Mortgage Flash Cards
What is the required pass
rate for the NMLS Test and
how long is it?
75% of 115 questions. The test has
120 questions with 5 questions that
are ungraded.
What is important to remember about taking the test?
Read the questions twice, slowly, but do not take over 30 seconds per question the first time through
What is the requirement under Fair Lending, Fair Housing, and ECOA?
All consumers have the right to apply for a loan unless they are under 18 years of age
Which Law and Regulation is Home Ownership Equity Protect Act (HOEPA) under?
Truth in Lending Act (TILA) and REG Z
Which items are restricted under HOEPA?
Predatory Lending, Abusive Lending Practices, Negative Amortization, PrepaymentPenalties, Balloon Lending, Subprime Lending, EquityStripping, and not meeting Ability to Repay (ATR) requirements
What is the minimum period for a Balloon mortgage?
A 30-year amortized loan that is due in 60 months
What is the Average Prime Offered Rate?
APOR – an index that is published weekly. It is added to High-Cost and Higher-Priced Triggers.
Who publishes the APOR Index?
FFIEC, the Federal Financial Institutions Examination Council
What is the Regulation for High-Cost Loans?
Section 1026.32
What are the three triggers for High-Cost Lending?
6.5% on a first Mortgage, 8.5% on a second Mortgage, and a 5% fee trigger for loans over $20,000
What are the triggers for Higher-Priced lending?
1.5% for first Mortgages, 3.5% for 2nd mortgages and no fee trigger
How do you calculate whether a loan exceeds the HigherPriced mortgage limits?
Add the APOR index to 1.5% on a first mortgage. The Annual Percentage Rate (APR) cannot exceed the two numbers together.
What are the requirements for a High-Cost Loan?
Tax and insurance escrows for the first five years of the loan, mandatory counseling and possibly two appraisals. Cannot use an Appraisal Waiver from Fannie or Freddie. No Balloons are allowed.
What are the requirements for a Higher-Priced Loan?
Tax and insurance escrows for the first five
years of the loan. Cannot use an Appraisal Waiver from Fannie or Freddie.
Prepayment Penalties are not allowed by which agencies?
Fannie Mae, Freddie Mac, USDA, FHA, and VA
What is collateral?
Property that is used as security against a debt
What is Net Monthly Income?
Take-home pay after taxes and payroll deductions
What is a non-liquid asset?
A type of asset that is not easily turned into cash. Real estate is considered non-liquid.
What are the five parts of ECOA?
Age, Discrimination, Underwriting, Appraisal, and Adverse Action
What is the minimum age under ECOA to obtain a mortgage loan?
18 years or older
ECOA has discriminatory items. What can’t you do with them?
You cannot use them to make or decline a loan
What are the discriminatory items under ECOA?
Sex, Marital Status, Race, Color, Age, Religion, National Origin, Public Assistance, and Sexual Orientation
What can you ask on Marital Status?
Married, unmarried, or separated
Which four areas should you never ask about?
Race, Color, Religion, and Nationality
What is the requirement for Public Assistance?
It must be considered, even though you may not be able to use it for qualifying
How long, after a complete underwriting
package is delivered to the underwriter,
does a decision have to be made?
30 days, but this may be
extended if the package is not
complete
How many days before closing must
the appraisal be delivered to the
borrower?
Three business days before, unless there is an
appraisal waiver issued, then the borrower must be
informed that an appraisal will not be done unless
they request it
How long after a loan is declined or
cancelled must an Adverse Action
notice be sent?
30 days from the decision,
explaining the reason
Under the Fair Housing Act, what are
three protected bases that are different
from those covered by ECOA?
Disability, Familial Status, and
Age
Why is Disability considered
discriminatory under Fair Housing
Act?
You cannot discriminate against a
borrower because they are
physically or mentally disabled
Why is Familial Status considered
under Fair Housing Act?
You cannot discriminate because
of the size of family or if a woman
is pregnant
Why is age not considered
discriminatory under Fair Housing
Act?
Reverse mortgages require a borrower to be 62
years of age or older, and a 55 and over
subdivision requires the borrower or purchaser
of property to be 55 and over
What is the Reg Letter for Fair
Credit Reporting Act?
REG V
How many free credit reports
does every consumer have the
right to get each year?
At least one
Which credit score do you use
when considering a borrower?
Three credit scores are issued on each credit
report for each borrower: High, Middle, and
Low. You will use the Middle unless the
program states differently
Which credit score do you use if the
loan is declined because of credit and
there are three borrowers?
Lowest of the Middle score for all the borrowers.
Example: Borrower 1 has a score of 780, borrower 2
has a credit score of 720, and borrower 3 has credit
score of 660. You would use 660.
What additional information is
required on the Credit Score
Disclosure?
Listing of all three national credit agencies, with
contact information, so the borrower can contact
them in case of an error or dispute. Agencies are
Experian, TransUnion, and Equifax
What are the three national
Credit Agencies?
Experian, TransUnion, and
Equifax
Which law did the Fact Act
amend?
Fair Credit Report Act (FCRA)
What is a fraud alert?
An alert put on the credit report, indicating the
borrower may have had their identity stolen or
credit card or bank accounts compromised
What happens with a Credit
Freeze?
No one will be able to access the borrower’s
credit without them unfreezing their account.
Credit issuers will be able to report credit
payments.
What is the cost for a fraud
alert or credit freeze?
Zero cost and should be applied to
all three credit agencies
What is Truncation?
When credit card, debit card, or bank deposit
receipts are given, they cannot show more than
the last four digits of the account numbers
What are the two parts of Red
Flag Rules?
(1) Before the request for change of personal information, the
company must send a letter or email asking if the person
requested the change. (2) All employees are to be trained on
how to identify a breach of security and what the company’s
requirement is once the breach has been determined.
Which agency regulates Red
Flags?
Federal Trade Commission
(FTC)
What is a Homeowner’s
Warranty?
A warranty and insurance program
that insures a new home for ten years
against major structural defects
If a breach is determined, what
is the requirement?
It must be reported to Compliance Officer or Senior Officer
and, 30 days from that point, the company must send a
notice to all people in their database notifying them of the
breach and what the company has done to protect them
What does GLB stand for?
Gramm-Leach-Bliley
What is the REG for GrammLeach-Bliley?
REG P
What is the main emphasis of
Gramm-Leach-Bliley?
Privacy of consumers’ personal
information
What does NPPI stand for?
Non-Public Personal
Information
What is “Opt-Out” under GLB?
The consumer has the right to opt-out of a
company sharing, selling, or giving their NPPI
to anyone. The Opt-out stays on as long as
their name is in the company’s data base.
What is Phishing or PreTexting?
Obtaining personal information by
illegal process, like a text, claiming
to be from the IRS, asking for your SSN
What is required under SafeGuard Rules?
Whenever you are not using your files, they are
to be locked up in a desk drawer or filing
cabinet. If your files are on a computer, there
must be a lock out after a few minutes.
What regulates Safe-Guard
Rules?
FTC – Federal Trade
Commission
What is the required retention
of Loan Information?
Three years for all loan files
and five years for the CD
Can the hard files be
destroyed?
Once the files are digitized, they
can be destroyed, but that does not
mean throwing them away
Who is required to file a HMDA
report?
