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Mortgage Underwriting > Mortgage Underwriter 101 > Flashcards

Mortgage Underwriter 101 Flashcards

1
Q

Mortgage

A

A written contract, including a note and title evidence, between the mortgagor (borrower) and mortgagee (lender) that requires the mortgagor to pledge their home as security for repayment of a loan

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2
Q

First Mortgage

A

The mortgage that is first in line for repayment from the sale or foreclosure of the secured property

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3
Q

Subordinate liens

A

any additional liens that are paid after the first mortgage is satisfied

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4
Q

Second Mortgage

A

(AKA closed-end): a subordinate lien with an initial balance that is paid off over the loan term, similar to an installment loan

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5
Q

Home Equity Line of Credit

A

(AKA HELOC): is a subordinate lien that is a line of credit. The borrower may take “draws” on the line similar to a credit card

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6
Q

Borrower / Co-borrower

A

The individual(s) who will become obligated on the mortgage note once the closing documents have been executed

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7
Q

Buyer / Seller

A

The buyer is the party that is purchasing the home indicated in the sales contract. The seller is selling the home to the buyer and must be the vested owner(s) of the property on the title commitment

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8
Q

Credit Risk

A

The inherent risk in lending based on borrower’s previous credit performance, debt-to-income ratio, LTV, marketability of collateral, and other factors

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9
Q

Credit Score

A

The borrower’s credit scores (aka FICO scores) as verified with a tri-merge credit report

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10
Q

Tri-merge Credit Report

A

Lists credit history and tradeline information from the three major credit bureaus: Experian, Equifax, and Transunion

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11
Q

Loan-to-Value

A

The relationship between the first mortgage loan amount and the lower of the appraised value or purchase price of the subject property as expressed in a percentage

LTV = First Loan Amount / Appraised Value or Purchase Price (Lower of the two)

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12
Q

Combined-Loan-to-Value

A

The relationship between the first mortgage loan amount plus the outstanding balance on all subordinate financing and the lower of the appraised value or purchase price of the subject property as expressed in a percentage

CLTV = (First loan amount + Second Loan Balance) / Appraised Value or Purchase Price (Lower of the two)

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13
Q

High Combined Loan-to-Value

A

the relationship between the first mortgage loan amount plus the credit limit on a HELOC and the lower of the appraised value or purchase price of the subject property as expressed in a percentage

HCLTV = (First Loan Amount + Total Credit Limit of HELOC) / Appraised Value or Purchase Price (Lower of the two)

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14
Q

PITIA

A 
Principal, 
Interest, 
Taxes, 
Homeowners Insurance, Mortgage Insurance,
Homeowners Association Dues
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15
Q

Housing DTI Ratio

A

(AKA Front End) PITIA / Total Qualifying Income

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16
Q

Total DTI Ratio

A

(AKA Back End) Total Debts including PITIA, installment loans, revolving accounts, child support obligations, and student loans / Total Qualifying Income

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17
Q

Purchase

A

Transactions allow a borrower to obtain funds for the acquisition of a new property

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18
Q

Purchase Agreement

A

a contract between the seller and the buyer that outlines the terms of the purchase including: Property Address, Parties to the Contract, Sales Price, Deposit on Contract (Earnest Money), Sellers contribution to the buyer’s closing costs, expected date of sale or contract expiration date, any required repairs prior to close of sale

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19
Q

Down Payment

A

Difference between the purchase price and the new loan amount

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20
Q

Closing Costs & Pre-paids

A

The costs incurred to close on a real estate transaction and/or establish an escrow account

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21
Q

Cash to Close

A

Cash that is due from the borrower required to meet the down payment on a purchase, fully payoff an existing lien on a refinance, pre-paids, and closing costs

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22
Q

Escrow Account

A

A deposit account maintained by the lender and funded by the borrower. The account is used to disburse property tax and homeowners’ insurance payments

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23
Q

Lender Credit

A

A promotional or other credit from the lender to the borrower that is listed on the closing disclosure and details of transaction

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24
Q

Interested Party Contributions

A

(AKA IPC’s) A credit given to the borrower from the seller or other parties to the purchase transaction (i.e. realtors) to help meet the required closing costs

