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NMLS > Mortgage Loans > Flashcards

Mortgage Loans Flashcards

1
Q

What is an adjustable rate mortgage (ARMs)? What is its AKA?

A

It frees lenders from being locked into a fixed-interest rate for the entire loan of the loan.
Interest rates may adjust, acc to the terms in the note, to reflect the current cost of $ (meaning what’s going on with our economy today)
*They are a popular alt financing tools as they may help borrowers qualify more easily for a home loan/for a more expensive home (usually rate starts lower than a fixed)
*Many lenders like ARMs bc they can pass the risk of fluctuation interest rates on to borrowers
*AKA = Variable Rate Loan (variable = go up or down)
-The interest on the loan varies upward/downwards over the term of the loan dep on money market conditions and the agreed upon INDEX

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2
Q

When does the interest rate on an ARM change?

A

(Adjustable Rate Mortgage) only changes IF the CHOSEN INDEX changes
*Borrower’s payments may stay the same for a specified time (ex 1 -2 years) dep on the borrower’s agrmt w/ the lender

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3
Q

What are the 5 components of ARMs?

A

1) Index - determines rate going up or down
2) Margin - pretty much stays the same of the life of the loan
3) Rate adjustment period
4) Interest rate cap/floor (if any) - how high it can go and how low it can go?
5) Conversion options (if any) - option to convert from an adj to fixed

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4
Q

What is an index in an adjustable rate mortgage (ARM)?

A

It is an economic measurement that is used to make periodic interest adjustments for an adjustable-rate mortgage
-Referred to as the COST OF MONEY
-It can fluctuate during the term of the loan, causing the borrower’s actual interest rate to increase/decrease bc of market
-The lender has NO CONTROL over the measurement of the index at any given time
-Plural for index: INDICES

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5
Q

How is the Fully Indexed Rate determined on an ARM?

A

By adding the index to the margin
INDEX + MARGIN = FULLY INDEXED RATE

Rate is made up of the index and the margin. This is the actual interest rate that the borrower is paying

FOR EXAMPLE:
4.25% current index value
+ 2.00% Margin
= 6.25% Fully Index Rate

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6
Q

Where does the index appear on the disclosures or at closing?

A

LE & Promissary Note

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7
Q

What determines the Index in an ARM? What are the most common indices?

A

Market conditions determine the index NOT the control of the lender
Most common:
-Constant Maturity Treasury (CMT)
-The 11th District Cost of Fund Index (COFI) Cert of Deposit Index (CODI)
-The Secured Overnight Financing Rate (SOFR) replaced The London Inter Bank Offering Rates (LIBOR),
-The Bank Prime Loan Rate (Prime Rate)
U.S. Treasury Securities

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8
Q

What is the margin in an ARM? AKA?

A

It is the # that a lender ADDS to an index to determine the interest rate of an ARM
-AKA = SPREAD (profit that the bank makes)
-Margin can vary greatly btwn diff lenders
-It is a FIXED # that is not subject to change during the term of the loan
-It represents the lender’s operating costs & profit margin

expressed in basis points 100 points = 1%

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9
Q

What is an introductory rate in an ARM? AKA?

A

It is the interest rate on an ARM at closing and it will be in effect for a period of time ranging from one month to 10 yrs dep. upon the loan product
-Rate that you’re starting at
-AKA = “start rate” or “initial rate”
-It is set by the lender

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10
Q

What is a teaser rate in an ARM?

A

When the introductory rate is lower than the fully-indexed rate at the time of closing
They try to do this to get the borrower to the door

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11
Q

Where is the margin disclosed?

A

LE

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12
Q

What is the Rate Adjustment Period in an ARM?

A

It is the LENGTH OF TIME between interest rate changes on ARMS
Example: Every 2 years, every period

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13
Q

What is the Interest Rate Cap on an ARM? AKAs?

A

A rate cap is a limitation on the amt that an interest rate may increase or decrease either @ the adj. date or over the lifetime of the loan. What’s the cap - highest it can go?

-AKA = adjustment caps

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14
Q

Why are interest rate caps used in ARMs?

A

It’s to limit the # of % points an interest rate can be increased during the term of a loan, helping to eliminate large fluctuations in mtg payments

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15
Q

What’s the benefit of an ARM loan?

A

Helps to avoid payment shock with built-in protections called CAPS
A huge increase that can surprise the borrower
Example: Starts with 4.5% and then 14%

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16
Q

What do CAPS regulate and what are the 3 main interest CAPS?

A

It regulates how much the interest rate can increase in a given period

1) INITIAL Cap
2) PERIODIC ADJUSTMENT Cap
3) LIFETIME Cap

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17
Q

What is the initial cap in an ARM?

