General Mortgage Knowledge Flashcards
Interest is defined as….
Money that a lender earns from a loan. The rate of interest depends on the market rates for the type of loan and the qualifications of the borrower
Seller concessions for conforming loans with an LTV of greater then…
Limited to 3%.
Limitations for seller financing or 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)
PFC stands for …
Prepaid finance charge.
Prepaid finance charges are items paid at closing, such as discount points, prepaid interest, etc.
FHA loans are beneficial because….
They are insured by the federal government.
This provides security for the lender in the event that the borrower defaults on payments.
A deed of trust is…
A document used in place of a mortgage to secure the payment of a promissory note.
COFI stands for…..
The Cost of Funds Index.
COFI is a common index used to determine rate adjustments on adjustable-rate programs.
Option ARMs offer payment choices such as
- 30 year fixed principal and interest
- Interest only
- Minimum payment of the loan amount
These flexible payment options made Option ARMs popular products, but were often misunderstood by borrowers, leading to negative amoritization
APR means….
Annual Percentage Rate.
This is the cost of credit expressed as a %.
The Truth-in-Lending Act requires disclosure of this amount to loan applicants.
A nonconforming loan….
Is one that exceeds Fannie Mae and Freddie Mac’s loan limits or underwriting standards.
A reconveyance clause…
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
MIP is mandatory when a loan is…
An FHA loan.
FHA loans require both upfront MIP (UFMIP), calculated at a rate of 1.75 % and annual MIP.
A reverse mortgage is…
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 or older)
A subordinate lien is…
The same as a second mortgage.
It may also be called a junior lien.
A HECM is…
A reverse mortgage.
The Home Equity Conversion Mortgage is specifically a government reverse mortgage program
What is a mortgage?
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.
A loan with a balloon payment provision…
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.
Interest is defined as
Money that a lender earns from a loan. The rate of interest depends on the market rates for the type of loan and the qualifications of the borrower
Seller concessions for conforming loans with an LTV of greater than 90% are…
Limited to 3%. Limitations for seller financing- or 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)
“PFC” stands for…
Prepaid finance charge. Prepaid finance charges are items paid at closing, such as discount points, prepaid interest, etc.
FHA loans are beneficial because
They are insured by the federal government. This provides security for the lender in the event that the borrower defaults on payments.
A deed of trust is….
A document used in place of a mortgage to secure the payment of a promissory note. This method is used in many states.
“COFI” stands for…
The Cost of Funds Index. COFI is a common index to determine rate adjustment on adjustable-rate programs
Option ARMs offer payment choices such as…
30-year fixed principal and interest/Interest Only/Minimum payment of the loan amount. These flexible payment options made Option ARMs popular products, but were misunderstood by borrower, leading to negative amortization.
APR means…
Annual percentage rate. This is the cost of credit expressed as a percentage. The Truth-In-Lending Act requires disclosure of this amount to loan applicants.
A nonconforming loan..
Is one that exceeds Fannie Mae and Freddie Mac’s loan limits or underwriting standards.
A reconveyance clause…
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.
MIP is mandatory when a loan is…
An FHA loan. FHA loans require both upfront MIP (UFMIP), calculated at a rate of 1.75% and annual MIP.
A reverse mortgage is….
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)
A subordinate lien is….
The same as a second mortgage. It may also be called a junior lien.
A HECM is…
A reverse mortgage. The Home Equity Conversion Mortgage is specifically a government reverse mortgage program.
What is a mortgage?
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.
A loan with a balloon payment provision…
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.
A deed is….
A legal instrument that conveys title to real property.
An amortization schedule…
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.
Fannie Mae’s purpose is…
To provide sources of funds for lenders. This is accomplished in the secondary market through securitization.
The Federal Housing Administration..
Insures loans.
FHA loans are insured by the federal government against borrower default.
What is foreclosure?
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.
Option ARMs can result in…
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.
Mortgage-backed securities are products of…
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.
Negative amortization occurs when…
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.
A funding fee is required on…
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.
A note rate is…
The stated interest rate on a mortgage or loan agreement.
Conventional loans are…
Made by Fannie Mae and Freddie Mac.
Unlike FHA or VA loans, they are NOT insured or guaranteed by a government agency.
A second mortgage is also known as…
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.
Negative amortization can lead to…
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.
“LIBOR” stands for…
London Interbank Offered Rate. LIBOR is one of the many indices used for determining ARM adjustments.
Seller concessions for conforming loans with an LTV under 90% are…
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).
Nontraditional ARMs are risky when they include:
- No rate caps
- A low introductory rate that expires after a short period
- Limited documentation for loan approval
- Prepayment penalties
In a bi-weekly mortgage program, the borrower…
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.
Margin is defined as….
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.
The debt-to-income ratio…
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.
Jumbo loans are used…
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
Index and margin are used to…
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.
The conforming loan limit for one-family properties in most areas of the country…
Is $417,000.
This amount is set annually by the Federal Housing Finance Agency - the agency which oversees Fannie Mae and Freddie Mac.
High-cost areas are…
Areas of the country with higher conforming loan limits. High-cost areas exist all over the country, with the exception of the Midwest.
Income documentation for salaried borrowers
Includes paystubs for the most recent 30-day period and W-2s for the most recent two year period.
MIP is required for FHA loans
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.
“APR” is defined as….
A uniform measurement of the cost of a loan, including interest and financed closing costs, expressed as a percentage.
Borrowers earning more than 25% commission…`
Must provide up to two years of tax returns for income qualification.