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25
Q

Seller Concessions

A

IPCs that take the form of non-realty items. They include cash, furniture, automobiles, decorator allowances, moving costs, and other giveaways, as well as financing concessions that exceed agency/program limits

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26
Q

Earnest Money Deposit (EMD)

A

Funds that are given to the sellers’ Realtor or Attorney from the buyer at the time of the sales contract as a down payment. This is credited back to the borrower on the closing disclosure and details of transaction. The EMD ends up being given to the Title company for the closing

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27
Q

Refinance

A

a transaction which places a new mortgage on a property the borrower already owns. If there is an existing mortgage on the property, it will be paid off in the transaction or resubordinated

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28
Q

Rate and term refi

A

(AKA limited cash out refi LCOR) pays off an existing loan to reduce the interest rate, alter the amortization, or change the loan term

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29
Q

Cash-out refi

A

Takes equity out of the home for cash, debt payoff, or the pay-off of a non- purchase money second

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30
Q

Payoff Statement

A

a statement from the existing mortgage company to disclose the amount required to pay the mortgage or loan in full

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31
Q

Conventional

A

Loans underwritten to Fannie Mae and Freddie Mac guidelines. A loan is Conforming when the loan amount meets Fannie/Freddie loan amount limits for the subject property’s county

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32
Q

Private Mortgage Insurance

A

Insurance that protects the lender when the borrower defaults on their loan. This is placed on Conventional loans with LTV’s exceeding 80%

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33
Q

USDA Rural Housing Development

A

A government mortgage insurance program targeting borrowers seeking homeownership in designated rural areas within certain household income limitations

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34
Q

FHA

A

A government mortgage insurance program that allows borrowers to achieve homeownership with lower down payments and less stringent credit guides than conventional

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35
Q

VA

A

A government mortgage insurance program for veterans of the U.S. Armed Forces

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36
Q

Loan Officer

A

Original point of contact for the borrower. Originates the loan and issues the initial disclosure package to the borrower

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37
Q

Loan Processor

A

Coordinates with the Loan Officer and borrower to obtain the required documentation to meet the program guidelines

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38
Q

Mortgage Underwriter

A

Reviews the loan documentation and determines whether the loan meets program guidelines and is an acceptable risk. Issues the loan decision

39
Q

Loan Closer

A

Coordinates with the title company to schedule the loan closing. Drafts the Closing Disclosure and final package for signing at the closing table

40
Q

Broker

A

Originates a loan to submit to lenders for underwriting. The loan is pledged to an investor and closes in that investors name

41
Q

Correspondent

A

The lender closes the loan in their name using the correspondent’s line of credit. The loan is sold to a specific investor/lender after funding.

42
Q

Lender/Seller

A

Underwrites and closes the loan in their name and services the loan initially. May sell the loan to an investor on the secondary mortgage market at a later date

43
Q

4 C’s of Underwriting

A

Credit, Capacity, Cash, Collateral

44
Q

Credit History

A

a review of the borrower’s credit performance through analysis of the borrower’s credit score, payment histories, revolving account usage, and credit inquiries

45
Q

Capacity to Repay

A

an evaluation of the borrower’s ability to repay the mortgage through calculation of the qualifying debt ratio

46
Q

Funds (assets) to Close

A

verification of the borrower’s ability to provide the required cash to consummate the transaction and/or provide proof of reserves

47
Q

Subject Property

A

evaluation of the market value of the property the subject property as verified with the appraisal report

48
Q

Underwriter Duties

A

Evaluate the 4 C’s of Underwriting and credit risk of each loan file, Determine whether the loan file meets product and program guidelines, Identify any red flags or fraudulent activity, Issue the loan decision (Conditional Approval, Suspense, Denial, and/or Clear to Close), Meet production expectations for reviews of new loans and clearing conditions

49
Q

Loan quality

A

the accuracy of the verified data within the underwriting decision compared to the data reflected in the documentation provided by the borrower

50
Q

Underwriter Skill Sets

A

Research product and program guidelines, identify adverse credit events, calculate all income types, evaluate assets, review appraisal reports, verify data integrity across automated systems

