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MLO > Chapter 2: Learning the Products & Programs > Flashcards

Chapter 2: Learning the Products & Programs Flashcards

Learning Objectives for Chapter 2 • Redefine all the different mortgage products like fixed, ARM, construction and bridge • Explain the basic qualifications for conventional, VA, FHA and USDA loans • Describe mortgage insurance, loan to value, bankruptcy, debt-to-income, down payment, loan limits, seller concessions and reserves • Outline the QM and ATR Rules • Understand non-traditional and non-QM loans • Restate the requirements under HOEPA and Section 35 of TILA

1
Q

The fixed rate mortgage is

A

the most common type of mortgage available.

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2
Q

Briefly describe a fixed rate mortgage, including potential terms and the way the interest
rate works.

A

The fixed-rate mortgage is the most common type of mortgage available.

Simply, it is a mortgage with a fixed interest rate over the entire term of the loan.

A Fixed Rate Mortgage has fixed terms of 10 years, 15 years, 20 years, 25 years, or 30 years. The only time a payment changes on a fixed-rate mortgage is in the event of the borrower’s taxes and insurance increasing (if the borrower is escrowing) or when the mortgage insurance is removed

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3
Q

What types of things are escrowed?

A

Taxes, Insurance, Homeowner’s Association Fees, Mortgage Insurance

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4
Q

A 30-year fixed rate mortgage is

A

considered a traditional mortgage.

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5
Q

The interest rate adjustment on an ARM is determined by what three things:

A

a. Initial interest rate
b. margin
c. index

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6
Q

TRUE OR FALSE. The margin fluctuates with the market. The index is assigned at the loan origination and always stays the same

A

False

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7
Q

There are three types of interest rate caps that exist on ARMs:

A

The first adjustment cap
The subsequent adjustment cap
The lifetime adjustment cap

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8
Q

Hybrid ARMs are

A

often advertised as 3/1, 5/1. 7/1 or 10/1 ARMs. These types of ARMs are a mix between fixed rate and adjustable rate mortgages

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9
Q

Typically, interest-only ARMs allow for interest only payment for

A

3 to 10 years

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10
Q

The payment option ARM allows the borrower to choose from several payment options. The
options typically include:

A

1 an interest-only payment
2 a minimum payment
3 a combined PMT

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11
Q

An interest only payment is

A

the borrower pays only the interest on the loan each month

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12
Q

a minimum payment is

A

the borrower pays a payment that can be less than the interest due that month, which may increase the amount the borrower owes on the mortgage (known as negative amortization)

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13
Q

a combined PMT payment is

A

payment that includes the interest payment and a payment towards the principal.

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14
Q

What is a construction loan?

A

A construction loan generally has higher interest rates than longer-term mortgage loans used to purchase homes. The money borrowed through a construction loan is provided in a series of advances as the construction progresses.

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15
Q

What is a bridge loan?

A

A bridge loan is a short-term loan secured by the borrower’s current home (which is usually for sale) that allows the borrower to use their equity for building or down payment on a purchase of a new home before the current home sells.

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16
Q

What is a graduated payment loan?

A

A graduated-payment mortgage (GPM) is a mortgage that has a low initial monthly payment that gradually increases over a specified time frame designated at the time of origination. A GPM uses negative amortization to allow the borrower to have an initially discounted monthly payment. GPM’s typically require a larger than usual down payment

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17
Q

Give an example of negative amortization

A

A borrower receives a $100,000 loan. He selects a graduated payment mortgage and initially pays only $200 a month toward his mortgage. That $200 only covers a portion of the $600 of interest that accrues on the loan every month. That additional $400 a month is added back to the principal balance. So, while the borrower took out a mortgage for $100,000 the principal loan.

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18
Q

What is a HELOC?

A

A Home Equity Line of Credit or a HELOC is a type of revolving loan that enables a homeowner to obtain multiple advances of the loan proceeds at his or her discretion, up to an amount that represents a specified percentage of the borrower’s equity in their property.

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19
Q

What is a balloon mortgage?