A

It applies ONLY TO THE FIRST rate adjustment period & indicates the # of % points that a rate may increase over the start rate

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18
Q

What is a Periodic Cap in an ARM?

A

It limits the amt of interest rate can adjust up or down from one adjustment period to the next

Example: If a previous period rate was 5% and the periodic cap is 2%, then the MAX change is 2% up or down - 3% would be the lowest, 7% would be the highest

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19
Q

What is the Life Cap in an ARM?

A

It sets a MAX # of % points that the rate can increase over the START RATE for the life of the loan functioning as a RATE CEILING

Example #1: an ARM has an interest rate of 5.5% with a 6.0% lifetime cap = interest rate can NEVER exceed 11.5% (5.5 + 6 = 11.5)

Example #2: If start rate is 3% and the life cap is 6%, then max the rate can reach over the life of the loan is 9%

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20
Q

Explain when ARMs are identified with three #s. For example: 5/2/6

A

They are FROM where it started. It allows for a higher rate change at the FIRST adjustment and then apply a periodic adjustment to future adjustments

> 5% at the first adjustment. The FIRST # is the interest rate cap for the 1st adjustment
2% for subsequent adjustable period. Period adjustment cap
6% total over the life of the loan. Lifetime interest rate cap

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21
Q

Explain the rate caps shown as two numbers for an ARM. Example: 2/6

A

> 2 is the FIRST # which indicates the MAX amount the interest rate can increase (or potentially decrease) from one adjustment period to the next

> 6 indicates the MAX amt the interest rate can increase during the life of the loan

Example: An ARM has a start rate of 4% with a 2/6 cap.
Most the ARM can increase/decrease is 2% at each adj. period
Most the rate can increase is 6% and lowest it can decrease is 2%
However, most it can increase over the life of the loan (life cap) is 6% from the start rate so 10% (4 + 6)

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22
Q

What is the Rate Floor on an ARM?

A

A lending agreement in order to protect the lender.
It is the LOWEST interest rate to which an ARM may adjust
For loans sold to Fannie/Freddie, this is usually identical to the margin

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23
Q

What is the types of ARMs?

A

1) Interest-only ARM
2) Payment-option ARMs
3) Convertible ARMs
4) Hybrid ARMs

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24
Q

What is an Interest-Only ARM?

A

(IO). It allows payment of interest ONLY for a specified # of years. (Typically btwn 3-10 years)
-It allows the borrower to have smaller monthly payments for a period of time
-After that, monthly payments increase even if interest rates stay the same bc the borrower must start repaying the principal and interest each month

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25
Q

What is an Option ARM?

A

It is a type of loan that allows the borrower to choose among several payment options each month.
-It provides flexibility for borrowers by allowing them to choose the payment that suits their current financial situation
-It offers a VARIETY of payment options, such as min payment - less than the minimum (which can lead to neg. amortization), a 15 yr or 30 yr amortized payment, or an interest-only payment (usually is a 4 payment option, every month they can do different options)

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26
Q

What does Recasting mean? What led this?

A

Option ARM led to this, they had to relook at the payments
Option ARM payments are typically adjusted every 5 yrs (too much at the end, negative) then that option goes away
-Lenders do this by amortizing the higher principal bal created by the addition of interest (negative amortization)
-Recasting = automatic payment adjustment. It amortizes the loan so it can be fully paid by the end of the loan term

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27
Q

What is a Convertible ARM?

A

It has a CONVERSION option
-To change from an adjustable to a fixed rate mortgage, a refinance of the trans is usually required, but a CONVERTIBLE ARM allows a borrower from an ARM to a fixed rate w/o going through the refinance process
-Lender may charge a one-time fee at the time the loan is converted to a fixed rate
-When loan converts, it converts to the current prevailing rate
This clause can be in the promissary note

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28
Q

What is a Hybrid Loan in an ARM?

A

A Hybrid ARM combines the feature of a fixed-rate loan with those of an adjustable-rate loan. (fixed component and an adjustable like a hybrid car)
-It may be desirable for borrowers who plan to sell their homes/pay off their loans w/in a few years
-The fixed-rate feature gives the borrower some security with fixed payments in the initial term of the loan
-The adj. rate feature is that the initial interest rate on these loans are typically lower than a fixed-rate loan
-Initially, a fixed interest rate exists for a period of 3, 5, 7, or 10 years

Often advertised as 3/1, 5/1, 7/1 or 10/1 ARMs
- These loans are a hybrid of a fixed & adjst.
- 1st # = how long the fixed interest rate period will be
- 2nd # = how often the rate will adjust after the initial period
fixed for the 5 years and then adjust every year

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29
Q

A 2/28 or 3/27 is another example of a hybrid ARM loan. Explain.