51
Q

Underwriting Authority

A

the credit decision authorization granted to the Underwriter by their employer

52
Q

Three Forms of Underwriting designations

A

Training Program Certifications, FHA Direct Endorsement, VA Credit Underwriter & VA LAPP SAR

53
Q

Training Program Certifications

A

Obtained once training program and exams are completed

54
Q

FHA Direct Endorsement

A
  • Obtained once on-the-job and FHA training courses are completed
  • Requires the completion of test cases and sponsorship from employer
55
Q

A Credit Underwriter & VA LAPP SAR

A
  • Obtained once on-the-job and VA training courses are completed
  • Requires the completion of test cases and sponsorship from employer
56
Q

Underwriter Authority can be withdrawn if the underwriter’s decisions lead to

A

unsaleable loans or early payment defaults

57
Q

Manual underwriting is usually reserved for borrowers

with

A

limited or no credit, Chapter 13 bankruptcies, or inaccurate data reported on their credit profile

58
Q

Credit Risk Factors

A

Credit History, Delinquencies, Mortgage Accounts and Foreclosures, Revolving Credit Utilization, Public Records, Collections, Credit Inquiries

59
Q

Eligibility Factors

A

LTV/CLTV/HCLTV, Liquid Reserves, Loan Purpose, Loan Term and Amortization, Total Expense Ratio, Property Type, Co-Borrowers

60
Q

DU: Approve

A

indicates the loan satisfies Fannie Mae’s credit risk standards

61
Q

DU: Eligible

A

indicates the loan satisfies Fannie Mae’s loan eligibility criteria

62
Q

DU: Refer/Eligible

A

indicates the loan is eligible for Manual Underwriting BUT must be Underwritten by a certified underwriter to address the “refer” reason

63
Q

DU: Ineligible

A

indicates the loan does not satisfy Fannie Mae’s loan eligibility criteria

64
Q

DU: Refer w/ Caution

A

indicates the loan does not meet credit risk or loan eligibility standards and is ineligible for delivery to Fannie Mae

65
Q

DU: Out of Scope

A

indicates DU is unable to underwrite the loan file as submitted (Something was entered incorrectly)

66
Q

LPA: Accept

A

indicates the loan satisfies Freddie Mac’s credit risk standards

67
Q

LPA: Streamlined Accept

A

allows for reduced documentation to meet Freddie Mac’s eligibility requirements

68
Q

LPA: Standard

A

the most comprehensive level of documentation to meet Freddie Mac’s eligibility requirements. Standard documentation is required for higher risk loans

69
Q

LPA: Caution

A

indicates the loan is unlikely to meet Freddie Mac’s eligibility requirements due to excessive layered risks (Manual Underwriting is needed)

70
Q

LPA: Ineligible, Incomplete, Invalid

A

LP is unable to underwrite the loan as submitted

71
Q

Data Integrity

A

This refers to the accuracy of the data input into the AUS. If data input is inaccurate, the feedback messaging will be incorrect and the recommendation is invalid (Garbage in, Garbage Out)

72
Q

AUS Limitations

A

The only document the AUS can “read” is the credit report. The validation of all other loan documentation
is the underwriter’s responsibility

73
Q

The Uniform Residential Loan Application

A

(URLA) Form 1003: the document which summarizes the terms of the loan
• It lists the borrower’s credit, income, and asset profile.

74
Q

Uniform Underwriting Transmittal Summary

A

Form 1008: summarizes the loan characteristics that determined the loan decision
• The property type, appraised value, loan product
and terms, and lien position
• PITIA, DTI, and LTV
• The risk assessment area discloses the type of
underwriting (manual or automated)
• The underwriter may use this form to provide a
detailed explanation of their review

75
Q

Sections of the Credit Report

A

Applicant Information, Credit Summary, Credit History, Public Records, Credit Inquiries, Fraud Alerts

76
Q

Credit Report: Applicant Information

A
  • Borrower name
  • Date of birth
  • Social Security number
  • Address history
  • Employment history
77
Q

