LOAN ORIGINATION ACTIVITYS Flashcards
- A borrower’s net worth is determined by
by subtracting liabilities from assets.
- Assets are the items of value owned by the
borrower, such as cash on hand, checking and savings accounts, stocks, insurance, etc.
- Liabilities are
financial obligations or debts owed by a borrower
- Debts are considered any
any reoccurring monetary obligations that cannot be canceled.
- Underwriters want to confirm that the borrowers have sufficient assets and personal money
to make a down payment on the property and pay closing cost, without having to borrow.
- Underwriters want to confirm that the borrower will have adequate
adequate reserves
usually two months of PITI, after making the down payment and closing cost.
- Reserves are
cash on deposit or other highly liquid assets a borrower will have available after the loan funds.
- Lenders would like to see at least enough to cover
two months’ PITI mortgage payments of principal, interest, taxes, and insurance (and assessments such as condominium association fees, if applicable) after the borrower makes the down payment and pays all closing costs; however, inmost cases, this is not required.
- For investment properties,
six months’ PITI payments must be verified for loans on non-owner-occupied property.
- Consumer debts that have less than ___ months of payments remaining do not need to be included for the purpose of calculating debt ratios.
10 months of payments remaining do not need to be included for the purpose of calculating debt ratios.
- If the credit report does not show a
required minimum payment amount, the lender should use an amount equal to five percent of the outstanding balance.
- Lease payments must always be
considered a recurring monthly debt obligation, regardless of the number of months remaining on the lease.
- At a minimum, the borrower should have
2 months of mortgage payments after closing as reserves in a bank or brokerage account.
- Gross Monthly Income =
IF YOU ONLY HAVE ANNUAL INCOME
Annual Income ÷ 12.
- Gross Monthly Income =
IF PAID WEEKLY
Weekly Income x 52 ÷ 12.
- Gross Monthly Income =
IF PAID HOURLY
Hourly rate x weekly hours worked x 52 ÷ 12.
- Gross Monthly Income =
IF PAID BI-WEEKLY
Bi-weekly rate x 26 weeks ÷ 12
- Gross Monthly Income =
IF PAID BI MONTHLY; AKA EVERY TWO WEEKS
Bi-monthly rate x 24 weeks ÷ 12.
- A quality source of income is one that is
reasonably reliable, such as income from an established employer, government agency, interest-yielding investment account, etc.
- A durable source of income can
be expected to continue for a sustained period. For Example Permanent disability, retirement earnings, and interest on established investments clearly are durable types of income.
( Temporary unemployment benefits are unlikely to be counted.)
- TO BE CONSIDERED ‘‘DURABLE’’ , bonus, commission, and part-time earning types of income must be shown to
shown to have been a consistent part of the borrower’s earnings for two years.
- __% of ownership in a business is required for an individual to be considered self-employed. Verification of income requires 2 years of personal and business income tax returns. A year-to-date Profit and Loss Statement and a Balance Sheet may also be required.
25%
- A Profit and Loss Statement summarizes the company’s
assets and liabilities over a range of time.
A balance sheet depicts the company’s book value at a single moment in time. It is a snapshot of value.
- Employment income must be
verifiable for the past 2 tax years.
Any source of income which is not verifiable is NOT acceptable to the lender.
- Commission, Overtime, Bonus, Part-time, Interest and Dividend income must be
averaged over 2 years.
- Retirement and pension income must continue for __ years beyond the application date to be included as income.
3 years beyond the application date to be included as income.
- Alimony, child support and/or maintenance
may not be used as income if the borrower does not want to use them.
( however, if these items are used as income, Regulation B (ECOA) states that the lender cannot refuse to consider them)
- Receipt of alimony or child support payments must continue for
for 3 years beyond the application date to be included as income.
- As it relates to rental income –
the underwriter will only consider 75% of rental income collected. The other 25% us considered vacancy factor.
- Public Assistance income is
“grossed up” by 1.25% (increased by 25%) during underwriting.