A

> 1st # = how long the fixed interest-rate period will be
2nd # = the # of years the rate on the loan will be adjustable

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30
Q

SCENARIO: Joe and Maria Sullivan are borrowing $280,000 toward the purchase of a home. The loan is a 3-1 ARM with a start rate of 5.625%, a periodic rate cap of 2% thereafter, and a lifetime rate cap of 6%.

They want to know the highest interest rate that could be charged in the fifth year of the mortgage loan?

A

5.625% + 4% = 9.625%

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31
Q

What is a Reverse Mortgage? AKA?

A

There are no payments due from the borrower. In many cases, the lender will actually make periodic payments TO the borrower that come from the borrower’s EQUITY in the home
They allow an older homeowner to use equity in their homes to meet the expenses of living or to pay for home improv.

AKA = HECM “home equity conversion mortgages)

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32
Q

What are the requirements of a Reverse Mortgage?

A

-62 or older
-Borrower must live in his/her home
-Payments are not taxable income and paid out based on a TENURE METHOD (payments overtime as opposed to lump-sum)
-BALANCE of a loan rises as EQUITY shrinks
-Mortgage is payable in full when the home is sold or when the last surviving homeowner dies
-Amt that an applicant may borrower is based on the AGE OF THE YOUNGEST borrower
-They must show that they can make property tax & HOI

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33
Q

When will the Reserve Mortgage be taken away?

A

-Homeowner dies
-Homeowner moves out of the home for a period of 12-consecutive months (one continuous year)
-Homeowner sells the home
-Homeowner fails to pay property tax and HOI

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34
Q

What is the max Seller Concession allowed (closing cost) in a conventional loan?

A

3%

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35
Q

What is an acceleration clause?

A

Gives lender right to declare entire loan balance due IMMEDIATELY bc of borrower default or for violation of other contract provisions. Remember it needs 2 things: immediate & default (late)

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36
Q

What is an alienation clause?

A

A clause that specifically calls a mortgage loan due upon sale or transfer of the property. This allows the lender to be paid immediately if the borrower transfers ownership of the mortgaged property without lender’s approval (aka due on sale clause).

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37
Q

What is a promissory note? Who is it signed by?

A

Financing instruments that evidence a promise to pay a specific amount of money to a specific person within a specific time frame.

It’s signed by the borrower as evidence to promise to pay

Payee: Person/institution lending $
Payor: Maker of the note who promises to repay funds

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38
Q

What is a Straight Note?

A

A Type of Promissory Note

A type of fixed-rate mortgage that allows the borrower to pay only the interest due on the mortgage for a period of years, after which the loan becomes fully amortizing.

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39
Q

What is a Fully Amortizing Loan (Self-Liquidating)?

A

A type of Promissory Note

A loan is fully amortizing when the regular monthly payments result in the principal balance being extinguished at the end of the loan term. Most fixed-rate loans are fully amortizing.

pay off the entire balance

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40
Q

What is a Partially Amortizing Loan?

A

A type of Promissory Note

A loan where a portion of the principal is repaid with regular monthly payments, but the balance is not fully extinguished at the end of the loan term (resulting in a large payment to satisfy the remaining balance), is called a “partially amortizing loan.” Balloon loans are partially amortizing loans.

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41
Q

What is a Negative Amortization?

A

A type of Promissory Note

Monthly payment is not sufficient to cover the accrued interest from the previous month

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42
Q

What 2 security instruments accompany a Promissory Note?

A

1) Trust Deeds (or deed of trust)
2) Mortgages
*They are used in real estate trans

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43
Q

What is a trust deed?

A

Instruments placing specific financial interest in title to real property into hands of disinterest 3rd party as security for payment of note
> Borrower = trustor
> Lender = beneficiary who retains note & deed of trust
> Trustee = holds legal title to security property descried in deed of trust
> Trustee (usually 3rd party) has authority under terms of trust to commence NON-JUDICIAL FORECLOSURE ACTION when lender has declared loan in default . meaning that they don’t have to go to the court to sell the house
*usually west coast

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44
Q

What is Mortgages?

A

Signed by the borrower creating a VOLUNTARY LIEN on the property for the security of the payment of the debt
> Borrower = mortgagor
> Lender = mortgagee who retains note and deed of trust
> When borrower defaults on mortgage, lender may commence judicial foreclosure action

**usually east coast

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45
Q

What is a nontraditional mortgage?

A

SAFE Act defines it as ANYTHING other than a 30 year fixed rate mortgage

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46
Q

What is a traditional mortgage?

A

Defined as a 30 year fixed rate

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47
Q

What are 2 types of conventional loans? What does “conventional” mean?

