General Mortgage Knowledge Flashcards by Millie Zapata

What is a Bridge loan?

A bridge loan “bridges” the gap between the old and the new home if the house isn’t sold. It provides for a down payment on the new home.

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What is a balloon mortgage?

small periodic payments are made based on regular amortization until the completion of the term, at which time the balance is due as a single lump-sum payment

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Due on Sale Clause…

Gives the lender the right to demand full payment of the property if the home is sold. Also known as Alienation clause

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Another word for a borrower

Mortgagor

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Maximum debt ratios (DTI) for a conforming loan

28/36
Can be higher but is technically 28/36

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Who administers FHA?
A.) FDA
B.) CFPB
C.) HUD
D.) FDIC

C. Department of Housing & Urban Development (HUD)
but it is backed by GNMA

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GNMA stands for…?

Government National Mortgage Association (Insures FHA)

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Par rate is best described as…

Par rate is the basic rate the borrower can receive from the lender. There is no premium received nor a discount paid for this rate.

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A Jumbo loan does not follow which of the following conf. loan limits
A. FHA
B. HUD
C. FNMA

C. Frannie Mae (FNMA) and Freddie Mac (FHLMC)

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In the event of a default, which debt is normally paid first from the proceeds of the foreclosure sale?
A. First lien
B. Real estate taxes & associated costs of sale
C. First recorded lien

Real Estate taxes and associated costs of sale

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The defeasance clause ensures that…

the clause is used to defeat or cancel a certain right upon the occurrence of a specific event. For example, upon final payment, the mortgage is thereby satisfied or cancelled or void, and the title is re-vested to the mortgagor.

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T/F: A teaser rate is the same as a prime rate

FALSE
A teaser rate is an introductory rate the lender approves on a mortgage loan. This is a short-term rate and can adjust according to the terms and conditions outlined in the note.

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What is a prime rate?

The short-term interest rate a bank charges its most creditworthy customers.

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Servicing a mortgage loan does not involve which of the following?
A. Underwriting a loan
B. Collecting monthly payments
C. Managing escrow accounts
D. Sending yearly statement

A.) UW a loan
The servicing of a mortgage loan involves collecting the monthly payments, managing the escrow accounts, and sending yearly statements

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T/F: Mortgage brokers cannot service loans.

TRUE
Mortgage BANKERS service mortgage loans.
(The company who underwrites, funds, services, buys, or sells mortgage loans)

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In a refinance transaction closing, hypothecation occurs. This is described as..

Using something as collateral but keeping possession of it. You do this when you buy a house

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Index + margin is the formula used to calculate a(n)
A. Fixed rate
B. Adjustable rate
C. Teaser rate
D. Prime rate

B. Adjustable rate

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The rate that is used to amortize the mortgage loan and determine the monthly loan payments is known as the…
1.Indexed rate
2. APR
3. Note rate

Note rate
The note rate is used to amortize the loan and determine the monthly payments. This rate is disclosed on the note in the closing documents.

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The portion of the ARM that cannot change and is used to compute the interest rate on a variable rate mortgage is known as the…

Margin
this is added to the index to determine ARM

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The interest rates charged for FHA and VA loans are established by
1. FHA/VA
2. HUD
3. The market
4. Frannie Mae

The market

Interest rates depend on supply and demand for money in the market.

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The promises between the borrower and the lender outlined in the mortgage document are known as
1. Vows
2. Covenants
3.Commitments

Covenants

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The right held by a utility, through a grant or court order, to cross the property of an owner is known as
1. Easement
2. Encroachment
3.Encumbrance

Easement- permission to cross the land of property owner

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The right of the government to acquire private property for public use by condemnation and just compensation is
1. Easement
2. Eminent domain
3. Right of way

Eminent domain

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What clause gives a lender the right to charge the borrower a penalty for paying off the loan early?
1. Acceleration clause
2. Prepayment clause
3. Alienation clause
4. Defeasance clause

Prepayment clause
A prepayment clause in a contract gives the lender the right to charge the borrower a penalty for paying off the loan early and essentially depriving the lender of further interest income

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What calculation is used to determine a point? A. 1% of loan amount B. 1% of PP C. 1% of APR

A.) 1% of loan amount

What is the clause that allows the lender to sell the property in the event of default to pay the debt the borrower owes without going through the courts?