- Public Assistance Income is
“non-taxable” income
(and can be consider any of the following: child support, alimony, social security income, retirement income, pension, etc.)
- Unemployment Income – For applicants whose work is seasonal, unemployment income can be
used as part of the qualifying income.
(Some trades such as fishing, construction, and teaching are seasonal work with regular downtime and during this down-time, they rely on unemployment income. If unemployment is a part of their natural annual work cycle, then it can be included in their qualifying income if it has shown for the past two years on the borrower’s tax return (the average$$ amount is used).
- The applicant will most likely be required to
to sign one or two IRS forms
: an IRS4506-C (Request for Transcript of Tax Return)
and/or an IRS 8821 (Tax Information Authorization)
so that the lender can verify the income.
- The Loan-to-Value Ratio (LTV) =
loan amount ÷ appraisal value or purchase price, whichever is less.
- The Combined Loan-to-Value Ratio (CLTV) =
1st Mortgage + 2nd Mortgage ÷ the sales price or appraised value
(whichever is lower)
- HCLTV means “home equity line of credit (HELOC) combined loan-to-value ratio.” The formula to calculate HLTV is as follows:
HLTV = 1st Loan Amount +the maximum available balance of the HELOC ÷ Lesser of the Property Value or Purchase Price
- The acquisition cost is
defined as the total amount needed to purchase
property, including down payment, loan amount, and any allowable buyer paid closing costs.
- The Housing Expense Ratio =
PITI ÷ Gross Monthly Income.
( Fannie Mae requires a maximum of 28%
FHA is 31%. The VA does not consider it. )
- The Total Debt to Income Ratio =
PITI + other monthly debt ÷ Gross Monthly Income.
- Per-diem (or daily interest) means
the amount of daily interest payable under a loan.
( A borrower’s first monthly payment is typically due on the first day of the second month after closing. For example, if a loan closes on January 15, then the first monthly payment will be due on March 1.)
- A par interest rate is
the “break-even” rate for the lender. If a borrower wants a rate lower than par, the lender may offer discount points.
- Points are used to
lower interest rates and each point will lower the rate by 0.25%.
- Discount points (buydowns) are
paid upfront to the lender for lowering the interest rate, and origination points are paid to the loan originator as a fee for service
- Each discount point and each loan origination point cost __% the loan amount.
cost 1% of the loan amount.
- All origination points must be lumped together as the origination fee on the Loan Estimate while discount points used to buy down the rate must be indicated as a charge the borrower incurs for the interest rate selected.
- Discount points can be either
temporary or fixed
( and the cost of the point is a closing cost, which is usually paid by the borrower, who also pays the origination point.)
- A discount point/buydown can be
paid by the borrower, seller, builder, etc.
- Origination Fee -
charged on loans that close.
Covers administrative costs to close/service loan. Usually based on percent of loan amount (1% = 1 point = 100basis points or bps)
- A point is
1% of the loan amount
so $135,000 x .01 = $1,350 per point. Three points is $4,050.
- Fixed discount points give a borrower-
a lower interest rate for the life of the loan
- Buy down points (temporary points) – for example, shown as FHA 2-1, buydown allows a purchaser to reduce the interest rate on a mortgage by 2% for the first year, 1% for the next year, and 0% every year thereafter.
- Lender’s return is the
total amount a lender or broker makes on a loan’s discount points, such as from loan fees.
- Yield spread premium (or lender credits) is a
tool MLOs can use to reduce a borrower’s settlement costs.
- ANNUAL interest rate is calculated as follows:
loan amount x interest rate.
675.MONTHLY interest rate is calculated as follows:
loan amount x interest rate ÷ 12.
- DAILY interest rate is calculated as follows:
loan amount x interest rate ÷ 365.
677 .Mortgage interest is paid in
arrears.
(arrears generally refers to any amount that is overdue after the payment due date for accounts such as loans and mortgages.)
- The first mortgage payment due date always skips
skips one calendar month.
- Late fees are due after
after the 15th of the month.