A

A balloon mortgage is a mortgage that requires a larger than usual one-time payment at the end of the term. These loans generally have P&I payments before the balloon payment comes due, but the borrower will owe a big amount at the end of the loan.

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20
Q

What’s the difference between a conforming and a non-conforming loan?

A

A conforming mortgage is a mortgage that conforms with Fannie Mae and Freddie Mac guidelines.

A non-conforming loan is any loan that does not conform to Fannie Mae and Freddie Mac guidelines.

A conventional loan can be either non-conforming or conforming. In this section, we are going to talk specifically about conventional conforming mortgages.

Conventional loans can be a fixed-rate mortgage, adjustable-rate mortgages, balloon mortgages, or hybrid mortgages, as long as the loan meets Fannie or Freddie’s requirements.

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21
Q

Fannie Mae uses the AUS called

A

DU

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22
Q

Freddie uses the AUS named

A

LP

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23
Q

Facts on Conventional Loans:

Maximum Debt to Income

A

Manually Underwritten 28/36%

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24
Q

Facts on Conventional Loans:

Minimum Down Payment

A

Minimum Down Payment is 3% (Up to 97% LTV)

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25
Q

Facts on Conventional Loans:

Minimum Credit Score

A

Depends, but general rule of thumb is 640 FICO (thought it can go lower)

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26
Q

Facts on Conventional Loans:

Loan Limit

A

$510,400 conforming, over is a non-conforming conventional loan

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27
Q

Facts on Conventional Loans:

Private Mortgage Insurance (PMI)

A

Required on conventional loans with less than 20% down (or LTVs over 80%)

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28
Q

Facts on Conventional Loans:

Appraisal

A

Required unless Fannie Or Freddie give an Appraisal Waiver when the loan goes through the automated Underwriting system, then it is not required

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29
Q

Facts on Conventional Loans:

Gift Fund Allowed for Down Payment?

A

Yes

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30
Q

Facts on Conventional Loans:
Borrower’s with Bankruptcy?

A

4 years from Chapter 13 discharge or dismissal Chapter 7 filing - 4 years, or 2 years with
extenuating circumstances

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31
Q

Facts on Conventional Loans:

Borrower’s after Foreclosure?

A

7 years from foreclosure, 4 years from short sale

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32
Q

Facts on Conventional Loans:

LTV requirements on cash-out refinances

A

85% Maximum LTV

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33
Q

Facts on Conventional Loans:

Reserves

A

Usually 2 to 4 months

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34
Q

Facts on Conventional Loans:

Seller Concessions

A

3%

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35
Q

Facts on Conventional Loans:

Non-Occupying Co-Borrower

A

Not allowed

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36
Q

Facts on Conventional Loans:

Assumable?

A

No

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37
Q

Facts on Conventional Loans:

Employment History

A

2 years

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38
Q

What’s the difference between Chapter 7 and Chapter 13 bankruptcy?

A

Chapter 7 provides for the complete liquidation of the debtor’s debts, while Chapter 13 provides for the debtor to pay back their lenders through a payment plan decided by the court.

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39
Q

Debt to income is

A

is a calculation made to determine whether the borrower has the ability to pay for the loan they are attempting to receive.

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40
Q

Loan to value is

A

is another calculation made to determine whether a borrower qualifies for a property or not. Programs require that borrowers put a specific amount down or have a specific amount of equity in their property to obtain a loan.

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41
Q

The down payment is

A

is a portion of the price of the home (depending on the program the minimum down payment may be as little as 3 percent or as much as 20 percent (or more).

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42
Q

The loan limit for

A

for a conventional mortgage on a 1-unit property in the contiguous United States, plus the District of Columbia and Puerto Rico is $510,400.

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43
Q

seller concessions

A

When the seller of a home agrees to pay certain costs associated with the closing process on behalf of the borrower

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44
Q

Reserves

A

is the cash amount that the borrower has available after making a down payment and paying closing costs for the purchase of a home

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45
Q

Give an example of when PMI would be needed on a conventional loan.

