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MLO > Chapter 1~2 > Flashcards

Chapter 1~2 Flashcards

1
Q

What established the modern mortgage industry?

A

The Federal Reserve System was established in 1913.

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2
Q

What is the Federal Home Loan Bank Act of 1932?

A

It allows Federal Home Loan Banks to lend to banks.

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3
Q

What does the FDIC do?

A

It insures deposits against bank defaults.

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4
Q

What is the purpose of the Federal Housing Administration (FHA)?

A

Established in 1934, it is the largest mortgage insurer, created to help recover from the Great Depression.

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5
Q

What is Fannie Mae?

A

The Federal National Mortgage Association (Fannie Mae) was established in 1938 as a government-sponsored entity to increase market liquidity.

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6
Q

What is Freddie Mac?

A

The Federal Home Loan Mortgage Corporation (Freddie Mac) was established in 1970.

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7
Q

What does Ginnie Mae do?

A

The Government National Mortgage Association (Ginnie Mae) provides government-insured mortgages, such as FHA loans.

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8
Q

What is the role of HUD?

A

The Department of Housing and Urban Development (HUD) was established in 1965 to manage federal housing programs and enforce fair housing laws.

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9
Q

What is the Secure and Fair Enforcement Act of 2008 (SAFE Act)?

A

It establishes minimum standards for Mortgage Loan Originators (MLO).

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10
Q

What did the Dodd-Frank Act of 2010 establish?

A

It established the Consumer Financial Protection Bureau (CFPB) to regulate and enforce federal law.

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11
Q

What is a Mortgage Loan Originator (MLO)?

A

An MLO takes residential mortgage loan applications, negotiates terms, and receives compensation.

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12
Q

What is a Registered MLO?

A

A Registered MLO meets the definition of an MLO and is an employee of a depository institution.

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13
Q

What is required to become a Licensed MLO?

A

A Licensed MLO must complete a 20-hour course and obtain a license from the NMLS.

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14
Q

What is the NMLS?

A

The Nationwide Multistate Licensing System & Registry is a database storing information on mortgage loan originators.

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15
Q

What does a Mortgage Broker do?

A

A Mortgage Broker takes mortgage loan applications but cannot underwrite loans.

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16
Q

What is the role of a Mortgage Lender?

A

A Mortgage Lender provides funds for mortgage loans.

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17
Q

What does a Mortgage Servicer do?

A

A Mortgage Servicer collects payments and manages escrow accounts.

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18
Q

What is a Mortgage-backed security?

A

Mortgage-backed securities are secured by a mortgage or collection of mortgages.

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19
Q

Who are the big players in the Secondary Mortgage Market?

A

Fannie Mae, Freddie Mac, and Ginnie Mae are the major entities.

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20
Q

What do regulatory authorities do?

A

They supervise, investigate, and impose civil penalties to regulate the industry.

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21
Q

What is the purpose of the SAFE Act?

A

The SAFE Act was created by the Housing and Economic Recovery Act to establish standards for MLOs.

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22
Q

What is required for pre-licensing education under the SAFE Act?

A

20 hours of education, including federal law, ethics, non-traditional, and elective courses.

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23
Q

What is the uniform state content test (UST)?

A

The UST consists of 115 questions, requiring more than 75% correct to pass.

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24
Q

What is the MU4 application?

A

The MU4 is the NMLS generic application for mortgage loan originators.

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25
Q

What are the criteria for issuing a license?

A

No license revocation, no felony convictions, and financial responsibility.

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26
Q

What is a Mortgage Call Report (MCR)?

A

Licensees must file quarterly MCR through NMLS, detailing residential mortgage loan activity and financial condition.

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27
Q

What is a Fixed Rate Mortgage?

A

A mortgage with a fixed interest rate over a specified term, such as 10, 15, 20, 25, or 30 years.

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28
Q

What are Adjustable-Rate Mortgages (ARMs)?

A

ARMs are loans with interest rates that adjust periodically based on market conditions.

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29
Q

What is a Hybrid ARM?

A

A Hybrid ARM has a fixed rate for a certain number of years before adjusting annually.

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30
Q

What is a Construction Loan?

A

A loan used to finance the building of a home, typically with higher interest rates.

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31
Q

What is a Balloon Mortgage?

A

A mortgage that requires a larger payment at the end of the term.

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32
Q

What is a Home Equity Line of Credit (HELOC)?

A

A HELOC is a revolving line of credit secured by the equity in a home.

33
Q

What are FHA loans?

A

FHA loans are easier to obtain than conventional loans and are insured by HUD.

34
Q

What is the funding fee for VA loans?

A

The funding fee is 2.3% for first-time borrowers and 3.6% for subsequent borrowers.

35
Q

What is the purpose of Private Mortgage Insurance (PMI)?

A

PMI protects lenders when borrowers make a down payment of less than 20%.

36
Q

What is a Reverse Mortgage?

A

A loan for seniors that allows them to convert home equity into cash, requiring no monthly payments.

37
Q

What is the maximum loan limit for FHA loans?

A

The loan limit varies by county and is subject to annual changes.

38
Q

What is the significance of the 4 Cs of underwriting?

A

The 4 Cs are Credit history, Capacity to repay, Cash assets, and Collateral, used to assess borrower qualifications.

39
Q

What is a Jumbo Loan?

A

A Jumbo Loan exceeds the loan limits set by Fannie Mae and Freddie Mac.

40
Q

What is a Subprime Loan?

A

A loan that is manually underwritten and typically offered to borrowers with lower credit scores.

41
Q

What is the late fee for USDA loans?

