Mortgage knowledge Flashcards
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LTV ratio
(Loan amount) / (Lesser of the property or purchase price)
CLTV ratio
(1st loan balance) + (2nd loan balance) + (All other liens) = (Total Encumberance)
(Total Encumberance) / (Lesser of the property or purchase price) = (CLTV)
Front-end ratio/housing ratio
(Housing expense) / (Income) = (Front-end ratio/housing ratio)
Back-end ratio/total debt ratio
(Total monthly debts / (Income) = (Back end ratio)
Interest per diem
(Interest rate) x (Loan balance) = (Annual interest)
Annual interest) / 365 = (Daily Interest Amount
Private Mortgage Insurance (PMI)
Conventional loans (LTV greater than 80%)
Mortgage Insurance Premium (MIP)
FHA loans
FHA loans
3.5% downpayment minimum
Insured by the government
Regulation Z
Truth-In-Lending Act (TILA)
An attractive interest rate or loan term that is not actually available
Regulation B
Equal Credit Opportunity Act (ECOA)
Prohibits lenders from discriminating, in any aspect of a credit transaction, based on any of the following factors:
Race
Color
Religion
National origin
Sex
Marital status
Age (unless borrower is too young to sign a contract, or lacks “legal capacity”)
Receipt of income from a public assistance program
Exercise of rights under the Consumer Credit Protection Act
Regulation X
Real Estate Settlement Procedures Act (RESPA)
- Require effective advance disclosure of costs
- Eliminate kickbacks and referral fees
- Limit amounts held in escrow or reserve accounts
- Reform record-keeping of local land title information
Regulation N
Mortgage Acts and Practices Rule (MAP Rule)
A federal rule governing the advertising of mortgage products
Revised Loan Estimate
Due within 3 business days of revision
Due within 4 days before consummation
Regulation C
Home Mortgage Disclosure Act (HMDA)
Requires certain lenders, based on asset size, location, and housing-related lending activity, to report data regarding its mortgage lending activity
Yield Spread Premiums
Otherwise known as borrow credits
It use to be used to be known for paying originators an additional fee for charging up the interest rate
RESPA Penalties/Section 8
Section 8 of RESPA prohibits referral fees and other forms of kickbacks/fee splitting. Penalties include fines of up to $10,000 and up to one year in prison.
Transactions reported under HMDA
- Purchases
- Refinances
- Home improvement loans
The Loan Estimate must be provided…
- No later than three business days after receiving a completed application
- No later than seven business days prior to consummation
The Closing Disclosure must be provided…
At least three business days prior to consummation
The purpose of the Homeowners Protection Act is to…
Facilitate the cancellation of private mortgage insurance (PMI). Borrowers can request cancellation when their loan reaches 80% loan-to-value (20% equity), but the law requires automatic termination of PMI at 78% LTV (22% equity).
Advertising trigger terms for closed-end loans under TILA include…
- Amount or percentage of any down payment
- Number of payments or period of repayment
- Amount of any payment
- Amount of any finance charge
The TRID Rule does not apply to…
- HELOCs
- Reverse mortgages
-Mortgages secured by a mobile home or dwelling not attached to real property
Loans not covered by RESPA include…
Loans for:
-Business, commercial, or agricultural purposes
Temporary financing (bridge loans)
Vacant land
Loan conversions
The purpose of FCRA is…
The Fair Credit Reporting Act (FCRA) is aimed at ensuring the accuracy, fairness, and privacy of consumers’ personal information that is assembled and used by consumer reporting agencies.
The purpose of FACTA…
The Fair and Accurate Credit Transactions Act (FACTA) was passed as an amendment to the FCRA. It includes provisions to address identity theft, facilitate consumers’ access to the information retained by CRAs, and improve the accuracy of consumer reports.
Page 2 of the Loan Estimate
Loan Costs table
Other Costs table
Calculating Cash to Close table
Adjustable Payment table
Adjustable Interest Rate table
What fees are never included in finance charges?
Title insurance and title examination fees, doc prep fees, notary fees, seller’s points, and appraisal/credit report fees
What fees are included in finance charges?
