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MLO Test 844 Affinity Facts > GENREAL MORTGAGE KNOWLEDGE > Flashcards

GENREAL MORTGAGE KNOWLEDGE Flashcards

1
Q
  1. The Federal National Mortgage Association (FNMA) is known as Fannie Mae.
A

Fannie Mae is the largest institutional buyer of conventional mortgages in the secondary mortgage market.

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2
Q
  1. The Secondary Market includes private investors or government agencies that
A

buy or sell real estate mortgages.

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3
Q
  1. The Federal Home Loan Mortgage Corporation (Freddie Mac) was chartered by the federal government to buy mortgages originated by Savings Associations.
A
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4
Q
  1. The Government National Mortgage Association (Ginnie Mae) is a wholly owned government corporation within the United States Department of Housing and Urban Development (HUD).
A
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5
Q
  1. Ginnie Mae does not
A

buy or sell loans or issue mortgage-backed securities (MBS).

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6
Q
  1. Ginnie Mae guarantees investors the timely payment of principal and interest on MBS backed by federally insured or guaranteed loans — mainly loans insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veteran Affairs (DVA).
A
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7
Q
  1. Fannie Mae’s automated underwriting system is known as
A

Desktop Underwriter(DU).

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8
Q
  1. Freddie Mac’s automated underwriting system is known as
A

Freddie Mac’s LoanProduct Advisor

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9
Q
  1. The 2020 maximum conforming loan limit was raised to is $970,800 for 2022.
A
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10
Q
  1. Fannie Mae requires only a seven-year history to be reviewed for
A

all credit and public record information.

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11
Q
  1. A conventional mortgage requires a
A

minimum 3% down payment for first-time homebuyers.

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12
Q
  1. Generally, the minimum 5% down payment.
A

( This is how it is written in the facts (?) )

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13
Q
  1. A conventional mortgage is
A

not insured or guaranteed by the government.

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14
Q
  1. A conventional mortgage requires Private Mortgage Insurance on loans with less than
A

a 20% down payment.

(Private Mortgage Insurance - policy that allows lenders to recover part of loss in the event of borrower default or loss in collateral value.)

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15
Q
  1. Most conventional mortgages are not assumable;
A

they do have a “due-on-sale clause”.

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16
Q
  1. A conventional mortgage has a __% late fee
A

5% (5% of the P&I amount only).

(P is Principal, I is Interest)

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17
Q
  1. GOVERMENT LOANS (FHA, DVA, USDA) have a _% late fee
A

4% (4% of the P&I amount only).

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18
Q
  1. The down payment amount on a conventional conforming loan could vary – however, on a conventional loan
A

5% of the down payment amount must come from the borrower’s own funds

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19
Q
  1. FHA insured loan require how much down payment?
A

3.5% down payment (can be a gift).

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20
Q
  1. DVA and USDA guaranteed loans
A

do NOT require a payment.

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21
Q
  1. A jumbo loan exceeds Fannie Mae /Freddie Mac
A

maximum loan amount (aka non-confirming loans).

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22
Q
  1. P&I (Debt Service) is
A

the monthly principal and interest payment

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23
Q
  1. Late fees are either _% or _% of the debt service, not the PITI.
A

4% or 5%

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24
Q
  1. Escrow impounds are
A

usually collected by the lender as part of the monthly mortgage payment. They include the monthly amount for property taxes, hazard insurance and flood insurance, if required.

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25
Q
  1. PITI is Principal, Interest, Taxes and Hazard, Flood and Mortgage Insurance.
A

It is also called the monthly housing expense.

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26
Q
  1. Fannie Mae requires the non-qualifying spouse to
A

sign the mortgage or any other documentation required to evidence that the spouse is relinquishing all rights to the property.

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27
Q
  1. The maximum term for a Fannie Mae loan is
A

30 years.

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28
Q
  1. Fannie Mae is the largest institutional investor in the
A

secondary mortgage market. It purchases FHA, DVA and conventional loans from commercial banks.

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29
Q
  1. Fannie Mae requires guaranteed funds such as
A

a cashier’s check from a bank or reputable financial institution to pay the closing costs; personal checks are not acceptable.

