Chapter 3 Flashcards
What is the primary goal of the Ability-to-Repay (ATR) rule?
To ensure creditors make a reasonable and good faith determination of a borrower’s ability to repay their loan.
Chapter 3, p. 92
What types of loans are excluded from ATR/QM requirements?
HELOCs, timeshare plans, reverse mortgages, temporary bridge loans, and loans under Housing Finance Agency programs.
Chapter 3, p. 92
Name three factors creditors must consider under ATR rules.
Borrower’s income or assets, current employment status, and monthly mortgage payments.
Chapter 3, p. 93
What is the defense to foreclosure under ATR provisions?
Borrowers can assert violations of ATR requirements to challenge foreclosure within a three-year statute of limitations.
Chapter 3, p. 93
What damages can borrowers recover for ATR violations under TILA?
Actual damages, capped statutory damages of $4,000, finance charges, and attorney fees.
Chapter 3, p. 93
What is a Qualified Mortgage (QM)?
A mortgage meeting specific product and underwriting criteria to protect creditors from ATR liability.
Chapter 3, p. 94
What features are prohibited in Qualified Mortgages?
Negative amortization, interest-only payments, and balloon payments (with limited exceptions).
Chapter 3, p. 94
What is the maximum loan term for Qualified Mortgages?
30 years.
Chapter 3, p. 94
What are Loan Level Price Adjustments (LLPAs)?
Additional fees assessed on conventional loans based on risk factors like credit score, LTV, and property type.
Chapter 3, p. 97
What is the 2023 conforming loan limit for single-family homes?
$726,200.
Chapter 3, p. 97
What is the purpose of Fannie Mae’s Desktop Underwriter (DU)?
An automated system to evaluate borrower credit risk and loan eligibility.
Chapter 3, p. 96
What are the three outcomes possible from DU?
Approve/Eligible, Approve/Ineligible, and Refer with Caution.
Chapter 3, p. 96
What is a Seasoned QM?
A non-QM loan achieving QM status after 36 months of on-time payments and meeting certain criteria.
Chapter 3, p. 95
What does the FHA’s Upfront Mortgage Insurance Premium (UFMIP) rate currently stand at?
1.75% of the loan amount.
Chapter 3, p. 101
What is the minimum down payment required for FHA loans?
3.5% of the purchase price.
Chapter 3, p. 102
What is a VA Certificate of Eligibility (COE)?
A document issued by the VA confirming a veteran’s eligibility for VA loans.
Chapter 3, p. 106
What is the purpose of a Certificate of Reasonable Value (CRV) in VA loans?
It establishes the maximum value of the property for VA purposes based on an appraisal.
Chapter 3, p. 107
What is the maximum seller concession allowed for VA loans?
4% of the property’s reasonable value.
Chapter 3, p. 109
What is the VA funding fee for first-time homebuyers with no down payment?
2.3% of the loan amount.
Chapter 3, p. 109
What are the two types of RHS loans?
RHS Direct Loans (government-funded) and RHS Guaranteed Loans (private lender-funded with RHS guarantee).
Chapter 3, p. 109
What is the income eligibility requirement for USDA loans?
Household income must not exceed 115% of the area median income.
Chapter 3, p. 110
What is the upfront guarantee fee for USDA loans?
1% of the loan amount.
Chapter 3, p. 111
What is the annual fee for USDA loans?
0.35% of the unpaid principal balance.
Chapter 3, p. 111
What is a Jumbo Loan?
A non-conforming loan exceeding the conforming loan limit set by Fannie Mae and Freddie Mac.
Chapter 3, p. 112
What is an Interest-Only ARM?
A loan where the borrower pays only interest for a set term before principal repayment begins.
Chapter 3, p. 118
Define ‘payment shock’ in ARM loans.
A significant increase in monthly payments when an ARM’s interest rate adjusts.
Chapter 3, p. 113
What is the Fully Indexed Rate (FIR) in an ARM?
The index rate plus the lender’s margin, determining the ARM’s interest rate.
Chapter 3, p. 116
What is a Hybrid ARM?
A mortgage with a fixed interest rate for an initial period before transitioning to adjustable rates.
Chapter 3, p. 118
What is a Balloon Mortgage?
A loan with small periodic payments and a large final payment due at maturity.
Chapter 3, p. 119
What is a Construction Loan?
A short-term loan used to finance the building of a home, typically lasting up to one year.
Chapter 3, p. 120
What are the key features of a Fixed-Rate Mortgage?
Constant interest rate and monthly payments for the life of the loan.
Chapter 3, p. 115
What is the purpose of Fannie Mae’s Loan Level Price Adjustments (LLPAs)?
To adjust loan pricing based on risk factors like credit score and loan type.
Chapter 3, p. 97
What does PITI stand for in mortgage payments?
Principal, Interest, Taxes, and Insurance.
Chapter 3, p. 108
What is the debt-to-income (DTI) ratio threshold for VA loans?
41%, with exceptions for compensating factors.
Chapter 3, p. 108
What is a Reverse Mortgage?
A loan allowing seniors to convert home equity into cash without monthly payments, repaid upon sale or borrower’s passing.
Chapter 3, p. 104
What is the minimum credit score for FHA loans with 3.5% down?
Chapter 3, p. 102
What is a Certificate of Reasonable Value (CRV)?
A VA appraisal document determining a property’s maximum loan value.
Chapter 3, p. 107
What are the FHA loan limits for high-cost areas in 2023?
$1,089,300 for single-family homes.
Chapter 3, p. 102
What is the purpose of HUD counseling in reverse mortgages?
To educate borrowers on costs, risks, and benefits of the loan.