All companies that underwrite or fund
loans must file a HMDA report annually. This
includes banks, credit unions, and mortgage
bankers.
What does HMDA stand for?
Home Mortgage Disclosure Act
What is the REG letter for
HMDA?
Reg C
Which agency is responsible
for overseeing HMDA data?
FFIEC - Federal Financial
Institutions Examination Council
What does CRA stand for?
Community Reinvestment
Act
What does CRA require?
To encourage depository institutions
to help meet the credit needs of the
communities in which they operate
Do Mortgage Brokers have to
report HMDA data?
No, because brokers do
not underwrite or fund
loans
When does the HMDA data
have to be reported?
In 2019, by March 1st of
each year. In 2020, it is
quarterly.
What does PENCIL stand for?
P= Property address, E=Estimated
value, N= Name, C = Credit or Social Security
number, I = Income, L = Loan amount
When is an application
considered a loan?
When you have collected all
the items in PENCIL
What agency regulates and
enforces Do-Not-Call?
FTC – Federal Trade
Commission
How often do you have to pull new data
from the Do-Not-Call website if you are
using the data to solicit consumers?
The data cannot exceed 31 days. The data
incudes phone numbers for any person that
registers their phone number with DNC.
How long are you to retain
your solicitation records?
Two years from the date of
solicitation
What times can you solicit?
8:00am – 9:00pm, depending on
where the person being solicited
is located
What are the two exemptions for
solicitations under Do-Not-Call?
18 months for someone with whom you
have an existing business relationship and
90 days for a Pre-qualification
What is an in-house Do-Not-Call
List?
If a consumer sends a letter or an email to the company
indicating they want no solicitations, the company must put
that person on an internal do-not-call list, so not one
contacts that person. This overrides the 18 month and 90-
day exemption.
What are the eight items
covered under TILA?
1) MDIA – Mortgage Disclosure Improvement Act 2)
Advertising 3) HOEPA 4) Loan Estimate (LE) 5)
Annual Percentage Rate (APR) 6) Qualified
Mortgage (QM) 7) Loan Officer Compensation 8)
CHARM Booklet
What Does MDIA stand for?
Mortgage Disclosure
Improvement Act
What does Mortgage Disclosure
Improvement Act (MDIA) cover?
MDIA is a part of Reg Z and covers timing and delivery
requirements for initial disclosures, LE, intent to proceed, and
changes to the mortgage loan program, prepayment penalty, or
APR calculations. MDIA also addresses when the CD needs to be
Issued, as well as the waiting period involved.
What is a Changed
Circumstance?
Any borrower-requested change due to an
extraordinary event beyond anyone’s control. A
new LE must be received by the borrower
within three business days from the change.
What are the requirements for
advertising under TILA?
All marketing materials must have the company name,
company NMLS number, phone number, address, equal
housing logo, and an APR. All advertising must be kept
for two years from the last date used.
What is the definition of
Annual Percentage Rate (APR)?
APR is expressed as a percentage that
represents the total costs paid over the term of
a loan. This includes any fees or mortgage
insurance associated with the transaction.
What does APR stand for?
Annual Percentage Rate – the cost
of the loan over the life of the
loan, quoted as a percentage rate
What is a CHARM booklet?
A booklet that is required for all ARM
loans. It is issued at least three days
from the signed application
What is the Loan Estimate
(LE)?
A disclosure of all terms and costs of the loan,
to be issued when you have all the items under
PENCIL, and within three business days of the
signed application
What does QM stand for?
Qualified Mortgage – all conforming
conventional loans must meet the
standards
What are the two ways a
conventional conforming loan
can meet QM Standards?
Option #1: 43% maximum DTI and maximum
3% in fees. Option #2: Approved eligible from
Fannie or Freddie and meet the HigherPriced Lending triggers
What is Safe Harbor?
If you meet either of the two options under QM
that showed you proved Ability to Repay
requirement, you are protected from a lawsuit
What is the punishment if you
do not meet QM Standards?
Up to three years interest, all loan
costs, and legal costs for both
sides
If an MLO is paid commissions,
what can the commissions based
on?
Basis points under your Loan Originator
Agreement, times the loan amount. No terms
or costs of the loan can be counted.
What does UDAAP stand for?
Unfair, Deceptive, or
Abusive Acts or Practices
What Does Unfair, Deceptive, or
Abusive Acts or Practices state?
It is unlawful for any provider of
consumer financial products or services or a
service provider to engage in any unfair,
deceptive, or abusive act or practice
If a company pays a bonus or
retirement donation, what are the
criteria for determining the amount?
Number of loans, dollar amount
originated for a specific time, and/or the closing
rate on your applications. Bonuses are limited
to 10% of the last 12 months’ compensation.
What does Reg N Cover?
Mortgage Acts and Practices
What does Mortgage Acts and
Practices require?
If you don’t have a program or rate, do not
advertise it, and do not use Bait and Switch tactics,
or language or terms that would indicate to a
borrower you do not want them to apply
What is Bait and Switch?
Advertising a lower rate or a program
that may not exist to entice consumers, and
then when they call, you offer them another
less-attractive program.
What is not included in Digital
Delivery?
Faxing or e-mail. Docu-sign or E-sign are
acceptable where the person can be verified,
and the documents are time stamped as they
are sent back and forth.
What are the requirements for
Digital Delivery?
The borrower must give you written approval,
have the right to go back to hard copy, and you
must determine, to the best of your ability, if the
borrower is technically able to do the process
What does CFPB stand for?
Consumer Financial Protection
Bureau
What are duties of the Consumer
Financial Protection Bureau?
They have the power to write, implement
regulations, investigate, and issues fines
or other penalties as needed
Who does the CFPB answer to?
The President
What is a Consumer?
*** Someone who obtains a financial product or
service from a financial institution that is to be
used primarily for personal, family, or household
purposes, like applying for a loan (whether they
accept the loan or not).
How many days do you have to
send an adverse action notice?
30 days, mailed or verbal
TILA Trigger terms
Balance, term, APR (rate),
payment
Flood Insurance
Stays until the loan is paid off
How many months reserves are
needed for non-owneroccupied properties?
6 months
What is excessive value?
An appraisal term to express a
value higher than the highest in
the neighborhood
What is the flood
insurance
requirement?
Enough to cover the loan
amount
What is the hazard insurance
requirement?
Enough to cover the loan
amount
What are the payment options
for ARMs?
15 years, 30 years,
Negative/Minimum
Servicing loan estimates need to
be given within what time frame?
3 days
What are the manufactured
home financing
requirements?
*** Home must be on a permanent foundation and
the land must be titled as real
property. The HUD Data Plate
must be on the home
What is the VA back-end ratio?
41%, including housing,
utilities, and all other debts
How much hazard insurance
is required on a reverse
mortgage?
100% of the loan amount
What is the minimum down
payment?
FHA: 3.5%
Conventional: 3%
What does the cost
approach
include?
Depreciation, Square Footage,
and Replacement Cost
With the Sales Comparison
Approach, what adjustments are
allowed?
Net adjustments of 15%
and gross adjustments of
25% to comparables
What do riders include?
PUD, ARM, Balloon Payment,
Prepayment Penalty
What is a
Hybrid Loan?
A loan that performs like a fixed and adjustable-rate
loan. It has a fixed rate for an
initial period before turning into
an ARM.
