General Mortgage Knowledge Flashcards

Question

A nonconforming loan..

Answer 1

Is one that exceeds Fannie Mae and Freddie Mac's loan limits or underwriting standards.

Answer 2

Is the method used to transfer title for a property following full payment of a loan. Reconveyance is typically used with a deed of trust.

Answer 3

An FHA loan. FHA loans require both upfront MIP (UFMIP), calculated at a rate of 1.75% and annual MIP.

Answer 4

A type of loan program that provides the borrower with funds based on equity. They do not have to repay the loan as long as they live in the home. Reverse mortgages are only available to borrowers who meet a certain minimum age ( generally 62 years of age or older)

Answer 5

The same as a second mortgage. It may also be called a junior lien.

Answer 6

A reverse mortgage. The Home Equity Conversion Mortgage is specifically a government reverse mortgage program.

Answer 7

A legal document that connects a promissory note with the collateral used to secure the note. In the case of a mortgage, the collateral is the subject property.

Answer 8

Is made up of a series of smaller periodic payments with a larger lump sum due at maturity. Many of these loans include a refinance provision so that the borrower can avoid the larger payment and start a new amortization schedule on the remaining loan amount.

Answer 9

A legal instrument that conveys title to real property.

Answer 10

Is a table providing the periodic payments needed to pay off a loan by the end of its term. The payment include principal and interest.

Answer 11

To provide sources of funds for lenders. This is accomplished in the secondary market through securitization.

Answer 12

Insures loans. | FHA loans are insured by the federal government against borrower default.

Answer 13

The sale of a property after a borrower has defaulted on payments to the lender. The exact procedure for handling foreclosure varies from state to state.

Answer 14

Negative amortization. This occurs when the borrower makes payments at an introductory rate which are not sufficient to pay the interest on the loan. The unpaid amount is added to the loan balance resulting in negative amortization.

Answer 15

The secondary market. Mortgage-backed securities are an investment vehicle used to generate revenue based on an underlying pool of loans. This revenue provides renewable access to funds for lenders.

Answer 16

A loan program permits a borrower to pay less than the required amount of interest on the loan. The unpaid interest is added to the loan balance and eventually result in a balance greater than the original loan amount.

Answer 17

VA and USDA loans. The VA and USDA programs require a funding fee for participation in the program. The amount is used to support the guaranty against borrower default.

Answer 18

The stated interest rate on a mortgage or loan agreement.

Answer 19

Made by Fannie Mae and Freddie Mac. | Unlike FHA or VA loans, they are NOT insured or guaranteed by a government agency.

Answer 20

A subordinate lien. Subordinate liens sit in second ( or third, etc) place behind a first or primary lien. In the event of foreclosure, subordinate liens do not get satisfied until the first lien.

Answer 21

Loss of equity. When loan programs do not require payments sufficient enough to cover interest due, the unpaid amount is added to the loan balance. This results in the loan amount being greater than the initial loan.

Answer 22

London Interbank Offered Rate. LIBOR is one of the many indices used for determining ARM adjustments.

Answer 23

Limited to 6%. Limitations for seller concessions are established by Fannie Mae and Freddie Mac for conforming loans. Limits are based on the down payment, or loan-to-value (LTV).

Answer 24

- No rate caps - A low introductory rate that expires after a short period - Limited documentation for loan approval - Prepayment penalties

Answer 25

Effectively makes an extra mortgage payment every year. By making payments every two weeks (26 payments) , the borrower technically pays 13 months of mortgages payments in a calendar year.

Answer 26

The amount above the index that an interest rate can adjust for an ARM. The margin is set by the lender and is the amount above the index that the interest rate can adjust. Index plus margin is the formula used to determine a new interest rate on an adjustable rate mortgage.

Answer 27

Is analyzed to determine the size of the borrower's existing debt load, or burden. It is a primary factor in the lender's analysis of the borrower's ability to repay a loan.

Answer 28

To finance properties in amounts that exceed conforming guidelines. Jumbo loans exceed Fannie Mae/ Freddie Mac loan limits; however, there are GSE-eligible loans available

Answer 29

Determine the interest rate change on an ARM. The index is the basis for future rate changes. The margin is set by the lender and is the amount above the index that the interest rate can adjust at the time of the rate change.