Chapter 3, p. 105
What is the maximum LTV for FHA loans?
96.5% for purchase money mortgages.
Chapter 3, p. 102
What are the primary components of VA residual income?
PITI (Principal, Interest, Taxes, and Insurance), child care expenses, federal and state taxes, and monthly consumer debt obligations.
Chapter 3, p. 108
What are VA funding fee exemptions?
Veterans receiving VA compensation for service-connected disabilities, surviving spouses of veterans, and active-duty personnel with a Purple Heart.
Chapter 3, p. 109
What is the maximum IPC (Interested Party Contribution) for FHA loans?
Up to 6% of the lesser of the sales price or appraised value.
Chapter 3, p. 103
What is a HECM loan?
Home Equity Conversion Mortgage, an FHA reverse mortgage for seniors 62 years or older.
Chapter 3, p. 104
What is the purpose of the USDA GUS system?
To automate the processing and underwriting of Rural Development Single Family Housing Guaranteed Loans.
Chapter 3, p. 111
What is a ‘teaser rate’ in an ARM loan?
A discounted initial interest rate offered to attract borrowers.
Chapter 3, p. 116
What is negative amortization in an Option ARM?
When unpaid interest is added to the principal balance, increasing the loan amount.
Chapter 3, p. 118
What are the key risk factors for nontraditional mortgages?
Payment shock, reduced documentation, and risk layering with simultaneous second-lien loans.
Chapter 3, p. 113
What is a non-conforming loan?
A loan that does not meet Fannie Mae/Freddie Mac guidelines, often requiring higher credit scores and larger down payments.
Chapter 3, p. 112
What is the maximum allowable DTI for USDA loans?
41% of gross monthly income.
Chapter 3, p. 110
What is a construction-to-permanent loan?
A loan combining construction financing with permanent mortgage terms upon completion.
Chapter 3, p. 120
What is the role of HUD in FHA loans?
HUD oversees FHA loan programs and establishes rules for compliance.
Chapter 3, p. 101
What is the Loan Product Advisor (LPA)?
Freddie Mac’s automated underwriting system for assessing borrower credit risk.
Chapter 3, p. 96
What is the purpose of Regulation Z in mortgage lending?
To enforce the ATR/QM Rule and protect consumers from unfair lending practices.
Chapter 3, p. 92
What is the penalty for ATR violations under TILA?
Borrowers can recover actual damages, capped statutory damages, and attorney fees.
Chapter 3, p. 93
What are the FHA’s annual MIP requirements?
0.55% of the base loan amount, paid monthly.
Chapter 3, p. 101
What does the VA’s residual income threshold ensure?
That borrowers have sufficient income after expenses to cover living costs.
Chapter 3, p. 108
What is a Fixed-Rate Mortgage (FRM)?
A mortgage with a constant interest rate and monthly payment throughout the term.
Chapter 3, p. 115
What is an Alt-A loan?
A loan with risk characteristics between prime and subprime, often involving reduced documentation.
Chapter 3, p. 112
What is the FHA’s owner-occupancy requirement?
The borrower must occupy the home as their primary residence within 60 days of closing.
Chapter 3, p. 103
What is the maximum conforming loan amount for a four-family property in 2023?
$1,396,800.
Chapter 3, p. 97
What is the purpose of a DU Underwriting Findings Report?
To summarize loan eligibility and risk recommendations for Fannie Mae loans.
Chapter 3, p. 96
What is the penalty for exceeding IPC limits on FHA loans?
The property’s sales price is adjusted downward, and the maximum LTV ratio is recalculated.
Chapter 3, p. 103
What is the annual adjustment limit for an ARM with a 2/6 cap?
2% per year with a 6% lifetime cap.
Chapter 3, p. 117
What is a balloon payment mortgage?
A loan requiring a large final payment that pays off the balance in full.
Chapter 3, p. 120
What are the five repayment options for HECM loans?
Tenure, Term, Line of Credit, Modified Tenure, and Modified Term.
Chapter 3, p. 104
What is a Qualified Mortgage’s maximum points and fees threshold?
3% of the total loan amount for loans above $110,260.
Chapter 3, p. 94
What is the FHA loan limit for low-cost areas in 2023?
$472,030 for single-family homes.
Chapter 3, p. 102
What is the purpose of the FHA 203(b) program?
To provide fixed-rate loans for purchasing or refinancing one-to-four-unit family dwellings.
Chapter 3, p. 104
What are ‘seller concessions’ in VA loans?
Contributions by the seller for buyer benefits, like funding fee payments or prepaid expenses.
Chapter 3, p. 109
What is the penalty for non-compliance with the ATR rule?
Lenders may face private lawsuits, fines.
Chapter 3, p. 92
What is the purpose of the FHA 203(b) program?
To provide fixed-rate loans for purchasing or refinancing one-to-four-unit family dwellings.
(Chapter 3, p. 104)
What are ‘seller concessions’ in VA loans?
Contributions by the seller for buyer benefits, like funding fee payments or prepaid expenses.
(Chapter 3, p. 109)
What is the penalty for non-compliance with the ATR rule?
Lenders may face private lawsuits, fines, and compensatory damages.
(Chapter 3, p. 93)
What is the FHA’s Streamline Refinance program?
A simplified process to refinance an existing FHA loan with minimal documentation.
(Chapter 3, p. 104)
What is the LTV limit for VA cash-out refinances?
Up to 100% of the appraised value.
(Chapter 3, p. 108)
What is the role of the FHA Mutual Mortgage Insurance Fund?
To cover losses from foreclosures and keep FHA programs self-sufficient.
(Chapter 3, p. 101)