What is a non-warrantable
condo?
FNMA will not do the loan
Condo-conversion= non warrantable
HOA, 51% owner occupied
FHA loans are only for
what types of properties?
Owner-Occupied
Properties
What is a grace
period?
A period of extra time allowed for
making a payment without incurring
a late penalty
What does Title VII include?
Discrimination, Sexual
Harassment, Hostile Workplace
What is the FHA loan
verification of child support?
Divorce decree and 3 months
of cancelled checks
What are the types of title
policies?
Final, Termite, Engineer
Certification of Foundation
What must happen in order to
transfer an FHA case number?
Request must come from
borrower
What is the UFMIP %?
1.75%
How is monthly MIP
calculation done?
On base loan amount before
UFMIP
What is the active-duty vet 1st
time funding fee at 100%?
2.30%
What is the FHA loan minimum
living time before resale?
91 days from consummation
with second appraisal
How is a GLBA notice
delivery given out?
Mailed, given personally, or
faxed
How do tenants in common
mortgages work?
Each owner has their own share of
the property that they can pass on
in their will
What information is covered in
the privacy rule of GLBA?
Non-public information, including any
information an individual gives you to get a
financial product or service; i.e., credit reports,
banking info, unlisted home telephone numbers
What is on the deed of trust
agreement?
Metes and bounds, legal
description, attached riders, name
of borrower
What is an ongoing business
relationship?
Customer
How long is the FIRREA statute
of limitations loan fraud?
10 years
How often must the aggregate
accounting escrow be reviewed?
Every 12 months, cushion up
to 2 months
What is a Chain of Title?
*** The ownership history of a piece of land,
from its first owner to the present one
Which types of loans are
Assumable?
*** VA, FHA if stated in the deed
How much is title insurance
coverage on reverse?
150% of original loan amount
What is settlement service per
RESPA?
Title insurance, appraisal, relator
commission, credit report, title report,
termite certificate
What is AQB?
National appraiser group
What percentage of a VA
loan is guaranteed?
*** Up to 50% of a loan up to $45,000. Between
45,000 and $144,000, the minimum is
$22,500 and the max of up to 40% of the
loan up to $36,000.
What is a notice of transfer?
Includes toll free number of new and
old servicer and effective date, 15
days before transfer
When are LE requirements not
required?
They are not required on commercial
loans, loans denied within three days,
or bridge/swing loans
What is a “due on sale”
clause?
A clause in a loan or promissory note that
stipulates that the full balance of the loan may be
called due (repaid in full) upon sale or transfer of
ownership of the property used to secure the note
How often do telemarketers
update the DNC?
31 days
After someone requests you to put
them on your DNC list, how many days
do you have to do so?
30 days
How long does a conventional
loan owner agree to occupy the
property?
1 year
What are the guidelines for
appraisers?
USPAP
Where is the Prepayment
penalty disclosed?
*** Rider to trust deed LE/CD
Which loan requires a large final
loan payment, as it does not fully
amortize?
Balloon
What is included in typical
property inspections?
Verification that required repairs
have been made, termite, well,
septic, and roof
Joint Tenants
Ownership automatically
transferred on death to other
owners, cannot be a corporation
What is a Bridge loan?
A loan which occurs between
the termination of one
mortgage and the
beginning of the next
What affects mortgage
interest rates?
Unemployment report,
consumer price index, federal
reserve board
What affects PMI?
LTV, ARM, Term, FICO
What is an indemnity
agreement?
With a real estate indemnity agreement, one
party is pledging to protect another from any
kind of financial loss or from a lawsuit of some
kind
What is the required
fire/hazard insurance amount?
*** Enough to cover the loan
amount
What is LIBOR?
London Inter Bank Offered
Rate
What is the max seller paid
closing costs for Conventional,
FHA/USD, and VA loans?
Down: | S. P.
Conv: <10% | 3%
10-25% | 6%
25+ % | 9%
FAA/USD: 6%
VA: 4%
What is the right of rescission?
A right, set forth by TILA, of a borrower to cancel a home
equity or line of credit with a new lender, or to cancel a
refinance transaction done with another lender other
than the current mortgagee, within three days of closing
Which form states that the borrower
must occupy the property as primary
residence within 60 days?
FNMA FHLML Form 3072
What are the different
appraisal types?
*** Cost: Cost to replace; usually newer construction
Income: Income producing properties
Sales Comparison (Market): Compare to other
similar properties
When was the Dodd-Frank
Act created?
2010
What are Mortgage Backed Securities?
A type of asset-backed security
that is secured by a mortgage
or collection of mortgages
Lower-cost MI with loan level
price adjustment
Borrower with high credit scores.
The borrower can have lower MI but
FNMA will pay less for the loan
What does plain language title
insurance do?
Protects the buyer:
1. Rights of claims of 3rd parties
2. Easements or claims of it not in the public record
3. Forced removal of existing structure
4. Mechanics lien coverage (unrecorded)
What is the appraiser trainee
period?
12 months
Who are the big players
on the Secondary
Market?
FNMA, FHLMC, and
GNMA
Someone on the DNC list contacts
you. How long can you continue to
call?
3 months
What are the high-cost
limits with APR and point
fees?
APR:
6.5 on 1st or 8.5% on 1st less than 501c or 2nd
Points Fees:
5% + on $20,000+ loan or 8% on less than 20,000
Where can acceptable down payments come from?
- selling an asset
- an employer
- family
- a fiance
Which financial and non-financial companies are covered by the Bank Secrecy Act?
Banks, Credit Unions, Mortgage Bankers, and Mortgage Brokers
Who is required to take the AML and Fraud Training?
All staff and management
How often does the AML and fraud training have to be done?
Once a year
Does fraud or money laundering have to be proven or just detected?
Only detected
If AML or fraud is detected, who do you report it to?
Compliance officer or Senior Officer
What is the name of the report that is to be filed if fraud or AML is detected?
SAR – Suspicious Activity
Report
Which government agency is
responsible for the Bank Secrecy Act?
FinCEN - Financial Crimes
Enforcement Network
If a SAR is reported, how long
does the file have to be kept in a secure place?
Five years
Can the borrower be told a SAR has been reported on them?
No – information on SARs is to be kept confidential for a five year period
Who is allowed to see the file
once it has been reported as a SAR?
Police Authority or anyone
approved by FinCEN to see the information
Who is the person responsible for SAR files and releasing information?
Compliance Officer or Senior Officer
What is the penalty for violating the Bank Secrecy Act?
A person convicted of money
laundering can face up to 20 years in prison and a fine of up to $500,000
What is required under the U.S. Patriot Act?
All borrowers are required to show personal identification: either a driver’s license or passport
What does OFAC stand for?
Office of Foreign Asset Control
What is required if a borrower is on the OFAC watch list?
The lender must call OFAC and report the person and ask what is to be done with the loan
What does HPA stand for?
Homeowners Protection Act
What is required under the Homeowners Protection Act?
All loans about 80% LTV must have Mortgage Insurance if they are Conventional Conforming Loans
What is the purpose of Private Mortgage Insurance?
To provide security to the lender in case of default. Also allows borrower to make a smaller down payment.
What does MIP stand for?
Mortgage Insurance Premium
for FHA Loans
Under the Homeowners
Protection Act, what is available
to the borrower at 80% LTV?
