Chapter 19/20 Flashcards
The __________________ is made up of lenders who originate loans. They make the money available directly to borrowers. The primary mortgage market is made of many different types of lenders and is made of many different types of leaders.
Primary mortgage market
A _________________ is a financial institution whose primary function is to promote thrift and home ownership.
Savings and loan association
A _______________________ is a financial institution whose primary function is to promote thrift and home ownership. Also known as “savings banks” or “thrifts,”
Savings and loan association
What is the purpose of a savings and loan association?
1) offer their depositors a higher rate of interest on their deposits than commercial banks offer.
2) invests at least part of their deposits in residential mortgage loans, which then allows more people to purchase and/or make repairs on their homes.
True or false: Savings banks must be either state or federally chartered.
True
__________________ savings institutions are licensed by the State of Texas and are regulated by the Department of Savings and Mortgage Lending (SML). If they are insured they also operate under the supervision of the Federal Housing Finance Board.
State-chartered
__________________ savings institutions are licensed by the Federal Housing Finance Board and regulated by the Office of Thrift Supervision. Their accounts are insured by the Savings Association Insurance Fund (SAIF) under the Federal Deposit Insurance Corporation (FDIC).
Federally insured
A ___________________ is a financial institution that is designed to act as a depository for funds and as a lender for commercial activities – usually short-term loans.
Commercial bank
True or false: Most of the funds deposited in banks are in demand accounts (personal and business checking accounts). Since this money can be withdrawn at any time by a depositor, the bank rarely uses these funds for mortgage lending. On the other hand, the depositors’ savings accounts (along with loans from other banks and bank owners’ equity) give the bank the long-term funds it needs for its investment ventures, including real estate loans.
True
___________________ banks primarily do short term loans, such as:
1) construction loans
2) home improvement loans
3) manufactured housing loans
Commercial
Commercial banks operate under a state or federal charter. The _____________________licenses state-chartered banks, while the ________________________ gives licenses to nationally-chartered banks.
Texas Department of Banking (TXDOB) , Comptroller of the Currency
___________________ make mostly short-term loans. When they do make real estate loans, they tend to be second mortgages or home improvement loans. Under the Federal Credit Union Act, credit unions have the authority to make 30-year loans to their members to finance a principal residence. They can also make FHA or VA loans at interest rates comparable to market value.
Credit unions
___________________ companies hold a major portion of the savings of the American public. Only savings and loan associations control more savings than life insurance companies do
Life insurance
_______________________ are a major source of credit for shopping centers, office buildings, hotels and motels, industrial buildings and large apartment complexes.
Life insurance companies
Life insurance companies typically invest up to _________ of their assets in real estate loans.
1/3
True or false: Texas has one of the largest dollar volumes of insurance company real estate loans of any state in the United States, second only to California. No other states even come close.
True
___________________ was formed in 1960 by federal tax law.
Real Estate Investment Trust (REIT)
The goal of the _______________________ was to influence small investors to combine their resources with others to raise venture capital for real estate transactions.
Real Estate Investment Trust (REIT)
__________________ are exempt from corporate tax if they invest at least 75 percent of their assets in real estate and distribute 95 percent or more of their annual real estate income to their investors.
Real Estate Investment Trusts (REIT)
________________ prefer to target their lending activities towards land development projects and permanent financing for condominiums, high rises, warehouses, office complexes, single-family subdivisions and other major projects. They concentrate on income-producing properties and generally diversify their holdings both with regard to property type and geographical location.
Real Estate Investment Trusts (REIT)
True or false: The loan departments of many banks are also involved in originating and servicing loans for other lenders. When so doing, they act as mortgage bankers and can represent life insurance companies, real estate investment or mortgage trusts and, in some cases, other banks. When performing these activities, the bank will get an origination fee plus a percentage for servicing the account.
True
According to the _______________________________, any individual “acting as or engaged in the business of a residential mortgage loan originator” must have a valid mortgage loan originator license.
Texas Secure and Fair Enforcement for Mortgage Licensing Act of 2009 (Texas SAFE Act)
Lenders who lend money directly to borrowers make up what is known as the ____________________.
