Chapter 1~2 Flashcards
What established the modern mortgage industry?
The Federal Reserve System was established in 1913.
What is the Federal Home Loan Bank Act of 1932?
It allows Federal Home Loan Banks to lend to banks.
What does the FDIC do?
It insures deposits against bank defaults.
What is the purpose of the Federal Housing Administration (FHA)?
Established in 1934, it is the largest mortgage insurer, created to help recover from the Great Depression.
What is Fannie Mae?
The Federal National Mortgage Association (Fannie Mae) was established in 1938 as a government-sponsored entity to increase market liquidity.
What is Freddie Mac?
The Federal Home Loan Mortgage Corporation (Freddie Mac) was established in 1970.
What does Ginnie Mae do?
The Government National Mortgage Association (Ginnie Mae) provides government-insured mortgages, such as FHA loans.
What is the role of HUD?
The Department of Housing and Urban Development (HUD) was established in 1965 to manage federal housing programs and enforce fair housing laws.
What is the Secure and Fair Enforcement Act of 2008 (SAFE Act)?
It establishes minimum standards for Mortgage Loan Originators (MLO).
What did the Dodd-Frank Act of 2010 establish?
It established the Consumer Financial Protection Bureau (CFPB) to regulate and enforce federal law.
What is a Mortgage Loan Originator (MLO)?
An MLO takes residential mortgage loan applications, negotiates terms, and receives compensation.
What is a Registered MLO?
A Registered MLO meets the definition of an MLO and is an employee of a depository institution.
What is required to become a Licensed MLO?
A Licensed MLO must complete a 20-hour course and obtain a license from the NMLS.
What is the NMLS?
The Nationwide Multistate Licensing System & Registry is a database storing information on mortgage loan originators.
What does a Mortgage Broker do?
A Mortgage Broker takes mortgage loan applications but cannot underwrite loans.
What is the role of a Mortgage Lender?
A Mortgage Lender provides funds for mortgage loans.
What does a Mortgage Servicer do?
A Mortgage Servicer collects payments and manages escrow accounts.
What is a Mortgage-backed security?
Mortgage-backed securities are secured by a mortgage or collection of mortgages.
Who are the big players in the Secondary Mortgage Market?
Fannie Mae, Freddie Mac, and Ginnie Mae are the major entities.
What do regulatory authorities do?
They supervise, investigate, and impose civil penalties to regulate the industry.
What is the purpose of the SAFE Act?
The SAFE Act was created by the Housing and Economic Recovery Act to establish standards for MLOs.
What is required for pre-licensing education under the SAFE Act?
20 hours of education, including federal law, ethics, non-traditional, and elective courses.
What is the uniform state content test (UST)?
The UST consists of 115 questions, requiring more than 75% correct to pass.
What is the MU4 application?
The MU4 is the NMLS generic application for mortgage loan originators.
What are the criteria for issuing a license?
No license revocation, no felony convictions, and financial responsibility.
What is a Mortgage Call Report (MCR)?
Licensees must file quarterly MCR through NMLS, detailing residential mortgage loan activity and financial condition.
What is a Fixed Rate Mortgage?
A mortgage with a fixed interest rate over a specified term, such as 10, 15, 20, 25, or 30 years.
What are Adjustable-Rate Mortgages (ARMs)?
ARMs are loans with interest rates that adjust periodically based on market conditions.
What is a Hybrid ARM?
A Hybrid ARM has a fixed rate for a certain number of years before adjusting annually.
What is a Construction Loan?
A loan used to finance the building of a home, typically with higher interest rates.
What is a Balloon Mortgage?
A mortgage that requires a larger payment at the end of the term.
What is a Home Equity Line of Credit (HELOC)?
A HELOC is a revolving line of credit secured by the equity in a home.
What are FHA loans?
FHA loans are easier to obtain than conventional loans and are insured by HUD.
What is the funding fee for VA loans?
The funding fee is 2.3% for first-time borrowers and 3.6% for subsequent borrowers.
What is the purpose of Private Mortgage Insurance (PMI)?
PMI protects lenders when borrowers make a down payment of less than 20%.
What is a Reverse Mortgage?
A loan for seniors that allows them to convert home equity into cash, requiring no monthly payments.
What is the maximum loan limit for FHA loans?
The loan limit varies by county and is subject to annual changes.
What is the significance of the 4 Cs of underwriting?
The 4 Cs are Credit history, Capacity to repay, Cash assets, and Collateral, used to assess borrower qualifications.