The borrower can request that the PMI be dropped but it is at the option of the lender
When is PMI required to be dropped under the Homeowners Protection
78% Loan to Value (LTV)
What does QM stand for?
Qualified Mortgage
What is one of the options for
a loan to meet QM standards?
Approved eligible from Fannie
Mae or Freddie Mac and higher priced lending standards are met
What is the penalty if you close a Conventional Conforming loan without QM approval?
Up to three years interest, all loan costs, and legal costs for both sides of the lawsuit
What does Safe Harbor mean?
The lender has proven the
borrower has the Ability to Repay (ATR)
What does LO Comp stand for?
Loan Officer Compensation
What law is LO Comp covered under?
TILA – Truth in Lending Act
What can commissions be paid on?
Basis points of the loan amount. 80 basis point loan officer X a $200,000 = $1,600 commission
What items can LO Compensation be paid on?
Loan amount only
What is the limit of bonus money that can be paid to MLO?
10% of the last twelve months
compensation
What are the two ways that
compensation can be paid?
By the customer or the mortgage company, but not both
What does TRID stand for?
TILA, RESPA Integrated Disclosure
What are the two booklets
required within three business days of the signed application?
Loan Tool Kit for all purchases and CHARM booklet for all ARM Products
What is the requirement for the Intent to Proceed?
When the borrower brings the signed Intent to Proceed to the company, the borrower indicates they are obligated to the loan
When can an appraisal be
ordered?
When the borrower signs and
delivers the Intent to Proceed
How many days from the signed application are the initial disclosures, including the LE, to be delivered?
Three business days
How many days does the borrower have to wait to close after the signed Intent to Proceed is delivered to the lender?
Seven business days
What is a Regulatory Authority?
An entity that has the power
to regulate the mortgage industry
What are the four ways the initial disclosures can be delivered to the borrower?
Electronic signature, in person, mail, or overnight
What is required to use electronic signatures?
Borrower’s written authorization, ability to go back to hard copy if they wish, and determining whether they are able to do electronic signatures
What is a Changed Circumstance?
Any change requested by the borrower (loan amount, locking the loan, program, etc.) or a natural disaster
How many days does a new Loan Estimate (LE) have to be delivered after a Changed Circumstance?
Three business days
How many business days before closing is the Final Loan Estimate (LE) required to be received by the borrower?
No less than four business days
How many business days before the closing does the borrower have to receive the Initial Closing Disclosure?
Three business days
What are the three things that would require a new CD and a three business day delay in the closing?
One of the following: Mortgage program changes, prepayment penalty is added, or the APR tolerances are exceeded (1/8% on a fixed or 1/4% on an ARM)
What is the definition of
Consummation?
When the borrower becomes
obligated to the loan
What is a business day for the closing?
Any day the business is open, not including Sunday or federal holidays
** What are the three stages of a mortgage loan life cycle?
Borrowers consideration, the
primary market, and the secondary market
What items are considered ZERO tolerance items?
Appraisal, origination fee,
lender fee, and transfer taxes
What are the three categories
for fees on the LE?
Zero tolerance, 10% tolerance, and no tolerance
What is covered under 10%
tolerance?
Title policy or lender required
inspection or recording fees
What does 10% tolerance
mean?
When you quote title or lender required inspection or recording fees, and the amount is higher than quoted, the borrower is liable for 10% and you are responsible for the balance
When is an MLO or company not liable under the 10% tolerance?
When the borrower selects their own title or inspection company
What does no tolerance mean?
No liability for the MLO and
company because the borrower selects the items
What items are included in the no tolerance items on the LE?
Attorney’s fees, realtor fees,
Homeowners insurance, escrows, per diem interest
How do you calculate per diem interest?
Principal balance times interest rate (note rate) divided by 360 days on conventional loans, or 365 on a government loan—gives interest per day
What is the Lien Priority?
The chronological order in which liens are filed against a property. Lenders want first priority.
What does HUD stand for?
Housing and Urban
Development
What are the responsibilities
of HUD?
Manage Federal Housing Administration (FHA) and monitor companies and MLOs
for Fair Lending, Fair Housing, and complying with ECOA
What does ECOA Stand for?
Equal Credit Opportunity Act
What is the Reg letter for
ECOA?
Reg B
What is the Reg Letter for Fair Credit Reporting Act?
Reg V
What is the Reg Letter for
RESPA?
Reg X
What does RESPA stand for?
Real Estate Settlement
Procedures Act
Which three laws does the
Federal Trade Commission (FTC) regulate?
Red Flags, Safeguard Rules,
and Do-Not-Call
On the Loan Estimate (LE), can the Interest Rate be quoted as a fraction? (i.e. 3 7/8%)
Only decimal format (i.e.
3.875%)
On the Loan Estimate, if “Yes” is shown for Loan Amount, Interest Rate and P&I payment, what does that mean?
The loan is an AdjustableRate Mortgage (ARM)
What is a Prepayment Penalty?
If you attempt to pay the loan off in the first two or three years, there could be a penalty
Who is required to complete the Loan ID on the Loan Estimate?
The company funding the loan
What items may be included in the escrow portion of your monthly mortgage payment?
Real Estate taxes, Homeowners Insurance, Flood Insurance, or HOA fees if the property is a condo
On the loan estimate, what is included in the estimated closing costs?
All the costs and fees that will be paid by the borrower at closing
When a borrower locks their loan, what does that mean?
The interest rate and fees are locked, as long as the loan is funded by the expiration date
What are the different lock options for loans?
15, 30, 45, or 60 days. The lock period will cost more as the lock gets longer.
Can a mortgage broker issue an extended lock agreement?
No, only a lender that funds loans can issue an extended lock agreement
What is an extended lock?
A lock of interest rates and fees for a period longer than 60 days
What four items must be on an extended lock agreement?
Program, interest rate, cost of the lock, and the expiration date
How many days from the issue date of the loan estimate does the borrower have to bring the signed Intent to Proceed to the
lender to protect their costs?
Ten business days
What happens if the borrower does not return the signed Intent to Proceed to the lender within 10 days of the issue date of the LE?
The costs of the loan are subject to change and the LE continues to be active
What must be put on the top left side of page 3 of the Loan Estimate?
The lender that is funding the loan
What must be put on the top right side of page 3 of the Loan Estimate?
If the loan is originated by a Mortgage Broker, their contact information is to be listed
What three comparisons are required on page 3 of the Loan Estimate?
Total cost for the first five years, Annual Percentage Rate (APR), and Total Interest Percentage (TIP)
What is Annual Percentage Rate (APR)?
The cost of the loan, including interest rate and all costs over the life of the loan
What does TIP stand for?
Total Interest Percentage
What does TIP tell you?
The total interest paid over the life of the loan
How is Total Interest Percentage calculated?
P&I payment, times the number of payments on the loan, then subtract the principal balance (total interest paid over the life of the loan), divided by the principal = TIP
When is the appraisal to be delivered to the borrower?
No less than three business days before the closing
Can a borrower appeal an appraisal?
Yes, with information that shows the reason; they cannot just say they feel the property is worth more
What is the rule on how much Homeowners Insurance is required?
The lower of the value of the property or the mortgage amount.
When must a Late Payment be applied?