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30
Q
  1. Fannie Mae emphasizes the borrower’s continuity of
A

stable income vs. stability of employment

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31
Q
  1. Fannie Mae requires a borrower to have.
A

a social security number or Individual Taxpayer Identification Number

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32
Q
  1. Fannie Mae holds the lender
A

responsible for the quality of the appraisal.

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33
Q
  1. Fannie Mae requires the lender to obtain a
A

written credit report for each borrower on the loan application who has an individual credit record.

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34
Q
  1. Fannie Mae will not accept a
A

co-borrower’s income for qualifying purposes, unless the co-borrower also signs the mortgage note.

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35
Q
  1. Fannie Mae does not
A

purchase most balloon mortgages.

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36
Q
  1. At the time of the loan application the lender normally requires the applicant to
A

sign a form authorizing the lender to obtain verifications of bank balances (Fannie Mae1006) and payroll information (Fannie Mae 1005).

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37
Q
  1. The Fannie Mae 1008 Transmittal Summary is
A

a form that summarizes the applicant’s data and will usually be the top sheet in the loan package when it is sent to the underwriter.

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38
Q
  1. Fannie Mae will purchase mortgages secured by
A

residential properties in urban ,suburban or rural areas

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39
Q
  1. Fannie Mae was created as a government agency in 1938 and later become a public company listed on the New York Stock Exchange.
A
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40
Q
  1. The purpose of Fannie Mae (FNMA) is to
A

buy mortgages and notes from the primary lenders so that money remains in circulation

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41
Q
  1. Fannie Mae does NOT purchase mortgages on agricultural-type properties such as
A

farms, orchards, ranches or on undeveloped land or land development-type properties.

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42
Q
  1. Fannie Mae will NOT purchase a
A

mortgage that has an unacceptable title impediment.

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43
Q
  1. Fannie Mae will purchase
A

first mortgages that are secured by residential properties for use by 1 to 4 families. The occupancy may be that of a principal residence, a second home or investment property.

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44
Q
  1. Fannie Mae will purchase a
A

conventional mortgage on a manufactured home. The manufactured home must be a one-family dwelling that is legally classified as real property.

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45
Q
  1. When the mortgage that is being delivered to Fannie Mae is secured by the borrower’s principal residence, Fannie Mae has no limitations on the number of mortgages that the borrower can currently be financing. But, if the mortgage is secured by a second home or an investment property, the borrower may not be financing more than ten properties.
A
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46
Q
  1. Fannie Mae recommends that a lender obtain a minimum of
A

two credit scores for every borrower. If there are two scores, use the lower; if there are three scores, use the middle. This is the representative score for a single borrower.

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47
Q
  1. If more than one individual is applying for the same mortgage, the lender should
A

determine the single applicable credit score for each individual borrower and then select the lowest applicable score from the group as the “representative” credit score for the mortgage.

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48
Q
  1. Alt-A loans are
A

characterized by reduced documentation, high ratios or limited assets.

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49
Q
  1. Subprime loans are
A

the riskiest and are associated with poor credit scores.

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50
Q
  1. Amortization is the process of fully paying off a loan in regular payments over a specified period. The portion of each monthly payment that goes to reduce the outstanding principal balance gradually increases with each payment throughout the life of the loan, and the portion used to pay interest gradually decreases each month. Payments applied to principal and interest.
A
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51
Q
  1. Positive amortization occurs when
A

the monthly mortgage payment decreases the loan balance, by applying a portion of each payment to the principal.

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52
Q
  1. Negative amortization occurs in a mortgage repayment plan in which the borrower
A

makes payments that amount to less than the interest due. Unpaid interest is added to the outstanding loan balance, causing the outstanding loan balance to increase instead of decrease. Monthly payment is not sufficient to cover the accrued interest from previous month.

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53
Q
  1. A senior mortgage (first mortgage) has
A

the superior lien position.

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54
Q
  1. A junior mortgage (subsequent mortgages) has.
A

a lower or more subordinate lien position than the senior mortgage

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55
Q
  1. There is an unlimited possible number
A

of junior mortgages and no restrictions on terms.

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56
Q
  1. A Fixed-Rate Mortgage is one example of a fully amortized loan. During the first few years of the loan, most of the monthly P&I is going toward paying the interest. Payments during the last few years are almost entirely principal repayment.
A
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57
Q
  1. A Balloon Mortgage is partially amortized.
A

Monthly payments are usually calculated as if it was a 30-year term, but the balance of the loan will come due before that time and must be paid in one lump sum; 5, 7 and 10-year terms are popular.

