credit Scoring?
The Fair Isaac Company. Credit scores are also knowns as FICO scores.
What law requires the appraisal to be delivered 3 business days before closing?
ECOA – Equal Credit Opportunity Act
How many days after a “Changed Circumstance” has been determined must the new LE be issued?
3 business days
When does the Preferred Providers list (REG H) have to be delivered to the borrower?
Within 3 business days from
when a conflict of interest has been determined
What are the valid delivery
methods in delivering a Loan Estimate or Closing Disclosure?
Person to Person, Digital Delivery with written
borrower approval, Mail, and Overnight, as long as you have proof that it was done in the three-business day requirement
How many business days before the closing is the Closing Disclosure to be
delivered to the borrower?
3 business days
What does Consummation mean?
Once the borrower is obligated on the loan (funding date)
What items will require a new Closing Disclosure to be issued and a three-business day for the closing
Program change, prepayment penalty added
to the mortgage or the APR tolerances are exceeded (1/8% on a fixed or 1/4% on an ARM loan)
What is an MU4?
The application for MLO licensing used by the NMLS
How many counselors are
required to be listed on the
Homeownership Counseling?
10, and they must be in the
borrower’s area
Is counseling required on the
Homeownership Counseling
Disclosure?
Counseling is not required, but it is recommended, and it is at the cost of the borrower
What are the classifications of assets?
Assets for down payment and closing costs must
be liquid.
Long term assets can be used for reserves. They don’t need to have the cash; they just need to show as available
What are you not able to do in regards to Verifications?
It must be done digitally via e-mail or mail; it cannot be done in person
What liabilities are to be listed on the application?
Any debt listed on the Credit
Report or volunteered by the borrower
What are the types of debts?
Bank loans, student loans, car loans, credit cards, mortgages, leased cars, IRS tax liens, judgments, alimony, and child support
How many payments would remain for a debt not to be counted in the Debt-to-Income (DTI) ratio?
Any loan that has less than 10 payments remaining, except car leases; no matter
how many payments are left, they must be counted in the DTI
How do you calculate the payment on a student loan if there isn’t a loan payment on the credit report?
Fannie Mae loans - 1% of the balance .
FHA, Freddie Mac & USDA -
½% of the balance.
What is the required
documentation for a self-employed borrower?
2 years of Tax Returns. If the borrower owns 25% or more of the company, they
must provide two years of business tax returns, plus a year-to-date operating
statement.
If a self-employed borrower owns 25% or more of their company, what is required for income verification?
If the borrower owns 25% or more of the company, they must provide two years of business tax returns plus a year to date operating statement
What is a surety bond?
A promise to be liable for the default of another. It is like malpractice insurance for
a doctor.
Can a borrower use Capital Gains for qualifying for a loan?
Yes, if they show two years’ history of income from capital gains and they can
show that the income will continue for an additional three years
What type of income can be
used for loan qualification?
Any income that can be verified and has at least two to three years continuation.
Cash income cannot be used.
Can rental income be used?
Only if it is claimed on the
borrower’s income taxes
What percentage of income can be used on rental property?
75%. A 25% vacancy must be deducted from the gross rental income.
When would a debt payment be required on a rental property?
If the rental income minus the 25% vacancy is less than the mortgage payment
What are the rules for counting overtime income?
Two years history and assurance the income will continue for two to three years in the future
How do you calculate bonus income if the bonus income reduced in the last two years?
You use last year’s bonus amount and provide assurance that the bonus
income will continue in the future
How do you calculate bonus income if the bonus income increased over the
last two years?
You average the last two years to determine the income and provide assurance that the bonus income will continue in the future
How do you calculate social
security or disability income?
If the monthly amount paid has taxes taken out before being paid to the borrower, the amount received by the borrower can be grossed up by 25% (Ex. $1000 received can be counted as $1,250 for qualification purposes)
What is the calculation for
determining the monthly income for an hourly waged borrower?
Hourly wage X the number of hours per week X 52 weeks / by 12 months = monthly income
What is the calculation for
determining income for someone who is paid every other week?
Bi-weekly income X 26 pay periods/ by 12 months = monthly income
What is the calculation for determining income for someone is paid on the 15th
and 30th of the month?
Income paid on the 15th and the 30th X 24 pay periods / by 12 months
What is the Fannie Mae self-employed document to calculate income?
Fannie Mae form 1084
What is the Freddie Mac self-employed document to calculate income?
Freddie Mac Form 91
What information is on the credit report?
Legal name, employment history, residency history, Social Security number, credit history, credit inquiries
Which credit score do you use to qualify the borrower?
You will always use the middle score for each borrower
How is the Credit Score
established?
No one is sure of the formula, but payment history and credit utilization are two factors that are used. Credit utilization means the amount of credit that is available to you and how much of it you are using (The more you use, the lower the credit score)
How do you calculate “capacity”?
If you are using 43% overall ratio, multiply the gross income by 43% and the answer will be the maximum allowed for the mortgage payment and all monthly debt (ex. $5000 X .43 = $2,150)
How do you determine Debt-to-Income Ratio (DTI)?
Gross verified income divided into total monthly debt payments =
Debt-to-Income Ratio
What do LTV, CLTV, and TLTV mean?
LTV = Loan-to-Value
CLTV = Combined Loan-to-Value
TLTV = Total Loan-to-Value
How do you calculate Loan-to-Value (LTV)?
Value or Purchase Price, whichever is lowest, divided into the Loan Amount = LTV
(i.e., $500,000 value divided into $250,000 loan amount = 50% LTV)
How do you calculate Combined Loan-to-Value (CLTV), assuming the borrower has a first mortgage and a $100,000 HELOC of which they have drawn $50,000?