A

1) Conforming loans
2) Non-conforming loans
Means that the loan is not part of a specific govt program

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48
Q

What is a conventional loan?

A

Made by a bank or institutional lender. Not insured or guaranteed by a govt entity or agency. NOT part of a specific govt program.

They are written to guidelines set by govt-sponsored entities (GSE) so they may be sold on secondary market (Fannie/Freddie)

They are CONFORMING loans that limit loan amts of a single-fam residence to the current limit of $528,250

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49
Q

What is the min down payment on a conventional loan?

A

3-5%, depending on the loan program
A 97% LTV loan is offered under “Home Ready (FNMA)” & “Home Possible (FHLMC)”
Borrowers utilizing these programs do not need to be first-time homebuyers & meet certain income criteria

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50
Q

PMI is required on all loans, if the borrower puts how much at closing? What is the late fee?

A

If borrower puts less than 20% of the loan amount at closing.
Late fee is 5% of the monthly P&I

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51
Q

What is the qualifying guideline on a conventional loan?

A

1) 28% total housing expense ratio
2) 36% total DTI ratio
3) Borrowers must qualify under BOTH ratios ^
4) Borrowers should have 2 months of reserves on deposit

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52
Q

What is a conforming loan?

A

A conventional loan. They MEET Fannie/Freddie standards and can be sold int othe secondary market

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53
Q

What are Non-conforming loans?

A

They are JUMBO loans, loans that EXCEED the conforming loan limit

They do NOT meet the UW requirements established by Freddie/Fannie
They can NOT be sold onto the secondary market

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54
Q

What are the 2 main reasons why a loan would be classified as nonconforming?

A

1) Size of the loan - exceed max loan amt
2) Credit Quality of Borrower - MLOs may see a borrower who do not meet MIN. standards by Freddie/Fannie classified as a “B or C Borrower”. Might be someone who has had a credit problem in the past

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55
Q

What is the credit quality of the borrower for non-conforming loans?
>Alt-A
>B or C

A

> Alt A: designation for loans made to borrowers who do not represent the high credit risk of subprime borrowers, but who do not quite meet the uw requirements for conforming prime rate loans characterized by reduced documentation, high ratios or limited assets.

> B or C borrower: MLOs may see these borrowers who do not meet min Fannie/Freddie, Credit problem in past

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56
Q

What is a fixed rate mortgage?

A

Type of mortgage loan in which the interest rate & payments (P&I) remain same for the life of the loan

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57
Q

What is an Interest only loan? AKA?

A

AKA straight note
Period of reduced payments for a specified time, then payment increases to fully amortize by end of term

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58
Q

What is a Bi-Weekly Mortgage?

A

Make a payment every 2 weeks is the same as making an extra mortgage payment every yr bc there are 26 bi-weekly periods in a year

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59
Q

What is the main advantage & disadvantage in a 15 year mortgage?

A

Advantage: Lenders give best interest rate
Disadvantage: Payments are generally higher. Borrower has full ownership in half the time.

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60
Q

What is a Balloon Mortgage? AKA?

A

A balloon loan means that the loan has a larger-than-usual, one-time payment, typically @ the end of the loan term. If you cannot pay the balloon amt, you might have to refi, sell your home, or face foreclosure AKA “partially amortizing loans”

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61
Q

What is a subordinate lien?

A

Any mortgage or other lien that has priority lower than that of the 1st mortgage. Referred to as a “junior lien”.

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62
Q

What is a HELOC?

A

Home Equity Line of Credit. They are considered open-ended credit (similar to credit cards) & as a borrower pays off the principal, they can continue to make w/drawals

63
Q

What is a Fixed Home Equity Loan?

A

Closed-Ended, Borrower rcvs a lump sum and does not continue to make withdrawals

64
Q

What is an Equity Participation Mortgage? AKA?

A

Shared Appreciation Mortgage (“SAM”); A type of mtg that allows the lender to share in part of the income/resale proceeds

Example: A man’s (let’s say Sam so easy to remember) house was worth 1.3 million and later was valued at $700K. Borrower was late on 18months payments. Wells Fargo forgave the 18 months and made payments based on $700K in return that if he sold his home they would get 5% of it.

65
Q

What is a Package Mortgage?

A

A loan secured by real estate and in which the personal property & furniture is included in the purchase price of the house

66
Q

What is a Blanket Mortgage?

A

A type of loan used to fund the purchase of more than 1 piece of real property. They are popular with builders and developers who buy tracts of land, then subdivide them to create many individ. parcels to be gradually sold one at a time.

67
Q

What is a Refinance/Cash Out Mortgage?