A

Private Mortgage Insurance (also known as PMI) is required on all conventional/conforming loans when the borrower’s down payment is less than twenty percent (20%) or if the loan has an LTV of more than eighty percent (80%)

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46
Q

Federal Mortgage Law Quick Facts:

The Homeowner’s Protection Act

A

Federal Mortgage Law Quick Facts: The Homeowner’s Protection Act

Regulation: N/A

Acronym: HPA

Year Created: 1998

Main Purpose: Regulates private mortgage insurance

Important Terms Related to this Law:
Private mortgage insurance (PMI) and Loan to Value (LTV)

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47
Q

What is the purpose of the HPA?

A

The Homeowner’s Protection Act of 1998 was created to regulate the cancellation of private mortgage insurance (PMI). On all non-high risk residential mortgage transactions with private mortgage insurance, a borrower can initiate the cancellation of PMI coverage by submitting a written request to the servicer.

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48
Q

The servicer is required to act on that request when:

A

The Homeowners Protection Act provides two ways for private mortgage insurance to be cancelled/removed. They are:

  • When the borrower has at least _20____percent equity in their home and has paid down the mortgage balance to ___80___ percent; and
  • When the balance owed drops to _78____ percent, the lender/servicer is required to remove PMI.
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49
Q

Facts on FHA Loans:

Maximum Debt to Income

A

31/43$

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50
Q

Facts on FHA Loans:

Minimum Down Payment

A

Minimum Down Payment is 3.5% (Up to 96.5% LTV).

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51
Q

Facts on FHA Loans:

Minimum Credit Score

A

580 with 3.5% down or 500- 579 if the borrower puts down
10% or more.

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52
Q

Facts on FHA Loans:

Monthly Mortgage Insurance

A

yes-required

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53
Q

Facts on FHA Loans:

Upfront Mortgage Insurance

A

Yes- required

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54
Q

Facts on FHA Loans:

Appraisal

A

Required

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55
Q

Facts on FHA Loans:

Gift funds allowed for down payment?

A

yes

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56
Q

Facts on FHA Loans:

Borrowers with Bankruptcy

A

2 years from Chapter 13 discharge, 1 year from Chapter 7 filing

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57
Q

Facts on FHA Loans:

Borrowers after foreclosure

A

3 years from foreclosure

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58
Q

Facts on FHA Loans:

LTV requirements on cash-out refinances

A

85% macimum LTV

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59
Q

Facts on FHA Loans:

Reserves

A

No reserve requirement

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60
Q

Facts on FHA Loans:

Seller concessions

A

6% maximum

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61
Q

Facts on FHA Loans:

Non-occupying co-borrower

A

allowed

62
Q

Facts on FHA Loans:

Assumable?

A

Yes, with an FHA creditworthiness check

63
Q

Facts on FHA Loans:

Employment History

A

FHA loans are less strict on employment history. FHA loans are for people who have less than perfect credit and income qualifications

64
Q

Facts on FHA Loans:

Owner Occupancy

A

Yes (must move in within 60 days)

65
Q

FHA (Federal Housing Administration) Loans are

A

insured by the Department of Housing and
Urban Development (HUD).

66
Q

A lender must be

A

approved to originate FHA loans.

67
Q

What does it mean if a loan is assumable?

A

Assumable loans allow for a borrower to assume a current mortgage generally with little to no change in terms (especially the interest rate) if approved by the lender

68
Q

Underwriters or lenders use FHA’s “4 C’s of Underwriting” when evaluating FHA applications:

A
  • Credit history of the borrower
  • Capacity to repay the loan
  • Cash assets available to close the mortgage
  • Collateral, which evaluates the value of the home
69
Q

If the borrower has ever defaulted on a student loan or is delinquent or in default on any other type of federal debt, the borrower would

A

not qualify for an FHA loan.

70
Q

What is an example of a compensating factor?

A

An example of a compensating factor is if a borrower has successfully demonstrated that they have been able to pay a housing expense greater than or equal to the proposed monthly housing expense for the new mortgage in the past 12-24 months.

71
Q

The UFMIP is paid in a one-time payment at closing and the cost is financed into the loan amount. The UFMIP is currently at _____?