Primary mortgage market
Loans originated in the primary mortgage market can be bought, sold or traded in the __________________.
Secondary mortgage market
Why do Primary lenders sell their notes?
To generate more money to make more loans
The ________________________ consists of holding warehouse agencies that purchase a number of mortgage loans and assemble them into one or more packages of loans for resale to investors.
Secondary mortgage market
Why don’t lenders just keep the loans they make instead of selling them on the secondary market?
Loans get sold on the secondary market in an effort to shift money from areas that have a surplus to those areas that have a shortage.
Entities that buy and sell mortgages negotiate on the basis of _____________.
Yields
Important players in the secondary mortgage market are:
1) GNMA
2) FNMA
3) FHLMC
Ginnie Mae or GNMA or ______________________ is a government agency.
Government National Mortgage Association
FNMA or Fannie Mae or ____________________ is a former government agency that became a private corporation in 1968.
Federal National Mortgage Association
Freddie Mac or FHLMC or _________________________________ is a quasi-government agency.
Federal Home Loan Mortgage Corporation
Why does a borrower retain a mortgage broker?
To help obtain financing for a specific commercial property
When obtaining a loan, several types of repayment plans exist. The most common are:
1) Straight (Interest-only)
2) Amortized
3) Balloon payment
4) Adjustable-rate
With a _________________, also called an interest-only loan, the monthly payments are allocated only to interest. No principal is paid off. At the end of the term, the borrower must be able to pay off the entire principal amount or get another loan.
straight or term mortgage
An ________________ loan could be a wise choice for someone who plans to own the property for a short time and believes the property will appreciate during that time.
Interest-only
With an ______________ , a borrower makes a periodic (usually monthly) payment of principal plus interest. These payments result in the loan being paid off gradually over time.
Amortization loan
With a _______________ loan, the borrower has the same payment amount every month. The payment goes first to the interest and then to the principal. Over the life of the loan, the amount going toward interest decreases, while the amount going to principal increases. In the early years of the loan, the principal payment is very small, so it takes several years for the borrowers to increase their equity in the property. However, closer to the end of the repayment period, the borrowers’ equity increases much more quickly.
Fully amortized loan
With a _____________________, the borrower pays a different amount with each payment. A fixed amount goes to the principal with each payment. The interest amount changes as the principal balance declines.
Straight amortized loan
A _________________ is a loan that has one large final payment due when the loan matures.
Balloon mortgage
_________________ loans are partially amortized loans. This means that the monthly payments are not large enough to fully amortize the loan by the end of the term, leaving the large balloon payment due.
Balloon payment loans
An __________is a measure of economic conditions.
Index
The lender sets a __________, usually between two percent and three percent, at the time of a loan’s origination. It is added to the current index to set the interest rate, providing the lender the desired yield on the loan.
Margin
The index plus the margin establishes the _________________, or note rate on an ARM. Since borrowers share the risk with the lender in an ARM, the interest rates tend to be less than fixed rate loans. Further, to increase the marketability of ARMs, lenders often offer a lower initial or “teaser” rate.
Calculated rate
The ____________ on an ARM is lower than the current market rate and is fixed only for the first adjustment period set by the lender at the origination of the loan. In all probability, the interest rate will increase in the second adjustment period.
Initial rate
An ARM loan specifies a specific time at which the interest rate may change. The _________________ may be for any period of time but one year, three years and five years are the most common.
Adjustment period
The _________________________ on an ARM determines when the lender will change the amount of the monthly payment to reflect the change in the interest rate. Typically, this period corresponds to the interest rate adjustment period.
Mortgage payment adjustment period
To protect borrowers with an ARM from unlimited increases in the interest rate, lenders establish “________________.” The first cap (the periodic cap) sets the amount of increase (or decrease) allowed in each adjustment period
Rate caps
A ______________ on an ARM insures a set monthly payment that remains the same although the actual interest rate may fluctuate throughout the year.
Payment cap
True or false: A common payment cap is 7.5 percent of the initial payment. In this instance a monthly payment of $900 could not vary either up or down by more than $67.50 per month in any one-year period.
