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Mortgage Loan Origination Activities > Morgtgate Loan Origination > Flashcards

Morgtgate Loan Origination Flashcards

1
Q

The 1003 is also known as…

A

The Uniform Residential Loan Application (URLA).
1003 is Fannie Mae’s form number.
65 is the Freddie Mac form number.

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2
Q

A borrower must obtain flood insurance…

A

if the appraiser notes that the property is locate in the flood zone.
Zones A and V require mandatory flood insurance.

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3
Q

The Government Monitoring section of the 1003…

A

Is voluntary for loan applicants.
If they decline to provide the demographic information in this section, loan originators should make a best guess based on visual observation.

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4
Q

Back-end DTI is concerned with..

A

A borrower’s ability to meet monthly housing and other fixed debt expenses based on monthly income.

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5
Q

Credit reports include…

A

Information available in public records and data reported by creditors (including derogatory information such as late payments.)

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6
Q

Credit scoring was designed by…

A

The Fair Isaac Company.

Credit scores are often known as FICO scores.

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7
Q

How is annual MIP determined?

A

Based on loan amount, loan term, and loan-to-value. The mortgage insurance premium required on all FHA loans is collected as an upfront premium (UFMIP and on a monthly basis (annual MIP, divided into 12 equal parts).

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8
Q

The sales comparison approach is….

A

An appraisal method which compares the subject property to recently-sold comparable properties in close proximity. It is also called the “market approach”.

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9
Q

LTV is…

A

The ratio of the principal loan balance to the appraised value of the property. Loan-to-Value is used in borrower qualification to asses risk.

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10
Q

Credit report red flags may include…

A
  • recently opened accounts
  • misspellings and errors
  • uncharacteristic use or sudden increase in use of credit
  • large number of recent inquires
  • credit history that does not match what the originator knows about the applicant.
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11
Q

The total debt ratio is also called….

A

The back ratio.
Back ratio looks at the percentage of a borrower’s housing debt plus other consumers debts compared to his/her monthly gross income.

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12
Q

Conventional/conforming loans use a back end ratio of…

A

36%.
The back end ratio- or total debt ratio- is a comparison of all monthly debts (including housing) to the applicant’s monthly income.

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13
Q

A “point” equals…

A

1% of the loan amount.

Discount points are often used to buy down the interest rate on a loan

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14
Q

The size of ta borrower’s debt burden..

A

Determines the ability to meet the financial demands of loan repayment. Existing debt and is ratio to a borrower’s income - also known as debt-to-income-ratio- is a primary factor in a lender’s analysis of a borrowers ability to repay a loan.

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15
Q

FHA loans use a back end ratio of…

A

43%
The back end ratio - or total debt ratio - is a comparison of all monthly debts (including housing) to the applicants’ monthly income.

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16
Q

The Adjustable-Rate Mortgage Disclosure…

A

States that a loan has payment or loan terms that can change. When a borrower obtains an ARM which is secured by their principal dwelling and has a term of more than one year, creditors must provide the special disclosures for variable/adjustable rate mortgages.

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17
Q

The Settlement Cost Information Booklet is used…

A

For new home purchases. It explains the settlement process and the borrower’s rights under RESPA.

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18
Q

VA loan use a back end ration of ….

A

41%
The back end ration - or total debt ratio - is a comparison of all monthly debts (including housing) to the applicant’s monthly income.
VA programs only use the back- end ratio - they do not consider the front end ratio.

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19
Q

The underwriter is responsible for..

A

Determining loan approval based on lender guidelines and borrower qualifications. The underwriter is responsible for making sure a loan applicant and subject property meet the requirements for a specific loan program.

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20
Q

The 1004 is also known as….

A

The Uniform Residential Appraisal Report (URAR).

It is the standard form appraisers use to document the findings from an appraisal.

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21
Q

The purpose of the application interview….

A

Is to capture information from the applicant in order to complete the loan application. It may take place in person, over the phone or even over the internet.

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22
Q

CLTV is..

A

A loan-to-value ratio used when dealing with second liens. CLTV is calculated by combining the cost of all mortgages on a home and comparing the combined cost to the value of the home securing the loans.

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23
Q

Section I of the 1003

A

Is called “type of Mortgage and Terms of Loan.”

It is used to select the type of loan for which the applicant is applying.

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24
Q

After completing a loan application

A

The applicant will be asked to provide supporting documentation. The documentation supports information disclosed on the application and may include employment verification, tax and income documents., etc.

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25
Q

A VOE is…

A

Verification of Employment.

It is one form of loan application documentation used for applicants who are not self-employed.