After the 15th of the month, a fee of 5% of the P&I payment can be added to the amount due for the month
What items are required to refinance a loan?
Value of the property, credit, and income
What does Servicing mean?
The collection of monthly payments, paying the investor, and setting aside the escrow money into separate accounts other than operating accounts for the servicer. Paying taxes and insurances as they come due.
Do the signatures on Loan Estimate obligate the borrower to the loan?
No, the signatures only indicate the borrower received a copy of the LE. The signed Intent to Proceed is the document that obligates the borrower.
What is a Mortgage Broker?
A company that originates a loan but cannot underwrite or fund a loan. A MB cannot claim they are a mortgage lender.
What type of properties are covered under the laws of TILA, RESPA, ECOA, and HMDA?
1-4 family residences. Any residential is not correct. Units more than 4 units may be residential but are not covered under the laws.
What is a third-party provider?
Any company that provides a service for
the origination of a mortgage loan, like appraisals, title insurance, or credit reports
Can a mortgage be called a TPO?
Yes, they could be called a third-party originator
When can the foreclosure process begin?
When the loan is 120 days
delinquent
What is covered under the Initial Escrow Disclosure?
How the escrows are collected and the
servicer’s responsibilities
What circumstances can result in a declination?
Credit, insufficient assets, the borrower
does not have sufficient income, or the
appraisal is not high enough to make the
loan
What is required to be in the Adverse Action notice?
The reason for the cancellation or declination
What is Comparative evidence of Disparate Treatment?
When similar applicants receive different
treatment that cannot be explained by non-discriminatory factors
What is evidence of Disparate Impact?
When a policy or practice negatively impacts
individuals on a prohibited basis
What is the responsibility of a Cosigner?
They are as responsible as the borrowers
when the loan becomes delinquent or goes
into foreclosure. The cosigner’s credit will
be affected the same as the borrower’s
credit
What are the types on income eligible to be used in underwriting?
Any income that can be verified and has a two-year history and the potential of lasting for three years in the future
If the borrower refuses to volunteer their ethnicity, what are you to do as an MLO?
You cannot require the borrowers to provide
the information, but you are required to complete the information based on your observation of the borrowers
What are the core items of the Truth in Lending Act (TILA)?
MDIA, Advertising, APR, LE, HOEPA, CHARM Booklet, QM, and LO Compensation
What are the limitations for seller/lender concessions?
3% on a conventional conforming loan over 90%, and 6% on loans between 75% and 90%
What are permissible fees and charges?
Any fees that the borrower is charged to obtain the loan and are disclosed on the LE
Which loans require a Right of Rescission?
Owner occupied primary residences
How many copies of the Right of Rescission are to be given to the borrowers and owners of the property?
Two copies to each person
How many of the people that were given the Right of Rescission are required to rescind the loan?
One person
When does the Right of Rescission start?
Three complete business days after the closing
What are the two fee thresholds?
3% on Qualified Mortgage and 5% on a High Cost Loan
Where does the origination fee go on page 2 of the LE?
Under Loan Costs
What is required to be on the Annual Escrow Analysis report?
How much the borrower has paid in and
how much was paid on their behalf for
taxes and insurances and if there is an overage or shortage
What is required if there is an overage on the escrow analysis?
If the amount is over $50.00, the overage must be paid to the borrower within 30 days
What is required if there is a shortage on the escrow analysis?
The borrower must pay it in one lump sum within 30 days or spread it over the next 12 months
What is the Acceleration Clause?
If the borrower is delinquent and it reaches 120 days, the lender has the right to call the balance due
What is the Alienation Clause?
If the borrower sells their house and does not notify the lender or allow the new buyer to take over the mortgage, the lender has the right to start foreclosure
Which loan products will not allow assumptions?
Conventional conforming or USDA loans
Which loan products will allow assumptions?
FHA and VA, if the new buyer is approved by the lender. If it is a VA loan, the new buyer must be a veteran.
What is an assumption?
The new buyer can take over the original
borrower’s loan and continue to make the payments, but only on FHA and VA loans
What is required to be reported on your HMDA report?
All loans that meet the definition of a legal loan whether declined, approved, or cancelled
What is a Tri-Merge credit report?
A credit report that has information from Experian, TransUnion and Equifax
What is a Deed?
A written instrument
by which land is
conveyed
When a credit report is reviewed, what are the items that should be checked against the application?
Social Security number, residency history,
employment history, payment history,
and debts that are on the application
When are you allowed to pull credit?
When the borrower authorizes you in writing or on a pre-qual, if the borrower discloses their SSN and you document it in your records
What is the definition of a creditor?
Any company or business that advances credit to a consumer
How long does a Chapter 11 or 13 bankruptcy show on the credit report?
Seven years
How long does a Chapter 7 bankruptcy show on the credit report?
Ten years
What is the fine for Red Flag violations?
$3,500, plus $2,500 for FTC violations
What is the penalty for Section 8 RESPA anti-kickback rules?
$10,000, plus up to one year in jail
What are the penalties if you violate Dodd-Frank Tier One, Federal Consumer Financial laws?
$5,639 per violation per day
What are the penalties if you violate Dodd-Frank Tier two, Federal Consumer Financial laws?
$28,139 per day for each violation
What are the penalties if you violate Dodd-Frank Tier three, Federal Consumer Financial laws?
$1,127,779 maximum per violation
What are the requirements for Conventional Conforming loans over 80% LTV?
All loans over 80% must have escrows and PMI mortgage insurance
What is the definition of a Conventional Conforming Loan?
97%
What are the debt-to-income ratios on a Conventional Conforming Loan?
28% for Housing (up-front) and
36% for overall debt (back-end)
Do Fannie Mae and Freddie Mac allow non-owner occupied loans?
Yes, at lesser loan-to-value and may have increased rates and fees
What is the Underwriting system for Fannie Mae?
DU – Desktop Underwriter
What does approve eligible mean?
A loan that has been run through the Fannie or Freddie underwriting systems that says they will be accept the loan if the documents match what was put into the system
What is allowed for down payment on Conventional Conforming, FHA, USDA, and VA loans?
Verified liquid assets, a gift from a blood relative, employer or close friend with no repayment required, or down payment assistance from agencies helping first-time homebuyers
What does USDA stand for?
United States Department of Agriculture
What are the underwriting ratios for a USDA loan?
29% for housing and 41% for overall debt
What are the restrictions on USDA loans?
The home must be in areas of less than 35,000 people, income limitations, and all loans must be underwritten and funded by USDA
What does FHA stand for?
Federal Housing Agency
Does FHA insure or guarantee loans?
Yes, they insure and will pay a claim after the lender forecloses
What is the maximum Loan-to-Value on FHA loans?
96.5%
What is the maximum loan amount allowed?
It is set by the government at the end of each year and set for areas in each state
What are the debt-to-income ratios on FHA loans?
31% for housing and 43% for overall debt. (overall means mortgage payment and all other debt payments)
What is CAIVRS?
A database that shows liens, defaults, and debt owed to federal agencies, including government insured student loans. This needs to be checked for FHA loans
What is the upfront premium for FHA loans?
1.75%; this may be added into the loan amount
What is the renewal premium on FHA loans?
.85% of the loan amount divided by 12 = the amount added to the monthly payment
What is the maximum loan-to-value on VA loans?