A

1.75% of the base loan amount. When a borrower takes out a mortgage with a term of 15 years or more, the annual mortgage insurance premium will be as follows:

look at card

72
Q

What is the difference between PMI and MMI?

A

A borrower purchased Private Mortgage Insurance for a conventional loan through a third-party company. Mortgage Insurance Premium and Upfront Mortgage Insurance Premiums are paid directly to the FHA. It’s important to remember the difference between the two, particularly when you are talking to your borrowers. Mortgage Insurance Premium on FHA loans can sometimes be less expensive than PMI, so it’s important to compare both options when comparing loan scenarios

73
Q

FHA has a maximum loan amount that they will insure (known as the lending limit). These limits are updated annually and are based upon the

A

location of the property

74
Q

The term “streamline” is

A

used as these refinances require less documentation and underwriting, and in some instances, may not require an appraisal.

75
Q

What is a reverse mortgage/HECM?

A

A reverse mortgage is a type of home equity loan. The most common type of reverse mortgage is the FHA Home Equity Conversion Mortgage or HECM. A HECM is a particular type of mortgage/home equity loan developed and insured by the Federal Housing Administration (FHA) that enables older homeowners to convert the equity they have in their homes into cash, using a variety of payment options to address their specific financial needs

76
Q

The main qualifications of a reverse mortgage are that the borrower must be over ______?

A

62 years old and have a principal residence that is either paid off or have a low mortgage balance that may be paid off at settlement with the proceeds from the reverse loan.

77
Q

If the borrower dies, there are a few options regarding how the reverse mortgage may be satisfied.

A
  • The borrower’s estate/heirs may sell the home and pay off the reverse mortgage.
  • The borrower’s estate/heirs may pay off the reverse mortgage and keep the
    property.
  • The borrower’s estate/heirs may surrender the property to the lender of the reverse
    mortgage.
78
Q

There are five payment options available on a HECM:

A

Tenure
Term
Line of Credit
Modified Tenure
Modifies Term

79
Q

Tenure

A

the borrower receives monthly payments from the lender as long as the borrower lives and continues to occupy the home as a principal residence.

80
Q

Term

A

the borrower receives monthly payments for a fixed period of time (Example: 20-year term: The borrower receives monthly payments for 20 years).

81
Q

Line of Credit

A

The borrower can make withdrawals (up to a set maximum amount) at the borrower’s discretion.

82
Q

Modified Tenure

A

A combination of the tenure and a line of credit options.

83
Q

Modified Term

A

A combination of the term and line of credit options.

84
Q

Facts on VA Loans:

Maximum Debt to Income

A

41% with Residual Income

85
Q

Facts on VA Loans:

Minimum Down Payment

A

0% (100% financing available) on purchase transactions

86
Q

Facts on VA Loans:

Minimum Credit Score

A

N/A

87
Q

Facts on VA Loans:

Monthly Mortgage Insurance

A

No - funding fee

88
Q

Facts on VA Loans:

Upfront Mortgage Insurance

A

No-funding fee

89
Q

Facts on VA Loans:

Appraisal

A

Required

90
Q

Facts on VA Loans:

Gift funds allowed for down payment?

A

No down payment required

91
Q

Facts on VA Loans:

Borrower’s with bankruptcy

A

2 years after Chapter 7 discharge - 1 year after Chapter 13 filing

92
Q

Facts on VA Loans:

Borrower’s after Foreclosure?

A

2 years after foreclosure

93
Q

Facts on VA Loans:

LTV requirements on cash-out refinances

A

90% cash out with a 23% funding fee

94
Q

Facts on VA Loans:

Reserves

A

No reserve requirement

95
Q

Facts on VA Loans:

Seller Concessions

A

4%

96
Q

Facts on VA Loans:

Assumable

A

Yes

97
Q

Owner Occupancy

A

Yes (move into the property within 60 days)

98
Q

The VA guarantees

A

all VA loans

99
Q

COE stands for

A

Certificate of Eligibility

100
Q

The basic entitlement that is available to the veteran is

A

$36,000

Most lenders will lend up to 4 times the Veteran’s available entitlement without a down payment.