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26
Q

Overtime and bonus pay…

A

Must be consistently received for a period of two year in order to be used for income qualification. The employer must verify that the additional income is likely to continue.

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27
Q

“Loan suitability” means…

A

Loan programs are diligently matched to the current financial circumstances of each customer. Some states have passed laws making loan suitability a regulated standard.

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28
Q

The cost approach to appraisal…

A

Considers the replacement value of the property. It is often used for new properties and analyzes what it would cost to build a substitute residence, plus the value of the land.

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29
Q

If a borrower switches loan programs…

A

New disclosures (e.g. GFE, TIL Disclosure) must be issued. This is particularly true for changes such as fixed rate to adjustable rate, etc.

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30
Q

Assets include…

A
  • Cash reserves
  • Gift funds
  • Stocks and bonds
  • IRA/401(k) Accounts
  • Other real estate
  • Cash surrender value of life insurance
  • Value of automobiles
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31
Q

Many underwriting decisions are made by….

A

Automated underwriting systems (AUSs).
Fannie Mae’s system is called Desktop Underwriter, and Freddie Mac’s system is known as Loan Prospector.
FHA and VA also have their own proprietary systems.

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32
Q

A borrower’s front ratio….

A

Only considers the housing debt. Debt ratios look at the percentage of debt to monthly income. The front or housing ratio only takes the mortgage payment (or rental payment) into consideration.

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33
Q

Net adjustments to comparables…

A

May be made up to 15%. Fannie Mae and Freddie Mac permit net adjustments of 15% and gross adjustments of 25% to comparables in the sales comparison approach to appraisal.

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34
Q

The underwriter uses the appraisal to…

A

Determine the value of the property. The appraisal is also used to establish any deficiencies that effect the marketability of the property.

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35
Q

Borrower income is…

A

An important consideration for most loan programs. In the past, nontraditional programs did not always verify income. However, today, lenders take a close look at a borrower’s ability to repay a loan.

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36
Q

Income documentation for salaried loan applicants…

A

Typically includes paystubs for the last 30 day period and W-2’s for the last two-year period.

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37
Q

An example of a voluntary lien is….

A

A mortgage. A homeowner voluntarily allow the lien to be placed on the property in order to secure a loan from the lender.

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38
Q

Liabilities include:

A
  • promissory notes payable to financial institutions and other creditors/lenders
  • Credit accounts with outstanding balances
  • Unpaid income taxes and interest
  • Child support and alimony
  • Previous bankruptcies
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39
Q

Non-taxable income may be grossed up….

A

By as much as 25%.
This type of income typically includes Social Security, public assistance, and disability. Loan applicants must still provide comprehensive documentation for these types of income.

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40
Q

FHA loans require a minimum borrower investment of…

A

3.5%.
This amount is based on the sales price or appraised value of the property and can be the borrowers own funds, gift funds or a grant.

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41
Q

What percentage of rental income may be used for qualification?

A

75%.
Investment properties generating rental income are just one type of special income that cannot be used at 100% for qualification purposes.

42
Q

IRS 4506-T is used to….

A

Obtain a transcript of a loan applicant’s tax returns. Lenders use this to perform an independent verification of tax documentation.
Form 8821 is also used to authorize release of other tax information.

43
Q

Income calculation for hourly pay…

A

( base rate ) x ( hours ) = ( weekly income )
( weekly income ) x ( weeks worked ) = ( annual income)
( annual income) / 12 = ( monthly income )

44
Q

Section II of the 1003….

A

Is called “Property information and Purpose of Loan.”

It is used to designate information concerning the property address and how the loan proceeds will be used.

45
Q

Income calculation for bi-weekly pay…

A

( bi-weekly salary ) x 26 = ( annual income )

annual income ) / 12 = ( monthly income

46
Q

Self-employed and commissioned income is…

A

Usually averaged over a two-year period.

Self employed income would come from the tax return; commissioned income may be taken from W-2s or tax returns.

47
Q

Bankruptcies stay on a credit report for…

A

10 yrs.

This is longer then standard credit account information which, which is purged after seven years.

48
Q

Self-employment/commission income requires caution..

A

When evaluating the capacity of the borrowers’ ability to repay a loan. This is because these forms of income are often less stable then traditional salaried employees.

49
Q

Section III of the 1003….

A

Is called “Borrower Information”. It is used to capture the loan applicant’s personal information such as name, social security number, address, age and marital status.

50
Q

Information on consumer credit…

A

Is gathered and sold by consumer reporting agencies. The credit report ( or consumer report) is the method for obtaining credit information.

