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NMLS > Mortgage Products - Chapter 2 > Flashcards

Mortgage Products - Chapter 2 Flashcards

1
Q

What is a fixed rate mortgage?

A

It is a mortgage with a fixed interest rate over the entire term of the loan.

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2
Q

When can a payment on a fixed rate mortgage change?

A

If taxes/insurance increase (if the borrower is escrowing) or mortgage insurance is removed.

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3
Q

What is a non-traditional mortgage?

A

Anything other than a 30 year fixed rate mortgage

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4
Q

What is an adjustable rate mortgage?

A

Also referred to as a variable rate mortgage. Mortgage loan where the interest rate periodically adjusts.

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5
Q

What are the two parts that make up the rate on an ARM?

A

The index and the margin

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6
Q

What are the three types of interest rate caps on an ARM?

A

First adjustment cap, subsequent adjustment cap, lifetime adjustment cap.

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7
Q

3/1, 5/1, 7/1, 10/1 are all types of what ARM?

A

Hybrid Arm - fixed for a portion, adjust every year after the fixed portion.

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8
Q

What is an interest only ARM?

A

A payment plan that allows the borrower to only pay the interest on their loan for a specified number of years.

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9
Q

Interest Only, minimum payment (that may be less than the interest due), and a combined PMT are all examples of what kind of ARM?

A

Payment Option ARM

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10
Q

What is the difference between a construction loan and a construction permanent loan?

A

A construction loan is a loan with higher interest rates used to construct the property. These are usually refinanced at the end of construction. Most of the time they are interest only loans. A construction permanent loan is where the borrower obtains one loan. These are typically interest only during construction and then fully amortizing after completion of construction.

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11
Q

What is a bridge loan secured to and when is it paid off?

A

A bridge loan is secured to the borrower’s current primary house and is used to fund the purchase of a new house. it is paid off when the current primary residence sells.

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12
Q

What is a graduated payment mortgage?

A

A negative am product where the payment gradually increases over a specified time frame. Typically smaller payments up front.

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13
Q

What is a HELOC?

A

Home Equity Line of Credit - allows the borrower to take multiple advances of the loan proceeds up to an amount that represents a specified percentage of the borrower’s equity in the property.

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14
Q

True/False - A balloon mortgage requires a larger than usual one time payment at the end of the term.

A

True

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15
Q

What is the DTI limitation for manually underwritten Conventional Loans?

A

28/36 - but can go up to 45% if borrower meets certain circumstances

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16
Q

What is the difference between chapter 7 and chapter 13 BK?

A

Chapter 7 is complete liquidation and chapter 13 provides for the debtor to pay back their lenders through a payment plan.

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17
Q

When is private mortgage insurance required?

A

When the LTV is over 80%

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18
Q

What does the Homeowner’s Protection Act of 1999 do?

A
  1. automatically cancel mortgage insurance if balance drops to 78%
  2. borrower can cancel MI if borrower has at least 20% (this is at the option of the lender)
19
Q

What is the DTI limitation for FHA loans?

A

31/43

20
Q

What is the UFMIP for FHA loans?

A

1.75%

21
Q

What are some factors that determine the MIP on an FHA loan?

A

Loan term, LTV, loan amount.

22
Q

What are some basics of a HECM?

A
  1. borrower must be 62
  2. principal residence
  3. negative amortization
  4. no escrows for taxes and insurance
23
Q

How is a HECM different from a traditional mortgage?

A

Traditional mortgage you are building equity and lowering debt. HECM, you are losing equity and gaining debt.

24
Q

True/False - surviving heirs will never have to pay more than 85% of the appraised value to cover the repayment of a HECM?

A

FALSE - they will not have to pay more than 95% of the appraised value. The remaining balances is covered by the mortgage insurance.

25
Q

How is the principal limit determined on a HECM?

A

it’s determined by age, interest rate, and equity in the property.

26
Q

What is the max DTI for a VA loan?

A

41% w/ residual income

27
Q

True/False - a VA loan are loans specifically for veterans and surviving spouses.

A

True

28
Q

True/False - VA loans can only be used on investment properties?

A

False - VA loans can only be used on primary residences.

29
Q

What is the max DTI on a RD loan?

A

29/41

30
Q

True/False - RD loans are available for borrower’s in rural areas.

A

True

31
Q

What is a jumbo loan?

A

A loan that exceeds the Fannie/Freddie loan limits. They are conventional, but non-conforming.

32
Q

NINA, SISA, SIFA, NO DOC and LOW DOC are all examples of what?

A

Sub Prime / Non-QM mortgages

33
Q

What is Payment Shock?

A

It’s when a borrower’s housing payment increases suddenly. Usually happens when the interest rate is variable.

34
Q

This is a section of TILA that went into effect in 2014. It’s mandated by Dodd-Frank and enforced by the CFPB. This also works hand in hand with Ability to Repay.

A

The Qualified Mortgage (QM)

35
Q

What is the main purpose of ATR (Ability to Repay)?

A

The purpose is to remedy the loose underwriting practices and it requires entities to determine whether the consumer can repay their loan. There are 8 factors in determining ATR.

36
Q

What section of TILA are HOEPA Loans?

A

Section 32

37
Q

What is HOEPA?

A

Homeownership and Equity protection Act (High cost home loans)

38
Q

What kinds of loans are exempt from HOEPA transactions?

A 
Reverse mortgages
construction loans
originated and financed by a HFA
originated by  USDA Direct 502
investment properties
second homes
39
Q

True/False - The borrower must undergo homeownership counseling when doing a HOEPA loan.

A

TRUE

40
Q

What section of TILA is HPML?

A

Section 35

41
Q

True/False - You can have a safe harbor loan if there is negative Amortization, interest only payments, or the term is longer than 30 years.

A

FALSE

42
Q

What are the three tests for HOEPA?

A

APR
Points and Fees
Prepayment penalty

43
Q

If a loan is a HPML, how long must the lender escrow?

A

60 months

44
Q

What is the APR threshold for HPMLs?

A
  1. 5% for first liens

3. 5% for second liens

NMLS (10 decks)

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