A

A cash out refi is refi of an existing loan, where the new mortgage loan is for a larger amt than the existing mtg loan and the borrower gets the difference between the two loans in CASH. Must have a NET-TANGIBLE BENEFIT

68
Q

What is a Bridge Mortgage?

A

A “bridge” = financing tool that helps purchasers to “bridge” the gap between old and new mortgages

Example: You are in the middle of buying a home and selling your current. The new home is ready but the current one is still in disclosures stage, but you need the cash out to buy the new home. The bank will give you a bridge loan to give you the down payment for the new home;

69
Q

What is a Construction Loan?

A

Compromised of 2 phases/loans: construction phase & completion
>During construction phase, an INTERIM LOAN used to pay for the construction of buildings/homes. Interim financing = short-term financing
>Upon completion of the construction, borrower must obtain permanent financing/pay the construction loan in full. The PERMANENT LOAN that pays off a construction loan is a “takeout” loan

70
Q

What are 3 govt-related loans?

A

1) FHA: Federal Housing Admin
2) DVA: Dept of Veterans Affairs
3) USDA: United States Department of Agriculture

71
Q

What is the difference between an FHA loan vs. DVA & USDA loans

A

FHA loans INSURE lenders in the event of a borrower default
DVA & USDA provide a GUARANTEE to lenders in the event of a borrower default

72
Q

What is a FHA loan and part of what dept?

A

Federal Housing Admin, agency of the HUD (Dept of Housing & Urban Develop.) that insures private mtg lenders against the possibility of borrowers defaulting on a certain mtg loan
It does NOT make, buy, or sells loans. it INSURES loans

73
Q

What is the common misconception of a FHA loan?

A

That they are targeted to low-income borrowers/first-time homebuyers.
They actually do NOT have income limits to determine who is eligible
It sets a MAX mtg amount that it will insure

74
Q

What is an advantage of a FHA loan?

A

Includes LOW down payments & NO prepayment penalties

75
Q

What is the down payment in FHA loans?

A

Requires borrower to invest in the loan transaction by making a 3.5% down payment based on sales price or appraisal (whichever is less). 580 or higher
10% (500-579)
The entire down payment can be a gift (SELLER CANNOT GIVE THIS)

76
Q

What is an eligible property for a FHA loan?

A

Property must be 1-4 unit OWNER OCCUPIED residence

77
Q

What is a FHA Occupancy?

A

Borrower must occupy the property w/in 60 days after closing & plan to occupy the property for @ least 1 year

78
Q

What is a FHA Qualifying Ratios? What are the other qualifications?

A

31/43
Sales concessions (closing cost) are limited to 6% of the sales price
3.5% down payment (need CR score of 580 or above), If score less than 10% down, but under 500 CR then do not qualify
Max late charge is 4% of P&I only
Max allowable term on FHA/VA loans is 30 years
Lenders set the interest rates, NOT the FHA/HUD
COURT-ORDERED JUDGEMENTS must be paid off before an FHA loan can close
They can not default on a student loan/delinquent/in default on any other type of federal debt. They would NOT qualify.

79
Q

What does the UW use to determine whether the borrower has ever failed to repay their federal debts for a FHA loan?

A

Credit Alert Verification Reporting System (CAVRS). It is a database created by the fed govt

80
Q

What is the FHA TOTAL Mortgage Scorecard? Who was it developed by?

A

The Tech Open to Approved Lenders (TOTAL) Mortgage Scorecard; dev by HUD to evaluate the credit risk of FHA loans. It evaluates the OVERALL creditworthiness of the application. It evalutes:
1) Credit Score
2) Monthly Housing Expense
3) # of monthly payments in reserve
4) LTV ratio
5) Loan Term

81
Q

What are the property conditions that need to met for a FHA loan?

A

1) Must be free of health & safety hazards (correct physical, structural integrity as well)
2) LENDERS determine which repairs must be made to be eligible for financing

82
Q

Typical conditions that would require further inspection or testing by qualified individuals or entities include for an FHA loan

A

• Infestation/evidence of termites
• Inoperative or inadequate plumbing, heating, or electrical systems
• Leaking or worn-out roofs
• Cracked masonry or foundation damage
• Drainage problems

83
Q

What are the 5 “Cs of Underwriting” for a FHA loan

A

1) Credit
2) Capacity: borrower’s ability to repay the debt based on suff. income
3) Cash: borrower’s ability to make the required down payment, pay for closing cost, required reserves, etc
4) Collateral: property being mortgaged as security for the loan
5) Character: willingness to repay the debt (different than the ability)

84
Q

What does MIP stand for? Required for what type of loans? How is the monthly MIP calculated?