51
Q

Credit scores are developed….

A

Using a statistically-validated system. This is required by consumer protection laws such as ECOA and FCRA.

52
Q

Account information on a credit report…

A

Is generally reported for a period of seven years. There are some exceptions for information that may be reported for a longer period.

53
Q

Section IV of the 1003…

A

Is called “Employment Information” It is used to capture the loan applicant’s current and two-year employment history.

54
Q

Child support and alimony…

A

May be used for income and qualification if they are court ordered. The loan applicant must be able to show a stable history of receiving payments.

55
Q

Section V of the 1003…

A

Is called “Monthly Income and Combined Housing Expense Information.” It is used for information needed to calculate the loan applicant’s debt-to-income ratios.

56
Q

Credit accounts on a consumer report…

A

Usually provide:

  • The company name
  • Date the account was opened
  • Date any information for the account was reported
  • Months reviewed/date of last activity
  • Credit limit ( “high credit”)
  • Balance and past due amounts
  • timeliness of payments
57
Q

The “Big 3” CRAs are…

A

Equifax
Experian
Transunion
- Not all creditors report to all three agencies.

58
Q

Nontraditional credit includes….

A

Payments for items such as rent and utilities.
First-time homebuyers or consumers with little credit history may sometimes use nontraditional credit to establish creditworthiness.

59
Q

Section VI of the 1003…

A

Is called “Assets and Liabilities”.
It is used to capture assets (cash, bank accounts, 401ks, etc.) as well as various debts (credit cards, loans, alimony, child support, etc.)

60
Q

Conventional / Conforming loans use a front end ratio of…

A

28%.

The front end ratio ( or housing ratio) is the comparison of housing debt to the applicants monthly income.

61
Q

Section VII of the 1003…

A

Is called “ Detail of Transaction.”

Information in this section is used to determine how much money the borrower will need to bring the loan to closing.

62
Q

FHA loans use a font end ration of ….

A

31%.

The front end ration ( or housing ratio) is the comparison of housing debt to the applicant’s monthly income.

63
Q

Section VIII of the 1003…..

A

Is called “Declarations.”
This section contains questions about judgments defaults, citizenship, and occupancy status. Answers to these questions can affect underwriting and result in additional conditions or adverse action.

64
Q

Section IX of the 1003…

A

Is called “Acknowledgement and Agreement”.
It allows applicants to confirm that they understand the purpose of the loan application and that it is a binding agreement.

65
Q

LTV is calculated by…

A

Dividing the amount of the mortgage by the appraised value or purchase price of the home, whichever is less.
Loan-to-value determines the loan program an applicant may qualify for.

66
Q

A lock-in agreement is used to…

A

Contractually hold the interest rate and points for a loan. They are usually made in writing and the lender is bound to honor the rate at closing.

67
Q

Section X of the 1003….

A

Is called “Information for Government Reporting Purposes.”
It requests voluntary demographics information on the applicant. The applicant may decline to answer, in which case the loan originator must make a best guess based on visual observation.

68
Q

Past credit performance is considered an indicator of….

A

A borrower’s attitude toward credit obligation and a prediction of his/her future actions.
Creditors/lenders assume that if an individual has met his/her obligations in the past he/she will continue to do so in the future.

69
Q

To evaluate income consistency, underwriters review…

A

W-2s and 1040s Substantial income increases and decreases must be addressed.

70
Q

To ensure that a property meets lender guidelines…

A

The underwriter will review:

  • the appraisal report
  • the preliminary title report
  • any inspections requested by the borrower or required by the lender.
71
Q

A lender is concerned with property marketability…

A

In case the borrower defaults and the lender is required to foreclose.

72
Q

When underwriters review derogatory credit information….

A

They are looking for an explanation of the derogatory credit. Without an explanation or documentation that makes sense the derogatory information can be used as the basis for loan denial.

73
Q

Typical property inspections include…

A
  • Inspection that required repairs have been made
  • Termite
  • Well & Septic
  • Roof
74
Q

Lenders rely on property appraisals to…

A

Ensure that the value of property is adequate to serve as security- or collateral- for the loan. For this reason, a licensed appraiser must conduct the appraisal.

75
Q

The income approach to appraisal is used…

A

For investment properties.

It would generally not be used for a single-family home being used as a borrower’s primary residence.

76
Q

Homeowner’s title insurance…

A

Provides protection for the borrower for potential title liabilities. These include mechanics liens, unreleased mortgages, and other third party rights. Obtaining this type of policy is voluntary on the part of the homeowner.

