LESSON 8: FINANCING REAL ESTATE Flashcards
What is the most common way of financing a home purchase?
Mortgages
What serves as the security for a mortgage loan?
The real estate itself
Who is the mortgagee in a mortgage transaction?
The lender (bank, savings & loan, credit union, etc.)
Who is the mortgagor in a mortgage transaction?
The borrower/home buyer
What document does the mortgagor sign as a promise to pay?
A promissory note
What is a lien?
A legal claim on a property used as security for a loan
What type of state is Texas regarding property title in mortgages?
A lien theory state
What is the difference between a lien theory state and a title theory state?
In lien theory states, the borrower holds the title, and the lender holds a lien; in title theory states, the lender holds the title until the loan is paid.
What does a mortgage payment typically include?
Principal and interest (sometimes also taxes and insurance in escrow)
What is an escrow account used for?
To hold funds for property taxes and insurance payments
What is the purpose of lending regulations?
To ensure fair lending practices and prevent discrimination
What are VA loans?
Loans available to U.S. military veterans with favorable terms
Can VA loans be assumed by another borrower?
Yes, by other veterans
What is the Texas Veterans’ Land Board?
A program offering loan benefits to Texas veterans
What are the two Texas regulatory agencies overseeing the mortgage industry?
Texas Department of Savings and Mortgage Lending (TDSML) and Office of the Consumer Credit Commissioner (OCCC)
What system handles all Texas mortgage licenses?
National Mortgage Licensing System (NMLS)
What are the pre-licensing education requirements for mortgage licensing?
20+ hours, including 3 hours of Federal Law, 3 hours of Ethics, 2 hours of Non-traditional Lending, and 12+ elective hours
How many hours of continuing education are required annually for mortgage licensees?
8 hours
What is the Fair Credit Reporting Act (FCRA)?
A law promoting accuracy, fairness, and privacy in consumer credit reporting
What are some key consumer rights under the FCRA?
Right to be informed of negative info, right to access credit file, right to dispute inaccuracies, right to limit prescreened offers
What is the Equal Credit Opportunity Act (ECOA)?
A law prohibiting discrimination in lending based on race, color, religion, sex, marital status, age, or public assistance status
What was a key goal of the Dodd-Frank Act?
To prevent excessive financial risk-taking and protect consumers
What is the Consumer Financial Protection Bureau (CFPB)?
An agency enforcing financial consumer protection laws
What financial products does the CFPB regulate?
Mortgages, credit cards, payday loans, and other consumer financial products
What are some goals of the CFPB regarding mortgages?
Easier disclosure forms, better consumer understanding, aiding comparison shopping, preventing closing surprises
What is the Loan Estimate form?
A combined version of the Good Faith Estimate (GFE) and initial Truth in Lending (TIL) form
What is the Closing Disclosure form?
A combined version of the HUD-1 Settlement Statement and final Truth in Lending (TIL) form
What are the daily penalties for failing to follow CFPB regulations?
$5,000 for failure to follow the law, $25,000 for gross negligence, $1,000,000 for intentional violations
What is the SAFE Mortgage Licensing Act?
A law requiring mortgage loan originators (MLOs) to meet licensing standards
What are the SAFE Act requirements for state-licensed MLOs?
Passing a written test, pre-licensing education, annual continuing education, background check, and credit report authorization
What are the two levels of the mortgage market?
Primary market and secondary market
What is the purpose of the secondary mortgage market?
To stabilize the primary market by purchasing loans from lenders
Who are common primary mortgage lenders?
Banks, savings & loan associations, credit unions, mortgage bankers, private lenders
What is the role of Fannie Mae in the mortgage market?
Purchases FHA, VA, and conventional loans and issues mortgage-backed securities
What is the role of Freddie Mac?
Purchases conventional loans and sells mortgage-backed securities called participation certificates (PCs)
What is the role of Ginnie Mae?
Issues government-backed mortgage securities and supports HUD housing projects
What is the Federal Home Loan Bank (FHLB)?
A system of regional banks providing funding to mortgage lenders
What is Farmer Mac?
A secondary market for agricultural and rural loans
What is a mortgage-backed security (MBS)?
An investment instrument backed by a pool of mortgages
What is the purpose of mortgage-backed securities?
To provide liquidity to the mortgage market and attract investors
What are government-sponsored enterprises (GSEs) in the mortgage market?