101
Q

The VA has a second tier, called bonus entitlement

A

The veteran may want to buy a home that costs more than $144,000. To help veterans do this, the VA offers what’s called bonus (or Tier 2) entitlement. To determine a veteran’s bonus entitlement, the VA will look at the Federal Housing Finance Agency’s (FHFA’s) current national conventional financing confirming limit and the veteran’s state’s county loan limits. We’ll guarantee 25% of their loan amount, based on these loan limits.

102
Q

First Time Use:

Down payment amount - Veteran

A

First Time Use: Down payment amount

Less than 5% = 2.3%

At least 5% but less than 10% = 1.65%

10% or more = 1.4%

103
Q

Subsequent Use:

Down payment amount - Veteran

A

Down payment amount

Less than 5% = 3.6%

At least 5% but less than 10% = 1.65%

10% or more = 1.4%

104
Q

When a VA appraisal is completed, it is underwritten by a LAPP (Lender Approved Processing Program). The Lender’s underwriter then issues a

A

NOV

105
Q

The VA maintains that a

A

1% maximum origination charge may be charged on a VA loan.

106
Q

IRRL stands for

A

Interest Rate Reduction Refinance Loan

107
Q

TRUE OR FALSE. IRRL’s allow for no more than 10% cash out.

A

False

108
Q

The funding fee on an IRRRL is

A

0.50% for everyone.

109
Q

Facts on USDA Loans:

Maximum Debt to Income

A

29/41%

110
Q

Facts on USDA Loans:

Minimum Down Payment

A

0% (100% financing available on purchase transactions

111
Q

Facts on USDA Loans:

Minimum Credit Score

A

N/A

112
Q

Facts on USDA Loans:

Monthly Mortgage Insurance

A

No, guarantee fee

113
Q

Facts on USDA Loans:

Upfront Mortgage Insurance

A

No, guarantee fee

114
Q

Facts on USDA Loans:

Income Limits

A

115% max of area median

115
Q

Facts on USDA Loans:

Appraisal

A

Required

116
Q

Facts on USDA Loans:

Gift funds allowed for down payment?

A

No down payment required

117
Q

Facts on USDA Loans:

Borrower’s with bankruptcy?

A

3 years from Chapter 7 discharge, 1 year from Chapter 13 filing

118
Q

Facts on USDA Loans:

Reserves

A

No reserve requirement

119
Q

Facts on USDA Loans:

Seller concessions

A

unrestricted amount

120
Q

USDA approved lenders can only offer?

A

30-year loans for USDA borrowers

121
Q

There is the monthly and the initial guarantee fee. On USDA loans the initial guarantee fee
is

A

1 percent. The monthly guarantee fee is .35 percent.

122
Q

A jumbo loan

A

is a loan that exceeds 484,350. Jumbo loans are treated as conventional, but non-conforming loans.

123
Q

Explain what a Subprime Mortgage is and Give an Example.

A

Subprime loans were manually underwritten. They had little or no amortization or included negative amortization features.

Subprime loans had low credit requirements (credit scores in the 500’s). They also may not require private mortgage insurance or escrow features.

A lot of these types of loans had little verification of what the borrower was presenting as their income, assets, or employment. The lack of verification made them incredibly risky for lenders.

These loans usually came with much higher interest rates, and usually, the borrower could not afford the loan.

124
Q

A few examples of subprime loans include:

A
  • NINA – No Income/No Asset Mortgages - Often referred to as “No Doc” mortgages. The borrower is not required to provide any financial information regarding their income or their assets.
  • SISA- State Income/Stated Asset – SISSA loans only require the borrower to state their income and asset situation but do not require the verification of the income or asset information
125
Q

What is the Interagency Guidance on Nontraditional Mortgage Product Risks?

A

The Guidance provides guidelines to lenders regarding nontraditional mortgage products.

The Guidance defines nontraditional mortgage products as products that allow borrowers to defer principal and, in some cases, interest.

