Mortgage Products - Chapter 2 Flashcards
What is a fixed rate mortgage?
It is a mortgage with a fixed interest rate over the entire term of the loan.
When can a payment on a fixed rate mortgage change?
If taxes/insurance increase (if the borrower is escrowing) or mortgage insurance is removed.
What is a non-traditional mortgage?
Anything other than a 30 year fixed rate mortgage
What is an adjustable rate mortgage?
Also referred to as a variable rate mortgage. Mortgage loan where the interest rate periodically adjusts.
What are the two parts that make up the rate on an ARM?
The index and the margin
What are the three types of interest rate caps on an ARM?
First adjustment cap, subsequent adjustment cap, lifetime adjustment cap.
3/1, 5/1, 7/1, 10/1 are all types of what ARM?
Hybrid Arm - fixed for a portion, adjust every year after the fixed portion.
What is an interest only ARM?
A payment plan that allows the borrower to only pay the interest on their loan for a specified number of years.
Interest Only, minimum payment (that may be less than the interest due), and a combined PMT are all examples of what kind of ARM?
Payment Option ARM
What is the difference between a construction loan and a construction permanent loan?
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.
What is a bridge loan secured to and when is it paid off?
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.
What is a graduated payment mortgage?
A negative am product where the payment gradually increases over a specified time frame. Typically smaller payments up front.
What is a HELOC?
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.
True/False - A balloon mortgage requires a larger than usual one time payment at the end of the term.
True
What is the DTI limitation for manually underwritten Conventional Loans?
28/36 - but can go up to 45% if borrower meets certain circumstances
What is the difference between chapter 7 and chapter 13 BK?
Chapter 7 is complete liquidation and chapter 13 provides for the debtor to pay back their lenders through a payment plan.
When is private mortgage insurance required?
When the LTV is over 80%
What does the Homeowner’s Protection Act of 1999 do?
- automatically cancel mortgage insurance if balance drops to 78%
- borrower can cancel MI if borrower has at least 20% (this is at the option of the lender)
What is the DTI limitation for FHA loans?
31/43
What is the UFMIP for FHA loans?
1.75%
What are some factors that determine the MIP on an FHA loan?
Loan term, LTV, loan amount.
What are some basics of a HECM?
- borrower must be 62
- principal residence
- negative amortization
- no escrows for taxes and insurance
How is a HECM different from a traditional mortgage?
Traditional mortgage you are building equity and lowering debt. HECM, you are losing equity and gaining debt.
True/False - surviving heirs will never have to pay more than 85% of the appraised value to cover the repayment of a HECM?
FALSE - they will not have to pay more than 95% of the appraised value. The remaining balances is covered by the mortgage insurance.
How is the principal limit determined on a HECM?
it’s determined by age, interest rate, and equity in the property.
What is the max DTI for a VA loan?
41% w/ residual income
True/False - a VA loan are loans specifically for veterans and surviving spouses.
True
True/False - VA loans can only be used on investment properties?
False - VA loans can only be used on primary residences.
What is the max DTI on a RD loan?
29/41
True/False - RD loans are available for borrower’s in rural areas.
True
What is a jumbo loan?
A loan that exceeds the Fannie/Freddie loan limits. They are conventional, but non-conforming.
NINA, SISA, SIFA, NO DOC and LOW DOC are all examples of what?
Sub Prime / Non-QM mortgages
What is Payment Shock?
It’s when a borrower’s housing payment increases suddenly. Usually happens when the interest rate is variable.
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.
The Qualified Mortgage (QM)
What is the main purpose of ATR (Ability to Repay)?
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.
What section of TILA are HOEPA Loans?
Section 32
What is HOEPA?
Homeownership and Equity protection Act (High cost home loans)
What kinds of loans are exempt from HOEPA transactions?
Reverse mortgages construction loans originated and financed by a HFA originated by USDA Direct 502 investment properties second homes
True/False - The borrower must undergo homeownership counseling when doing a HOEPA loan.
TRUE
What section of TILA is HPML?
Section 35
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.
FALSE
What are the three tests for HOEPA?
APR
Points and Fees
Prepayment penalty
If a loan is a HPML, how long must the lender escrow?
60 months
What is the APR threshold for HPMLs?
- 5% for first liens
3. 5% for second liens
