Mortgage Lending Overview

Question 1

FHA Mortgages

Answer 1

Home loans that the banks provided but insured by the FHA so banks would not incur loses if borrower defaulted. Allowed 20% downpayment and longer term mortgages

Question 2

FHA created loan programs where the loans were fully _____

Answer 2

Amortizing (level payments allowed the loan to be paid in full at the end of the loan term.)

Question 3

Freddie Mac’s automated underwriting system:

Answer 3

Loan Product Advisor

Question 4

Fannie Mae’s automated underwriting system:

Answer 4

Desktop Underwriter

Question 5

Housing Expense ratio must be below ___ for conventional loans?

Answer 5

Acceptable ratios must be below 28% or .28

Question 6

Housing Expense Ratio Formula

Answer 6

(Total Housing Expense) / (Gross Monthly Income) = Housing Expense Ratio

Question 7

Total Debt-to-Income Ratio must be below ____ for conventional loans?

Answer 7

Acceptable Debt-To-Income ratios must be below 36% or .36

Question 8

Debt-to-Income Ratio

Answer 8

(PITI + long term debts) / (Gross Monthly Income) = Debt-to-income Ratio

Question 9

A complete application includes the following:

Answer 9

• Borrower’s name
• Gross Monthly income
• Social Security number to obtain a credit report
• Address of the subject property
• Estimate of the value of the property
• Loan amount applied for

Question 10

4 C’s of underwriting:

Answer 10

• Credit history of the borrower, which indicates the borrower’s willingness to repay debt
• Capacity to repay the loan, which includes income and employment history
• Cash assets, which are available to close the mortgage
• Collateral, which evaluates the value of the home being purchased or refinanced