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58
Q
  1. A 360/180 loan is a balloon amortized over
A

30 years with a lump sum payment due after 15 years.

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59
Q
  1. An Adjustable-Rate Mortgage (ARM) consists of two parts: an
A

index which fluctuates and a margin which is fixed. Index + Margin = Fully Indexed Rate.

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60
Q
  1. The index is a known,
A

fluctuating, published economic indicator outside of the control of the lender.

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61
Q
  1. U.S. Treasury Securities rate and the Secured Overnight Financing Rate (SOFR) are
A

two common indices.

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62
Q
  1. The margin is a fixed percentage rate (typically 2% to 3%) that is added to the specified index at each adjustment period to determine the fully indexed rate. It reflects the lender’s profit and overhead. Added to the index to find the current interest rate charged; sometimes called spread.
A
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63
Q
  1. The margin is expressed in basis points where
A

100 basis points = 1%

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64
Q
  1. The adjustment period specifies the initial term
A

before the first interest rate adjustment. After this first period, the loan typically adjusts every year.

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65
Q
  1. Rate caps limit how much the interest rate can change at each adjustment and over the life of the mortgage.
A

A 2/3/6 has a max first adjustment of 2%, subsequent max adjustments of 3% and a lifetime max adjustment of 6%.

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66
Q
  1. A Bi-Weekly Mortgage is one in which
A

the borrower must make a mortgage payment every two weeks. This allows the borrower to build up equity faster and pay less interest over the life of the loan.

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67
Q
  1. A Bi-Weekly Mortgage is one in which
A

the borrower must make a mortgage payment every two weeks. This allows the borrower to build up equity faster and pay less interest over the life of the loan.

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68
Q
  1. A Term Mortgage is a
A

non-amortizing interest-only loan. The balance is due at the end of the term in a balloon payment.

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69
Q
  1. Net Tangible Benefit – refinance loans must
A

“make sense” for the consumer. They must provide some “benefit’. The cost (or commission earned) for the loan cannot outweigh the “benefit” that the borrower will receive.

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70
Q
  1. A Reverse Mortgage is a negatively amortizing loan for homeowners of primary residences who are
A

62 years or older and have a large percentage of their current mortgage paid off. They are non-recourse loans, and the lenders cannot file a deficiency judgment against the heirs. The heirs are not personally liable for the note.

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71
Q
  1. On a reverse mortgage,
A

there are no payments due from the borrower.

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72
Q

403.The nationwide maximum loan amount for a reverse mortgage is

A

$937,500

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73
Q
  1. A reverse mortgage allows qualified borrowers
A

(62 and older) to convert equity in home without selling or making payments

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74
Q
  1. FHA’s reverse mortgage is called a
A

Home Equity Conversion Mortgage (HECM).

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75
Q
  1. A reverse mortgage still requires
A

GFE and TIL (not the loan estimate and closing disclosure).

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76
Q
  1. In a reverse mortgage,
A

, the Balance of loan rises as equity shrinks (rising debt, falling equity)

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77
Q
  1. Most borrowers in a reverse mortgage, receive their funds via the
A

tenure method (Getting a monthly check instead of paying a monthly check.

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78
Q
  1. No income requirements in a reverse mortgage, however,
A

the borrower must be able to pay continuing obligations related to property (property tax, insurance, upkeep).

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79
Q
  1. The amount the applicant may borrow is based on the
A

age of the youngest borrower, the value of the property and the expected interest on the loan.

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80
Q
  1. Reverse mortgages require that
A

the homeowner meet with a counselor – to ensure that he/she understands how the program works.

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81
Q
  1. If not in breach, a reverse mortgage becomes due
A

when the last surviving borrower dies, sells the home, or ceases to live in home for 12 consecutive months.

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82
Q
  1. A traditional Mortgage is defined as a
A

30-year Fixed.

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83
Q
  1. Conforming loans meet Fannie Mae / Freddie Mac standards –
A

can be sold on the secondary market.

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84
Q
  1. Non-conforming Loans Do Not Meet Fannie Mae / Freddie Mac standards and
A

CANNOT be sold to secondary market (Fannie/Freddie).

(Non-confirming loans include, among other things: Jumbo loans, Alt-A loans, Sub-prime mortgages.)

