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Mortgage Loan Originator Exam > Chapter 3 > Flashcards

Chapter 3 Flashcards

1
Q

What is the primary goal of the Ability-to-Repay (ATR) rule?

A

To ensure creditors make a reasonable and good faith determination of a borrower’s ability to repay their loan.

Chapter 3, p. 92

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2
Q

What types of loans are excluded from ATR/QM requirements?

A

HELOCs, timeshare plans, reverse mortgages, temporary bridge loans, and loans under Housing Finance Agency programs.

Chapter 3, p. 92

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3
Q

Name three factors creditors must consider under ATR rules.

A

Borrower’s income or assets, current employment status, and monthly mortgage payments.

Chapter 3, p. 93

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4
Q

What is the defense to foreclosure under ATR provisions?

A

Borrowers can assert violations of ATR requirements to challenge foreclosure within a three-year statute of limitations.

Chapter 3, p. 93

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5
Q

What damages can borrowers recover for ATR violations under TILA?

A

Actual damages, capped statutory damages of $4,000, finance charges, and attorney fees.

Chapter 3, p. 93

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6
Q

What is a Qualified Mortgage (QM)?

A

A mortgage meeting specific product and underwriting criteria to protect creditors from ATR liability.

Chapter 3, p. 94

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7
Q

What features are prohibited in Qualified Mortgages?

A

Negative amortization, interest-only payments, and balloon payments (with limited exceptions).

Chapter 3, p. 94

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8
Q

What is the maximum loan term for Qualified Mortgages?

A

30 years.

Chapter 3, p. 94

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9
Q

What are Loan Level Price Adjustments (LLPAs)?

A

Additional fees assessed on conventional loans based on risk factors like credit score, LTV, and property type.

Chapter 3, p. 97

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10
Q

What is the 2023 conforming loan limit for single-family homes?

A

$726,200.

Chapter 3, p. 97

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11
Q

What is the purpose of Fannie Mae’s Desktop Underwriter (DU)?

A

An automated system to evaluate borrower credit risk and loan eligibility.

Chapter 3, p. 96

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12
Q

What are the three outcomes possible from DU?

A

Approve/Eligible, Approve/Ineligible, and Refer with Caution.

Chapter 3, p. 96

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13
Q

What is a Seasoned QM?

A

A non-QM loan achieving QM status after 36 months of on-time payments and meeting certain criteria.

Chapter 3, p. 95

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14
Q

What does the FHA’s Upfront Mortgage Insurance Premium (UFMIP) rate currently stand at?

A

1.75% of the loan amount.

Chapter 3, p. 101

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15
Q

What is the minimum down payment required for FHA loans?

A

3.5% of the purchase price.

Chapter 3, p. 102

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16
Q

What is a VA Certificate of Eligibility (COE)?

A

A document issued by the VA confirming a veteran’s eligibility for VA loans.

Chapter 3, p. 106

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17
Q

What is the purpose of a Certificate of Reasonable Value (CRV) in VA loans?

A

It establishes the maximum value of the property for VA purposes based on an appraisal.

Chapter 3, p. 107

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18
Q

What is the maximum seller concession allowed for VA loans?

A

4% of the property’s reasonable value.

Chapter 3, p. 109

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19
Q

What is the VA funding fee for first-time homebuyers with no down payment?

A

2.3% of the loan amount.

Chapter 3, p. 109

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20
Q

What are the two types of RHS loans?

A

RHS Direct Loans (government-funded) and RHS Guaranteed Loans (private lender-funded with RHS guarantee).

Chapter 3, p. 109

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21
Q

What is the income eligibility requirement for USDA loans?

A

Household income must not exceed 115% of the area median income.

Chapter 3, p. 110

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22
Q

What is the upfront guarantee fee for USDA loans?

A

1% of the loan amount.

Chapter 3, p. 111

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23
Q

What is the annual fee for USDA loans?

A

0.35% of the unpaid principal balance.

Chapter 3, p. 111

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24
Q

What is a Jumbo Loan?

A

A non-conforming loan exceeding the conforming loan limit set by Fannie Mae and Freddie Mac.

Chapter 3, p. 112

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25
Q

What is an Interest-Only ARM?

A

A loan where the borrower pays only interest for a set term before principal repayment begins.

