Chapter 1 Flashcards
What act established the Federal Reserve System?
Federal Reserve System (1913)
The Federal Reserve System serves as the central bank of the United States.
What was the purpose of the Federal Home Loan Bank Act of 1932?
Federal Home Loan Banks lend to banks
This act aimed to provide liquidity to the banking system.
What does the FDIC stand for and what is its role?
Federal Deposit Insurance Corporation; insures deposits against bank defaults
The FDIC protects depositors by providing insurance for their deposits.
What is the largest mortgage insurer established in 1934?
Federal Housing Administration (FHA)
The FHA was created to help recover from the Great Depression.
What is Fannie Mae and when was it established?
Federal National Mortgage Association (Fannie Mae, 1938); Government-sponsored entity (GSE) to increase market liquidity
Fannie Mae plays a crucial role in the secondary mortgage market.
What is the role of Freddie Mac?
Federal Home Loan Mortgage Corporation (Freddie Mac, 1970); GSE dealing with conventional loans
Freddie Mac works alongside Fannie Mae in the secondary mortgage market.
What does Ginnie Mae do?
Government National Mortgage Association (Ginnie Mae, 1968); government-insured mortgages (e.g., FHA)
Ginnie Mae focuses on loans backed by the government.
What is the purpose of HUD?
Department of Housing and Urban Development (HUD, 1965); manages federal housing programs, enforces fair housing laws, provides funding, and conducts research
HUD plays a key role in national housing policy.
What does the SAFE Act establish?
Minimum standards for Mortgage Loan Originators (MLO)
The SAFE Act was introduced in 2008 to enhance consumer protection.
What is the Dodd-Frank Act of 2010 known for?
Establishes the Consumer Financial Protection Bureau (CFPB) to regulate, supervise, and enforce federal law
This act was a response to the financial crisis of 2007-2008.
What are the main responsibilities of a Mortgage Loan Originator (MLO)?
Takes residential mortgage loan applications, offers and negotiates terms, and receives compensation
MLOs play a crucial role in the home financing process.
What is the difference between a registered MLO and a licensed MLO?
Registered MLO: employee of a depository institution; Licensed MLO: completes a 20-hour course, obtains a license from NMLS, and is sponsored by a lender or broker
Licensing ensures that MLOs meet specific training and regulatory standards.
What is the NMLS?
Nationwide Multistate Licensing System & Registry; a database that stores information on mortgage loan originators
NMLS helps streamline the licensing process across states.
What role does a Mortgage Broker play?
Takes mortgage loan applications but cannot underwrite, acting as middlemen
Brokers connect borrowers with lenders but do not provide the funds themselves.
What is the function of a Mortgage Lender?
Provides funds for mortgage loans
Lenders are essential for financing home purchases.
What does a Mortgage Servicer do?
Collects payments and manages escrow accounts
Servicers handle the ongoing administration of mortgage loans.
True or False: An individual negotiating a residential mortgage loan with an immediate family member needs to be licensed.
False
Family transactions are exempt from licensing requirements.
What are mortgage-backed securities?
Securities secured by a mortgage or collection of mortgages
These securities are a key component of the secondary mortgage market.
Who are the big players in the secondary mortgage market?
- Fannie Mae (1938)
- Freddie Mac (1970)
- Ginnie Mae (1968)
These entities play significant roles in mortgage financing.
What do regulatory authorities do in the mortgage industry?
Supervise, investigate, and impose civil penalties to regulate the industry
They ensure compliance with laws and protect consumers.
What is the significance of the SAFE Act in licensing?
Created minimum standards for MLOs and established the NMLS
It aims to improve the quality of mortgage lending.
What are the pre-licensing education requirements under the SAFE Act?
- 20 hours of education
- 3 hours federal law
- 3 hours ethics
- 2 hours non-traditional
- 12 hours elective
These requirements ensure MLOs have a foundational understanding of the industry.
What is the uniform state content test (UST)?
A test with 120 questions, requiring more than 75% correct to pass
This test assesses the knowledge of state-specific laws and regulations.
What is the MU4 application?
NMLS generic application for MLO licensing
This application collects necessary information for licensing.
What criteria must be met for issuing a mortgage license?
- No license revocation
- No felony conviction (7 years for non-financial, never for financial crimes)
- Financial responsibility
- Pre-licensing education
These criteria help ensure that only qualified individuals are licensed.
What is temporary authority in the context of MLO licensing?
Allows registered MLO to become licensed when moving if employed by a state-licensed mortgage company and registered for the past year
This provision eases the transition for MLOs relocating.
What is the Mortgage Call Report (MCR)?
Licensees/registrants must file quarterly reports through NMLS, including residential mortgage loan activity and financial condition
MCRs help regulators monitor the health of mortgage businesses.
What are the loan originator compensation rules established by TILA and Dodd-Frank?
Prohibits compensation based on terms or fees of a transaction, dual compensation
These rules aim to prevent conflicts of interest and protect consumers.
Fill in the blank: An MLO cannot collect fees in their own name; they can only collect fees in the name of the _______.
[lender or broker]
This regulation prevents MLOs from misrepresenting their role.
What are the three options an MLO must provide to a consumer expressing interest?
- Lowest interest rate qualified
- Lowest point & fees
- Lowest rate without risky features
This ensures transparency and informed decision-making for consumers.
How long must MLO origination records be kept?
3 years
Recordkeeping is essential for regulatory compliance and audits.