Fannie Mae, Freddie Mac, Ginnie Mae, FHLB, Farmer Mac
Why do investors buy mortgage-backed securities?
They offer liquidity, lower investment costs, and guaranteed returns
What is the main benefit of the secondary mortgage market?
It allows lenders to continue issuing new loans by selling existing loans to investors
What are REMICs?
Investment vehicles that hold commercial and residential mortgages in trust and issue securities representing an undivided interest in these mortgages.
How do REMICs operate?
They assemble mortgages into pools and issue pass-through certificates, multiclass bonds, or other securities to investors in the secondary mortgage market.
How are REMIC-issued mortgage-backed securities classified?
They can be debt financings of the issuer or a sale of assets.
What entities can elect REMIC status?
Trusts, corporations, partnerships, and even pools of assets that are not legal entities.
Are REMICs subject to federal taxes?
No, REMICs themselves are exempt, but income earned by investors is fully taxable.
What type of investments can REMICs hold?
Qualified mortgages and permitted investments such as single-family or multifamily mortgages, commercial mortgages, second mortgages, mortgage participations, and federal agency pass-through securities.
What are the two main activities of secondary market agencies?
- Buying loans 2. Issuing mortgage-backed securities
Why do lenders sell mortgage loans?
To reduce risk and increase liquidity, allowing them to make new loans.
How do secondary market agencies create mortgage-backed securities?
By buying a large number of mortgage loans, pooling them, and pledging the pool as collateral for securities sold to investors.
How do investors receive returns from mortgage-backed securities?
Through periodic payments (usually monthly) from the agency, which come from borrower repayments.
What is Lien Theory in real estate?
The borrower retains ownership and title to the property, but the lender holds a lien as security for the loan.
What happens in Lien Theory states when a borrower defaults?
The lender must enforce the lien through foreclosure to recover the debt.
What is Title Theory in real estate?
The lender (mortgagee) holds the legal title to the mortgaged property until the debt is paid off.
What happens in Title Theory states when a borrower defaults?
Since the lender already holds the title, foreclosure is not required to take possession.
What is the difference between an encumbrance and a lien?
All liens are encumbrances, but not all encumbrances are liens. An encumbrance is any claim on property, while a lien gives a creditor the right to seize property for unpaid debt.
Why is reviewing the title important before purchasing real estate?
To ensure the property can be transferred free of any encumbrances or to confirm that existing ones are acceptable to the buyer and lender.
What is a promissory note in real estate?
A borrower’s personal promise to repay the lender, including the loan amount, interest rate, and repayment terms.
How can promissory notes be transferred?
They can be sold to another investor or lender as negotiable instruments.
What is the difference between secured and unsecured promissory notes?
Secured notes are backed by collateral (e.g., a mortgage), while unsecured notes rely solely on the borrower’s promise to repay.
What is an acceleration clause in a loan agreement?
A clause that makes the entire loan amount due immediately if the borrower defaults.
What happens when a lender in Texas posts a property for foreclosure?
The loan is accelerated, making the entire balance due, not just the past-due payments.
How do primary lenders make money in the mortgage industry?
Mostly from originating loans rather than from long-term payments, as they often sell loans to secondary market agencies.
What is the Uniform Secured Note?
A standard instrument that, along with a Security Instrument, protects the lender’s interest in case of borrower default.
What is the alienation (due-on-sale) clause?
A clause stating that if the borrower sells or transfers the property, the lender can demand full repayment of the loan.
What type of mortgage document is used in Texas?
A Deed of Trust.
What is the key difference between a mortgage and a deed of trust?
A mortgage creates a lien requiring judicial foreclosure, while a deed of trust allows non-judicial foreclosure.
What is a wraparound deed of trust?
A financing method where the buyer makes a single payment to the seller, who then continues making payments to the original lender.
What is the significance of the first lien position in a foreclosure?
The first lienholder gets priority in receiving proceeds from a foreclosure sale before any other claimants.
What is a short sale in real estate?
A short sale occurs when a property is sold for less than the amount owed on the loan.
What factors determine whether a short sale extinguishes the debt?
Loan amount, lender’s attitude, market conditions, and lender’s belief about debt collectability.
What is the purpose of a short sale addendum?
It sets a time limit for lender consent and ensures that the sale extinguishes the debt.
