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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
Seller Concessions
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
26
Earnest Money Deposit (EMD)
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
27
Refinance
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
28
Rate and term refi
(AKA limited cash out refi LCOR) pays off an existing loan to reduce the interest rate, alter the amortization, or change the loan term
29
Cash-out refi
Takes equity out of the home for cash, debt payoff, or the pay-off of a non- purchase money second
30
Payoff Statement
a statement from the existing mortgage company to disclose the amount required to pay the mortgage or loan in full
31
Conventional
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
32
Private Mortgage Insurance
Insurance that protects the lender when the borrower defaults on their loan. This is placed on Conventional loans with LTV’s exceeding 80%
33
USDA Rural Housing Development
A government mortgage insurance program targeting borrowers seeking homeownership in designated rural areas within certain household income limitations
34
FHA
A government mortgage insurance program that allows borrowers to achieve homeownership with lower down payments and less stringent credit guides than conventional
35
VA
A government mortgage insurance program for veterans of the U.S. Armed Forces
36
Loan Officer
Original point of contact for the borrower. Originates the loan and issues the initial disclosure package to the borrower
37
Loan Processor
Coordinates with the Loan Officer and borrower to obtain the required documentation to meet the program guidelines
38
Mortgage Underwriter
Reviews the loan documentation and determines whether the loan meets program guidelines and is an acceptable risk. Issues the loan decision
39
Loan Closer
Coordinates with the title company to schedule the loan closing. Drafts the Closing Disclosure and final package for signing at the closing table
40
Broker
Originates a loan to submit to lenders for underwriting. The loan is pledged to an investor and closes in that investors name
41
Correspondent
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
Lender/Seller
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
4 C's of Underwriting
Credit, Capacity, Cash, Collateral
44
Credit History
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
Capacity to Repay
an evaluation of the borrower’s ability to repay the mortgage through calculation of the qualifying debt ratio
46
Funds (assets) to Close
verification of the borrower’s ability to provide the required cash to consummate the transaction and/or provide proof of reserves
47
Subject Property
evaluation of the market value of the property the subject property as verified with the appraisal report
48
Underwriter Duties
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
Loan quality
the accuracy of the verified data within the underwriting decision compared to the data reflected in the documentation provided by the borrower
50
Underwriter Skill Sets
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
Underwriting Authority
the credit decision authorization granted to the Underwriter by their employer
52
Three Forms of Underwriting designations
Training Program Certifications, FHA Direct Endorsement, VA Credit Underwriter & VA LAPP SAR
53
Training Program Certifications
Obtained once training program and exams are completed
54
FHA Direct Endorsement
* Obtained once on-the-job and FHA training courses are completed * Requires the completion of test cases and sponsorship from employer
55
A Credit Underwriter & VA LAPP SAR
* Obtained once on-the-job and VA training courses are completed * Requires the completion of test cases and sponsorship from employer
56
Underwriter Authority can be withdrawn if the underwriter’s decisions lead to
unsaleable loans or early payment defaults
57
Manual underwriting is usually reserved for borrowers | with
limited or no credit, Chapter 13 bankruptcies, or inaccurate data reported on their credit profile
58
Credit Risk Factors
Credit History, Delinquencies, Mortgage Accounts and Foreclosures, Revolving Credit Utilization, Public Records, Collections, Credit Inquiries
59
Eligibility Factors
LTV/CLTV/HCLTV, Liquid Reserves, Loan Purpose, Loan Term and Amortization, Total Expense Ratio, Property Type, Co-Borrowers
60
DU: Approve
indicates the loan satisfies Fannie Mae’s credit risk standards
61
DU: Eligible
indicates the loan satisfies Fannie Mae’s loan eligibility criteria
62
DU: Refer/Eligible
indicates the loan is eligible for Manual Underwriting BUT must be Underwritten by a certified underwriter to address the “refer” reason
63
DU: Ineligible
indicates the loan does not satisfy Fannie Mae’s loan eligibility criteria
64
DU: Refer w/ Caution
indicates the loan does not meet credit risk or loan eligibility standards and is ineligible for delivery to Fannie Mae
65
DU: Out of Scope
indicates DU is unable to underwrite the loan file as submitted (Something was entered incorrectly)
66
LPA: Accept
indicates the loan satisfies Freddie Mac’s credit risk standards
67
LPA: Streamlined Accept
allows for reduced documentation to meet Freddie Mac’s eligibility requirements
68
LPA: Standard
the most comprehensive level of documentation to meet Freddie Mac’s eligibility requirements. Standard documentation is required for higher risk loans
69
LPA: Caution
indicates the loan is unlikely to meet Freddie Mac’s eligibility requirements due to excessive layered risks (Manual Underwriting is needed)
70
LPA: Ineligible, Incomplete, Invalid
LP is unable to underwrite the loan as submitted
71
Data Integrity
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
AUS Limitations
The only document the AUS can “read” is the credit report. The validation of all other loan documentation is the underwriter’s responsibility
73
The Uniform Residential Loan Application
(URLA) Form 1003: the document which summarizes the terms of the loan • It lists the borrower’s credit, income, and asset profile.
74
Uniform Underwriting Transmittal Summary
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
Sections of the Credit Report
Applicant Information, Credit Summary, Credit History, Public Records, Credit Inquiries, Fraud Alerts
76
Credit Report: Applicant Information
* Borrower name * Date of birth * Social Security number * Address history * Employment history
77
Credit Report: Credit Summary
* Tradeline mix | * Payment history
78
Credit Report: Credit History
* Individual tradeline payment history | * Includes a list of Collections and Charge-Offs
79
Credit Report: Public Records
* Bankruptcies Public Records | * Judgments
80
Credit Report: Credit Inquiries
•A list of vendors who have pulled the Credit Inquiries borrower’s credit report with intentions of extending credit
81
Credit Report: Fraud Alerts
•Alerts that must be Fraud Alerts reviewed and cured with procedures as defined by each lender
82
Income is considered stable when the underwriter | can reasonably assume
at least three years’ continuance
83
Calculate Fixed Hours Per Week
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
Calculate Varying Hours Per Week
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
Calculate Seasonal Income
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
WVOE
Written Verification of Employment: used to verify overtime, bonus, or commission earnings
87
You can include Overtime, Bonus, and Commission Earnings if
verify a two year history of receipt at the current job and verify consistent or increasing earnings over the most recent two years
88
Assets are used for two reasons in mortgage | lending transactions:
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
Large deposits must be
explained and sourced
90
Asset statements can also be used as | supporting documentation when verifying
fixed income
91
Gift Funds
funds that are given to the borrower from an allowable | source
92
Gift funds must be verified with the following:
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
Appraisal Report
a document used by mortgage lenders to determine the market value of the subject property

Mortgage Underwriting (1 decks)

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