What is a Jumbo Loan?
A Jumbo Loan exceeds the loan limits set by Fannie Mae and Freddie Mac.
What is a Subprime Loan?
A loan that is manually underwritten and typically offered to borrowers with lower credit scores.
What is the late fee for USDA loans?
4%
What are the key features of USDA loans?
100% financing, rural, 35K people, 30-year fixed, 90% guarantee, 115% median income, must be living in the rural area, late fee 4%
What defines a Jumbo loan?
More than Fannie & Freddie loan limit.
What is Subprime (Alt-A) lending?
Manually underwritten, replaced by Non-QM loans, includes NINA, SISA, SIFA, No Doc, Low Doc.
What does the Interagency guidance on nontraditional mortgage product risk (2006) define?
Nontraditional mortgage products, payment shock, repay capacity at fully indexed rate, risk mitigating features, risk layering.
What is a Qualified Mortgage (QM)?
TILA 2014, enforced by CFPB, works with Ability To Repay rule (ATR): prohibits risky features.
What is the safe harbor in Qualified Mortgages?
QM = ATR requirement.
What is the rebuttable presumption in Qualified Mortgages?
High-priced mortgage (35 loan) violates ATR, residual income left to meet living expenses after mortgage & other debt.
What are the types of Qualified Mortgages?
General, temporary, small lender, and balloon.
What are the requirements for a Qualified Mortgage (Rule of 3)?
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.
What does Ability to Repay (ATR) include?
M- monthly mortgage, I- income & assets, C- credit history, E- employment, D- DTI, O- other debt, E- expense (tax, insurance), S- simultaneous mortgage.
What is HOEPA?
High cost home loans (HOEPA Loans, Section 32 loan, HCML): TILA 1994, protect from predatory lending (principal dwelling).
What types of loans are covered by HOEPA?
Purchase money, refinance, closed-end home equity loans, HELOCS.
What are the HOEPA coverage tests?
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.
What are the HOEPA restrictions?
Counseling, full appraisals, 5 years escrow, 3 business day disclosure before consummation, restrict risky features.
What is HPLM?
Higher priced loan, Section 35 of TILA, closed-end consumer credit transaction, principal dwelling.
What are the HPLM coverage tests?
APR > APOR: 1.5% 1st lien, 2.5% 1st jumbo lien, 3.5% 2nd lien.
What are the HPLM restrictions?
Ability to repay, no prepayment unless first 2 years, escrow account 5 years, written appraisal (3 business days before consummation).
What is the HPML Appraisal Rule?
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.
What is a basis point?
1 hundredth of a percentage point, 0.01%.
What is Table Funding?
Funding of the loan at settlement, simultaneously transferring the loan to the lender.
What is a Par rate?
The rate without the borrower using discount points to lower it or a YSP being paid to increase it.
What is Yield Spread Premium (YSP)?
Compensation that a mortgage broker receives from the originating lender for selling an interest rate above the lender’s par rate.
What is an Extended Lock agreement?
Protects the borrower from rising rates during the locked period.
What is a Delinquent loan?
Any loan over 30 days past due.
What is a Discount point?
1% of the loan amount can be paid upfront to reduce the interest rate.
What is Premium Pricing?
Utilized in helping the borrower pay their closing costs by increasing the interest rate.
What is a Cash-out refinance?
Borrowing equity from the value of the home, thus increasing the loan amount owed against the home.
What is a Rate & Term refinance?
An extension of the term or reduction of the interest rate to reduce the amount owed in the monthly payment.
What is a Repurchase?
An investor requiring the originating lender to buy the loan back due to fraud, unacceptable underwriting, or appraisal.
What is Early payment default?
A new borrower does not make the 1st, 2nd, or possibly the 3rd payment, potentially due to fraud.
What is Service Release Premium (SRP)?
Payment received by the lender on the sale of a closed mortgage loan to the secondary market.
What are Warranty Deeds?
Guarantees obligating the grantor to defend the grantee from claims against the title.
What is FMHA?
Farmers Home Administration, a government agency created to help dispense loans to farmers and rural communities following the Great Depression.
What is Accrued interest?
Interest that has accumulated on a loan but not yet paid to the lender.
What is Sweat Equity?
Work done by the borrower that has value and must be listed on the appraisal to be eligible.
What does a mortgage agreement inform the borrower about?
Certain actions are prohibited, including alienation clause and acceleration clause.
What are deficiency judgments?
Legal actions to go after the borrower’s assets if the proceeds of the foreclosure are insufficient.