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85
Q
  1. A Package Mortgage can be either
A

amortizing or non-amortizing, and the lien includes personal property as well as real property.

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86
Q
  1. A Graduated Payment Mortgage (GPM) is a
A

mortgage in which the payment start slow and increases over time.

( This is a specialized payment structure that allows the borrower to make a smaller payment in the early years of the mortgage, with payments increasing yearly, until they are sufficient to fully amortize the loan. The lower payments in the beginning usually cause negative amortization. )

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87
Q
  1. Variable Balance Mortgage (VBM) -
A

A loan with an adjustable interest rate, but with payments that never change; instead, as the rate increases or decreases, the balance decreases slower of faster as payments are made

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88
Q
  1. A Wraparound Mortgage is
A

usually a type of seller financing in which the seller finances enough money to cover the existing loan balance as well as any additional funds needed by the borrower.

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89
Q
  1. A seller-wraparound mortgage has
A

the seller retain the existing mortgage

(the buyer makes one larger payment; the seller pays the lender and keeps the difference).

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90
Q
  1. Seller financing is when
A

the seller extends credit to the buyer to finance the purchase of property.

91
Q
  1. A purchase money mortgage or seller-held mortgage is given by
A

the buyer to a seller to secure part or all of the money borrowed to purchase the property. A seller may take part of the purchase price as a mortgage to help the sale. Sometimes referred to as “seller-carry-back” loans.

92
Q
  1. A Growing Equity Mortgage (GEM) -
A

this is a fixed rate mortgage set up like a 30-year conventional mortgage loan with payments that increase regularly. It has a fixed interest rate and increasing payments so that the loan balance is paid off more quickly.

93
Q
  1. A Home Equity Line of Credit is a form of revolving credit in which the home serves as collateral.
A

The amount of the available credit line usually depends on the borrower’s equity in the home (appraised value — loan balance = borrower’s equity)

94
Q
  1. An Index is -
A

Statistical report used as reliable indicator of cost of money. Examples: COFI,COSI, SOFR, PRIME

95
Q
  1. Rate adjustment period-
A

Interval at which interest rate changes.

96
Q
  1. Interest rate caps-
A

Limits the number of % points interest rate can rise or fall.

97
Q
  1. A rate cap is a limitation on the amount that an interest rate may
A

increase or decrease at the adjustment date or over the life of the loan. These are referred to as “adjustment caps”.

98
Q
  1. There are three types of rate CAPS on most ARM loans:
A

The initial CAP applies to only the first-rate adjustment, the periodic CAP applies to all subsequent adjustment periods, and the life CAP sets the maximum number of percentage points that the rate can increase for the life of the loan.

99
Q
  1. An ARM,
A

an introductory rate that is lower than the fully indexed rate at the time of closing is called a teaser rate.

100
Q
  1. For example: CAPS = 5/2/6. In this scenario: The loan could adjust 5% at the FIRST adjustment period and indicates the percentage that the rate increases from the “start/initial rate”. 2% at every adjustment period thereafter - indicates the percentage that the rate increases (or decrease) from the current rate, but it could only adjust 6%(the cap) - indicates the maximum percentage that the rate increases over the life of the loan.
A
101
Q
  1. The floor is
A

the lowest interest rate to which an ARM may adjust.

102
Q
  1. Payment Shock –
A

Payment shock is when a borrower’s rate/payment “increases” in a large amount – all at once.

( most ARMs use CAPS to prevent payment shock. )

103
Q
  1. Convertible ARMs-
A

gives borrower the right to convert from an ARM to a fixed rate loan.

104
Q
  1. A Purchase Money Mortgage occurs when
A

a borrower obtains a mortgage from the seller to purchase a home. V

105
Q
  1. Hybrid mortgage-
A

combination of fixed and adjustable rates and/or interest only.

( For example, 5/25 fixed for five years and adjust for the 25 years until the loan is paid off. )

106
Q
  1. Balloon –
A

Has periodic payments that do not fully amortize the loan by the end of the loan term –The final payment is larger than the others and is known as a balloon payment

(Also known as a partially amortized loan)

107
Q
  1. Credit documents must be
A

no more than 120 days old on the date the note is signed. This includes new construction.

108
Q
  1. FICO credit scores were developed by
A

Fair Isaac Corporation.