True
With an ARM, if the payment cap prevents the payment from covering the interest, the unpaid interest is added back to the loan, generating even more interest and debt. If this trend continues, the borrower will make many payments but end up owing more that he or she did at the beginning of the loan, creating a _____________.
Negative amortization
A __________________ limits the amount of unpaid interest that the lender can actually add to the principal balance, commonly borrowers can owe to 125% of the original loan amount.
Negative amortization cap
What is an index?
A measure of economic conditions
There are basically two categories of loans available to buyers in the marketplace – _______________ loans and _____________ loans.
Conventional and government-backed loans
____________________ loans include those offered by:
1) The Federal Housing Administration (FHA)
2) The Department of Veterans Affairs (DVA) – 3) sometimes simply referred to as VA
4) Rural Housing Service (RHS)
5) Texas Department of Housing and Community Affairs (TDHCA)
6) Texas Veterans Land Board (VLB)
Government-backed loans
Conventional loans have several advantages over government-backed loans.
1) processing a conventional loan usually takes less time, usually 30 days or less
2) conventional loans typically have fewer forms and processing can be more flexible
3) There is usually no legal limit on loan amounts with conventional loans; however, government-backed loans have dollar limits that vary by agency.
4) In the event of a loan refusal, borrowers have other lenders that they can make application to. There is only one of each government agency type, so if the loan is refused by a particular agency, there are no alternative lenders available.
5) Conventional lenders are much more flexible. Many offer a variety of loans with attractive provisions.
Conventional loans have their disadvantages.
1) Typically conventional loans require higher down payments than government-backed loans require.
2) Some conventional loans carry prepayment penalties, while government-backed loans do not.
The Federal Deposit Insurance Corporation, the Federal Reserve Board, the Office of the Comptroller of the Currency and the Office of Thrift Supervision regulate banks and savings associations. These agencies have issued lending standards that suggest what the upper limits on conventional loan-to-value ratios should be. These limits are:
- 65 percent for land acquisition
- 75 percent for land development
- 80 percent for multi-family and commercial real estate
- 85 percent for one-to-four family residences
_________________ are typically uninsured. The mortgage itself provides the only security for the loan. To protect its interests, the lender relies on the appraisal of the property and the borrower’s ability to repay the loan, as indicated by the borrower’s credit reports.
Conventional loans
True or false: When writing conventional loans, many lenders follow the underwriting standards that are provided by Freddie Mac and Fannie Mae, so that they can sell their loans in the secondary mortgage market instead of keeping them in their own portfolio.
True
Most conventional loans have traditionally been designed as _____________________.
Fixed rate loans
Fixed-rate fully amortized loans have two distinct features:
1) The interest rate remains fixed for the life of the loan.
2) The payments remain level for the life of the loan and are structured to repay the loan at the end of the loan term.
Most conventional loans require the borrower to make a down payment of 20% or more, making the loan 80% or less of the property’s sale price. However, a borrower can get a conventional loan with a lower down payment by insuring the loan through a _________________________________.
Private mortgage insurance (PMI) program
True or false: PMI usually insures the top 30% of a loan, protecting the lender in case the borrower defaults on the loan. Fannie Mae and Freddie Mac have recently changed the requirement to 25% of the loan amount for conforming loans
True
True or false: Private mortgage insurance premiums vary, but there are usually two types of payment plans. In one plan, a single premium is charged to cover the lender’s risk. In the second, more common plan, an initial premium is charged at closing (usually from .5% to 1.5% of the loan amount) and then an annual premium is charged and added to the monthly mortgage payment until the lender’s risk is reduced. This annual amount usually ranges from .3% to .5% of the loan amount.
True
A federal law called the _____________________ requires that any loans originated after July of 1999 must have the PMI terminated after the borrower
1) Has accumulated 22% of equity in the property (loan-to-value ratio is 78%)
2) Is current with all loan payments
Homeowner’s Protection Act
True or false: The Homeowners Protection Act requires that lenders inform all borrowers of their right to terminate the PMI by sending out an annual notice explaining the PMI cancellation rights.