These include products with interest-only features and products that have the potential for negative amortization, including products with flexible payment options.

126
Q

What is payment shock?

A

Payment shock is what occurs when a borrower’s payment suddenly increases. Payment shock happens in situations where the interest rate is variable, or there is an introductory interest rate.

127
Q

What is a simultaneous second?

A

The Guidance also indicates that a lender should not rely solely on the amount of collateral (equity) the borrower has in the property when making the loan.

This practice is not safe or sound underwriting. If a lender is going to allow no or low document loans or simultaneous seconds, the lender should document risk-mitigating features such as high credit scores, lower LTVs, lower DTIs, credit enhancements, and mortgage insurance.

128
Q

What is the statement on subprime mortgage lending?

A

The purpose of the statement was to promote consumer protection standards as well as encourage lenders to ensure that borrowers only obtain loans that they can afford to repay.

The Statement includes guidelines for defining predatory lending, underwriting standards, establishing control systems, and consumer protection.

129
Q

The Qualified Mortgage Rule

A

is a section of TILA that went into effect in 2014.

130
Q

There are four types of qualified mortgages:

A
  1. General QM
  2. Temporary QM
  3. Small Creditor
  4. Balloon Payment QM
131
Q

The QM requirements generally focus on?

A

prohibiting certain risky features and practices such as negative amortization and interest-only periods and loan terms loan than 30 years.

132
Q

Explain Safe Harbor vs. Rebuttable Presumption.

A

A QM loan that is not higher-priced has a safe harbor.

If the loan has a safe harbor, then they are conclusively presumed to comply with the ATR requirements.

Under a safe harbor, if a court finds that a mortgage a lender originated was a QM, then that finding conclusively establishes that the lender complied with the ATR requirements when they originated the mortgage.

133
Q

A rebuttable presumption occurs when

A

a QM loan is a higher-priced mortgage.

Under a rebuttable presumption, if a court finds that a mortgage a lender originated was a higher- priced QM, a consumer can argue that the lender violated the ATR Rule.

For the consumer to win that argument, they must show that based on the information available to the lender at the time, that the consumer did not have enough residual income left to meet living expenses after paying their mortgage and other debts.

134
Q

There are different requirements for the different types of QM but over the four types of QM there are a few things that remain the same:

A
  • A loan cannot be QM if they have negative amortization or interest-only payments
  • A loan cannot have a term longer than 30 years
  • There is a threshold on points and fees for QM loans – generally 3 percent of the
    loan balance
135
Q

There are four types of QM loans but the most common and the one that most MLOs will come across is the General QM. To be considered a General QM the creditor must:

A
  • Underwrite based on fully-amortizing schedule using the maximum rate permitted during the first 3 years after the date of the first payment
  • Consider and verify the consumer’s income, assets, debt obligations, alimony and child support obligations
  • Determine that the consumer’s total monthly debt-to-income is no more than 43 percent.
136
Q

To be considered a qualified mortgage, the points and fees on the loan cannot exceed the following thresholds (as of January 1, 2020):

A
  • 3 percent of the total loan amount for a loan greater than or equal to $109,898.
  • $3,297 for a loan greater than or equal to $65,939 but less than $109,898.
  • 5 percent of the total loan amount for a loan greater than or equal to $21,980 but
    less than $65,939.
  • $1,099 for a loan greater than or equal to $13,737 but less than $21,980.
  • 8 percent of the total loan amount for a loan less than $13,737.
137
Q

The ATR Rule has 8 underwriting factors that creditors must consider and verify. Those eight underwriting factors are:

A
  1. Current or reasonably expected income or assets (other than the value of the property that secures the loan) that the consumer will rely on to repay the loan.
  2. Current employment status (if you rely on employment income when assessing the consumer’s ability to repay)
  3. The monthly mortgage payment for this loan.
  4. Monthly payment on any simultaneous loan secured by the same property
  5. Monthly payment for property taxes and insurance that you require the consumer to buy, and certain other costs related to the property such as homeowner’s association fees or ground rent.
  6. The borrower’s debts, alimony, and child-support obligations.
  7. Monthly debt-to-income ratio or residual income
  8. Credit history
138
Q

A Non-Qualified Mortgage or Non-QM loan is

A

a loan that does not conform with the Qualified Mortgage rule; it also means that the loan is not accepted by government-sponsored entities like Fannie Mae or Freddie Mac. Non-QM loans cater to the not-so-perfect borrower.