What happens if a lender does not consent to a short sale by the agreed date?
The contract terminates.
Why can short sales take longer than conventional sales?
They require lender approval, which can take months or even up to a year.
What is foreclosure?
A legal process where a borrower in default loses ownership, and the property is sold to repay the mortgage debt.
How does foreclosure affect a borrower’s credit?
It negatively impacts the borrower’s ability to obtain future credit.
What is an acceleration clause in a mortgage note?
It allows the lender to demand full payment if the borrower defaults.
What happens if a borrower does not pay on time?
A late charge is applied, and continued non-payment can lead to default.
What is the lender’s process after a borrower defaults?
The lender sends a notice, allowing at least 30 days for payment before accelerating the loan.
Why do lenders avoid foreclosure?
Foreclosures are costly, time-consuming, and may result in financial losses.
What are some costs associated with foreclosure?
Legal fees, maintenance, insurance, HOA fees, and property deterioration.
Why do foreclosures take a long time?
The legal process can take 6 to 9 months or more.
What happens if a lender cannot sell a foreclosed property?
The lender may rent it out, which is not ideal for their business model.
What is a tax lien?
A claim placed on a property for unpaid property taxes.
Why do lenders use escrow accounts for property taxes?
To ensure taxes are paid and protect their lien priority.
What can happen if property taxes are not paid?
The government can foreclose, potentially leaving the lender with losses.
What is the purpose of property insurance in a mortgage?
To protect the lender’s collateral from damage.
What can a lender do if a borrower fails to maintain insurance?
Purchase insurance at the borrower’s expense and add it to the loan balance.
What are a borrower’s maintenance obligations?
Prevent deterioration, repair damages, and maintain property value.
What rights do lenders have regarding property inspections?
They can inspect the property with reasonable cause and notice.
When is a borrower considered delinquent?
When they fail to pay principal, interest, taxes, or insurance on time.
What can result from non-compliance with a mortgage agreement?
The lender can demand full repayment and begin foreclosure.
What is the process of foreclosure?
The lender issues a Notice of Default, records it publicly, and notifies lienholders.
Why must lienholders be notified of foreclosure?
Failure to notify them could lead to legal challenges and financial losses.
Where must a foreclosure sale take place under Texas state law?
In the county where the real property is located. If the property spans multiple counties, the sale can occur in any of them with proper notice.
What does ‘notice’ typically mean in the foreclosure process?
A published notice of default and foreclosure, as well as a sale notice in the local newspaper or online through the county website.
When are mortgage foreclosures held in Texas?
On the first Tuesday of the month at the county courthouse.
How long before the auction must foreclosure notices be posted at the courthouse?
At least 30 days.
What type of auction is a Texas foreclosure sale?
An all-cash auction with no title policy.
Who typically holds the foreclosure auction in Texas?
The trustee, as Texas is a lien theory state.
Who typically bids first at a foreclosure auction?
The lender, usually bidding the outstanding loan balance plus accrued interest, penalties, and legal fees.
What happens if no one bids higher than the lender at a foreclosure auction?
The lender takes ownership of the property and can sell it at any price without paying off other creditors.
What is a deficiency judgment?
A court action allowing the lender to sue the borrower for any remaining debt after foreclosure.
How long does a lender have to seek a deficiency judgment in Texas?
Two years from the foreclosure sale.
What is non-recourse financing?
A loan where the borrower is not personally liable, and the lender can only collect the debt through foreclosure.
What is equitable redemption?
The right to pay off the defaulted portion of a loan before foreclosure to prevent the sale.
Does Texas allow statutory redemption for mortgage foreclosures?
No, but Texas allows statutory redemption for tax foreclosures.
What type of foreclosure process is most common in Texas?
Non-judicial foreclosure.
When is a judicial foreclosure required in Texas?
For Homeowner Association (HOA) foreclosures, reverse mortgages, and certain equity loans.
What is a deed in lieu of foreclosure?
When a borrower voluntarily transfers the property deed to the lender to avoid foreclosure.
What tax consequences might occur after a foreclosure or deed in lieu?
Debt forgiveness may be subject to personal income tax.
What is the key difference between a mortgage and a deed of trust?
A mortgage is a two-party agreement where the lender holds title, while a deed of trust is a three-party agreement where the trustee has foreclosure authority.
What are mechanics’ and materialmen’s liens?