USDA makes loans for properties located…
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
A review of a borrower’s credit history looks at…
Credit capacity and credit character. These answer the questions of whether the borrower is both willing an able to repay the loan.
Advantages of FHA loans include…
- Low down payment
- No prepayment penalties
- Fee limits on closing costs
YSP is historically defined as
A payment made by a lender to a loan originator for originating a loan at a rate higher than the par rate.
What is the marketplace for mortgage-backed securities?
The secondary market. The secondary market helps fund the primary market where loan are made to borrowers.
FHA loans require a minimum borrower investment of…
3.5%
FHA loans also require upfront and annual MIP
FHA’s primary fixed-rate program is…
Called 203 (b) . It is used to purchase or refinance one-to four-unit family dwellings.
What is a note?
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.
The Department of Veteran Affairs…
Guarantees loans. VA loans provide a guaranty to lenders for a certain percentage of the loan amount.
FHA 2-1 Buy Downs require…
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.
To qualify for a VA loan, a veteran…
Must obtain a Certificate of Eligibility.
Eligibility is based on length of service. COEs are not issued to veterans who are dishonorably discharged.
The amount of the VA funding fee depends on….
The type of loan and whether the veteran’s eligibility has been used before. Disabled veterans are generally exempt from paying the funding fee.
Origination fees on VA loans…
Are limited to 1%. There are limitations on certain types of charges, and closing costs cannot be financed in purchase transactions
VA underwriters use a debt ratio of….
41%.
The VA only looks at the total debt ratio. However, underwriters do look at the veteran’s residual income for qualification purposes.
What are discount points?
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%
The VA loan guaranty is based on a veteran’s…
Entitlement.
VA guarantees a loan amount 4X greater than the eligibility listed on the veterans Certificate of Eligibility.
USDA loans are made for a term of…
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.
Alt-A loans…
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.
Subprime loans…
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.
Nontraditional mortgage products are defined as….
Any fixed mortgage product other than a 30-year fixed rate mortgage loan.
FHA’s adjustable-rate program is…
Called 251.
It is based on the 203(b) program and offers a number of adjustment options ranging from one to ten years.
In a fixed-rate mortgage…
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).
In an adjustable-rate mortgage…
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.
An initial rate cap is….
A limit on the amount that the interest rate can increase during the first adjustment period for an ARM.
A periodic rate cap is…
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.
A lifetime rate cap…
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.
The adjustment frequency…
Establishes how often an interest rate can adjustment can occur on an ARM. The frequency can be annually, every few years or even monthly.
Discount points are paid…
To the lender at closing to reduce the note rate of the loan.
Securitization is used to….
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.
The index for an ARM must be disclosed…
On the early ARM disclosure provided:
- at application
- and on the promissory note when the loan goes to closing.
The risk of a balloon mortgage can be minimized…
If the loan agreement contains a conditional refinance provision. This gives the borrower the option to convert the loan to a regula
A home equity loan is an example of…
Closed-end credit. A cash-out refinance is an example of a home equity loan.
Borrowers owning more than 25% of a business…
Must provide up to two years of tax returns for income qualification.
A HELOC is an example of….
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.
An 80-10-10 loan is an example of….
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.
A construction loan is….
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”.
Borrowers who obtain interest-only loans…
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.
Conforming loans…
Meet loan limits and underwriting standards established by Fannie Mae and Freddie Mac.
A promissory note includes:
- 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)
Social Security income can be….
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.
Closing costs include…
- origination fees
- property taxes
- title insurance
- escrow costs
- appraisal fees
- taxes
- fees owed to state and local government
What is a seller carry-back?
A purchase transaction where the party selling the property provides all or part of the financing. This often occurs in a loan assumption.
The debt-to-income ratio is….
The relationship between a borrower’s monthly debt obligations and his/her gross monthly income. It is expressed as a percentage.
Equity is defined as…
The difference between the fair market value of a property and the current balances of any liens against the property.
Strategies for paying off a fixed-rate loan more quickly…
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.
Borrowers cannot secure an FHA loan without paying..
UFMIP (upfront mortgage insurance premiums)
and annual MIPs (annual mortgage insurance premiums.)
Ability to Repay Rule requires…
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.
Balloon payments prohibited for…
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
Qualified Mortgage Rule creates..
Presumption of compliance with the ability-to-repay standards and a safe harbor from liability for loan originators making qualified mortgages.
QM Rule creates a conclusive presumption of compliance for..
Prime mortgages, not subprime or higher priced mortgage loans.
QM Rule creates a rebuttable presumption of compliance for…
Higher-priced mortgage loans
Qualified mortgage prerequisites…
- 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%
Balloon payment qualified mortgage requirements….
- 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 )
Nontraditional loans made illegal by the ATR Rule include…
- no ratio
- no income, no assets (NINA)
- stated income, stated assets (SISA)
- no income, verified assets (NIVA)
- stated income, verified assets (SIVA)
- no doc
Rule promulgated by the FTC for loan modifications…
MARS rule.
Created with the purpose of protecting consumers from solicitations by business attempting to run foreclosure rescue and loan modification scams.
FHA seller concessions…
Limited to 6% of sales price
VA maximum guaranty amount….
Dollar amount equal to 25% of Freddie Mac conforming loan limit.
A loan without a buy-back provision is also known as:
Non-recourse
What are the debt ratios for a USDA loan?
29%/ 41%
On what document would the borrower see the date of final payment for the loan?
Promissory note