True
With ____________________, the lender provides a loan at approximately one-half percent higher than the market rate and there is no additional charge for mortgage insurance.
Lender-paid mortgage insurance
A popular way to avoid having to pay private mortgage insurance is through the use of what’s known as __________________.
80-10-10 financing
In 80-10-10 financing, the 2nd mortgage can come from two sources:
1) home seller - Seller carryback mortgages are usually short-term balloon notes that are due and payable three to five years after origination.
2) Institutional lender – A borrower can sometimes get a second mortgage from the same lender who is providing the first mortgage. Sometimes the loan is structured as a home equity loan; other times it may be a conventional second mortgage. It may or may not be a balloon note. If it is fully-amortized, it’s usually structured as a 15-year mortgage.
True or false: Federal law requires that any loans originated after July of 1999 must have the PMI terminated after the borrower has accumulated 22% of equity in the property (loan-to-value ratio is 78%) and is current with all loan payments. However, the law also states that a borrower whose equity equals 20% of the purchase price or appraised value may request that the lender cancel the PMI.
True
With a ___________________, the monthly payment for principal and interest gradually increases by a certain percentage each year for a certain number of years and then it levels off for the remaining term of the mortgage.
Graduated payment mortgage (GPM)
With a graduated payment (GPM) loan, the buyer may have initial payments that are less than the interest-only portion of the loan at that point. The interest owed and not paid in the initial months is added back to the principal causing what is referred to as a __________________.
Negative amortization
A ______________________ is a type of graduated payment mortgage under which the owner/borrower contributes a sum of money into an account that is pledged to the lender. The account is drawn on during the first three to five years of the loan to supplement the periodic mortgage payments, thereby reducing the borrower’s monthly payments in the initial years. Once the account is empty, the borrower makes the full mortgage payment.
Pledged account mortgage (PAM)
In a _____________, the lump sum payment that is made to the lender at closing usually comes from a builder as an incentive to the buyer or from a family member trying to help out. That payment serves to reduce the interest rate on the loan for the first few years. At the end of that time, the rate rises. The lender assumes the borrower’s income will also have risen during these years and he or she will be able to make the increased payments.
Buydown
An ___________ loan is an expandable loan which gives a borrower a limit up to which he or she may borrow. Each incremental advance must be secured by the same mortgage and any advances may not exceed the original borrowing limit.
Open-end
True or false: On an open-end loan, the interest rate on the original amount borrowed is fixed. But the interest rate on any future advances can be at the prevailing rate at the time of the advance.
True
A _____________________ loan covers more than one piece of property.
Blanket mortgage
A blanket mortgage usually includes a clause called a ______________________. This clause allows the borrower to obtain a release of any individual lot from the lien by repaying a certain part of the loan.
Partial release clause
A _________________ allows a borrower who has an existing loan to get another loan from a second lender without paying off the first loan. The second lender issues a new larger loan to the borrower at a higher interest rate. The new loan is a combination of the first loan and the second loan. The borrower makes the new higher payments to the second lender and then the second lender pays the first lender out of those funds.
Wraparound mortgage
True or false: A wraparound mortgage is only possible if the original loan documents allow it.
True
A ______________ is a short-term loan that covers the period between the end of one loan and the beginning of another.
Bridge loan
Bridge loans are typically used in two situations.
1) To cover the time period between the end of a construction loan and the issue of a permanent loan on a property.
2) When a person needs to borrow money on his or her unsold home (a second mortgage of sorts) to fund the acquisition of a new home. This is useful when a seller will not accept a property sale contingency.
A _________________ is most commonly a technique in which the buyer borrows from the seller in addition to the lender. The purchase money mortgage is created at the time of the purchase and delivered at the time the property is transferred as part of the sale transaction. This is sometimes done when a buyer cannot qualify for a bank loan for the full amount, so the seller “takes back” a portion of the purchase price as a second mortgage.
Purchase money mortgage
With an ___________________, also called a contract for deed, the buyer does not receive legal title until the final payment is made. The seller keeps legal title until the debt is paid in full. The buyer receives equitable title until the debt is fully paid.