- Prorated mortgage interest paid by the borrower at closing (loan amount x interest rate)/365 days) x number of days left in month including closing day.
- The loan originator collects all the information and sends the package to an
an underwriter.
- Applications can be taken (how)
taken face-to-face, over the phone, through the mail or over the Internet.
- An applicant’s interest rates can
can float or be locked in.
- A rate lock is a
a lender promise to hold a certain interest rate and a certain number of points for the borrower, usually for a specified period, while the loan application is processed
- Each lock-in agreement must be
in writing and contain expiration date of the lock the interest rate, any discount points, any commitment fee and lock-in fee if these exist.
- The borrower may rescind any lock-in agreement until
until a written confirmation of the agreement has been signed by the lender and mailed to the borrower.
- The borrower generally must use 5% of
his or her own funds to make the required minimum cash down payment, although that down payment may be supplemented with a gift from a relative, domestic partner, fiancé, or fiancée.
- A gift must be accompanied by
a gift letter
that specifies the dollar amount of the gift, and the date the funds were transferred. The letter must also contain the donor’s statement that no repayment is expected and include the donor’s name, address, phone number and relationship to the borrower.
- A borrower’s payment history on previous mortgages or rent must be
verified for 12 months
- A borrower may charge
$500 for an appraisal and up to 1% of the loan amount to his/her credit card to pay for lock-in fees.
- When a married applicant qualifies for a mortgage based on his or her own financial capacity (without any assets or income of his or her spouse being taken into consideration), the spouse does not -
the spouse does not need to sign the note.
- The underwriter is responsible for
for evaluating both the risk of the borrower andthe property.
- Assessing an individual’s risk (underwriting) may be done -
manually or by automatic underwriting systems (AUS).
- The lender always makes the final decision to fund a loan. The lender issues the -
The lender issues the Clear-to-Close.
- Homeowner’s insurance policy is insurance that
covers the loss or damage to the home or property in the event of fire or other disaster such as tornado, snow, and hail damage.
- Hazard insurance does not
does not cover damages due to perils of flood.
- If a property is in a flood zone, the lender will
will require flood insurance (in addition to hazard insurance) for the life of the loan.
- Flood insurance must be purchased from the
the National Flood Insurance Program (NFIP).
Minimum amount is $100,000 and max amount is $250,000.
- Flood Insurance - Property’s located in Flood Zones __ or
__ (areas that are designated as high flood zones) must have flood insurance required by lender for life of loan
Flood Zones A and V are high risk flood zones and must have flood insurance required by lender for life of loan
- Seller Contributions - maximum allowable contributions by sellers and/or lenders is __% of the lesser of the appraised value or sales price for investment properties.
2% of the lesser of the appraised value or sales price for investment properties.
- Seller Contributions -
maximum allowable contributions by sellers and/or lenders is 3% of the lesser of the appraised value or sales price for a principal residence or second home if the LTV is greater than 90%.
- Seller Contributions -
maximum allowable contributions by sellers and/or lenders is 6% of the lesser of the appraised value or sales price for a principal residence or second home if the LTV is between 76% and 90%
- Seller Contributions - Maximum allowable contributions by sellers and/or lenders is
9% of the lesser of the appraised value or sales price for a principal residence or second home if the LTV is 75% or less
- Loan consummation is the point and time that the
consumer becomes contractually obligated on a credit transaction. Often referred to as “doc signing” or “closing” on the exam.
- The closing agent (settlement agent/title agent) must s
imultaneously following the instructions of the borrower and the seller in a sales transaction, as per the sales contract, escrow instructions, etc.
- Debits are
the sums of money owed (like debts).
- Credit are the
sums of money received.
- Pro-rations are the division of
expenses between the borrower and seller in prorations to the actual usage of the item as of the day the loan is funded
- The two types of documents associated with a loan are
are the mortgage and the promissory note.
- The note (promissory note) is the
legal evidence of the debt and is not recorded.