A

Mortgage Insurance Premium; Required for ALL FHA loans, regardless of the down payment.
It protects the lender against default by the borrower for the life of the loan
It also requires an initial premium called the UPFRONT MORTGAGE INSURANCE PREMIUM (UFMIP)
>Monthly MIP calculated by multiplying the base loan amt by a factor then divide by 12
>It can automatically be cancelled when LTV reached 78% of the original value
>Financed MIP cannot be cancelled

85
Q

How is the UFMIP calculated on a FHA loan? Who it can it be paid by & how?

A

Upfront Mtg Insurance Premium; calculated by multiplying the loan amt by a factor and then collecting that amt at closing
> Can be paid by the borrower/seller
> FHA UFMIP is currently 1.75%
> For a 15 or 30 yr loan, UFMIP is paid in cash @ closing and must be paid ALL in cash OR must be financed

86
Q

What is a VA Guaranteed Loan?

A

guaranteed by the federal govt through the Veterans Benefits Administration, which is part of the Department of Veterans Affairs (DVA)
>helps meet the housing needs of eligible veterans
>available to eligible veterans for the purchase of owner-occupied single-family homes & for multi-family dwellings up to 4 units if the veteran intends to occupy 1 of the units as the primary residence
>DVA does NOT make loans, it provides a GUARANTEE for a specific portion of the loan amount made by APPROVED LENDERS
>no down payment and no prepayment penalty
>Lender sets the interest rate, dc points, & closing cost

87
Q

What is the max guarantee on a VA Loan?

A

Max guarantee is 25% of the purchase price/sales value

88
Q

What are the 2 documents needed for VA Eligibility?

A

1) COE - Cert of Eligibility, determinations of eligibility are based on the length of service and are issued - also can determine the AMOUNT
2) DD214 - Discharge paperwork for those who have been discharged or NGB22/23 (General Orders) or Statement of service

89
Q

What are the qualifications for a VA Loan? Occupancy?

A

1) DTI ratio - PITI plus all other debt must be no more than 41% of their gross monthly income
2) Residual Income - Sufficient residual income remaining for FAMILY SUPPORT, after you pay your mortgage how much $ do you have left to support fam
>Occupancy: must occupy the property w/in 60 days after closing & plan to occupy for @ least 1 year
>No mortgage insurance instead a one-time non-refundable variable funding fee. Usually 2.3% of the purchase price of the home. Can be waived for veterans with disabilities/surviving spouses
>Lender can charge up to 1% of the loan amount to cover cost. If doesn’t close, lender must refund the 1% flat fee

90
Q

How do you determine the reasonable value of the property for a VA Loan?

A

Through a DVA APPRAISAL, AKA a Certificate of Reasonable Value (CRV) or Notice of Reasonable Value (NOV)

91
Q

What is the seller concession in a VA Loan? What is the max term? Late fee?

A

Contain up to 4% seller concessions (seller closing cost), this is how much the seller can help
Max term is 30 years
Late fee is 4% of the monthly P&I

92
Q

If legally married, what can also be considered for qualification purposes for a VA loan?

A

Spouse’s income can be qualified, BUT non-married co-borrower is NOT allowed on a VA loan UNLESS he/she is an eligible veteran who will occupy the home
-2 eligible veterans MAY combine to qualify for a larger loan

93
Q

What is a Restoring Entitlement in a VA Loan?

A

It is possible for a veteran to use some entitlement on a previous purchase & have partial entitlement available for another purchase if:
> The property, securing the VA loan, has been SOLD AND that the loan has been PIF
> An eligible veteran (not disabled/dishonored) has agreed to ASSUME the outstanding bal on a VA loan & substitute his entitlement for the same amt originally used on the loan (they are ASSUMABLE - another veteran is willing)

94
Q

What is a Veterans Entitlement Amount?

A

An entitlement is the max amt that the VA will “guarantee” on behalf of a Veteran
Veterans entitlement is based on 25% of the purchase price (or appraised value) or of the County Limit up to a max of $161,800
If entitlement is insufficient, a cash down payment may be allowed for the balance
Example: home selling for $350,000 - max amt the VA will guarantee is 87,500 (25% x $350,000), cannot exceed LTV 100%

95
Q

SCENARIO: Veteran Maria wants to buy a house for $410,000. She has already used $27,500 of her entitlement on a prior loan, which has not been restored.

A

If Maria wants to buy this house, she must convince the seller to lower the price, restore some of her entitlement, or make a down payment of $2,400.00.
$127,600 - $27,500 = $100,100 available entitlement
$410,000 Purchase Price x 0.25 = $102,500 guarantee required - $100,100 available entitlement = $2,400 down payment

96
Q

What is a USDA Guaranteed Loan? AKA? What are its qualifications?