A

4%

42
Q

What are the key features of USDA loans?

A

100% financing, rural, 35K people, 30-year fixed, 90% guarantee, 115% median income, must be living in the rural area, late fee 4%

43
Q

What defines a Jumbo loan?

A

More than Fannie & Freddie loan limit.

44
Q

What is Subprime (Alt-A) lending?

A

Manually underwritten, replaced by Non-QM loans, includes NINA, SISA, SIFA, No Doc, Low Doc.

45
Q

What does the Interagency guidance on nontraditional mortgage product risk (2006) define?

A

Nontraditional mortgage products, payment shock, repay capacity at fully indexed rate, risk mitigating features, risk layering.

46
Q

What is a Qualified Mortgage (QM)?

A

TILA 2014, enforced by CFPB, works with Ability To Repay rule (ATR): prohibits risky features.

47
Q

What is the safe harbor in Qualified Mortgages?

A

QM = ATR requirement.

48
Q

What is the rebuttable presumption in Qualified Mortgages?

A

High-priced mortgage (35 loan) violates ATR, residual income left to meet living expenses after mortgage & other debt.

49
Q

What are the types of Qualified Mortgages?

A

General, temporary, small lender, and balloon.

50
Q

What are the requirements for a Qualified Mortgage (Rule of 3)?

A

Points & fees less than 3%, back-end DTI less than 43%, prepayment penalty limited to 3 years (2% loan amount), no toxic features, must have ATR, no more than 30 years, AMR must be underwritten fully amortized loan max rate first 5 years, Price based QM: APR < APOR + 2.25% on first lien & 3.5% on second lien.

51
Q

What does Ability to Repay (ATR) include?

A

M- monthly mortgage, I- income & assets, C- credit history, E- employment, D- DTI, O- other debt, E- expense (tax, insurance), S- simultaneous mortgage.

52
Q

What is HOEPA?

A

High cost home loans (HOEPA Loans, Section 32 loan, HCML): TILA 1994, protect from predatory lending (principal dwelling).

53
Q

What types of loans are covered by HOEPA?

A

Purchase money, refinance, closed-end home equity loans, HELOCS.

54
Q

What are the HOEPA coverage tests?

A

APR > Average Prime, Offer Rate: 6.5% 1st lien if loan amount less than $50K, 8.5% 1st lien if jumbo lien more than $50K, 8.5% 2nd lien, Points & fee: >5% loan amount, Prepayment penalty: can’t be charged for >36 months or >2% amount prepaid.

55
Q

What are the HOEPA restrictions?

A

Counseling, full appraisals, 5 years escrow, 3 business day disclosure before consummation, restrict risky features.

56
Q

What is HPLM?

A

Higher priced loan, Section 35 of TILA, closed-end consumer credit transaction, principal dwelling.

57
Q

What are the HPLM coverage tests?

A

APR > APOR: 1.5% 1st lien, 2.5% 1st jumbo lien, 3.5% 2nd lien.

58
Q

What are the HPLM restrictions?

A

Ability to repay, no prepayment unless first 2 years, escrow account 5 years, written appraisal (3 business days before consummation).

59
Q

What is the HPML Appraisal Rule?

A

Applies to certain HPMLs when the property has been resold within a 180 day period; additional appraisal may be required if price increase exceeds certain thresholds.

60
Q

What is a basis point?

A

1 hundredth of a percentage point, 0.01%.

61
Q

What is Table Funding?

A

Funding of the loan at settlement, simultaneously transferring the loan to the lender.

62
Q

What is a Par rate?

A

The rate without the borrower using discount points to lower it or a YSP being paid to increase it.

63
Q

What is Yield Spread Premium (YSP)?

A

Compensation that a mortgage broker receives from the originating lender for selling an interest rate above the lender’s par rate.

64
Q

What is an Extended Lock agreement?

A

Protects the borrower from rising rates during the locked period.

65
Q

What is a Delinquent loan?

A

Any loan over 30 days past due.

66
Q

What is a Discount point?

A

1% of the loan amount can be paid upfront to reduce the interest rate.

67
Q

What is Premium Pricing?

A

Utilized in helping the borrower pay their closing costs by increasing the interest rate.

68
Q

What is a Cash-out refinance?

A

Borrowing equity from the value of the home, thus increasing the loan amount owed against the home.

69
Q

What is a Rate & Term refinance?

A

An extension of the term or reduction of the interest rate to reduce the amount owed in the monthly payment.

70
Q

What is a Repurchase?

A

An investor requiring the originating lender to buy the loan back due to fraud, unacceptable underwriting, or appraisal.

71
Q

What is Early payment default?

A

A new borrower does not make the 1st, 2nd, or possibly the 3rd payment, potentially due to fraud.

72
Q

What is Service Release Premium (SRP)?

A

Payment received by the lender on the sale of a closed mortgage loan to the secondary market.

73
Q

What are Warranty Deeds?

A

Guarantees obligating the grantor to defend the grantee from claims against the title.

74
Q

What is FMHA?

A

Farmers Home Administration, a government agency created to help dispense loans to farmers and rural communities following the Great Depression.

75
Q

What is Accrued interest?

A

Interest that has accumulated on a loan but not yet paid to the lender.

76
Q

What is Sweat Equity?

A

Work done by the borrower that has value and must be listed on the appraisal to be eligible.

77
Q

What does a mortgage agreement inform the borrower about?

A

Certain actions are prohibited, including alienation clause and acceleration clause.

78
Q

What are deficiency judgments?

A

Legal actions to go after the borrower’s assets if the proceeds of the foreclosure are insufficient.

MLO (3 decks)

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