109
Q
  1. A first-time home buyer is
A

someone who is purchasing an owner-occupied primary residence and who has not had an ownership interest in an owner-occupied property for the past three years.

110
Q
  1. The borrower should be a
A

natural person and not a corporation.

111
Q
  1. There is no
A

maximum age limit for a borrower.

112
Q
  1. A guarantor or co-signer is
A

a credit applicant who does not have an ownership interest in the security property, but who signs the mortgage note and thus has a joint liability for the note with the borrower who is the owner of the note.

113
Q
  1. A 5/1 ARM has a
A

fixed interest rate for 5 years and adjusts annually after that.

114
Q
  1. Construction mortgage -
A

a temporary loan used to finance the construction of improvements and buildings on land.

115
Q
  1. The three (3) common disbursement plans in a construction mortgage are
A

1.the fixed disbursement plan

2.the voucher system

3.warrant system.

116
Q
  1. After the loan is approved and funded,
A

construction funds are placed in an account and released to the borrower / builder as “draws” or obligatory advances.

117
Q
  1. Permanent Financing (Take Out Loan) -
A

construction is complete, loan is replaced by a permanent amortizing loan.

118
Q
  1. A foreclosure is the
A

enforcement of a lien. A proceeding to extinguish all rights, title and interest of the owner of a property in order to sell the property and satisfy any liens against it

119
Q
  1. Forbearance is the choice by
A

the lender not to take action even though the borrower is in default of the loan.

120
Q
  1. A list pendens is
A

a notice filed by the lender when it initiates a foreclosure lawsuit.

121
Q
  1. The equitable right of redemption, allows the
A

mortgagor in default to pay the entire balance due and keep the property from being foreclosed.

122
Q
  1. A deficiency judgment, allows the
A

lender to claim other assets from the borrower when the proceeds of the foreclosure sale are insufficient to satisfy the mortgage lien.

123
Q
  1. The mortgage acceleration clause, allows the lender to
A

call the entire loan balance due if the borrower is in default.

124
Q
  1. The mortgage alienation clause is a
A

provision in a mortgage enabling a lender to demand full repayment if the borrower transfers the loan.

125
Q
  1. The mortgage escalation clause, allows the lender to
A

increase the interest rate of the loan under certain conditions.

126
Q
  1. The mortgage due-on-sale clause,
A

requires that the loan balance is paid off when the title is transferred.

127
Q
  1. The mortgage prepayment penalty clause,
A

requires the borrower to pay a fee if the loan is paid off early

128
Q
  1. Conforming loans typically do not provide for prepayment penalties. However,
A

if the loan does contain a prepayment penalty, it must be disclosed in the note (or on an attachment to the note) and must be clearly disclosed on the Loan Estimate and Closing Disclosure

129
Q
  1. Under federal law, Prepayment Penalties are now restricted solely to
A

fixed-rate qualified mortgages and may not be charged after the first three years of the loan term.

130
Q
  1. The mortgage reconveyance deed, is a method used to
A

transfer title for a property following full repayment of a loan.

131
Q
  1. The mortgage defeasance clause requires the lender to
A

send a Satisfaction of Mortgage notice to the borrower within sixty days of paying off the loan.

132
Q
  1. The mortgage exculpatory clause, prevents the lender from requesting a
A

deficiency judgment against the borrower when the proceeds of the foreclosure are insufficient to pay off the mortgage lien.

133
Q
  1. The mortgage prepayment privilege clause,
A

allows the borrower to pay all or part of the loan before it is due without penalty.

134
Q
  1. The mortgage open-end clause
A

permits future additional advances from the same loan.

135
Q
  1. A blanket mortgage
A

covers multi tracts of land.

136
Q
  1. A mortgage subordination clause
A

permits a senior mortgage to assume a junior lien position.

137
Q
  1. A partial release clause in a blanket mortgage allows
A

the developer’s lien to be released as the parcel is sold.

138
Q
  1. A valid contract has four elements:
A
  1. competent parties
  2. mutual agreement,
  3. legal object
    4.consideration.
139
Q
  1. An attorney-in-fact
A

is an individual with power of attorney who is able to sign the contract if one of the parties is not able or competent to sign.

140
Q
  1. Utilizing a Power of Attorney (POA) –
A

A POA must be approved by the lender in advance and the lender may limit the person who can be a power of attorney to only immediate family members such as a spouse or parent/child.