Power of Sale clause

The total amount needed to complete the purchase of a home is known as the 1. Purchase price 2. Asking price 3. Loan amount 4. Acquisition cost

4.) Acquisition cost The acquisition cost is the purchase price plus all closing costs and pre-paids. This is the total amount needed to complete the purchase

Usury law prevents lenders from...

charging more than the maximum interest rate

T/F: A blanket mortgage covers more than one parcel or lot and is often used for subdivision developments.

TRUE

What do you call a deed that carries guarantees of clear title and the grantor's right to convey? 1. Warranty deed 2.Grantor's deed 3. Real property deed

1.) Warranty deed Warranty deeds have guarantees obligating the grantor (seller) to defend the grantee(buyer) from claims against the title. They give the grantee (buyer) the best possible protection

Total cost of financing a loan in percentage terms is the 1. Loan-to-Value 2. Annual Percentage Rate 3. Debt Ratio 4. Note rate

2. Annual percentage value (APR)

What is the minimum down payment for a conforming purchase loan? A. 3.5% B. 5% C. 3%

C. 3% Most conventional loans require a 5% down payment; however, FNMA and Freddie Mac offer a 3% down payment option.

Which is NOT a type of mortgage? 1.) Construction 2.) Bi-weekly 3.) Reverse 4.) Bi-monthly

4.) Bi-monthly

The portion of principal and interest due on a loan that is written off when deemed to be uncollectible is known as A. Charge-off B. Loss leader C. Deficit funds

A. Charge off

T/F: A nontraditional loan is anything other than a 30-year or less fixed rate loan.

TRUE

T/F: A fully amortized loan would require a balloon payment.

FALSE It would NOT require a balloon payment

Where do the funds for FHA loans come from? A. HUD B. Approved lenders C.Federal Housing Administration

B. Approved lenders FHA insures loans made by approved lenders

T/F: A Note is one type of document that secures the collateral. The mortgage is the promise to pay.

FALSE A mortgage is one type of document that secures the collateral. The note is the promise to pay.

With what type of mortgage does the lender make regular monthly payments to the borrower based on the equity the homeowner has invested in the property? A. Equity participation mortgage B. Purchase money mortgage C. Reverse mortgage

C. Reverse mortgage a qualified person who is 62 or older can mortgage his or her home to a lender and in return gets a monthly check from the lender.

Which agency is responsible for U.S. monetary policy? (Maintaining economic stability & regulating commercial banks) A. Federal Reserve board B. Department of the Treasury C. Congress

A. Federal Reserve Board (The Fed)

What is the purpose of the 4506-C?

confirm tax records as filed with the IRS

All of the following are a subject to a tolerance level for change except... A. Loan origination fees B. Transfer taxes C. Gov. Recording fees D. Initial deposit for the Escrow account

D. Initial deposit for the escrow account

What is the maximum Total Debt-to-Income ratio allowed under FHA guidelines for a Qualified Mortgage? A. 43% B. 36% C. 41%

A. DTI cap for FHA-- 43%

What is the max DTI for a VA loan? A. 45% B. 35% C. 41%

C. 41% DTI cap for VA

A mechanic's lien is a lien placed on a... A. Piece of real estate for unpaid material or Labor B. Person's car for non-payment of repairs C. Person's home for payment of repairs

A. Piece of real estate for unpaid material or labor A mechanic's lien is what a contractor, supplier, or sub-contractor may file as a lien on the property when they provided goods or services that have not been paid.

An MLO should present ___ options which show the lowest interest rate and lowest total dollar amount for fees

3 options Note, for qualified mortgages, an MLO can show fewer than three options. Regardless, an MLO should always shop amongst 3 or more creditors with which the MLO regularly does business and have a good faith belief that the customer qualifies for the options presented.

FNMA guidelines permit borrower documents like paystubs, appraisals, etc., to be up to ____ old at the time of the conversion from construction to permanent financing in a two-time close transaction. A. 90 days B. 120 days C. 360 days

B. 120 days (4 months old)

What must be granted if the use of another's property to access the lot will be required?