Answer 30

Is $417,000. This amount is set annually by the Federal Housing Finance Agency - the agency which oversees Fannie Mae and Freddie Mac.

Answer 31

Areas of the country with higher conforming loan limits. High-cost areas exist all over the country, with the exception of the Midwest.

Answer 32

Includes paystubs for the most recent 30-day period and W-2s for the most recent two year period.

Answer 33

With an LTV of less than or equal to 90%, for the first 11 years of the loan term or until the end of the loan term, whichever comes first. With an LTV of greater than 90%, for the first 30 years of the loan term or until the end of the loan term, whichever comes first.

Answer 34

A uniform measurement of the cost of a loan, including interest and financed closing costs, expressed as a percentage.

Answer 35

Must provide up to two years of tax returns for income qualification.

Answer 36

In rural areas. Loans under the USDA's Rural Development Housing & Community Facilities Programs are made for the purpose of assisting low-income borrowers to purchase homes in rural areas

Answer 37

Credit capacity and credit character. These answer the questions of whether the borrower is both willing an able to repay the loan.

Answer 38

- Low down payment - No prepayment penalties - Fee limits on closing costs

Answer 39

A payment made by a lender to a loan originator for originating a loan at a rate higher than the par rate.

Answer 40

The secondary market. The secondary market helps fund the primary market where loan are made to borrowers.