- The one promising to pay the money is called the
the MAKER
- The one that will receive the money promised is called the
the PAYEE
- The DATE and TIME of recording establish
lien position of the mortgage.
714.The borrower is the
MORTGAGOR
- The lender is the
MORTGAGEE
- The APR is not included in the
The APR is not included in the note.
- -Mortgagors promise to repay the loan, pay property tax, pay hazard insurance, and keep the property in good repair. They are in default if they
fail to do any one of these.
- A mortgage is a
voluntary lien
special assessments and mechanic’s liens are involuntary liens
- Trust Deeds -
Instruments placing specific financial interest in title to real property into hands of disinterested third party as security for payment of note
- Borrower called the
Borrower called the trustor.
- Lender is the
beneficiary who retains note and deed of trust.
- _______ holds legal title to security property described in deed of trust subject to terms of trust for lender benefit.
Trustee
- Mortgages have
“judicial” foreclosure and require court action to foreclose on a property.
- Trust Deeds are
“non-judicial” and do not require a court action to foreclose on a property.
- The Uniform Residential Appraisal Report (URAR) – form 1004 - is the
Fannie Mae APPRAISAL form. (The URAR 1004)
- The Home Valuation Code of Conduct (HVCC) prevents
a mortgage broker from choosing the appraiser for loans that are sold to Fannie Mae. The Dodd-Frank Act extended the law to include all mortgages.
- The appraiser must
be paid a flat fee, and not a fee based on the appraisal value.
- Property appraisers must
be licensed and adhere to the Uniform Standards of
Professional Appraisal Practice (USPAP)
- An appraisal is valid for
6 months (updated 1/1/2020). It must be re-certified if the appraisal will be 4 months (120 days) old or more at closing.
- The appraisal recertification form is called a
442 recertification of value or recert.
- Market value is the most probable price a property will bring in a fair and open market.
- To determine the highest and best use of a property, the
use must be legally permissible, physically possible, and financially feasible.
- Three approaches to estimating property value are:
- Sales Comparison Approach (Residential and vacant land),
- Cost Approach (new construction and special-use properties)
- Income Capitalization Approach (income producing properties).
- In the Sales Comparison Approach,
the appraiser researches a minimum of three closed sales that are similar in characteristics to the subject property.
- In the Sales Comparison Approach,
the appraiser researches a minimum of three closed sales that are similar in characteristics to the subject property.
- In the Sales Comparison appraisal approach -
Fannie Mae acceptable comp - no more than 15% net adjustments/25% gross adjustments.
- Cost Approach Appraisal -
calculates cost of land, site improvement, and construction of structure. Most useful for unusual or non-income producing property
- In the Cost Approach, the appraiser
estimates the cost to reproduce or replace the structures as if they were new, subtracts a value for depreciation because the structure is not new, and adds in the value of the land and any improvements. Reproduction or Depreciation + Site Value = Value of Subject Property Replacement Costs of Improvements.
- Income Approach Appraisal -
analyzes revenue, income property does or could generate. Sometimes called capitalization approach. Most useful for income-producing commercial and investment property.
- Closed sales are the most
important type of comparable in the Sales Comparison Approach.
- The Principle of Substitution states that
a knowledgeable consumer will pay no more for a property than the cost of acquiring an equally desirable alternative property.
- Depreciation is
the loss in property value.
- Appreciation is
an increase in property value.
- Functional obsolescence is
caused by a change in buyer’s tastes.
744.Economic obsolescence
is caused by a deteriorating neighborhood.
- Physical deterioration is
caused by aging or poor upkeep
- Title search each of public records to determine ownership prior to the conveyance of property.
- Chain of title is a
clear unbroken chronological record of ownership of a specific piece of property.
- Color of title is the
appearance of having title to personal or real property by some type of evidence, but in reality, there is either no title or it’s a defective title. This person is usually not the true titled owner.
- A suit of quiet title (quiet title action)
is used to remove a cloud on title.
- Title insurance protects lenders against loss due to disputes over
the ownership of a property and defects in the title not found the search of public records.