Easement

Flood Insurance: Which of the following flood zone types is considered a high risk zone forcing required flood ins. coverage? A. AE Zone B. C Zone C. X Zone

A.) AE Zone Anything with an "A" or "V" is high-risk. Zone AE therefore always requires flood insurance. Zones B, C, or X are considered low- to moderate-risk and flood insurance may be available in these areas but is not mandated by law (although may be mandated by the lender in Zone B)

Which one of the following cannot be required by a creditor of a borrower who is requesting cancellation of private mortgage insurance at 80% LTV? A. 12 months without late payments B. A 2nd appraisal validating the valuation C. 5 yrs payment history on note D. Escrow account

D. Escrow account The HPA does not address escrow accounts - the other three answers could all be required by the creditor

A 2/1 Buydown can also be called a...

Graduated-payment mortgage = Step Rate = 2/1 Buydown = Temporary Buydown.

At what point may a borrower request PMI cancellation?

80% LTV per HPA

What is the record retention requirement for creditors to show compliance with the Mortgage Loan Originator Compensation Rule? A. 5 years B. 3 years C. 2 years

"Compliance with compensation records"= 3 years B.) 3 years

Disclosures are to be held for... A. 1 year B. 3 years C. 2 years

C.) 2 years

Closing disclosures must beheld for... A. 5 years B. 3 years C. 2 years

A.) 5 years

All of the following are illegal ways of comp under the MLO rule except... A. Loan term B. Overall APR consummated C. Long term loan performance

C.) Long-term performance "Long-term performance" (not foreclosing) is a legal way to pay an MLO.

T/F: Creditor must determine if the property is in fact located within a flood zone or not.

TRUE Lender almost always holds ultimate responsibility to notify a potential purchaser that a subject property is located with a special flood hazard area.

Whose responsibility is it to notify a potential purchaser that a subject property is located with a special flood hazard area? A. Realtor B. Lender C. Title company

B. Lender

The MLO Comp Rule was first drafted under which law to prevent steering by MLO's? A. TILA B. RESPA C. Dodd-Frank D.HMDA

C.) Dodd-Frank The MLO Comp Rule was a Dodd-Frank Act amendment to TILA to prevent steering by MLO's

T/F: Compensation on a volume basis is always the best and safest form of MLO compensation

FALSE Per unit (or hourly) is always the best and safest form of MLO compensation as it does not incentivize the MLO regardless of borrower loan terms. While volume (with certain protections) can be allowed

T/F: PMI automatically cancels at 80% LTV

While a borrower could request cancellation sooner at 80%, PMI does not auto-cancel until 78% of the value that was recorded at closing.

Which of the following includes loan programs such as the FHA, VA, and USDA Section 502? 1.) Conventional 2.) Qualified 3.) Non-conventional 4.) Traditional

3.) Non-conventional Government loan programs such as these make them "non-conventional" loans

Housing expense ratio is also known as

Front End Ratio

When the payment made on a loan is NOT sufficient to cover the monthly interest due, the result is 1.) Defeasance 2.) Hypothecation 3.) Negative Amortization

3.) Negative Amortization When the payment does not cover the monthly interest due, negative amortization occurs.

A borrower gets a 15-year interest only loan for $100,000 at 5.5%. At the end of the loan term, how much will the borrower owe the lender? A.) $55,000 B.$105,000 C.) $0 D.) $100,000

D.) $100,000 The entire principal must be repaid at the end of the loan term since the borrower paid only interest for 15 years. This is a form of balloon payment.

T/F: A wraparound mortgage occurs when a new mortgage plus an existing mortgage is structured as a single obligation

TRUE A wraparound mortgage is when a new mortgage wraps around an existing mortgage

Loan amount x Note rate (nominal rate or interest rate) gives you what?

Annual interest amount only

Loan amount x Note rate (interest rate) / 12= ?

= monthly interest amount

How do you calculate the interest amount for 30 years? 5 years?

Multiply loan amount by interest rate and divide by the 30 years. Same with 5 years

Calculating PMI (Conv.) =

Loan amount x PMI factor Monthly: Loan amount x PMI factor/ 12

How do you calculate LTV?