A

Referred to as a Section 502 loan. It is a govt insured 100% purchase loan for properties in rural areas/farming properties:
1) Rural = small towns up to 35,000 ppl
2) No prepayment penalty
3) Late fee is 4% of the monthly P&I
4) Requires USDA Mortgage Insurance which is paid via 2 fees: a) upfront guarantee fee = 1% of the loan amt AND b) annual fee = 0.35% x loan amt
5) Debt Ratios: 29/41
6) Applicants must meet income requirements based on the AMI (Area Median Income) - Max 115% of the AMI

97
Q

Assumable

A

FHA loans are assumable meaning a new buyer may take over the payments of the existing mortgage holder, subject to approval of the loan servicer & HUD credit guidelines.

98
Q

Novation

A

Process of releasing the OG borrower & substituting the new mortgagor

99
Q

Anti-flipping on FHA loans

A

Buyer cannot buy from seller if they have purchased WITHIN the last 90 days & are reselling it. If they do buy then this is called a “flip”

100
Q

Where does the $ come from for USDA loans?

A

US DEPARTMENT OF Agriculture

101
Q

Flood Zones - high risk, moderate, low

A

High-Risk: Zones A & V (insurance is mandatory for the life of the loan)
Moderate: Zone B or X (optional)

102
Q

What’s the max and min for flood insurance amts

A

Min: 100K
Max: 250K

103
Q

subprime loans

A

riskiest and are associated with poor credit scores.

104
Q

Amortization

A

the process of fully paying off a loan in regular payments over a specified period. The portion of each monthly payment that goes to reduce the outstanding principal balance gradually increases with each payment throughout the life of the loan, and the portion used to pay interest gradually decreases each month.
Payments applied to principal and interest.

105
Q

Term Mortgage

A

A non-amortizing interest-only loan. The balance is due at the end of the term in a balloon payment.

106
Q

Wraparound Mortgage

A

A type of seller financing in which the seller finances enough money to cover the existing loan balance as well as any additional funds needed by the borrower.

107
Q

Seller-carry back loan

A

A purchase money mortgage or seller-held mortgage is given by the buyer to a seller to secure part or all of the money borrowed to purchase the property. A seller may take part of the purchase price as a mortgage to help the sale.

A seller acts as a mortgage or lender on the property collecting monthly payments from the borrower

108
Q

deficiency judgment

A

allows the lender to claim other assets from the borrower when the proceeds of the foreclosure sale are insufficient to satisfy the mortgage lien.

109
Q

due-on-sale clause

A

provision that requires the borrower to repay the lender in full upon the sale or conveyance of a partial or full interest in the property that secures the mortgage. Mortgages with a due-on-sale clause are not assumable by the property’s new buyer

requires that the loan balance is paid off when the title is transferred.

110
Q

reconveyance deed

A

title has been transferred from the lender to the borrower when the loan has been paid.

a method used to transfer title for a property following full repayment of a loan.

111
Q

exculpatory clause

A

prevents the lender from requesting a deficiency judgment against the borrower when the proceeds of the foreclosure are insufficient to pay off the mortgage lien.

112
Q

easement

A

a right of way that gives someone other than the property owner the right to be on the land for a specific purpose.

A formal right granted to another party allowing them to traverse or access a given property. Utility companies are often granted easements to
access a property to maintain their infrastructure, such as electrical wires or cell phone towers. When recorded on the title of a property, an easement will remain permanently and will survive any transfer of title of that property.

113
Q

Hypothecation

A

pledge property as collateral for loan while maintaining possession.
When you purchase a house or car, you hypothecate it. You use it as collateral but keep possession of it.

114
Q

Securitization

A

Process of pooling together similar types of loans to create mtg-backed securities

Example: Fannie Mae to pool its mtgs and convert them into investment vehicles

115
Q

Warranty deed

A

Conveys full ownership of land and is commonly used in purchase & sales transactions of real estate. In addition to conveying property ownership, a warranty deed contains the promise of clear title, meaning the property is free of encumbrances

protects the buyer and ensures that the seller holds a free and clear title to a property without any outstanding liens or mortgage

116
Q

APR - what’s included

A

Fees that relate to the actual mtg

117
Q

APR - what’s not included

A

Think TENACTS
T-Title Insurance
E - Escrow
N- Notary
A - Appraisal
C -CR
T -Termite Inspection
S - Seller Credits

118
Q

203B Loan

A

FHA Fixed Rate Loan, Think “basic”

119
Q

203K Loan

A

Rehab Loan, Think thousands of dollar loan to rehab

120
Q

203G Loan

A

Special loan for teachers, fireman, and police. Think “Good neighbor”

121
Q

lis pendens

A

a notice filed by the lender when it initiates a foreclosure lawsuit

122
Q

what are the 3 common disbursement plans in a construction mtg

A

Voucher
Fixed
Warrants

123
Q

deficiency judgement

A

allows lender to claim other assets from the borrower when the proceeds of the foreclosure sale are insufficient to satisfy the mtg lien

124
Q

FHA reverse mtg

A

HECM

125
Q

Risk Layering

A

Combining or layering, high-risk loan features, which might include an interest-only or other non-conventional loan, reduced doc, & a simultaneous second-lien loan

126
Q

What is NOT a factor when calculating the VA funding fee?