Finance charges include: interest, loan origination fees and points, mortgage broker fees, and credit life insurance fees (when insurance is required)
Seller concessions for conforming loans with an LTV of greater than 90% are…
Limited to 3%
A deed of trust is…
A document used in place of a mortgage to secure the payment of a promissory note
A nonconforming loan is…
Is one that exceeds Fannie Mae and Freddie Mac’s loan limits or underwriting standards.
A reconveyance clause…
Is the method used to transfer title for a property following full payment of a loan. Reconveyance is typically used with a deed of trust.
A funding fee is required on…
VA and USDA loans
A state licensed loan originator is…
An employee of a non-depository institution, loan originator
Conforming loan guidelines generally include DTI ratios of:
28% / 36%
FHA DTI is…
43%
VA DTI is…
41%
The URLA is also known as:
The application
For ARMS characterized by figures like “3/1,” “5/1,” “7/1,” or “10/1,” the first number represents _____, and the second number represents _____.
The locked term; the adjustment frequency
Safeguards Rule
Preserving the confidentiality of personal financial information
USDA loans are made for a term of…
30 years, offered in a fixed rate only. They do not require a down payment, but lenders must use debt ratios to ensure the borrower can repay the loan.
An 80-10-10 loan is an example of…
A piggy back loan
The 1003 is also known as…
The Uniform Residential Loan Application (URLA)
The 1004 is also known as the…
Uniform Residential Appraisal Report (URAR)
Regulation P
Gramm-Leach-Bliley Act (GLB Act)
Enacted to protect the privacy of consumer personal information. It applies to all financial institutions over which the Federal Trade Commission (FTC) has regulatory authority
The Dodd-Frank Act
Establishment of the Consumer Financial Protection Bureau (CFPB)
- Authorization of the Qualified Mortgage Rule
- Requiring an assessment of the borrower’s ability to repay a mortgage (i.e., establishment of the Ability to Repay Rule)
- Restricts loan originator compensation (i.e., authorizing the Loan Originator Compensation Rule)
- Requires new borrower disclosures to replace GFE and TILA disclosures (i.e., TILA-RESPA Integrated Disclosure Rule)
- Limits loan terms such as prepayment penalties, negative amortization, balloons, etc.
Who issues and enforces regulations for TILA?
The CFPB
Who regulates RESPA?
The CFPB
Reverse Redlining
When predatory lenders targeted neighborhoods with elderly, immigrant, and minority populations to make risky loans that included oppressive lending terms
Redlining
When creditors refuse to make loans in certain neighborhoods due to the personal characteristics of the residents
Initial Escrow Notice
Typically given at settlement, but the lender has 45 days from settlement to deliver it
Annual Escrow Notice
Must be given within 30 days of the completion of the escrow account computation year
The Good Faith Estimate and HUD-1 Settlement Statement
Still required for:
- Reverse mortgages
- Home equity lines of credit (HELOCs)
- Mortgages secured by a mobile home or other dwelling that is not attached to land
Good Faith Estimate
There is a 10% tolerance for differences between the total amount of actual and estimated charges permitted for:
- Lender-required settlement services performed by a provider chosen by the lender
- Lender-required services and title and insurance services if the loan applicant uses a provider recommended by the lender, and
- Recording fees
“Servicing”
Receipt of mortgage payments from a borrower, including payments for taxes and insurance that are deposited in an escrow account, and forwarding these payments to the owner of the loan and to third parties, such as providers of homeowners’ insurance
Power of sale clause
If the mortgage does include a power of sale clause, no legal action is required. This process is known as non-judicial foreclosure.
Prohibited Practices (ECOA)
- Refuse to consider public assistance as income
- Assume a woman of childbearing age will stop working to raise children
- Refuse to consider income from a pension, annuity, or retirement benefit
- Refuse to consider regular alimony or child support (although borrowers are not required to disclose alimony and child support unless it is used as qualifying income)
Application
Six pieces of information:
- The consumer’s name
- Social Security Number, which is used to obtain a credit report
- Income
- The address of the property to secure the loan
- An estimate of the value of the property securing the loan
- The loan amount sought
Finance Charges
For closed-end transactions, disclosure of the finance charge is regarded as accurate if:
- The charge is not understated by more than $100, or
- The amount stated is greater than the amount required to be disclosed
Determining the APR..