Installment land sales contract
With an ___________________________, the buyer agrees to give the seller a down payment and to make regular payments of principal and interest for some agreed-upon number of years. The buyer also agrees to pay real estate taxes and insurance premiums and to maintain the repairs and upkeep of the property.
Installment land sales contract
Lenders give __________________ to finance the construction of improvements to property, such as homes, apartments and office buildings. The lender commits to the full amount of the loan, but disburses payments over the life of the construction project.
Construction mortgage
Interest rates on construction loans are usually higher than on other loans because the risk is greater.
Risks include:
1) Inadequate protection against mechanics’ liens
2) Potential delays in construction completion
3) Financial failure of contractors or subcontractors
With a construction loan, the borrower pays interest on only the money that has been _______________.
Dispersed up to the payment date
True or false: With a construction loan, the borrower can get a permanent loan, usually called a takeout loan, which pays off or “takes out” the lender of the construction loan, when the construction is complete. Alternatively, a borrower may be able to convert the construction loan to a permanent fixed mortgage if the lender offers that option.
True
Owners have the ability to borrow against the equity they have built up in their home. Homeowners can use a home equity loan for:
1) Purchasing high dollar items
2) Taking a vacation
3) Consolidating other loans or credit card debt
4) Paying medical expenses
5) Paying college tuition
6) Making home improvements
True or false: A home equity loan is an alternative to refinancing. It can be given as a fixed amount or it can be a line of credit that the home owner can borrow against as he or she needs.
True
A __________________ is one that includes all the personal property and appliances that are installed on the property. This type of loan has been used extensively in the sale of furnished condominiums.
Package mortgage
With a _______________________, the lender is making payments to the borrower. This system allows older property owners to receive regular monthly payments from the equity in their paid-off property without having to sell. The borrower pays a fixed rate of interest and then repays the loan either when the home sells or from the borrower’s estate upon his or her death.
Reverse annuity mortgage (RAM)
A _____________________ is a form of participation mortgage in which the lender shares in the appreciation of a mortgaged property if and when the property sells. The borrower agrees to the lender’s participation in the income, inducing the lender to make the loan. This is more common with commercial properties, but can also be done with residential mortgages.
Shared equity mortgage
The ________________________ is typically used by commercial enterprises to free up money that has been tied up in the real estate to use as working capital in the business.
The owner of the real estate sells the property and then leases it back from the buyer. The buyer becomes the owner and the former owner becomes the tenant.
Sale and leaseback arrangement
What is a release clause and in what type of mortgage would you find this clause?
This clause, found in a blanket mortgage, allows the borrower to obtain a release of any individual lot from the lien by repaying a certain part of the loan. The lender will issue the partial release for the one lot, with the provision that the mortgage will continue to cover the remaining lots.
A monthly mortgage payment is generally made up of four parts:
principal, interest, taxes and insurance. Lenders refer to this as PITI.
In order to increase their investment, lenders often charge other fees when the borrower gets the loan. These fees are
loan origination fee and points or discount points.
To qualify for a mortgage loan, a borrower must meet the lender’s qualifications in terms of _____________________________.
income, debt, cash, and net worth
Fixed-rate fully-amortized loans ________________________________.
Provide a fixed interest rate for the life of the loan
Who regulates federally-chartered savings institutions?
Office of Thrift Supervision
The ____________________ requires that the parties to certain transactions receive the correct figures pertaining to their closing costs.
Real Estate Settlement and Procedures Act (RESPA)
RESPA is administered by the _____________________________.
Consumer Financial Protection Bureau (CFPB)
Real Estate Settlement and Procedures Act (RESPA) applies to purchases:
1) purchases of residential properties
2) purchases involving first or second mortgages
3) Financed by a federally-related loan (VA, FHA, HUD, FNMA, FHLMC, GNMA)
True or false: Real Estate Settlement and Procedures Act (RESPA) does not apply to seller-financed loans. It also does not apply to a loan assumption, unless the lender has changed the terms of the assumed loan or charges more than $50 for the assumption.