100% if the veteran has 100%
benefits
What is a DD214?
The document that tells you the veteran has benefits, but does not say how much
What is the COE?
Certificate of Eligibility, which provides proof of a veteran’s service and tells the lender that an
applicant has met the minimum service requirement. This will determine the amount of down payment required, if any.
Does VA insure or guaranty loans?
Guaranty loans (up to a maximum of $144,000)
What is the debt-to-income ratio for VA loans?
41% overall; they don’t have a housing ratio
What are non-conforming loans?
Any loan that cannot be sold to Fannie Mae or Freddie Mac
Who sets the underwriting rules, programs, and pricing for non-Conforming loans?
The companies buying the loans
What is “payment shock”?
A borrower who is renting for $900 a month and now buying a home with a payment of $1,300 a month with no reserves to show where the extra $400 a month is coming from
What is a non-traditional loan?
Any loan that is not 30- year fixed
Any loan that is not 30- year fixed
Non-conforming – any loan above 30 year fixed cannot be sold to Fannie or Freddie
What is a Purchase Money Second?
A second mortgage that is used to eliminate Mortgage Insurance. Terms like 80/10/10 mean an 80% first mortgage, a 10% second, and a 10% down payment.
Can the interest rate change on a fixed-rate mortgage?
No- it is fixed for the life of the loan
What are the five parts of an ARM loan?
Program, caps, margin, index, and fully-indexed
rate
What program is a 5/1 ARM?
Initial interest rate fixed for 5 years and then an annual adjustment
What does a 2/5 cap mean?
The 2 is the adjustment cap, meaning the interest rate cannot go up or go down any more than 2%. The 5 is the life cap, which requires you to add the starting rate to the life cap of 5 which equals the highest the interest rate can go over the life of the loan
What is the margin on an ARM loan?
The only number on an ARM loan that does not change over the life of the loan and it is the floor, meaning the interest rate cannot go below the margin.
What is the most common index today?
LIBOR – London Interbank Offered Rate
What two numbers do you add together to obtain the Fully-Indexed Rate?
Margin and index
How long before the interest adjustment is the first ARM disclosure to be sent to the borrower?
Seven months before the adjustment is required
What three items are required to calculate the mortgage payment?
Remaining balance, interest rate, and remaining term
Which law covers Balloon Loans and what is the minimum balloon?
HOEPA – Home Owners Equity Protection Act. The minimum balloon is five years.
What does 360/180 mean?
15- year balloon
What are the five parts of a Reverse Mortgage?
Negative amortization, borrower pays their own taxes and insurance, must be 62 or older, mandatory counseling, a non-recourse mortgage
What does a non-recourse mortgage mean on a Reverse Mortgage?
At the end of the mortgage, if the balance is higher than the value, and the borrowers have passed, the government absorbs the deficiency
What is the minimum age to obtain a Reverse Mortgage?
62 years of age. If the spouse is only 60, the spouse cannot be on the loan.
What does HELOC stand for?
Home Equity Line of Credit
Is interest charged if you do not draw any proceeds?
No, only after you draw money; you will then pay interest from the day of the draw till the end of the month, and pay interest on the balance at the end of each month
Are principal payments required on HELOCs?
They are at the option of the borrower whether to pay principal each month
Is the interest rate fixed or floating on HELOCs?
The interest rate floats, usually based on the Prime Rate
What is the difference between a 2nd mortgage and a HELOC?
On a 2nd, all the proceeds are paid out at closing, while on a HELOC, the borrower chooses when to draw principal
What are the two types of Construction Loans?
Construction with a Permanent take out and Construction Permanent
How many loans are on a Construction Permanent?
One loan and one set of closing costs
In an Interest Only Loan, what is the amount you pay each month?
Only interest is paid, but the borrower must qualify for the full principal & interest payment
What would the balance be on an Interest Only loan if the loan were $100,000 and it is 5 years later?
$100,000. The principal balance stays the same because you are only required to pay interest.
What is Table Funding?
Any loan that the originating company is having the lender fund, predominately for Brokers
What are the APR Tolerances?
1/8 on a fixed rate loan, ¼% on an ARM Loan. If you exceed either, a new LE or CD must be issued within three business days.
What is Yield Spread Premium (YSP) and Servicing Released Premium (SRP)?
The amount a company receives from the lender that funds the loan
Which loans are considered Federal Loans?
Conventional conforming, FHA, VA, USDA
What is Premium Pricing?
The amount above PAR that can be used to pay the borrower’s closing costs. Not discount points, just costs and fees.
What is Accrued Interest?
If your payment is due on May 1st, you are paying interest for April. Accrued interest is the interest you pay on the mortgage each month.
What is a Conveyance?
Transfer of ownership via a Deed
What is a 2-1 Temporary Buydown? If the interest/note rate is 5%, what are the payment rates?
Usually for two years. A buydown account is established by the seller or the borrower. The first year the payment rate is 2% below the note rate and the second year it would 1% below the interest rate. The borrower is qualified at the note rate.
What does SAFE stand for?
Secure and Fair Enforcement – the licensing law that covers all originating companies and Mortgage Loan Originators
Who must be registered with NMLS?
All MLOs employed by banks, credit unions, mortgage bankers, and mortgage brokers
What does NMLS stand for?
Nationwide Multistate Licensing System and Registry
Who must be licensed?
All mortgage bankers, mortgage brokers and all mortgage loan originators that work for either company
Can you work or be licensed with more than one originating company?
Your license only allows you to originate for one financial or non-financial company
What is an MU1?
MU1 is the application for a mortgage company.
Do you receive a state license or federal license?
State license only; there is no such thing as a federal or national license. You must be licensed in each state where you want to originate
Can you be licensed in a state where your company is not
licensed?
No, you can apply for a license in any state where your company is licensed. Banks and Credit Unions are exempt from licensing and can originate in any state.
What are the duties of the NMLS?
Approve all education providers and courses. Prepare and maintain a national test. Provide a service for the MLOs and owners of companies to obtain a background check.
What makes up the 20 hours of the pre-licensing course?
3 hours of law, 3 hours of ethics, 2 hours of non-traditional and 12 hours of mortgage topics
What makes up the 8-hour CE course that is required each year?
3 hours of Law, 2 hours of ethics, 2 hours of non-traditional lending, and one hour of another mortgage topic
What are the requirements for gift funds for FHA loans?
Gift funds can come from the borrower’s family members, employer, close friend, or a charitable organization
What is the term of your license?
One calendar year: January 1st through December
31st
When do you have to pay your licensing renewal fees?
Between November 1st and December 31st
What happens if you do not renew by December 31st?
Your license lapses and you must take a Late CE class and pay a renewal fee and penalties by March 1st. Until your license is reinstated, you cannot originate loans. If you do not complete your renewal by March 1st, your license is suspended.
What is the consumer access website?
Once you are licensed, your information will be on
the consumer access website so the consumer can
check who you are working for and if you have any
complaints or violations
What are the two groups that oversee NMLS?
CSBS – Conference of State Bank Supervisors and AARMR – American Association of Residential Mortgage Regulators
What does USC stand for and what does it do?
Uniform State Content - allows MLOs that pass the National Test to apply for a license in any state where your company is approved
What does the SAFE Act allow each state to do?
License mortgage bankers and mortgage brokers and complete audits and examinations of the companies if they suspect the consumer is at risk
What does sponsorship require you to do?