The fees that are included in the calculation of the APR include many of the fees that are included in the calculation of the finance charge, such as:
- Private mortgage insurance (PMI) or mortgage insurance premium (MIP)
- Discount points and mortgage broker fees
- Origination fees
- Processing fees, and
- Underwriting fees
Excluded fees from APR..
When calculating the APR, the following fees are generally excluded, just as they are in the calculation of the finance charge:
- Title fees
- Escrow fees
- Notary fees
- Appraisal and credit report fees, and
- Document preparation fees
A(n) _____ is an individual who accepts a fee to falsely claim ownership to a property.
Straw seller
A “straw buyer” is:
A buyer who accepts a fee for the use of his or her Social Security Number and other personal information on a mortgage application
Which of the following would be on a promissory note?
- Amount owed,
- Rate of interest and whether the loan is fixed or adjustable,
- Due dates for payment,
- The loan terms.
A deed of trust requires that borrowers obtaining owner-occupied loans occupy the property within how many days?
60 days
Under TILA’s rules…
In regard to higher-priced mortgage loans, under TILA and Regulation Z, a creditor or servicer may cancel an escrow account only upon the earlier of termination of the underlying debt obligation or five years after the loan was consummated, at the request of the consumer.
Even before the adoption of the Dodd-Frank Act and the Ability to Repay Rule, which of the following federal laws created specific requirements for the verification and documentation of a borrower’s repayment ability?
Home Ownership and Equity Protection Act (HOEPA)
A purpose of the Home Mortgage Disclosure Act (HMDA) is to:
Identify possible discriminatory lending patterns
A defeasance clause…
Provides for release of the lien when the borrower pays off the debt and is generally included in a mortgage or deed of trust
Material disclosures include…
The APR, the finance charge, the amount financed, the total number of payments, and the payment schedule
Record Retention
Loan Estimates - 3 years Ability to Repay - 3 years Loan Originator Compensation - 3 years Closing Disclosure - 5 years Escrow Closing Notice - 2 years
HOEPA (Home Ownership and Equity Protection Act)
Discourage abuses in the subprime market
TRID Rule (TILA-RESPA Integrated Disclosure Rule)
- Zero-tolerance limit for the costs of services provided by the creditor or its affiliate
- 10% tolerance limit for services provided by non-affiliates
- Refunds the excess paid within 60 days of consummation
HPA (Homeowners Protection Act)
Allows borrowers to request that lenders cancel PMI when their loan balance reaches 80% LTV
Does not apply to:
Government-insured FHA or VA loans
Loans protected by PMI paid for by the lender
How many total hours of ethics are required, at minimum, for continuing education?
Two hours
ECOA applies to the extension of credit for:
Residential, business, commercial, and agricultural loans
Intentionally targeting borrowers in poor or underserved areas with expensive high-cost loans is considered illegal under:
HOEPA
As a result of the Housing and Economic Recovery Act of 2008, Congress created the _____ for oversight of the GSEs.
FHFA (Federal Housing Finance Agency)
Oversight and enforcement of FCRA is left to what government agency?
The CFPB, but shares some authority with the FTC
Per diem interest is used by a lender in order to:
Collect interest that accrues between the closing date and the end of the month
HOEPA is federal legislation enacted by Congress through amendments to:
TILA (Truth-In-Lending Act)
Which of the following documents conveys title to real property?
Deed
Safe harbor qualified mortgages offer a “safe harbor” from:
Liability for ATR Rule violations
The Nationwide Multistate Licensing System and Registry was developed and is maintained by:
The CSBS and AARMR
The provisions of the GLB Act specifically require compliance with the:
The Safeguards Rule
An upfront mortgage insurance premium is required for _____ loans, and borrowers can pay this amount directly or finance the cost.
FHA
Annual PMI is determined by multiplying:
The loan amount and the mortgage insurance rate
Which legislation sets the disclosure requirements for the Affiliated Business Arrangement Disclosure?
RESPA
Which of the following documents connects the promissory note to the collateral?
Mortgage
Under the GLB Act, a customer relationship is established:
Upon application
A loss payee clause protects whom?