True
Effective October 2015 per TILA/RESPA Integrated Disclosure (TRID) Rule, lenders must give a copy of the booklet, “Your Home Loan Toolkit” to every person when?
At the time of loan application
Effective October 2015 per TILA/RESPA Integrated Disclosure (TRID) Rule, lenders must provide a Loan Estimate of settlement costs when?
At the time of loan application or within three business days of application.
Effective October 2015 per TILA/RESPA Integrated Disclosure (TRID) Rule, a “Closing Disclosure”, a form designed to detail all financial particulars of a transaction, must be delivered to the borrower when?
TILA = Truth in Lending Act RESPA = Real Estate Settlement Practices Act
At least three days before closing
The ____________________ form details the costs that the buyer and seller will pay at closing, including any costs due to other parties, such as city or county tax assessments, recording fees and attorney’s fees.
Closing Disclosure form
The _________________ is generally responsible for insuring that the Closing Disclosure is delivered to the buyer no later than three business days before consummation.
Creditor/lender
True or false: RESPA specifically prohibits any payment or receiving of fees or kickbacks when a service has not been rendered. For example, an insurance company cannot pay a kickback to a real estate agent or to a lender for referring a client to its agency.
True
RESPA specifically prohibits referral fees for what services?
1) Title search
2) Inspection
3) Survey
4) Appraisal
5) Loan
6) Credit report
7) Attorney
True or false: RESPA permits sharing commissions and the payment of referral fees among cooperating brokers or multiple-listing services.
True
True or false: Business relationships and affiliations among real estate firms, mortgage brokers, title insurance firms and other such companies that are involved in a transaction are permitted, provided the relationships are disclosed in writing to the consumer, the consumer is free to go elsewhere for the relevant service, and the companies do not exchange fees for referrals.
True
_________________ requires lenders to disclose to buyers the true cost of obtaining credit, so that borrowers can compare the costs of various lenders.
Regulation Z
The Truth in Lending Act is implemented by _____________________.
Regulation Z
Regulation Z applies to all loans that are _______________________.
Secured by a residence
* does not apply to commercial loans and agricultural loans ^$25K
The provisions of Regulation Z cover:
1) Disclosure of costs
2) Right to rescind the transaction
3) Advertising offers
4) Noncompliance penalties
The lender must disclose all finance charges and the annual percentage rate (APR) of the loan on the ________________________.
Loan Estimate form
True or false: For home mortgages, the lender must disclose the APR but is not obligated to disclose the total interest payable over the life of the loan.
True
In most cases the borrower has a right to cancel the transaction by notifying the lender ______________.
Within 3 days
*this does not apply to residential first mortgage loans, but does apply to refinancing and home equity loans.
Any advertising is subject to Regulation Z disclosure of it contains any of the following items.
1) Amount or percentage of down payment
2) Installment payment or amount
3) Specific finance change
4) Number of installments
5) Period of repayment
6) Indication that there is no charge for credit
Per Reg Z, if an ad includes any of these items:
1) Amount or percentage of down payment
2) Installment payment or amount
3) Specific finance change
4) Number of installments
5) Period of repayment
6) Indication that there is no charge for credit
all of the following items must be disclosed:
1) The amount or percentage of down payment
2) Terms of repayment
3) Annual percentage rate and if increase is possible
4) Total finance charge
5) Total # of payments and due dates
True or false: Regulation Z applies to advertising in ALL media, including websites, billboards, radio, TV and direct mailings.
True
The penalty for violation of Reg Z is _________________________________.
twice the amount of the finance charge or a minimum of $100, up to a maximum of $1,000. The violator could also be liable for court costs, attorney fees and any actual damages.
Willful violation of Regulation Z is a misdemeanor that is punishable by a fine of up to _______________________________.
$5,000 or one year in prison, or both.
The ______________________________ prohibits lenders from discriminating against applicants on the basis of
Race Color Religion National origin Sex Marital status Age Dependency on public assistance
Equal Credit Opportunity Act (ECOA)
The Federal Trade Commission (FTC), the nation’s consumer protection agency, enforces the Equal Credit Opportunity Act (ECOA) which became effective on ___________________.