Answer 41

3.5% | FHA loans also require upfront and annual MIP

Answer 42

``` Called 203 (b) . It is used to purchase or refinance one-to four-unit family dwellings. ```

Answer 43

A legal document that obligates a borrower to repay a loan. It specifies the terms by which the repayment will occur. It may also be called a promissory note.

Answer 44

Guarantees loans. VA loans provide a guaranty to lenders for a certain percentage of the loan amount.

Answer 45

Borrowers to qualify at the note rate. However, funds placed in an escrow account will allow them to pay a discounted monthly payment based on a lower interest rate for two years- 2% in the first year and 1% in the second year.

Answer 46

Must obtain a Certificate of Eligibility. | Eligibility is based on length of service. COEs are not issued to veterans who are dishonorably discharged.

Answer 47

The type of loan and whether the veteran's eligibility has been used before. Disabled veterans are generally exempt from paying the funding fee.

Answer 48

Are limited to 1%. There are limitations on certain types of charges, and closing costs cannot be financed in purchase transactions

Answer 49

41%. The VA only looks at the total debt ratio. However, underwriters do look at the veteran's residual income for qualification purposes.

Answer 50

Discount points are used to adjust the price of a loan. Points are charges based on a percentage of a loan and can include a loan origination fee. One discount point reduces the interest rate by approximately .25%

Answer 51

Entitlement. | VA guarantees a loan amount 4X greater than the eligibility listed on the veterans Certificate of Eligibility.

Answer 52

30 years, offered in a fixed-rate only. | They do NOT require a down payment, but lenders must use debt ratios to ensure the borrower can repay the loan.

Answer 53

Are used for borrowers who do not represent the credit risk of subprime but who do not meet the underwriting requirements for conforming prime rate loans.

Answer 54

Are loans with higher interest rates, made to borrowers with blemished credit or other qualifications issues. The loans do NOT conform with Fannie Mae and Freddie Mac underwriting requirements.

Answer 55

Any fixed mortgage product other than a 30-year fixed rate mortgage loan.

Answer 56

Called 251. | It is based on the 203(b) program and offers a number of adjustment options ranging from one to ten years.

Answer 57

The interest rate is set at the time of settlement and does not change during the life of the loan. Monthly payments would only change if the loan servicer finds a shortage or surplus in the escrow amount (i.e. taxes and insurance premium).

Answer 58

The interest rate may change one or more times over the life of the loan. ARMs are often initially made at lower interest rates than fixed rate mortgages.

Answer 59

A limit on the amount that the interest rate can increase during the first adjustment period for an ARM.

Answer 60

A limit on the amount that an interest rate can change during any adjustment period for an ARM, with exception of the initial adjustment, assuming an initial cap is in place on that particular product.

Answer 61

Is the limit on the amount that an interest rate can change over the life of an ARM. It is also known as a rate ceiling.

Answer 62

Establishes how often an interest rate can adjustment can occur on an ARM. The frequency can be annually, every few years or even monthly.

Answer 63

To the lender at closing to reduce the note rate of the loan.

Answer 64

Pool similar types of loans to create mortgage-backed securities for sale on the financial market. These securities are used to create a renewable source of funds for lenders.

Answer 65

On the early ARM disclosure provided: - at application - and on the promissory note when the loan goes to closing.

Answer 66

If the loan agreement contains a conditional refinance provision. This gives the borrower the option to convert the loan to a regula

Answer 67

Closed-end credit. A cash-out refinance is an example of a home equity loan.

Answer 68

Must provide up to two years of tax returns for income qualification.

Answer 69

Open-end credit. In a HELOC, a borrower pays off the principal and can then continue to make withdrawals. This is similar to a credit card.

Answer 70

A piggyback loan. In a piggyback loan scenario, a borrower takes a simultaneous second mortgage. In an 80-10-10 loan, the first lien is 80% LTV, the second is 10% LTV and the borrower makes a 10% down payment.

Answer 71

An interim loan used to pay for the construction of a home. They are short-term financing and often handled as interest-only transactions. A construction loan can be considered a type of "bridge loan".

Answer 72

Pay only the monthly interest due on the loan. They are also able to keep payments low by only paying the interest due. However, at the end of term, the borrower still owes the principal amount of the loan.

Answer 73

Meet loan limits and underwriting standards established by Fannie Mae and Freddie Mac.

Answer 74

- identification of the borrower and the lender - the borrower's promise to repay the loan - the amount of the loan - Interest rate charged on the unpaid principal - Period of the term for repayment of the loan - Reference to the real estate used to secure the loan - Provisions for the imposition of late charges for overdue payments - signature(s) of borrower(s)

Answer 75

Grossed up by as much as 25% for income qualifications purposes. Other non-taxed income, such as disability and public assistance, may be grossed up as well.

Answer 76

- origination fees - property taxes - title insurance - escrow costs - appraisal fees - taxes - fees owed to state and local government

Answer 77

A purchase transaction where the party selling the property provides all or part of the financing. This often occurs in a loan assumption.

Answer 78

The relationship between a borrower's monthly debt obligations and his/her gross monthly income. It is expressed as a percentage.

Answer 79

The difference between the fair market value of a property and the current balances of any liens against the property.

Answer 80

Include prepayment and bi-weekly payments. Prepayment allocates more funds to the loan principal as time goes by. A bi-weekly plan amounts to an additional mortgage payment every year.

Answer 81

UFMIP (upfront mortgage insurance premiums) | and annual MIPs (annual mortgage insurance premiums.)

Answer 82

Applicants must qualify for ARMs based on the fully-indexed rate. This requirement applies to all ARM transactions except for open-end home equity loans.

Answer 83

Qualified mortgages, unless the loan is a balloon payment qualified mortgage from a small creditor. Balloon payments are also prohibited for loans covered by HOEPA

Answer 84

Presumption of compliance with the ability-to-repay standards and a safe harbor from liability for loan originators making qualified mortgages.

Answer 85

Prime mortgages, not subprime or higher priced mortgage loans.

Answer 86

Higher-priced mortgage loans

Answer 87

- no negative amortization - no deferment of principal ( e.g., no interest only payments) - no balloon payments feature (unless a small creditor balloon payment QM) - term does not exceed 30 years - points and fees do not exceed 3% total loan amount - DTI does not exceed 43%

Answer 88

- no negative amortization - term of at least five years; does not exceed 30 years - Compliance with 3% points and fees cap - Verification of consumer's income and assets - Determination of consumers DTI (43% limit does not apply) - Loan has a fixed rate - Loan will be held by the creditor for at least three years. - Creditor is a small creditor in a rural/underserved area ( or any small creditor, until 2016 )

Answer 89

- no ratio - no income, no assets (NINA) - stated income, stated assets (SISA) - no income, verified assets (NIVA) - stated income, verified assets (SIVA) - no doc

Answer 90

MARS rule. Created with the purpose of protecting consumers from solicitations by business attempting to run foreclosure rescue and loan modification scams.

Answer 91

Limited to 6% of sales price

Answer 92

Dollar amount equal to 25% of Freddie Mac conforming loan limit.

Answer 93

Non-recourse

Answer 94

Promissory note