Please note that a POA may never be a party to the transaction, such as the real estate agent or the MLO. If no POA is assigned – NO ONE can sign on behalf of the borrower.

141
Q
  1. The assignor is
A

the party transferring contractual rights to another.

142
Q
  1. The assignee is the
A

party receiving the contractual rights

143
Q
  1. The assignor can
A

keep the servicing rights (selling a loan with servicing retained).

144
Q
  1. The assignor can sell the
A

servicing rights along with the mortgage and note to the assignee (selling a loan with servicing released).

145
Q
  1. The grantor is
A

the owner of a property.

146
Q
  1. The grantee is
A

the party receiving the title transfer.

147
Q
  1. A deed is
A

a written instrument used to convey title or transfer ownership.

148
Q

479.Deed restrictions may be

A

placed in the deed and control the use of the property.

149
Q

480.Deed restrictions

A

“run with the land” and cannot be discriminatory.

150
Q
  1. A Deed in Lieu of Foreclosure occurs when.
A

the mortgagor voluntarily conveys the deed to the lender in exchange for satisfaction of the debt. Debtors still lose property ,but by conveying it voluntarily before final court action, they avoid foreclosure on credit record. Lender not obligated to accept

151
Q
  1. Title insurance protects the
A

homeowner (mortgagor) and the lender (mortgagee) against defects that occurred in the past

(undisclosed liens, heirs, fraudulent documents, etc)

152
Q
  1. A title commitment binder is
A

issued after a search of the public records.

153
Q
  1. Either the seller or buyer (or both) will pay for the
A

title policies.

154
Q
  1. Issuing both the homeowner’s and the lender’s title policy, at the same time is called
A

simultaneous issue.

155
Q
  1. A property survey is required and is certified to
A

lenders, title insurers and buyers.

156
Q
  1. An easement is a right of way that gives someone other than the property owner the
A

right to be on the land for a specific purpose.

157
Q
  1. A deed restriction or restrictive covenant limits the
A

future use of a property.

158
Q
  1. There are four types of legal descriptions for properties:
A
  1. the Monument Method
  2. the Government Land Survey Method,
  3. Lot and Block Method
  4. Metes and Bounds Method.
159
Q
  1. The Lot and Block Method is the most common
A

survey method

160
Q
  1. The Metes and Bounds Method is the most accurate
A

survey method

161
Q
  1. In the Metes and Bounds Method
A

the surveyor must start and end his measurements at the Point of Beginning (POB)

162
Q
  1. The hazard insurance premium is paid a year in
A

advance and must be effective on the day of closing

163
Q
  1. A Flood Certification Fee is charged to the borrower at
A

closing to cover the costs of determining whether or not the property is in a flood zone.

164
Q
  1. FEMA maintains the
A

flood maps.

165
Q
  1. Closing agent sends an estoppel letter to the
A

seller’s lender requesting the payoff amount.

166
Q
  1. Sweat equity - work done by the borrower which has value. The work must be listed on the appraisal to be eligible.
A
167
Q
  1. Sweat equity is not
A

not an acceptable source of funds.

168
Q
  1. The proceeds from the sale of a currently owned home are a
A

common and acceptable source for the down payment and closing costs on a new house. A photocopy of the Closing Disclosure should be submitted to the lender.

169
Q
  1. Direct investor funding occurs when
A

the lender deals directly with the borrower without any middlemen.

170
Q
  1. Table funding is a
A

process that allows a broker to originate and close a loan under his or her name. After closing, the mortgage and note are immediately assigned to that investor.

171
Q
  1. Warehouse funding occurs when.
A

a lender obtains funds for closing from a line of credit extended by a commercial bank

172
Q
  1. The payment usually consists of
A

principal, interest and escrow funds for property tax and hazard insurance. The payment may also include the monthly private mortgage insurance, if applicable.

173
Q
  1. The servicer must analyze the
A

escrow account each year and estimate the funds needed for the upcoming year (annual escrow analysis).

174
Q
  1. The terms of the loan do not
A

change when the servicer changes

175
Q
  1. The lender who loans the money directly to a
A

borrower is participating in the primary mortgage market

176
Q
  1. A mortgage and note may be sold to an investor in the
A

secondary mortgage market.