October 28, 1975
Lenders use factors like income, expenses, debts, and credit history, among other considerations, when determining __________________________.
An individual’s credit worthiness
When an applicant applies for credit, a lender may not do the following:
1) Discourage the applicant from applying because of sex, marital status, age, race, national origin, or because he or she receives public assistance income.
2) Ask the applicant to reveal sex, race, national origin, or religion. A lender may ask the applicant to disclose this information (except for religion) voluntarily if applying for a real estate loan. This information helps federal agencies enforce anti-discrimination laws.
3) Impose different terms or conditions, like a higher interest rate or higher fees, on a loan based on the applicant’s race, color, religion, national origin, sex, marital status, age, or receipt of income from public assistance.
4) Ask if the applicant is widowed or divorced. A creditor may use only the terms: married, unmarried, or separated.
5) Ask about marital status if the applicant is applying for a separate, unsecured account. However, a lender may ask the applicant to provide this information if he or she lives in a “community property” state.
6) Inquire about the applicant’s plans for having or raising children; however, a creditor can ask questions about expenses related to the applicant’s dependents.
7) Ask if the applicant receives alimony or child support, unless the applicant will rely on these payments to get credit. The lender may ask if the applicant has to pay alimony or child support.
Equal Credit Opportunity Act (ECOA) expects a lender to base lending decisions on an individual’s _____________________.
income, net worth, job stability and credit rating
Lenders are required to inform an applicant who was rejected of the reasons for the denial _________________.
In writing within 30 days
When deciding to grant credit or when setting the terms of credit, creditors may not:
1) Consider the individual’s race, color, religion, national origin, sex, marital status or receipt of income from public assistance
2) Consider the individual’s age
3) Consider whether the person has a telephone account in his or her own name
4) Consider the racial composition of the neighborhood where the person wants to buy, refinance or improve a house with the borrowed money
When evaluating an individual’s income, creditors may not:
1) Refuse to consider reliable public assistance income the same way as other income
2) Discount income because of the person’s sex or marital status
3) Discount or refuse to consider income because it comes from part-time employment, Social Security, pensions, or annuities
4) Refuse to consider reliable alimony, child support, or separate maintenance payments.
What does RESPA require that is a benefit to consumers during the settlement process?
That the parties to certain transactions receive the correct figures pertaining to their closing costs
The ______________________ was passed by Congress in 1977 to prevent redlining and to encourage banks and thrifts to help meet the credit needs of all segments of their communities, including low- and moderate-income neighborhoods. It expands and clarifies the expectation that banks will serve the convenience and needs of their local communities.
Community Reinvestment Act
The The Community Reinvestment Act was passed by Congress in ________.
1977
True or false: When determining a financial institution’s compliance with the Community Reinvestment Act, the regulatory agency doing the evaluation must prepare a written document which includes a section for filing in the records and a section that to make public. The public section will contain the agency’s rating, which can range from “outstanding” to “substantial noncompliance” in meeting the community’s credit needs.
True
The ____________________, or Title VI of the Consumer Credit Protection Act of 1968, requires that lenders:
1) Keep all credit information confidential.
2) Obtain authorization from a consumer in order to seek the customer’s credit information.
3) Reveal the sources of the credit information to the consumer. This item makes it possible for consumers to identify and correct errors on their credit reports.
Fair Reporting Act
The Fair Credit Reporting Act (FCRA) requires each of the three nationwide credit reporting companies - Equifax, Experian, and TransUnion - to give consumers a free copy of their credit report at their request once every ____________.
12 months
The Home Mortgage Disclosure Act (HMDA) was passed in ______.
1975
The _______________________ requires financial institutions to maintain and disclose data about home purchases, home purchase pre-approvals, home improvement, and refinance applications involving 1 to 4 unit and multifamily dwellings. This data must be disclosed annually.
Home Mortgage Disclosure Act (HMDA)
The Home Mortgage Disclosure Act (HMDA) requires branches and loan centers to display _______________________.