Value is divided into the Loan Amount + the drawn HELOC=CLTV (ex. $500,000 value divided into $250,000 first mortgage +$50,000 drawn HELOC = 60%)
How do you calculate Total Loan-to-Value (TLTV), assuming the borrower has a first mortgage and a $100,000 HELOC of which
they have drawn $50,000?
Value is divided into the Loan Amount + the HELOC amount =TLTV
(ex. $500,000 value
divided into $250,000 first mortgage + $100,000 HELOC = 70%)
If a borrower wants a conventional conforming loan, has $5,000 monthly income and $500 in monthly debt payments, which payment income ratios would you use?
28% housing and 36% overall
If a borrower wants a conventional conforming
loan, has $5,000 monthly income and $500 in monthly debt payments, what is the PITI that the
borrower would qualify for?
$5,000 X 28% = $1,400 housing limit.
$5,000 X 36%
= $1,800 overall limit (includes housing and debt
payments).
You subtract the $500 debt payments from $1,800 = $1,300 for housing.
You take the lower of $1,400 or $1,300 for PITI
What is another name for
Front-End Ratio?
Housing Ratio – program ratio for housing X verified income
What is another name for
Back-End Ratio?
Overall Ratio – program ratio for overall debt X verified income
What is the maximum overall debt if you are calculating the Qualified Mortgage limit?
43% of gross verified income
What factors should be used to determine if a borrower has the Ability to Repay?
Meeting QM standards is essential, so the MLO is
required to find out and document a borrower’s
income, assets, employment, credit history, and monthly expenses
What is the definition of Tangible Net Benefit?
MLOs cannot refinance without determining if the loan will benefit the borrower, by giving them benefits like a reduced
interest rate, loan term, and/or monthly payment; debt consolidation; cash-out benefits, etc.
What are the 3 occupancy types?
- Primary
- Second home
- Non-owner
Which of the occupancy types (primary, 2nd home or Non-owner require Right of Rescission?
Primary residence only
What would raise a red flag with a Verification of Deposit?
If the average balance on the verification is different than the average on the bank statements
What is the purpose of an
appraisal?
It is an opinion of value that is determined by the market
approach
What is the Sales Comparison Approach in
establishing the value?
An appraisal method that compares one property to comparables or other recently sold properties in the area with similar
characteristics
When does the appraisal have to be delivered to the borrower?
No less than three business days before closing
What are the three Flood Zones that require Flood Insurance?
ZONE “A”, “V”, or “D”
What is Fair Market Value?
The price that a seller is willing to accept and a buyer is willing to pay on
the open market
On the appraisal, if it says, “As Is,” what does that mean?
The property does not require any repairs and is eligible to close
How is monthly interest
calculated?
Principal balance X note or interest rate / 12= Interest for the month. Should match up with the interest due on the payment slip.
How is the new P&I payment calculated on each adjustment?
On an ARM loan at adjustment time, remaining principal balance X the new
interest rate divided by remaining term = New P&I payment
How is Per Diem interest
calculated?
Principal balance X the note or interest rate /d by 360 days on conventional loans, or 365 days on government loans
How would you calculate the interest rate on a loan if you don’t know the interest rate?
Remaining balance divided into interest paid in the last twelve months = note rate. This is a very rough calculation.
What is a Discount Point?
1% of the loan amount for each discount point to be used for interest rate reduction only. They can be paid by the seller, borrower, or their employer.
What is not included in the APR and 3% fee limit on QM
calculations?
Prepaids = Appraisal, credit
report, title and prepaid interest
What fees and costs are shown on the Closing Disclosure?
ALL COSTS DISCLOSED ON THE LOAN ESTIMATE AND NO MORE THAN A 10% TOLERANCE
For an ARM, a limit on the amount that payments can increase or decrease over
the life of the mortgage
Lifetime Payment Cap
Qualified Mortgage allows a maximum Debt-to-Income (DTI) to meet requirements. What is that percentage?
43% of the verified gross income = maximum debt-to-income, including mortgage payment + monthly debt
payments
What does an Approved Eligible mean to meet QM requirements?
Based on the information submitted by the mortgage company into Fannie Or Freddie underwriting systems, it the information meets their requirements, the Approved Eligible means they will buy the loan
What is a Certified Appraiser?
The appraiser who can sign the appraisal attesting the final value
What does a Title Report tell you?
Who owns the property and what liens and encumbrances are against the property, including unpaid real estate
taxes
Who is protected by the Title Insurance policy?
The lender and the borrower, that from the date of funding, there are no liens or encumbrances, thus ensuring that the lender and borrower are in the first position with their recorded mortgage
What are the flood insurance limits?
$250,000 on the property and $100,000 in personal property
What portion of the property has to be in the flood plain as determined by FEMA?
Any portion of the house that is occupied. Garages and outside buildings not included.
What does FEMA stand for?
Federal Emergency Management Agency
What are some examples of
Involuntary Liens?
Tax liens, mechanics liens,
judgments, and attachments
What does FHA stand for?
Federal Housing Agency –
oversees and publishes guidelines for all FHA insured loans
What does FHAct stand for?
Federal Housing Act – governs discriminatory practices
What does PMI stand for?
Private Mortgage insurance –
insurance for conventional loans over 80%
What does MIP stand for?
Mortgage Insurance Premium –FHA loan premium for mortgage insurance on all FHA loans
If an application for credit is DENIED based on the Appraisal (could also use value instead of appraisal) - under ECOA (Reg B) says borrower has ___ days to request a copy & lender has ___ days to deliver.
90/30
What 3 words are used to describe ECOA, etc…
Rule, Law, Regulation