Liens placed by contractors or suppliers for unpaid labor or materials used to improve real estate.
What is a deed restriction?
A clause in a deed limiting future uses of the property.
What is the order of lien priority in Texas foreclosures?
1) Federal income tax liens, 2) Property tax liens, 3) Mortgage liens (1st, 2nd, 3rd), 4) Vendor’s liens, 5) Mechanic’s liens (by work date).
What is a general lien?
A lien that attaches to all assets a person owns, such as a federal income tax lien or judgment lien.
What is a specific lien?
A lien tied to a specific property, such as a mortgage or property tax lien.
How do Texas homestead laws protect homeowners?
Homesteads are generally protected from general liens, except for federal income tax liens.
What is the biggest risk when purchasing real estate without due diligence?
Buying a property with existing liens or without title insurance.
What is an easement?
A provision in an enforceable agreement that allows for certain uses, usually the right to pass across land for ingress and egress.
How can an easement be created?
It can be created by mutual agreement or against the owner’s wishes through prescriptive easement.
What is a prescriptive easement?
An easement created against the wishes of the property owner through continued use without permission.
What is an encroachment in real estate?
An improvement that intrudes illegally on another’s property, reducing its size and value.
What are common examples of encroachments?
Fences, driveways, garages, barns, storage sheds, and kids’ playhouses.
What factors influence real estate finance?
The real estate market, primary and secondary lending markets, and government policies.
What government agencies influence real estate finance?
The Federal Reserve (monetary policy) and the Department of Housing and Urban Development (housing policy).
What are key economic indicators in real estate?
Supply and demand, mortgage rates, monetary system, and other market influencers.
What is supply in real estate?
The willingness and ability of sellers to sell property in a given market.
How does price affect real estate supply?
Higher prices encourage owners to sell, while lower prices discourage selling.
How do construction costs affect real estate supply?
Lower costs encourage building, increasing supply, while higher costs discourage new development.
How do expectations affect real estate supply?
If sellers expect prices to rise, they hold off selling; if they expect a decline, they sell sooner.
What factors affect real estate demand?
Price, personal income, financing costs, and buyer expectations.
What is the Housing Affordability Index?
An index above 100 means median-income families can afford a median-priced home with an 80% loan; below 100 means they cannot.
What is inflation?
A general rise in prices leading to a decrease in the dollar’s purchasing power.
What are common inflation indicators?
Exchange rate, GDP growth, and unemployment trends (Phillips curve).
How does inflation affect real estate investments?
Real estate is a hedge against inflation but can drive up prices due to excessive demand.
How does inflation influence interest rates?
High inflation leads to high interest rates, which can deter real estate investments.
How do taxes impact real estate?
Taxes increase costs, reducing demand and supply, while tax incentives can boost both.
What is the Texas Department of Housing and Community Affairs (TDHCA)?
A Texas agency providing affordable housing and community service programs through funding and partnerships.
What does the TDHCA regulate?
Affordable housing programs and the state’s manufactured housing industry.
What is the Homebuyer Assistance Program (Home HBA)?
Provides down payment assistance for homebuyers earning up to 80% of area median family income.
What is the HTF Homebuyer Assistance Program?
Offers down payment, closing cost, and gap financing assistance through the Housing Trust Fund.
What is the Texas Bootstrap Loan Program?
A self-help construction program requiring participants to provide at least 65% of the labor for their home.
What is My First Texas Home?
A program providing low-interest mortgage loans to first-time homebuyers or those who haven’t owned a home in 3 years.
What is the Texas Mortgage Credit Certificate Program?
Allows buyers to claim a credit of up to $2,000 against federal taxes based on mortgage interest.
What is the Texas Statewide Homebuyer Education Program (TSHEP)?
Provides training and certification for homebuyer education providers.
What is the Texas State Affordable Housing Corporation (TSAHC)?
Supports housing services for very low-income households through partnerships with nonprofits.
What is the Seth Goldstar Program?
Provides forgivable second-lien assistance for down payments and closing costs.
What are Colonia Self-help Centers (SHC)?
Centers providing housing and community development support in designated Texas border counties.
What is the Contract for Deed Conversion Initiative?
A program helping colonia residents convert contracts for deeds into traditional mortgage financing.
What is the Single Family Development for CHDOs program?