The lender in the event the property is damaged by fire or other risks
Regulation V
FCRA
Disposal Rule:
- Burning, pulverizing, or shredding papers containing consumer information
- Destroying or erasing electronically-stored information
The Red Flags Rule:
is a measure included in FACTA to address identity theft
-FTC enforces
Sales comparison approach:
is most commonly used and involves the comparison of three similar, recently-sold properties
Which of the following terms is allowed in a high-cost mortgage?
A variable interest rate
The act of guiding homebuyers in a particular direction based on demographics is prohibited by:
The Fair Housing Act (FHA) and ECOA
they both prohibit steering
A property inspection waiver:
may be allowed if the lender is comfortable with existing data on a property used as collateral for a rate/term refinance.
The term “grossing up” means a borrower’s non-taxed income is allowed to be increased by as much as:
25%
The initial rate cap:
is a limit on the amount by which the interest rate can increase or decrease at the first adjustment date for an ARM
Which federal law was the first to expressly prohibit equity-based lending?
HOEPA
RESPA servicing rules require loan servicers:
Delinquency requires live contact within 36 days, and written contact within 45 days that describes loss mitigation options.
What legislation regulates the proper management of escrow accounts?
RESPA (Regulation X) regulates the management of escrow accounts
The lending document that contains the contractual terms for repaying a home loan is the:
Promissory note
Two federal laws that relate to the confidentiality of personal financial information are:
Safeguards Rule and FTC disposal rule
A home equity conversion mortgage (HECM) is a type of _____ that is made pursuant to guidelines established by the _____
Reverse mortgage/FHA
How to calculate the periodic rate on a mortgage loan?
Annual rate / number of payments in a year = periodic rate
What is the purpose of the Fair Credit Reporting Act?
To ensure accuracy, fairness, and the privacy of consumers’ personal information assembled and used by consumer reporting agencies
Which of the following types of loans is not a conventional mortgage?
FHA loans, USDA loans, and VA loans
Which document actually contains the borrower’s promise to repay the loan?
The note, or promissory note, is the borrower’s promise to repay the loan.
Sharing a borrower’s personal financial information for purposes other than what it was provided for is a violation of what act?
GLB (The Gramm-Leach-Bliley Act) governs the use of non-public personal information and how it can be shared amongst affiliated third parties.
Regulations in Section 32 of TILA deal strictly with:
Consumer protections triggered by high-cost loans covered under HOEPA
The cost approach:
is generally used on new home construction (among other reasons). This approach arrives at a value by estimating the value of the land, as if vacant, and adding the cost to build the house
The chain of title shows:
History of ownership of a property
When does rescission not exist?
Rescission does not exist for a purchase of a principal residence with a conventional loan
What is considered in the calculation of a borrower’s back-end ratio?
The back-end ratio is the total amount of monthly payments made on long-term debt carried by the consumer, such as car loans, student loans, and other debt in addition to housing expenses.
The factors involved in determining the movement on an ARM loan include:
Frequency of change, caps, index, rate
When funds are placed in a separate escrow account to offset the monthly payments required by the terms of a loan, and those funds are used to reduce the payment rate for a period of time, this is known as:
Temporary buy-down
FACTA requires an initial Fraud Alert to be kept in a consumer’s file for what period of time?
One year
An Extended Fraud Alert, meaning there is an actual identity theft report submitted, is required for seven years
Homeownership counseling is required in transactions for all of the following, except:
Higher-priced mortgage loan
Which of the following loan types considers residual income in qualification?
VA loans
A revised Loan Estimate is required when:
The loan applicant locks his or her interest rate
“E-Sign Act” is short for:
The Electronic Signatures in Global and National Commerce Act
High cost home loan is if the APR exceeds the APOR for a comparable transaction by more than:
- 6.5% points for a first lien
- 8.5% points for a subordinate lien
HPML that has an APR that exceeds the APOR by:
- 1.5% points, first lien
- 2.5% points, jumbo loan
- 3.5% points, subordinate lien
Must obtain two appraisals on HPML if:
- Seller acquired property 90 or fewer days and price is 10% higher than sellers acquisition
- Seller acquired property 91-180 days and price is 20% higher
