NMLS Exam Prep Flashcards
Where will your unique identifier number appear?
1003 Loan Application, Promissory Note, Mortgage Trustees
Where will your unique identifier # not appear?
Appraisal reports
Is the NMLS # and the Unique Identifier the same thing?
yes
How many hours of the NMLS pre-licensing must you complete?
20 hrs
How many hours of continuing education must you complete and how often?
8 hours every year
What is the state MLO test called?
National Exam w/ UST
What does UST stand for?
Uniform State Test
What is.a MU4?
The individual application you must complete.
What is the name of the individual application?
MU4
What are the NMLs steps?
- Get NMLS #/Unique Identified
- Complete 20 hours NMLS Pre-licensing course.
- Schedule Nation Exam w/ UST.
- Complete MU4 Individual Application
- Submit fingerprints.
- Pay for credit report.
What is the passing score for the exam?
75% or higher
What is the waiting period before re-taking a failed test?
30-days
What is the waiting period if you fail the 3rd test?
6 months
To keep your license current, how many hours must you take and by when?
8 hours no later than Dec. 31st.
When does your license expire? Exception?
Dec. 31st each year. Unless you renew during the renewal period.
When is the renewal period?
Nov.1st - Dec. 31st
If you received your license during Nov. 1st - Dec. 31st, do you have to renew your license?
No
How long is your license valid for? Explain.
5 years.
If you go more than 5 years without renewing you must start the process all over again. If you go, 1-4 years w/o renewing, you must pay the renewal fee + cont. education for the prior year not ALL. During the time you have not renewed, your license is inactive.
How many questions are on the test? How many are scored?
125 questions and 115 scored
What law says the borrower has 90 days to request a copy of the appraisal?
Equal Credit Opportunities Act / ECOA/ Reg B
What law says the lender has 30 days to deliver the appraisal to the borrower?
Equal Credit Opportunities Act / ECOA / Reg B
How many days/months does the borrower have to request a copy of the appraisal?
90 days / 3 months
How many days/months does the lender have to provide the appraisal to the borrower?
30 days / 1 month
Appraisal = ________
value
Challenge the value = ________
ECOA
An application for credit can be denied based on ______/_______.
appraisal/value
Which regulation/law allows the borrower to challenge the value stated in the appraisal?
ECOA / Reg B / Equal Credit Opportunities Act
ECOA (Reg B)
- Allows the borrower to challenge the value of the appraisal.
- A reason why credit may deny the loan.
- Must provide copy of appraisal to the borrower.
If an application for ______ is denied based on the appraisal (value) - under _________ says the borrower has ____ days/ ___ months to request a copy / lender has ____ days / ____ months to deliver the appraisal.
credit
ECOA (Reg B)
90 days / 3 months
30 days / 1 month
Reg B — ________ —– ECOA —- ________________
Be Equal / Equal Credit Opportunities Act
Please explain Reg B (ECOA) in detail.
Deals with credit applications. The law says you must be equal when extending credit and regulators must abide by that. They cannot discriminate by race, sex, age, etc.
Reg C — _______ — HMDA — _______________
C your home / Home Mortgage Disclosure Act
HMDA = ______
Reg C
Explain Reg C - HMDA.
The law that allows regulators to see where possible discrimination takes place
Where is HMDA information found/collected?
Section 10 (X) of the 1003 loan application
Reg ___— RESPA — ________________
X / Real Estate Settlement Procedures Act
Reg ___ — TIL/TILA — __________________
Z / Truth in Lending Act
_____ the godzilla = Reg ___
TILA / Reg Z
What does TILA deal with?
credit, APR, & advertising of consumer loans
What law deals with credit, APR, and advertising?
Reg Z / TIL/TILA / Truth in Lending Act
What does HPA stand for?
Homeowners Protection Act
What does HPA deal with?
PMI - Private Mortgage Insurance
Does HPA deal with PMI or MIP?
PMI - Private Mortgage Insurance
PMI is on what type of loans?
Conventional Loans
Does PMI related to government loans?
no
When is the borrower required to pay PMI?
when the borrower puts 20% or less down.
Who does PMI protect/cover?
the lender
What does SAFE stand for?
Secure and Fair Enforcement Act
What does HERA stand for?
Housing and Economy Recovery Act
Which law created the SAFE act?
HERA - Housing and Economy Recovery Act
What does FCRA stand for?
Fair Credit Reporting Act
Which regulation is FCRA?
Reg V
FCRA — ________________ — Reg ____
Fair Credit Reporting Act / Reg V
What does FCRA deal with?
credit report / credit reporting agencies
What does ECOA deal with?
credit application
How can you remember Reg V?
don’t you want a Very good credit report = FCRA = Fair Credit Reporting Act
What does FACT stand for?
Fair & Accurate Credit Transactions
What is another acronym for FACT Act?
FACTA
Are FACT Act and FACTA the same thing?
yes
What law deals with identity theft?
FACT Act / FACTA
Which law has a section of rules?
FACT Act / FACTA
What is the rule section for FACT Act / FACTA?
Section 114 Rules
What are section 114 rules?
red flag identity theft rules
What does GLBA stand for?
Gramm Leach Bliley Act
Which law does SPF relate to?
GLBA - Gramm Leach Bliley Act
What does SPF stand for?
Safeguarding Policy, Pre-texting Policy, and Financial Privacy Policy
What are the 3 policies under the GLB Act?