Provides funds to CHDOs for single-family housing acquisition, rehabilitation, or reconstruction for households earning up to 60% of area median income.
What does the S.A.F.E. Act stand for?
Secure and Fair Enforcement for Mortgage Licensing Act of 2008.
What is the purpose of the S.A.F.E. Act?
To establish requirements for licensing and registration of Mortgage Loan Originators (MLOs).
Who must be licensed under the S.A.F.E. Act?
MLOs who do not work for an insured depository institution or a Farm Credit Administration-regulated institution.
What are the key requirements for state-licensed MLOs under the S.A.F.E. Act?
Pass a written test, complete pre-licensure education, take annual continuing education, submit fingerprints for background checks, and provide an independent credit report.
What agencies regulate MLO licensing in Texas?
The Texas Office of Consumer Credit Commissioner (TOCCC).
What transactions are regulated by the TOCCC?
Home equity loans, secondary mortgages, home improvement loans, motor vehicle sales financing, pawnshop transactions, signature loans, payday loans, consumer installment loans, and retail credit accounts.
What are home equity loans?
Loans that use a home’s market value as collateral.
What are secondary mortgages?
Also called junior liens, they are additional loans secured by a property that already has an existing mortgage.
What is a home improvement loan?
A loan used for home repairs or renovations, secured by a property as a first or second lien.
Who needs a license to finance motor vehicle sales in Texas?
Dealers who provide financing themselves or arrange financing with lenders.
How do pawnshop transactions work?
Pawnshops provide loans in exchange for collateral, which is returned upon repayment or kept for resale if unpaid.
What is a signature loan?
An unsecured loan granted based on the borrower’s signature, typically up to $500.
What is a payday loan?
A short-term loan (up to $500) secured by a postdated check, usually requiring repayment within two weeks.
What is a consumer installment loan?
A secured loan repaid in multiple installments, typically ranging from $500 to $12,000.
What are retail credit accounts?
Financing provided by retailers to customers for purchases, allowing payments over time.
What factors do lenders evaluate when qualifying a borrower?
Income, credit, source of funds, debts, and net worth.
What is the primary goal of assessing a borrower’s income?
To determine whether the income is sufficient and reliable to repay the mortgage and other debts.
How many years of employment history do lenders typically require?
Two years.
What forms do lenders use to verify an applicant’s employment and income?
Verification of Employment (VOE) forms and W-2 forms.
Can alimony or child support be considered income for a mortgage?
Yes, if it is court-ordered and has a verifiable payment history.
What is Net Operating Income (NOI) in real estate?
Scheduled Gross Income - Vacancies - Credit Losses = Effective Gross Income; Effective Gross Income - Operating Expenses = NOI.
How do lenders treat negative cash flow from investment properties?
As long-term debt in the underwriting process.
What is a liquidated asset?
An asset that has been converted to cash, such as stocks or bonds.
What are gift funds in real estate transactions?
Cash given to a borrower by a relative, fiancée, or nonprofit organization that does not require repayment.
What must a donor provide when gifting funds to a borrower?
A gift letter stating the amount, relationship to the borrower, and confirmation that repayment is not required.
What are seller concessions?
Seller contributions to a buyer’s closing costs, often limited by lenders.
How much can a first-time homebuyer withdraw from an IRA penalty-free?
Up to $10,000 under the Taxpayer Relief Act of 1997.
Who qualifies as a first-time homebuyer under the Taxpayer Relief Act?
Someone who has not had equity in a principal residence in the past three years.
What is the maximum timeframe for using an IRA withdrawal to avoid penalties?
120 days from the withdrawal date.
What are the two main qualifying ratios used in mortgage underwriting?
Housing-expense-to-income ratio and total debt service ratio.
What is the total debt service ratio requirement for Fannie Mae and Freddie Mac?
It must not exceed 36%.
What is the FHA debt ratio?
29% for housing expenses and 41% for total debt.
Does the VA have a specific housing ratio requirement?
No, but they prefer total debt to be under 41%.
What is an installment debt?
A debt with a fixed start and end date, such as a mortgage or car loan.
What is a revolving debt?
A debt with an open-ended credit line, such as a credit card.
How do lenders treat revolving debts?
Some consider only the minimum monthly payment, while others consider the full balance or even the credit limit.
Are child support and alimony included in long-term debt calculations for Fannie Mae and Freddie Mac?