177
Q
  1. When a lender sells a mortgage loan to
A

another lender this is called an assignment of mortgage.

178
Q
  1. Insurance -
A

contract that compensates for loss from designated hazard.

179
Q
  1. Homeowners Hazard Insurance -
A

covers loss/damage from fire or other disaster. Policy sufficient to replace home or reimburse mortgage amount. Lenders can place insurance if borrower does not comply. Usually require first year premium prior to closing.

180
Q
  1. Homeowner’s insurance requires buyers to
A

pay the first year’s insurance in full prior to closing.

181
Q
  1. Flood Insurance -
A

homeowner’s hazard insurance doesn’t cover flood damage. Homesin federally designated special flood hazard area require flood insurance for the life ofloan.

182
Q
  1. Flood Insurance must be purchased from the
A

National Flood Insurance Program(NFIP).

183
Q
  1. In evaluating flood insurance terms, the risk of flood potential are identified by Special Flood Hazard Area (SFHA)
A

. A SFHA is defined as the area that will be inundated by the flood event having a 1-percent chance of being equaled or exceeded in any giving year. The 1-percent annual chance flood is also referred to as the base flood or100-year flood.

184
Q
  1. High-risk flood zones –
A

Zones A and V (insurance is mandatory)

185
Q

516.Moderate flood zones–

A

properties in Zones B or X (insurance is optional)

186
Q

517.Low-risk flood zones –

A

Zones C or X (not required)

187
Q
  1. Force Placed Insurance -
A

homeowner fails to keep home insured. Lender has right to buy and charge insurance to cover lender’s interest in home. Typically, expensive. Covers lender, not homeowner or contents of home.

188
Q
  1. Hypothecation -
A

pledge property as collateral for loan while maintaining possession. When you purchase a house or car, you hypothecate it. You use it as collateral but keep possession of it.

189
Q
  1. Loss mitigation options include
A

refinancing, loan modification, short sale and deed-in lieu

190
Q
  1. Real estate is the land, structures on the land, air rights and mineral rights. Real property is the associated bundle of rights with real estate.
A
191
Q
  1. Real Estate Tax liens have
A

priority over all other liens and must be paid off first in the case of foreclosure.

192
Q
  1. Fee simple is the
A

highest type of personal property interest in the law. A buyer owns the land as well as the improvements on the land.

193
Q
  1. There are three types of concurrent real estate ownership:
A

tenancy in common,
joint tenancy,
and tenancy by the entirety.

194
Q
  1. Tenants in common are
A

two or more parties buying the same or unequal percentage of the property, buying at the same or different times, and the individual’s share, can be sold or willed.

195
Q
  1. Joint tenants are two or more parties buying at the same time, buying equal shares and the shares can’t be willed. The right of survivorship dictates that the remaining co-owners receive the deceased’s interest in the property.
A
196
Q
  1. Novation is
A

an assumption in which the original borrower is released from all liability.

197
Q
  1. Subject to the mortgage is a transfer of title in which
A

there is no new note, and the original buyer retains all the liability.

198
Q
  1. Freehold estates can be held _______ by the owner.
A

indefinitely

199
Q
  1. There are two types of freehold estates:
A

fee simple and life estate.

200
Q
  1. A life estate title reverts to the original grantor or a remainder upon
A

the death of the life estate holder.

201
Q
  1. IRS tax liens have a
A

lower lien position (recorded later) than property taxes, senior mortgages, and junior mortgages because no lender would loan money to someone with an outstanding IRS lien

202
Q
  1. Steering –
A

occurs when a loan originator directs a borrower to a given loan or loan product to increase compensation when the loan is “not in the consumer’s interest”

203
Q
  1. A HELOC is a revolving mortgage loan that allows the borrower to take
A

advances a this/her discretion up to an approved limit that represents a percentage of the borrower’s equity in a property

204
Q
  1. A Fixed Home Equity Loan may also allow the borrower to take
A

advances at his/her discretion an approved limit but is repaid based on a set amortization schedule. Unlike a HELOC, the borrower is NOT permitted to re-borrow any portion of the loan once it has been repaid to the lender.

205
Q
  1. Fully amortizing loan -
A

total payments over life of loan pay off entire balance of principal and interest due at the end of the term (self-liquidating).