A

of discount points charged

127
Q

contigent liability

A

a liability that may be incurred as the result of a future action.
Ex) A mtg transaction is the debt that is produced when a person has co-signed for another person’s debt (like a student loan) but the actual payments are being made by the other person (known as the primary obligor). Such liabilities do NOT have to be taken place into consideration when calculating the borrower’s DTI.

128
Q

Defeasance Clause

A

A portion of a lending agrmt that requires the lender to execute a release of lien/satisfaction of mtg doc upon full payment of debt

mortgage provides for the borrower to receive the title to the property once the mortgage has been paid off in full.

129
Q

encroachment

A

a fixture, such as a fence, that crosses the boundary line of one property onto another. It can create adverse possession issues & a cloud on the property’s title
*think of a cockroach swooping in the boundary line

130
Q

Equitable right of redemption

A

the ability to avoid a foreclosure prior to, or at the time of, a judicial sale of a property

131
Q

Equity Stripping

A

A practice whereby the applicant’s equity is taken away by a mtg lender. It can be viewed as predatory lending.

132
Q

Fiduciary relationship

A

A relationship bwn a financial pro, such as MLO, and the consumers they are doing business with

133
Q

Yield Spread Premium

A

An amt paid by an investor to a lender or mtg broker at closing to compensate the LO for making a loan at an interest rate that is higher tahn the interest rate that the investor would have accepted for that loan. This was made illegal under the Dodd-Frank Act & MLO Comp rule.

134
Q

Encumbrance

A

A claim against an asset by an entity that is not the owner. A common encumbrance against real property include liens, easements, leases, mtgs., etc.

A claim against the property that is not the owner

135
Q

Escheat

A

Process of transferring assets to the state. Example: when a property owner dies w/o a will and the state is unable to locate any heirs the state will claim the property

136
Q

Eminent Domain

A

Condemnation of private property for public good Right of a local, state, or fed govt to acquire property deemed need for public good

137
Q

A borrower must qualify based on what for interest rate buydowns for a FHA loan?

A

Based on the note rate

138
Q

Real property vs personal property

A

Real property is immovable. It includes the land, everything that is permanently attached to it, and the rights that “run with” the land

Personal property is movable. It is defined as everything that is not real property like clothes, furniture, cars, boats ,etc.

139
Q

What is the 2022 max loan limit for reverse?

A

$970,800

140
Q

What are 2 disclosures for a reverse?

A

GFE & HUD

141
Q

What are the factors that determine the qualification of a reverse?

A

V - VALUE of property
I - expected INTEREST
A - AGE of youngest borrower

142
Q

Examples of non conforming loans

A

Alt-A loan
Subprime loan
Jumbo loan
Cannot be sold to secondary market

143
Q

What is a variable balance mortgage

A

Adjust the interest but payments don’t change

144
Q

What is a growing equity mortgage?

A

A FHA loan that has a fixed rate mortgage set up like a 30 year conventional with
payments that increase regularly has a fixed interest rate so loan balance is paid more quickly

145
Q

Is FHA loans assumable?

A

Yes it does not have a due on sale clause

146
Q

What act says that the mortgage broker cannot choose an appraiser on their own?

A

Dodd Frank Act

147
Q

Problems with asset-based loans from lenders

A

It only considers the value of the asset - not the borrower’s ability to repay the loan

148
Q

Chattel mortgage

A

Another term used in real estate for personal property

149
Q

What is true of the maximum FHA loan amount?

A

It cannot exceed the limit set for the geographic area in which the property is located

150
Q

What 2 things does the underwriter examine to determine if lender guidelines are met?

A

APPLICANT & COLLATERAL

151
Q

What are some personal info that a borrower is asked to provide VOLUNTARILY on the loan app?

A

Race, ethnicity & sex

152
Q

Prepayment penalty can be found where?

A

Servicing agreement & promissary note

153
Q

Statement on Subprime Statement

A

> Making loans based predominantly ON THE FORECLOSURE OR LIQUIDATION VALUE rather than ATP
REPEATEDLY REFINANCE “loan flipping”
FRAUD/DECEPTION concealing the true nature of MLO product from borrower

NMLS (5 decks)

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