Credit Report: Credit Summary

A
  • Tradeline mix

* Payment history

78
Q

Credit Report: Credit History

A
  • Individual tradeline payment history

* Includes a list of Collections and Charge-Offs

79
Q

Credit Report: Public Records

A
  • Bankruptcies Public Records

* Judgments

80
Q

Credit Report: Credit Inquiries

A

•A list of vendors who have pulled the Credit Inquiries borrower’s credit report with intentions of extending credit

81
Q

Credit Report: Fraud Alerts

A

•Alerts that must be Fraud Alerts reviewed and cured with procedures as defined by each lender

82
Q

Income is considered stable when the underwriter

can reasonably assume

A

at least three years’ continuance

83
Q

Calculate Fixed Hours Per Week

A

STEP 1: HOURLY WAGE X WEEKLY FIXED HOURS HOURS PER WEEK
STEP 2: WEEKLY WAGE X 52 WEEKS
STEP 3: ANNUAL SALARY / 12

HOURLY WAGE: $15.00 AVG HOURS PER WEEK: 40
STEP 1: $15.00 X 40 = $600.00
STEP 2: $600.00 X 52 = $31,200
STEP 3: $31,200 / 12 = $2,600 PER MONTH

84
Q

Calculate Varying Hours Per Week

A

PART I: TOTAL QUALIFYING MONTHS
STEP 1: # OF FULL MONTHS PASSED IN CURRENT YEAR STEP 2: # OF DAYS PASSED IN CURRENT MONTH / TOTAL # DAYS IN THE MONTH
STEP 3: ADD STEPS 1 & 2 TOGETHER VARYING
STEP 4: ADD AN ADDITIONAL 12 HOURS PER MONTHS FOR THE PREVIOUS TAX YEAR WEEK

PART II: YTD + LAST YEAR’S AVERAGE
STEP 5: ADD YTD EARNINGS TO THE TOTAL EARNINGS FROM THE PREVIOUS YEAR
STEP 6: DIVIDE THIS TOTAL BY THE NUMBER OF MONTHS IN STEP 4 (PART I)

PAY PERIOD ENDS ON APRIL 15TH YTD WAGE: $9,100 LAST YEAR W2 WAGE: $31,200
PART I
STEP 1: 3 FULL MONTHS (JANUARY – MARCH) STEP 2: CURRENT MONTH: 15 / 30 = .50 STEP 3: 3 + .50 = 3.50 MONTHS YEAR TO DATE STEP 4: 12 + 3.50 = 15.50 MONTHS

PART II
STEP 5: $9,100 + $31,200 = $40,300 STEP 6: $40,300 / 15.50 MONTHS = $2,600 PER MONTH

85
Q

Calculate Seasonal Income

A

STEP 1: USE THE VARYING HOURS PER WEEK CALCULATION TO CALCULATE THE EARNINGS FROM THE JOB
STEP 2: EXECUTE A 24 MONTH AVERAGE OF THE UNEMPLOYMENT WAGES LISTED ON PAGE 1 OF THE PERSONAL TAX RETURNS (FORM 1040) FOR THE LAST TWO YEARS

86
Q

WVOE

A

Written Verification of Employment: used to verify overtime, bonus, or commission earnings

87
Q

You can include Overtime, Bonus, and Commission Earnings if

A

verify a two year history of receipt at the current job and verify consistent or increasing earnings over the most recent two years

88
Q

Assets are used for two reasons in mortgage

lending transactions:

A
  1. To verify sufficient funds required to meet the cash-to-close.
  2. To verify sufficient funds to meet reserve requirements. Reserve requirements are also used as compensating factors when the loan has a high credit risk
89
Q

Large deposits must be

A

explained and sourced

90
Q

Asset statements can also be used as

supporting documentation when verifying

A

fixed income

91
Q

Gift Funds

A

funds that are given to the borrower from an allowable

source

92
Q

Gift funds must be verified with the following:

A
  1. A fully executed gift letter
  2. Proof of transfer of funds from the gift donor to the borrower OR the title company when funds are held in
    escrow
93
Q

Appraisal Report

A

a document used by mortgage lenders to determine the market value of the subject property

Mortgage Underwriting (1 decks)

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