1st Loan amount (first trustee) / Lesser of the sale price or appraised value= LTV%

1st Loan Amount + 2nd Loan / Lesser of the sale price or appraised value= ?

CLTV

According to the Mailbox Rule, a document can be considered received on the ___ business day after mailing A. 1st B. 3rd C. 7th D. 10th

C. 3rd business day after mailing

T/F: Brokers are not creditors, and thus cannot fund a loan.

TRUE

A borrower is purchasing a home for $120,000 and closing costs total 4% of the loan amount. The seller has agreed to contribute half of the buyer's closing costs. How much cash would the borrower need at closing in order to obtain an LTV of 85%?

The borrower would need 15% of the $120,000 purchase price, or $18,000 plus the additional 2% (half of the 4% closing costs) of the loan amount(120,000 - 18,000 = 102,000), or $2,040 for closing costs that the seller is not providing. $18,000 + $2,040 = $20,040

An MLO may NOT disclose LE and CD on same day. Must be at least _____ business day apart.

1 business day apart

Another name for a due on sale clause that gives the lender certain rights when property ownership is transferred is a(n)

Alienation Clause NOT Acceleration Clause

Fannie Mae is the more common name of the...

Federal National Mortgage Association (FNMA)

At what point does an offer to purchase real estate become a legal and binding contract? 1.) upon signing by the second party to agree 2.) upon signing by the seller 3.) upon signing notice and delivery of the final party 4.) upon signing by the buyer

3.) upon signing notice and delivery of the final party A contract only becomes legal and binding after notification and delivery by the final party. The parties do not need to have received the final copy prior to it becoming binding, as the notification will acknowledge future delivery.

The difference between subprime loans and conforming loans is subprime loans...

Subprime loans are riskier, they allow for much higher interest rates and fees then they can get with other transactions

A lender has how many days to notify the borrower of the status of their loan? A. 30 days B. 10 days C. 15 days

A. 30 days ECOA requires that any decision or current status be communicated to the applicant within 30 days of application.

The term that is used to describe the event that happens at the expiration of the three business-day right of rescission in a refinance transaction is A. Closed B. Funded

B. Funded

A borrower who obtains an FHA loan must occupy the property as his principal residence within how many days of signing the security instrument?

60 days

The interest rate of an adjustable rate loan... 1.) Fluctuates according to the standard predetermined index 2.) Starts lower in early years of the loan and increases in later years 3.) Remains constant for the remainder of the loan

1.) Fluctuates according to the standard predetermined index

Servicing a mortgage loan is... 1) Processing a mortgage loan application. 2) Collecting payments and maintaining a payment schedule and escrows, which can be optional, for a mortgage loan. 3) Underwriting a mortgage loan application. 4) Recording a mortgage lien.

2) Collecting payments and maintaining a payment schedule and escrows, which can be optional, for a mortgage loan.

Acquisition cost is...

Sales price + closing costs NOT loan amount

A seller takes back a $150,000 mortgage at 6% interest. Payments are interest-only for 10 years. What balloon payment amount will be due? *KEY WORD-Balloon payment*

$150,000 will be due

What document would be required in order for a person to relinquish all interest and future rights to property that is jointly owned by him/her and a person other than his or her spouse? 1.) Dower rights 2.) Quitclaim deed 3.) Warranty deed

Quitclaim Deed

T/F: Federal Reserve sets the prime rate

FALSE Federal reserve sets the discount rate and has nothing to do with the prime rate (those are set by the bankers to their best customers)

What results when a loan balance grows due to deferred interest?

Negative amortization This occurs when payments don't cover the interest, causing a loan balance to grow a deferred interest. Not allowed in a QM

Which are excluded from ATR/QM rules set by TILA?

Commercial properties, HELOCS and HECMs (reverse mortgages) (or investment properties not occupied by the borrower)

On which of the zones below could flood insurance be force placed by a creditor or servicer? 1.) E 2.) X 3.) B 4.) A

A or V = High risk= Force placement

Due on sale clause is also known as? 1.) Acceleration clause 2.) Alienation clause

2.) Alienation clause Acceleration clause is right for lender to request full payment when a borrower DEFAULTS on the loan (not sell or transfer)