Child support is not included.
What does PITI stand for in real estate finance?
Principal, Interest, Taxes, and Insurance.
What is the housing expense ratio?
The annual PITI payment divided by the borrower’s annual income; also called the front-end ratio.
Who sets the maximum housing expense ratio limits?
Lenders, secondary mortgage traders like Fannie Mae, and insuring bodies such as FHA.
What is the back-end ratio in mortgage qualification?
The total debt service ratio, calculated as (PITI + all long-term debts) / gross income.
What back-end ratio does Fannie Mae require?
No more than 36% of gross monthly income.
Why is the debt service ratio sometimes used alone?
Studies suggest no correlation between high housing expense ratios and default when the debt service ratio is stable.
How is a person’s net worth calculated?
Total assets minus total liabilities.
What are common assets considered in net worth?
Bank accounts, stocks, bonds, real estate, automobiles, business equipment, and personal possessions.
What is the typical total-liabilities-to-net-worth ratio for business loans?
Usually about 400%.
What does a 400% total-liabilities-to-net-worth ratio indicate?
A business must not owe more than four-fifths of the value of its assets.
Why must an underwriter consider the property value in a loan application?
In case of foreclosure, the lender needs to recover the loan amount through the collateral property.
How is property value determined for non-income-producing properties?
By obtaining a property valuation from an appraiser.
What tools does an underwriter use for valuing income-producing properties?
Cap rate and discounted cash flow analysis.
What are the eight steps of an appraisal?
- State the objective, 2. List necessary data, 3. Gather and verify data, 4. Determine highest and best use, 5. Estimate land value, 6. Estimate value with applicable approaches, 7. Reconcile the final value estimate, 8. Write and present the report.
What is the first step in an appraisal?
Stating the objective, including property identification, ownership rights, type of value, and effective date of valuation.
What sources does an appraiser use to collect data?
Geographic and economic data, comparable sales, legal descriptions, and property records.
Why is verifying property data important in an appraisal?
To ensure accuracy and reliability in property valuation.
What is the principle of highest and best use in appraisal?
The most profitable and efficient use of a tract of land should dictate its development.
What is the purpose of reconciling a final value estimate in appraisal?
To combine data from different approaches and assign weight to the most relevant valuation method.
Who sets the rules for appraisals and appraisal reports?
The Appraisal Standards Board (ASB) and the Uniform Standards of Professional Appraisal Practice (USPAP).
What does the Texas Office of Consumer Credit Commissioner (TOCCC) oversee?
The regulation of consumer credit transactions in Texas.
What are creative real estate financing methods?
Offering a higher interest rate to the seller, leveraging equity for a down payment, blanket mortgages, cash purchases with refinancing, seller financing, and partnerships.
What is an FHA Section 203(b) loan?
A loan insured by HUD, made through local lenders, for purchasing a home.
How can tax-free zero interest bonds be used in seller financing?
As additional collateral for a seller carryback, with no tax consequence at maturity.
What is a blanket mortgage?
A mortgage covering multiple properties or assets as collateral.
How can real estate brokers help in creative financing?
They may contribute their commission toward a down payment in exchange for partnership in a deal.
What is unique about FHA and VA loans?
FHA loans have low down payments, while VA loans require no down payment. Both are assumable with buyer qualification, and assumptions do not change the interest rate.
How do FHA and VA loans compare to conventional loans in terms of debt ratios?
FHA and VA loans allow higher debt ratios than conventional loans.
What protects lenders in conventional loans with over 80% loan-to-value ratio?
Private Mortgage Insurance (PMI).
How does FHA protect lenders?
FHA insures lenders through Mortgage Insurance Premium (MIP).
How does VA protect lenders?
VA guarantees the loan through the VA funding fee.
What is the purpose of the Real Estate Settlement Procedures Act (RESPA)?
RESPA ensures full disclosure of transaction costs, including borrowing costs, to consumers.
What do Anti-Predatory Lending Laws (APLs) aim to prevent?
APLs aim to prevent unfair, deceptive, or fraudulent lending practices.
What is redlining in real estate?
Redlining is the discriminatory practice of refusing loans in specific areas based on property values or conditions.
What does the Community Reinvestment Act (CRA) require of lenders?
CRA requires lenders to meet the credit needs of their entire community, including low- and moderate-income areas.