An HDMA poster
The Federal Reserve Board designed Home Mortgage Disclosure Act (HMDA) to:
1) Help public officials to distribute public-sector investments.
2) Discover if financial institutions are serving housing needs of communities.
3) Identify where there are discriminatory lending practices.
The Home Mortgage Disclosure Act (HMDA) covers a ______________________ which the regulation defines as a bank, savings association, or a credit union that meets all of the following criteria:
- It has at least $37 million in assets (as of 2008; the limit varies each year).
- It has a home or branch office in one or more Metropolitan Statistical Areas (MSAs).
- It has made at least one home mortgage loan in the preceding year.
- The company itself is federally-insured or regulated, Has originated a mortgage loan that was insured, guaranteed, or supplemented by a federal agency, or at least one of the loans it made was intended to be sold to Fannie Mae or Freddie Mac.
depository institution
According to RESPA, a real estate firm may offer a _____________________that:
1) Provides a prospective borrower information about mortgage loan products
2) Prequalifies a borrower
3) Initiates a loan application process for a fee
However, RESPA allows only the borrower to pay the fee for such a service. In addition, the broker must disclose the fact that there are competing mortgage products that are not part of the system.
computerized loan origination system (CLO)
Loan servicers must provide borrowers with an _______________________ which summarizes all inflows and outflows in the prior 12-month period. The statement must also disclose shortfalls or overages in the account, and how the discrepancies will be resolved.
Annual escrow statement
The combination of computerized underwriting with ___________________ can make it possible to obtain loan approval in a matter of hours instead of weeks.
Drive-by appraisals
HUD has a system called the ___________________________. In it, FHA-approved lenders collect personal data as an integral part of a loan application. The information is used to verify income and work history and other factors necessary to ensure accurate and complete underwriting of FHA loans.
Computerized Homes Underwriting Management System (CHUMS)
The _______________, named for Fair Isaac and Company who created the test, is the result of a scoring process that awards or deducts points based on certain items and does an assessment of the borrower’s credit risk.
FICO score
The FICO score bases the score on certain items:
1) How timely the borrower makes payments on other loans, credit cards, etc. (35 percent of the score)
2) How much the borrower currently owes (30 percent of score)
3) How long the borrower has had credit (15 percent of score)
4) The number of inquiries that have been made to the borrower’s credit report (10 percent of score)
5) What other types of credit the borrower currently has (10 percent of score)
A ________________________, containing credit information from all three of the credit bureaus.
Tri-merge credit report
Freddie Mac has an electronic underwriting system called __________________.
Loan Prospector
Loan Prospector features include:
1) Offers lenders three easy-to-learn documentation levels, which allow them to collect only the amount of information actually needed from the borrower.
2) Allows lenders to easily access merged credit reports from the various credit reporting agencies. The agencies that provide merged reports to Loan Prospector® lenders are:
- CBCInnovis
- Equifax Mortgage Solutions
- FIS Credit Services
- First American CREDCO
- Kroll Factual Data
- LandAmerica
- LandSafe
3) Provides feedback to lenders concerning the minimum collateral assessment that is required for the loan to be eligible for sale to Freddie Mac.
Why was the Community Reinvestment Act passed?
To prevent redlining
What two automated underwriting systems are available for users under Fannie Mae?
1) Desktop Underwriter
2) Desktop Originator
The _________________________ requires that lenders report statistical information each year to insure that lenders are not restricting loans to certain individuals or neighborhoods to exclude them from obtaining a mortgage (called “redlining”).
Home Mortgage Disclosure Act of 1975
The Fair Credit Reporting Act, or Title VI of the Consumer Credit Protection Act of 1968, requires that lenders:
1) Keep all credit information confidential.
2) Obtain authorization from a consumer in order to seek the customer’s credit information.
3) Reveal the sources of the credit information to the consumer.
HMDA laws apply to what type of institutions?
Depository institutions and nondepository mortgage lending institutions
True or false: Regulation Z applies to all loans that are secured by a residence but does not apply to commercial loans, or agricultural loans over $25,000.
True
When did the Equal Credit Opportunity Act (ECOA) become effective?
October 28, 1975
