Conventional Lending Flashcards
What is Ability to Repay (ATR)?
Lender must make reasonable good-faith determination that borrower can repay loan before consummation of loan
What is a qualified mortgage (QM)?
Minimum standards for conventional mortgage
What does QM not apply to?
Open-ended credit plans, HELOC, reverse mortgage, temporary bridge loans, construction or construction-to-perm loans
What components of ATR/QM must be verified?
Credit, consumer and long term debt, mandatory expenses, mortgage payments
ATR Factors
Income or assets that is relied on to repay loan; employment; PITI; simultaneous liens on same property; consumer debts, alimony, and child support; DTI; credit history
QM Standards
Meets ATR requirements; points and fees charged may not exceed 3%; protects borrower from mortgages they can’t afford; lenders have certainty about the borrower
How are lenders protected for originating lower priced QM loans?
Under safe harbor
When is a QM loan considered higher priced?
Loan is in first lien with an an APR that exceeds APOR by >1.5%
Loan is subordinate with APR that exceeds APOR by >3.5%
What are 2 types of QM loans?
General (meet all ATR guidelines and DTI of 41%)
Temporary (meet all ATR guidelines, eligible, does not have DTI limits)
What kind of loans do FNMA and FHLMC agencies buy?
Loans that meet their guidelines (eligible)
What are the maximum and minimum loan terms for FNMA and FHLMC loans?
Max 30 years, minimum 10 years
What is the threshold LTV for PMI?
80%
How many financed properties can a borrower have if a mortgage is secured by a second home or investment?
10
What are the requirements for verifiable documentation?
Fascimile verification; no alternations or erasures; legible copies; cannot come from agent or builder
How do you document verbal verification?
Person who contacted employer; name of entity contacted; name and title of individual; date; informoation
When do documents expire?
Paystubs and bank statements- 60 days
Everything else- 120 days
Which credit score do you use?
When there are 3 scores available, the median
When there are 2 scores available, the lower
Can a home value include personal property such as furniture, pool equipment, appliances, etc?
No
What standards must an appraiser meet?
Is state certified where property is located; experienced appraising properties similar to subject property; actively engaged in this work; has knowledge of current real estate market
What are unacceptable appraisal practices?
Inaccurate or incomplete data on property, neighborhood, etc.
Not reporting or considering adverse effect on value and marketability
Using comparable sales provided from interested parties
How are cash reserves verified?
VOD or 2 months worth of bank statements
How are gifts from relatives documented?
Letter stating no repayment is expected; specific dollar amount and source of funds; donor’s name, address, telephone #, and relationship; property being purchased; and proof that funds were transferred
What organizations can give gifts
Church, municipality, non-profit, public agency following same documentation from relatives
How is a sale of assets documented?
if a previous home, HUD-1 or closing disclosure
How are trust funds documented?
Trust agreement and/or signed statement on letterhead showing proof of value in trust account, that borrower has access to funds, and trustee is an independent party
How are stocks, bonds, and mutual funds documented?
Must show that assets are liquidated, quarterly statement
What demonstrates employment stability?
2 years employment history with stable income
What is the ideal front ratio?
28%
How do you count income from commission, part-time, overtime, and bonuses?
If not consistent, must consider YTD paystubs and previous 2 W2s to establish income
What % of a business must the borrower own to be considered self-employed?
At least 25%
How much can social security income be grossed up?
Nontaxable portion can be grossed up 25%
How long does social security, alimony, child support, trust benefits, VA benefits, royalties, and military allowances continue to be considered income?
3 years
How much of rental income can count as income?
75%
What are compensating factors to offset higher DTI?
Large down payment; accumulate savings and maintain good financial position; potential for increased earnings; net worth; home purchase due to relocation
What are “extenuating circumstances” that can affect credit negatively?
Non-recurring circumstances beyond borrower’s control
How can derogatory credit be documented and off set?
Letter of explanation
Can a borrower have a past due housing payment?
no
What is the waiting period for Chapter 7 and 11 bankruptcies?
4 years from discharge date
What is the waiting period for Chapter 13 bankruptcy?
2 years from discharge
What is the waiting period after foreclosure?
7 years from actual foreclosure completion date
What are the benefits of refinancing?
Reduce monthly payments, consolidate debt, tap into equity, get out of mortgage product
What are the cons of refinancing?
Break even point to recoup money, transaction costs rolled into loan amount
What are the two types of refinances?
Rate and Term and Cash Out
What is borrower equity?
Cash that the borrower has
Can the seller contribute to the down payment?
No