Chapter 3, p. 118

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26
Q

Define ‘payment shock’ in ARM loans.

A

A significant increase in monthly payments when an ARM’s interest rate adjusts.

Chapter 3, p. 113

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27
Q

What is the Fully Indexed Rate (FIR) in an ARM?

A

The index rate plus the lender’s margin, determining the ARM’s interest rate.

Chapter 3, p. 116

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28
Q

What is a Hybrid ARM?

A

A mortgage with a fixed interest rate for an initial period before transitioning to adjustable rates.

Chapter 3, p. 118

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29
Q

What is a Balloon Mortgage?

A

A loan with small periodic payments and a large final payment due at maturity.

Chapter 3, p. 119

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30
Q

What is a Construction Loan?

A

A short-term loan used to finance the building of a home, typically lasting up to one year.

Chapter 3, p. 120

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31
Q

What are the key features of a Fixed-Rate Mortgage?

A

Constant interest rate and monthly payments for the life of the loan.

Chapter 3, p. 115

32
Q

What is the purpose of Fannie Mae’s Loan Level Price Adjustments (LLPAs)?

A

To adjust loan pricing based on risk factors like credit score and loan type.

Chapter 3, p. 97

33
Q

What does PITI stand for in mortgage payments?

A

Principal, Interest, Taxes, and Insurance.

Chapter 3, p. 108

34
Q

What is the debt-to-income (DTI) ratio threshold for VA loans?

A

41%, with exceptions for compensating factors.

Chapter 3, p. 108

35
Q

What is a Reverse Mortgage?

A

A loan allowing seniors to convert home equity into cash without monthly payments, repaid upon sale or borrower’s passing.

Chapter 3, p. 104

36
Q

What is the minimum credit score for FHA loans with 3.5% down?

A

Chapter 3, p. 102

37
Q

What is a Certificate of Reasonable Value (CRV)?

A

A VA appraisal document determining a property’s maximum loan value.

Chapter 3, p. 107

38
Q

What are the FHA loan limits for high-cost areas in 2023?

A

$1,089,300 for single-family homes.

Chapter 3, p. 102

39
Q

What is the purpose of HUD counseling in reverse mortgages?

A

To educate borrowers on costs, risks, and benefits of the loan.

Chapter 3, p. 105

40
Q

What is the maximum LTV for FHA loans?

A

96.5% for purchase money mortgages.

Chapter 3, p. 102

41
Q

What are the primary components of VA residual income?

A

PITI (Principal, Interest, Taxes, and Insurance), child care expenses, federal and state taxes, and monthly consumer debt obligations.

Chapter 3, p. 108

42
Q

What are VA funding fee exemptions?

A

Veterans receiving VA compensation for service-connected disabilities, surviving spouses of veterans, and active-duty personnel with a Purple Heart.

Chapter 3, p. 109

43
Q

What is the maximum IPC (Interested Party Contribution) for FHA loans?

A

Up to 6% of the lesser of the sales price or appraised value.

Chapter 3, p. 103

44
Q

What is a HECM loan?

A

Home Equity Conversion Mortgage, an FHA reverse mortgage for seniors 62 years or older.

Chapter 3, p. 104

45
Q

What is the purpose of the USDA GUS system?

A

To automate the processing and underwriting of Rural Development Single Family Housing Guaranteed Loans.

Chapter 3, p. 111

46
Q

What is a ‘teaser rate’ in an ARM loan?

A

A discounted initial interest rate offered to attract borrowers.

Chapter 3, p. 116

47
Q

What is negative amortization in an Option ARM?

A

When unpaid interest is added to the principal balance, increasing the loan amount.

Chapter 3, p. 118

48
Q

What are the key risk factors for nontraditional mortgages?

A

Payment shock, reduced documentation, and risk layering with simultaneous second-lien loans.

Chapter 3, p. 113

49
Q

What is a non-conforming loan?

A

A loan that does not meet Fannie Mae/Freddie Mac guidelines, often requiring higher credit scores and larger down payments.

Chapter 3, p. 112

50
Q

What is the maximum allowable DTI for USDA loans?

A

41% of gross monthly income.

Chapter 3, p. 110

51
Q

What is a construction-to-permanent loan?

A

A loan combining construction financing with permanent mortgage terms upon completion.

Chapter 3, p. 120

52
Q

What is the role of HUD in FHA loans?