What must lenders provide under RESPA within three days of a loan application?
A HUD booklet on settlement costs, a truth in lending statement (APR and total costs), and a good-faith estimate of settlement costs.
What are RESPA’s prohibitions regarding closing services?
No referral fees, no fees for unperformed services, and no mandatory use of a specific title company.
What penalties exist for RESPA violations?
Fines up to $10,000 and up to one year in prison.
Who qualifies for VA loans?
Active and inactive U.S. military members.
What is the benefit of VA loan eligibility?
Veterans can reuse eligibility if the loan is paid off or assumed.
What agencies regulate Texas mortgage licensing?
Texas Department of Savings and Mortgage Lending (TDSML) and the Office of the Consumer Credit Commissioner (OCCC).
What is required for Texas mortgage licensing?
20+ hours of pre-licensing education, including federal law, ethics, and non-traditional lending courses.
What does the Fair Credit Reporting Act (FCRA) protect?
FCRA ensures accuracy, fairness, and privacy in consumer credit reports.
What are some consumer rights under the FCRA?
The right to know what’s in a credit file, dispute inaccurate info, and limit prescreened credit offers.
What does the Equal Credit Opportunity Act (ECOA) prohibit?
Discrimination in lending based on race, color, religion, national origin, sex, marital status, age, or public assistance income.
What must lenders disclose under the Truth in Lending Act (TILA)?
Down payment, monthly payment, interest rate, APR, and total loan costs.
What is Regulation Z under TILA?
It requires lenders to disclose all credit terms if any are advertised.
What types of loans does RESPA apply to?
Federally related mortgage loans, including purchase loans, assumptions, refinances, and equity lines of credit.
What does the Truth in Lending Act (TILA) aim to achieve?
Standardized disclosure of credit terms to help consumers compare options.
What damages can a creditor be liable for if they fail to comply with TILA (excluding advertising provisions)?
Actual damages, legal costs, and reasonable attorney’s fees in a successful action.
What are the potential financial penalties for a creditor violating certain TILA requirements in an individual action?
Twice the amount of the finance charge, but not less than $100 or more than $1,000 (or $200-$2,000 for closed-end credit secured by real property or a dwelling).
What is the maximum financial recovery in a TILA class action lawsuit?
The lesser of $500,000 or 1% of the creditor’s net worth.
Under what condition can a civil action be maintained against an assignee of a creditor?
If the violation is apparent on the face of the disclosure statement or other assigned documents, unless the assignment was involuntary.
What are the criminal penalties for willful and knowing violations of TILA?
A fine of up to $5,000, imprisonment of up to one year, or both.
What power do federal regulatory agencies have under TILA regarding inaccurate finance charges or APRs?
They can require financial institutions to adjust consumers’ accounts if the discrepancy exceeds a specified accuracy tolerance.
Under what conditions does TILA require financial institutions to reimburse consumers for understated APR or finance charges?
If violations involve patterns or practices, gross negligence, or willful noncompliance intended to mislead the consumer.
Why did the Dodd-Frank Act introduce new rules regarding appraisals?
To prevent loan fraud due to incorrect appraisals by requiring many lenders to use third-party appraisal companies.
What is a Computerized Loan Origination (CLO) system?
A system that assists consumers in finding lenders, selecting mortgage products, and originating loans using computer technology.
Why does HUD encourage computerized loan analysis?
To minimize human bias in loan qualification, expedite the loan process, and save borrowers money.
How do Freddie Mac and Fannie Mae use computerized systems for loan processing?
They offer automated underwriting systems that can process loans quickly and at lower costs.
What is Fannie Mae’s automated underwriting system called?
Desktop Underwriter (DU).
What benefits does Desktop Underwriter (DU) provide to lenders?
Reduced underwriting time and costs, 24/7 accessibility, and automated risk analysis.
Does DU use FICO credit scores in its analysis?
No, but Fannie Mae encourages lenders to consider FICO scores in evaluations.
What is Freddie Mac’s equivalent to Desktop Underwriter (DU)?
Loan Prospector (LP).
What are the possible loan decisions from Freddie Mac’s Loan Prospector (LP)?
Accept, A-minus caution, or manual underwrite.
What regulations must be followed when using Computerized Loan Origination Systems (CLOs)?
RESPA (Real Estate Settlement Procedures Act) guidelines must be followed.