139
Q

HOEPA is known as

A

The Homeownership and Equity Protection Act.

140
Q

The following types of transactions are required to be tested against the HOEPA coverage tests. If they meet these coverage tests, then they are required to comply with restrictions under HOEPA on loan terms and other protections related to high-cost mortgages.

These types of transactions are:

A
  • Purchase-money loans.
  • Refinances.
  • Closed-end home equity loans; and
  • Open-end credit plans (example: HELOCs).
141
Q

There are some exceptions; these types of transactions are exempt from HOEPA:

A
  • Reverse mortgages.
  • Construction loans.
  • Loans originated and directly financed by a Housing Finance Agency; or
  • Loans originated under the U.S. Department of Agriculture’s Rural Development Section 502 Direct Loan Program.
142
Q

For 2020, a high-cost home loans is considered a high cost home loan if the total points and fees charged in connection with the transaction exceeds:

A
  1. 5% of the loan amount for loans greater than $21,980 (OR)
  2. For loans less than $21,980 the lesser of 8% of the loan amount or $1,079
143
Q

There are three separate HOEPA coverage tests they are based on:

A
  • The transactions APR (Annual Percentage Rate).
  • The amount of points and fees paid in connection with the transaction; and
  • The prepayment penalties that are charged under the loan or credit agreement.
144
Q

The first test is the APR test, if the APR on the mortgage exceed the Average Prime Offer Rate (APOR) for a comparable transaction by more than the below percentages then the loan is considered a high-cost home loan:

A
  • 6.5 percent for first lien transactions
  • 8.5 percent for first lien transactions that are for less than $50,000 and secured by
    personal property
  • 8.5 percent for junior-lien transactions (second mortgages)
145
Q

The second test is the point and fees test, if a transaction exceeds the following thresholds then the loan is considered a high-cost mortgage:

A
  • 5 percent of the total loan amount for a loan amount greater than or equal to $21,549
  • 8 percent of the total loan amount or $1,079 (whichever is less) for a loan amount less than $21,549
146
Q

The last test is the prepayment penalty coverage test, a transaction is a high-cost mortgage if the loan includes a prepayment penalty that:

A
  • Is more than 36 months after consummation or account opening
  • In an amount more than 2 percent of the amount prepaid
147
Q

HOEPA also restricts or banks some risky loan features for ?

A

high-cost mortgages, including balloon payments, prepayment penalties and due-on-demand features.

148
Q

Name four things that HOEPA further restricts on high-cost mortgages:

A
  • Recommending default on any existing loan to be refinanced by a high cost mortgage.
  • Charging a fee to modify, defer, extend or amend a high- cost mortgage.
  • Late fees cannot exceed 4 percent of the past-due payment, and pyramiding late fees
    is prohibited.
  • Fees for payoff statements are generally banned.
149
Q

Higher-priced mortgages (HPML) are similar to

A

high-cost mortgages and are covered in Section 35 of TILA

150
Q

A mortgage loan covered by Section 35 is a closed-end consumer credit transaction secured by a consumer’s principal dwelling with an APR that exceeds the APOR for a comparable transaction by:

A
  • 1.5 percent for loans secured by a first lien loans
  • 3.5 percent for second lien loans
151
Q

Further, a creditor is prohibited from

A

extending a higher-priced mortgage loan without first obtaining a written appraisal of the property to be mortgaged.

The appraisal must be provided to the borrower no later than 3 business days prior to consummation.

152
Q

Name two things when originating higher-priced mortgages, the creditor cannot do.

A
  • Rely on the collateral alone for repayment of the loan, without considering the borrower’s financial ability to make payments.
  • Rely on the consumer provided information on income and assets without verification.

MLO (5 decks)

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