77
Q

A lender’s title policy….

A

Protects the lender from title defects or undisclosed liens that should have been cleared up prior to closing. Lenders typically make this type of policy mandatory - the borrower is required to cover the cost of obtaining it.

78
Q

Real property is defined as…

A

Land and anything that is permanently affixed to it.

Personal property includes items that can be moved.

79
Q

Liens are….

A

Monetary claims that provide a creditor with the right to foreclose.
A mortgage is an example of a lien.

80
Q

Involuntary liens may include…

A
  • Tax liens
  • Mechanics liens
  • Judgment’s
  • Attachments
81
Q

Lien priority is defined as…

A

The chronological order in which liens are filed against a property. The order establishes the priority of the liens in the event the property is foreclosed. Lenders want first priority for the mortgage on a property.

82
Q

Private mortgage insurance is used to…

A

Provide security to the lender in the event of default.

PMI also allows the borrower to make a smaller down payment.

83
Q

Upfront MIP is collected on…

A

All FHA loans.

84
Q

Fee Simple is….

A

The desired form of holding ownership to property, because it has the fewest restrictions. Almost all residential mortgage loan transactions involve an estate held in fee simple.

85
Q

An estate held in fee simple means that…

A

The owner is entitled to the entire property and had “unconditional power of disposition” during his/her lifetime, and the property will descend to his/her heirs upon death.

86
Q

Counseling is required for…

A
  • Any borrower accepting a high-cost home loan
  • First-time borrowers accepting a negative amortization loan
  • Any borrower seeking a reverse mortgage loan from the FHA
  • Counseling is encouraged for any borrowers choosing an ARM instead of a fixed-rate loan.
87
Q

New disclosure forms taking effect in 2015….

A
  • Loan Estimate form (will replace Early TIL, GFE)

- Closing Disclosure ( will replace Final TIL, HUD-1 )

88
Q

ATR Rule requires verification of income using…

A

Reasonably-reliable third-party documents, such as tax returns, W-2 forms, payroll statements, bank statements, etc..

89
Q

Loans excluded from the ATR Rule…

A
  • Open-end credit plans
  • Timeshare plans
  • Reverse mortgages loans
  • Temporary/ bridge loans with terms of 12 months or less
  • Construction phase of 12 months or less in a construction-to-permanent loan.
  • Designated extensions of credit from certain entities/agencies.
90
Q

Reasonable, good faith determination of ability to repay considers…

A
  • Current/reasonably - expected income/assets
    ( not including equity)
  • Current employment status
  • Monthly mortgage payments
  • Monthly payments on any simultaneous loans secured by the property
  • Monthly payments for property/ taxes/ insurance, other property-related obligations.
  • Debts/ alimony/ child support
  • Monthly DTI or residual income
  • Credit history
91
Q

In title theory states

A

The borrower gives legal title to the lender, but retains equitable title.
The lender “own” the property via a deed of trust.
The lender has a right to possession of the property in the event of default.
Legal title is returned to the borrower upon repayment and satisfaction of the debt.

92
Q

In lien theory states…

A

The borrower retains legal and equitable title to the property.
The mortgage is a lien against the property.
In the event of default, the lender must institute a foreclosure proceeding to obtain legal title.

93
Q

“Table funding” is…

A

A process in which a broker originates and closes a loan in his/ her own name, then transfers the loan to a lender at closing.
The lender provides funds for disbursement.

94
Q

Dry settlement occurs when…

A

Parties meet to execute documents, but funds are not disbursed.
Funds are not disbursed and property is not conveyed until certain conditions are met.

95
Q

Wet settlement occurs when….

A

Parties meet to execute documents and funds are subsequently disbursed. Lenders involved in purchase transactions are required ensure that the closing agent has adequate funds to close.

96
Q

Loan applicants that make a false statement on the 1003…

A

May face a 5 year jail term.

97
Q

Liquid assets include…

A
  • Deposit or “earnest money” held in escrow
  • Cash
  • Checking / Savings accounts, with account numbers
  • Stocks and bonds
  • Cash value and face amount of life insurance policies.
98
Q

Non-liquid assets include…

A
  • Real estate
  • Retirement accounts
  • Net worth of businesses
  • Automobiles
99
Q

Re-disclosure of APR required…

A

At least 3 business days before closing, any time the APR varies by more than one eighth of 1% (0.125%)

100
Q

Notice of Right to Receive Appraisal Report is due…

A

No later than 3 business days after receiving an application for credit secured by a first lien on a dwelling.

Mortgage Loan Origination Activities (1 decks)

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