The company you will be employed by needs to request that your NMLS number be moved under their company NMLS number
When a company or MLO receives a notice of violation or complaint, what is the requirement?
They must supply all documents in response to the complaint or violation within 30 days or they are assumed to be guilty and the state will assess the fines as they see fit
If an applicant for a license has a nonfinancial felony, what is the soonest they could apply for a license?
Seven years from the date of conviction
If an applicant for a license has a
financial felony, what is the soonest
they could apply for a license?
They cannot, as they are
banned
for life
If an applicant for a license has had a
license revoked, what is the soonest
they could apply for a license?
They cannot, as they are
banned
for life
What is the 1003?
Uniform Residential Loan Application:
The document where you collect the
data to assist in underwriting
When verifying assets for closing,
what items are included?
Down payment and closing costs
Can long term/retirement assets
be used for the two months’
reserve for escrows?
Yes, and they don’t have to be
cashed; they just have to show
they are available
What are the requirements for gift
funds for conventional
loans?
Gift funds can only come from a relative: Spouse,
child, other dependent, or anyone related by
blood, marriage, adoption, or legal guardianship;
and there can be no expectation of repayment
What are Concessions?
Voluntarily yielding to a demand for the
sake of a settlement in a real-estate
transaction, such as closing costs
What are the three questions
you cannot ask on an
application?
Religion, nationality, and
whether they receive child
support or alimony
How may MLOs accept loan
applications?
Face to Face, on the phone,
computer, or by mail
Who is allowed to offer and
negotiate terms of a loan?
Only those who are licensed as an
MLO working for a Mortgage Broker
or Mortgage Banker
What is the “AUTHORIZATION TO
RELEASE MORTGAGE
INFORMATION”?
A form which, when signed by the borrower(s),
authorizes a third party to receive information
about them and their mortgage, for things like
verification of employment, deposits, etc
What methods are used to
verify assets?
Two months bank statements,
investment statements, and/or
a Verification of Deposit
What methods are used to verify employment?
W-2, 1099, Tax returns with 4506T, and/or Verification of Employment
What are the mandatory items on the Loan Estimate (LE)?
Terms of the product, all costs and fees, comparisons, and mortgage process explanations
What information is required on the Adjustable-Rate Mortgage (ARM) disclosure?
Which type of program, caps (adjustment and life), margin, index, fully-indexed rate, and how the adjustments are calculated
What does AML stand for?
Anti-Money Laundering
What does CHARM stand for?
Consumer Handbook on Adjustable Rate Mortgages
For a Reverse Mortgage, what must the disclosure tell the borrowers?
Negative Amortization, taxes and insurance to be paid by the borrower, must be 62 or older to apply for the mortgage, mandatory counseling, and the borrower could lose their home if they do not comply with all of the requirements of the loan
What are the five items included in the “Zero Tolerance” items on the LE?
Appraisal, origination fee, discounts, lender fee, and transfer taxes
What items are included in the “10% Tolerance” items?
Title, recording fees, lender required inspection. The borrower selects these and you no longer have any liability
Which items are included in “No Tolerance”?
Realtor fees, Attorney fees, Escrows, Homeowners Insurance, Flood Insurance, Prepaid Interest
When do the early disclosures after application have to be delivered?
No more than three business days from signed application. If they are mailed, you must show proof that they were mailed within the three day requirement.
When does the early Closing Disclosure have to be delivered to the borrowers?
No less than three business days before closing
When do the fees and charges expire from the issue date of the Loan Estimate (LE)?
10 business days, if the signed Intent to Proceed has not been delivered to the lender
When would you not have to give an LE?
When you do not have all the items under PENCIL (Property address, estimated value, name, credit, income, or loan amount)
Who created Credit Scoring?
The Fair Isaac Company. Credit scores are also knowns as FICO scores.
What law requires the appraisal to be delivered three business days before closing?
ECOA – Equal Credit Opportunity Act
How many days after a “Changed Circumstance” has been determined must the new LE be issued?
Three business days
When does the Preferred Providers list (REG H) have to be delivered to the borrower?
Within three business days from when a conflict of interest has been determined
What are the valid delivery methods in delivering a Loan Estimate or Closing Disclosure?
Person to Person, Digital Delivery with written borrower approval, Mail, and Overnight, as long as you have proof that it was done in the three business day requirement
How many business days before the closing is the Closing Disclosure to be delivered to the borrower?
Three business days
What does Consummation mean?
Once the borrower is obligated on the loan (funding date)
What items will require a new Closing Disclosure to be issued and a three business day for the closing?
Program change, prepayment penalty added to the mortgage or the APR tolerances are exceeded (1/8% on a fixed or 1/4% on an ARM loan)
What is an MU4?
The application for MLO licensing used by the NMLS
How many counselors are required to be listed on the Homeownership Counseling?
10, and they must be in the borrower’s area
Is counseling required on the Homeownership Counseling Disclosure?
Counseling is not required, but it is recommended, and it is at the cost of the borrower
What are the classifications of assets?
Assets for down payment and closing costs must be liquid. Long term assets can be used for reserves. They don’t need to have the cash; they just need to show as available
What are you not able to do in regards to Verifications?
It must be done digitally via e-mail or mail; it cannot be done in person
What liabilities are to be listed on
the application?
Any debt listed on the Credit Report or volunteered by the
borrower
What are the types of debts?
Bank loans, student loans, car loans, credit cards, mortgages, leased cars, IRS tax liens, judgments, alimony, and child support
How many payments would remain for a debt not to be counted in the Debt-toIncome (DTI) ratio?
Any loan that has less than 10 payments remaining, except car leases; no matter how many payments are left, they must be counted in the DTI
How do you calculate the payment on a student loan if there isn’t a loan payment on the credit report?
For Fannie Mae and FHA loans, you use 1% of the balance. For Freddie Mac and USDA, you use ½% of the balance.
What is the required documentation for a self employed borrower?
Two years of Tax Returns. If the borrower owns 25% or more of the company, they must provide two years of business tax returns, plus a year-to-date operating statement.
If a self-employed borrower owns 25% or more of their company, what is required for income
verification?
If the borrower owns 25% or more of the company, they must provide two years of business tax returns plus a year to date operating statement
What is a surety bond?
A promise to be liable for the default of another. It is like malpractice insurance for a doctor.
Can a borrower use Capital Gains for qualifying for a loan?
Yes, if they show two years’ history of income from capital gains and they can show that the income will continue for an additional three years
What type of income can be used for loan qualification?
Any income that can be verified and has at least two to three years continuation. Cash income cannot be used.
Can rental income be used?
Only if it is claimed on the borrower’s income taxes
What percentage of income can be used on rental property?
75%. A 25% vacancy must be deducted from the gross rental income.
When would a debt payment be required on a rental property?
If the rental income minus the 25% vacancy is less than the
mortgage payment
What are the rules for counting overtime income?
Two years history and assurance the income will continue for two to three years in the future
How do you calculate bonus income if the bonus income reduced in the last two years?
You use last year’s bonus amount and provide assurance that the bonus income will continue in the future
How do you calculate bonus income if the bonus income increased over the last two years?
You average the last two years to determine the income and provide assurance that the bonus income will continue in the future
How do you calculate social security or disability income?