A

HUD oversees FHA loan programs and establishes rules for compliance.

Chapter 3, p. 101

53
Q

What is the Loan Product Advisor (LPA)?

A

Freddie Mac’s automated underwriting system for assessing borrower credit risk.

Chapter 3, p. 96

54
Q

What is the purpose of Regulation Z in mortgage lending?

A

To enforce the ATR/QM Rule and protect consumers from unfair lending practices.

Chapter 3, p. 92

55
Q

What is the penalty for ATR violations under TILA?

A

Borrowers can recover actual damages, capped statutory damages, and attorney fees.

Chapter 3, p. 93

56
Q

What are the FHA’s annual MIP requirements?

A

0.55% of the base loan amount, paid monthly.

Chapter 3, p. 101

57
Q

What does the VA’s residual income threshold ensure?

A

That borrowers have sufficient income after expenses to cover living costs.

Chapter 3, p. 108

58
Q

What is a Fixed-Rate Mortgage (FRM)?

A

A mortgage with a constant interest rate and monthly payment throughout the term.

Chapter 3, p. 115

59
Q

What is an Alt-A loan?

A

A loan with risk characteristics between prime and subprime, often involving reduced documentation.

Chapter 3, p. 112

60
Q

What is the FHA’s owner-occupancy requirement?

A

The borrower must occupy the home as their primary residence within 60 days of closing.

Chapter 3, p. 103

61
Q

What is the maximum conforming loan amount for a four-family property in 2023?

A

$1,396,800.

Chapter 3, p. 97

62
Q

What is the purpose of a DU Underwriting Findings Report?

A

To summarize loan eligibility and risk recommendations for Fannie Mae loans.

Chapter 3, p. 96

63
Q

What is the penalty for exceeding IPC limits on FHA loans?

A

The property’s sales price is adjusted downward, and the maximum LTV ratio is recalculated.

Chapter 3, p. 103

64
Q

What is the annual adjustment limit for an ARM with a 2/6 cap?

A

2% per year with a 6% lifetime cap.

Chapter 3, p. 117

65
Q

What is a balloon payment mortgage?

A

A loan requiring a large final payment that pays off the balance in full.

Chapter 3, p. 120

66
Q

What are the five repayment options for HECM loans?

A

Tenure, Term, Line of Credit, Modified Tenure, and Modified Term.

Chapter 3, p. 104

67
Q

What is a Qualified Mortgage’s maximum points and fees threshold?

A

3% of the total loan amount for loans above $110,260.

Chapter 3, p. 94

68
Q

What is the FHA loan limit for low-cost areas in 2023?

A

$472,030 for single-family homes.

Chapter 3, p. 102

69
Q

What is the purpose of the FHA 203(b) program?

A

To provide fixed-rate loans for purchasing or refinancing one-to-four-unit family dwellings.

Chapter 3, p. 104

70
Q

What are ‘seller concessions’ in VA loans?

A

Contributions by the seller for buyer benefits, like funding fee payments or prepaid expenses.

Chapter 3, p. 109

71
Q

What is the penalty for non-compliance with the ATR rule?

A

Lenders may face private lawsuits, fines.

Chapter 3, p. 92

72
Q

What is the purpose of the FHA 203(b) program?

A

To provide fixed-rate loans for purchasing or refinancing one-to-four-unit family dwellings.

(Chapter 3, p. 104)

73
Q

What are ‘seller concessions’ in VA loans?

A

Contributions by the seller for buyer benefits, like funding fee payments or prepaid expenses.

(Chapter 3, p. 109)

74
Q

What is the penalty for non-compliance with the ATR rule?

A

Lenders may face private lawsuits, fines, and compensatory damages.

(Chapter 3, p. 93)

75
Q

What is the FHA’s Streamline Refinance program?

A

A simplified process to refinance an existing FHA loan with minimal documentation.

(Chapter 3, p. 104)

76
Q

What is the LTV limit for VA cash-out refinances?

A

Up to 100% of the appraised value.

(Chapter 3, p. 108)

77
Q

What is the role of the FHA Mutual Mortgage Insurance Fund?

A

To cover losses from foreclosures and keep FHA programs self-sufficient.

(Chapter 3, p. 101)

Mortgage Loan Originator Exam (5 decks)

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