206
Q
  1. Bridge Financing –
A

a bridge loan is sometimes used when the buyers wish to finalize the purchase of a new home before their current home is sold. It’s a short-term cash out loan made on the equity in the applicant’s current property to allow them to close
on the purchase of a new transaction.

207
Q
  1. Redemption period –
A

the borrower may pay off the loan in full to avoid a foreclosure sale of the property.

208
Q
  1. Equitable right of redemption –
A

states that have redemption periods that expire prior to or at the time of a judicial sale have the equitable right of redemption.

209
Q
  1. Statutory right of redemption -
A

states that allow the redemption period to exist even after the judicial sale has occurred. This is called statutory right of redemption

210
Q
  1. Reduced Documentation/No Documentation Loans:
A

Reduced documentation loans –also known as “low doc” or “no doc” loans – are one type that has become virtually unavailable in the marketplace. Low doc and no doc loans were initially used for self employed individuals and other borrowers with income, debt, and assets, which were difficult to verify through standard underwriting documentation.

211
Q
  1. No Ratio:
A

Conforming loans require an underwriting analysis of a borrower’s debt ratios – ratio of housing debt-to-income and ratio of total debt-to-income. In this type of nontraditional loan, the borrower’s debt ratios were not considered.

212
Q
  1. No Income, No Assets (NINA):
A

In a NINA loan program, no income or assets information was provided by the borrower, nor verified by the lender. Although income was not verified, the lender verified that the borrower was employed.

213
Q
  1. Stated Income, Stated Assets (SISA):
A

In a SISA loan program, the borrower provided information about his/her income and assets. However, no documentation was provided, and the lender performed no verification of the information. Although income was not verified, the lender verified that the borrower was employed.

214
Q
  1. No Income, Verified Assets (NIVA):
A

No income information was considered; however, assets were verified. Although income was not verified, the lender verified that the borrower was employed.

215
Q
  1. Stated Income, Verified Assets (SIVA):
A

The borrower provided information on his/her income; however, no documentation was required, or verification on the actual income figures was performed. Assets, employment and other requirements were verified by the lender.

216
Q
  1. No Doc:
A

In a no doc loan, the only documentation used was the credit report and appraisal. These loan programs relied on the value of the home and the borrower’s credit history

217
Q
  1. Capacity refers to
A

the borrower’s ability to repay the loan based upon sufficient
income. The underwriter relies on the loan processor to verify the income information set forth by the borrower in the loan application. The borrower’s capacity to repay a loan is determined, in part, by calculating and evaluating a debt to-income r

218
Q
  1. Capital refers to
A

the borrower’s ability to make a down payment, pay for closing costs and fund any escrows or reserves required at closing. In some cases, a lender will require that a borrower have enough reserves (liquid assets left over after closing) to pay a certain number of mortgage payments.

219
Q
  1. Credit is evaluated by
A

looking at the credit report. While the borrower’s FICO credit score is very important, there are other items that can affect the evaluation of the applicant’s creditworthiness.

220
Q
  1. Collateral refers to
A

the property being mortgaged as security for the loan. The value of that property is established by a property appraisal performed by a licensed appraiser.

221
Q
  1. Character refers to the borrower’s
A

willingness to repay the debt, as distinguished from the borrower’s ability to repay the debt. Credit history can help to provide an indication of a borrower’s willingness to repay, and evaluation of extenuating circumstances (as mentioned above) factors in as a measure of character, especially in loans that are manually underwritten.

222
Q
  1. Risk layering –
A

is the practice of approving loans with multiple layers of risk, which may significantly increase the risks to both the lending institution and the borrower. Subprime borrowers are understood to be “at risk” borrowers because of past credit problems, layering on additional risk on the same loan would include such things as; reduced documentation, a simultaneous high LTV second mortgage, and not including escrows for taxes and insurance.

223
Q
  1. Easements -
A

An easement is a formal right granted to another party allowing them to traverse or access a given property. Utility companies are often granted easements to access a property to maintain their infrastructure, such as electrical wires or cell phone towers. When recorded on the title of a property, an easement will remain permanently and will survive any transfer of title of that property

224
Q
  1. Encroachments -
A

An encroachment is a structure or portion of a structure that extends over the boundary line of a property onto another parcel. For example, fences that are built to separate properties without the aid of a surveyor often are not built on the property line and end up encroaching on a neighbor’s property.

MLO Test 844 Affinity Facts (15 decks)

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