If the monthly amount paid has taxes taken out before being paid to the borrower, the amount received by the borrower can be grossed up by 25% (Ex. $1000 received can be counted as $1,250 for qualification purposes)
What is the calculation for determining the monthly income for an hourly waged borrower?
Hourly wage X the number of hours per week X 52 weeks / by 12 months = monthly income
What is the calculation for determining income forsomeone
who is paid every other week?
Bi-weekly income X 26 pay periods / by 12 months = monthly income
What is the calculation for determining income for someone is paid on the 15th and 30th of the month?
Income paid on the 15th and the 30th X 24 pay periods / by 12 months
What is the Fannie Mae self employed document to calculate income?
Fannie Mae form 1084
What is the Freddie Mac self employed document to calculate income?
Freddie Mac Form 91
What information is on the credit report?
Legal name, employment history, residency history, Social Security number, credit history, credit inquiries
Which credit score do you use to qualify the borrower?
You will always use the middle score for each borrower
How is the Credit Score established?
No one is sure of the formula, but payment history and
credit utilization are two factors that are used. Credit
utilization means the amount of credit that is available
to you and how much of it you are using (The more you
use, the lower the credit score)
How do you calculate “capacity”?
If you are using 43% overall ratio, multiply the
gross income by 43% and the answer will be the
maximum allowed for the mortgage payment and
all monthly debt (ex. $5000 X .43 = $2,150)
How do you determine Debt-to-Income Ratio (DTI)?
Gross verified income divided into total monthly debt payments = Debt-to-Income Ratio
What do LTV, CLTV, and TLTV mean?
LTV = Loan-to-Value; CLTV = Combined Loan-to-Value; TLTV = Total Loan-to-Value
How do you calculate Combined Loan-toValue (CLTV), assuming the borrower has a first mortgage and a $100,000 HELOC of which they have drawn $50,000?
Value is divided into the Loan Amount + the drawn HELOC=CLTV (ex. $500,000 value divided into $250,000 first mortgage +$50,000 drawn HELOC = 60%)
How do you calculate Loan-to-Value (LTV)?
Value or Purchase Price, whichever is lowest, divided into the Loan Amount = LTV (i.e., $500,000 value divided into $250,000 loan amount = 50%)
How do you calculate Total Loan-to-Value (TLTV), assuming the borrower has a first mortgage and a $100,000 HELOC of which they have drawn $50,000?
Value is divided into the Loan Amount + the HELOC amount =TLTV (ex. $500,000 value divided into $250,000 first mortgage +$100,000 HELOC = 70%)
If a borrower wants a conventional conforming loan, has $5,000 monthly income and $500 in monthly debt payments, which payment income ratios would you use?
28% housing and 36% overall
If a borrower wants a conventional conforming loan, has $5,000 monthly income and $500 in monthly debt payments, what is the PITI that the borrower would qualify for?
$5,000 X28% = $1,400 housing limit. $5,000 X 36% = $1,800 overall limit (includes housing and debt payments). You subtract the $500 debt payments from $1,800 = $1,300 for housing. You take the lower of $1,400 or $1,300 for PITI
What is another name for Front-End Ratio?
Housing Ratio – program ratio for housing X verified income
What is another name for Back-End Ratio?
Overall Ratio – program ratio for overall debt X verified income
What is the maximum overall debt if you are calculating the Qualified Mortgage limit?
43% of gross verified income
What factors should be used to determine if a borrower has the Ability to Repay?
Meeting QM standards is essential, so the MLO is required to find out and document a borrower’s income, assets, employment, credit history, and monthly expenses
What is the definition of Tangible Net Benefit?
MLOs cannot refinance without determining if the loan will benefit the borrower, by giving them benefits like a reduced interest rate, loan term, and/or monthly payment; debt consolidation; cash-out benefits, etc.
What are the three occupancy types?
Primary, 2nd home, Non-owner
Which of the occupancy types (primary, 2nd home or Non-owner require Right of Rescission?
Primary residence only
What would raise a red flag with a Verification of Deposit?
If the average balance on the verification is different than the average on the bank statements
What is the purpose of an appraisal?
It is an opinion of value that is determined by the market
approach
What is the Sales Comparison Approach in establishing the value?
An appraisal method that compares one property to comparables or other recently sold properties in the area with similar characteristics
When does the appraisal have to be delivered to the borrower?
No less than three business days before closing
What are the three Flood Zones that require Flood Insurance?
ZONE “A”, “V”, or “D”
What is Fair Market Value?
The price that a seller is willing to accept and a buyer is willing to pay on the open market
On the appraisal, if it says, “As Is,” what does that mean?
The property does not require any repairs and is eligible to close
How is monthly interest calculated?
Principal balance X note or interest rate / 12= Interest for the month. Should match up with the interest due on the payment slip.
How is the new P&I payment calculated on each adjustment?
On an ARM loan at adjustment time, remaining principal balance X the new interest rate divided by remaining term =
New P&I payment
How is Per Diem interest calculated?
Principal balance X the note or interest rate /d by 360 days on conventional loans, or 365 days on government loans
How would you calculate the interest rate on a loan if you don’t know the interest rate?
Remaining balance divided into interest paid in the last twelve months = note rate. This is a very rough calculation.
What is a Discount Point?
1% of the loan amount for each discount point to be used for interest rate reduction only. They can be paid by the seller, borrower, or their employer.
What is not included in the APR and 3% fee limit on QM calculations?
Prepaids = Appraisal, credit report, title and prepaid interest
What fees and costs are shown on the Closing Disclosure?
ALL COSTS DISCLOSED ON THE LOAN ESTIMATE AND NO MORE THAN A 10% TOLERANCE
For an ARM, a limit on the amount that payments can increase or decrease over the life of the mortgage
Lifetime Payment Cap
Qualified Mortgage allows a maximum Debt-to-Income (DTI) to meet requirements. What is that percentage?
43% of the verified gross income = maximum debt-to-income, including mortgage payment + monthly debt payments
What does an Approved Eligible mean to meet QM requirements?
Based on the information submitted by the mortgage company into Fannie Or Freddie underwriting systems, it the information meets their requirements, the Approved Eligible means they will buy the loan
What is a Certified Appraiser?
The appraiser who can sign the appraisal attesting the final value
What does a Title Report tell you?
Who owns the property and what liens and encumbrances are against the property, including unpaid real estate
taxes
Who is protected by the Title Insurance policy?
The lender and the borrower, that from the date of funding, there are no liens or encumbrances, thus ensuring that the lender and borrower are in the first position with their recorded mortgage
What are the balloon limits?
$250,000 on the property and $100,000 in person property
What portion of the property has to be in the flood plain as
determined by FEMA?
Any portion of the house that is occupied. Garages and outside buildings not included.
What does FEMA stand for?
Federal Emergency Management Agency
What are some examples of Involuntary Liens?
Tax liens, mechanics liens, judgments, and attachments
What does FHA stand for?
Federal Housing Agency – oversees and publishes guidelines for all FHA insured loans
What does FHAct stand for?
Federal Housing Act – governs discriminatory practices
What does PMI stand for?
Private Mortgage insurance – insurance for conventional loans over 80%
What does MIP stand for?
Mortgage Insurance Premium – FHA loan premium for mortgage insurance on all FHA loans