Safeguarding, Pre-texting, Financial Privacy
What laws says there must be a safeguarding policy?
Gramm Leach Bliley Act (GLBA)
What is a safeguarding policy?
a policy on how companies have to keep our credit card and personal information safe when we use it at their place of business.
What is a pre-texting policy?
a policy to keep others from gaining access to your information under false pretenses (pretenders - pretending to be you).
Which law requires a pretexting policy?
GLBA - Gramm Leach Bliley Act
What is a financial privacy policy?
a policy that governs the collection of non public information (info that cannot be googled) and how its shared with affiliates. They must provide an option to opt in/out to have your information shared.
What law says there must be a financial privacy policy?
GLBA - Gramm Leach Bliley Act
What law/policy says that the lender has to give you an equal opportunity to opt in/out of having your personal information shared?
Financial Privacy Policy of the GLBA (Gramm Leach Bliley Act)
What does HOEPA stand for?
Home Ownership and Equity Protection Act
What are the 2 types of HOEPA Loans?
Section 32 / Section 35
Are HOEPA loans considered hard money loans?
yes
HOEPA Section 32 Loans are equal to = _____________.
High Cost Loans
HOEPA Section 35 Loans are equal to = __________
High Priced Loans
What law are HOEPA Section 32 and HOEPA Section 35 related to?
TILA - Reg Z
Please explain the difference between HOEPA Section 32 and Section 35 Loans.
Section 32 is High Cost Loans and Section 35 is High Priced Loans.
Which law regulates High Cost Loans and High Priced Loans?
TILA - Reg Z
What does AfBA/ABA stand for?
Affiliated Business Arrangement
Please explain AfBA/ABA (Affiliated Business Arrangement).
AfBA/ABA required you to provide a disclosure to your client if you are referencing them to a business that you have part ownership in.
If you own more than what percentage of a company, are you required by law to let the client know about a AfBA/ABA?
1% or more
When must the AfBA/ABA disclosure be made?
immediately or prior to docs being signed
What year was the civil rights act?
1866
If you get any question that has civil rights act in it, what is the answer going to relate to?
race
Which of the following can you not discriminate against?
AGE
RELIGION
RACE
ALL OF THE ABOVE
all of the above
Which of the following according to the civil rights act, can you not discriminate against?
AGE
RELIGION
RACE
ALL OF THE ABOVE
race
Explain an Escrow Account.
Includes taxes and insurance - this account is created when you are making a payment for all.
What are other names for an Escrow Account?
impound account / reserve account
Are an Escrow Account, Impound Account, and Reserve Account all the same thing?
yes
What type of a mortgage was created if you have an escrow account/impound account/reserve account?
budget mortgage
what is another name for a budget mortgage?
PITI mortgage
what does PITI stand for?
principle, interest, taxes & insurance.
Consumer Financial Protection Bureau (CFPB)
purpose is to promote financial stability through accountability and transparency.
What does CFPB
Consumer Financial Protection Bureau
What acts/laws created the CFPB?
Dodd-Frank Act & Consumer Finance Protection Act
Please name the places that must report to the CFPB.
Office of the Comptroller of the Currency (OCC)
Office of Thrift Supervison (OTS)
Federal Deposit Insurance Corporation (FDIC)
Federal Reserve
National Credit Union Administration (NCUA)
The Department of Housing & Urban Development (HUD)
Federal Trade Commission (FTC)
Who does not report to the CFPB? Why?
The Fair Housing Act. Because it doesn’t deal with money and banking, its about discrimination.
RESPA (Reg X) Real Estate Settlement Protection Act
The purpose of RESPA is to help consumers become better shoppers for settlement services.
What regulation is RESPA?
Reg X
What does RESPA stand for?
Real Estate Settlement Protection Act
What are settlement services?
escrow stuff = RESPA/Reg X
What type of property does RESPA deal with?
1-4 Unit Residential Property (owner occupied)
What is another name for residential property?
owner occupied
What law deals with owner occupied 1-4 Unit Residential Properties?
RESPA (Reg X) - Real Estate Settlement Protection Act
Do you need RESPA (Reg X) for commercial properties?
no
What does RESPA (Reg X) not cover?
All cash sales.
Rental properties of more than 4 units.
Commercial property.
Property of 25 acres or more (agricultural).
What is a property of 25 acres or more considered?
Agricultural property
What is the penalty for violating RESPA (Reg X)?
Fine up to $10,000 and/or imprisonment up to 1 year.
What law has a penalty of up to $10,000 and/or 1 year of imprisonment?
RESPA (Reg X) - Real Estate Settlement Protection Act
Explain Section 6 of RESPA (Reg X).
Deals with mortgage servicer’s. Designed to address servicer’s obligation to correct errors and work with home buyers if payments are not being made.
What does Section 6 of RESPA (Reg X) deal with?
mortgage servicing and mortgage servicing abuses.
Mortgage Servicer
someone who has been hired to handle the payments and pay taxes/insurance
What law deals with mortgage servicing and mortgage servicing abuses?
Section 6 of RESPA (Reg X)
Explain Section 8 of RESAP (Reg X).
prohibits kickbacks, fee-splitting, and unearned fees. Prohibits or accepting a fee, kickback or “thing of value” in exchange for referrals of settlement service business (allows minimal value promotional items).
What law deals with kickbacks, fee-splitting, and unearned fees?
Section 8 of RESPA (Reg X)
Kickbacks
Referral fees
Thing of Value
tickets, purses, money, anything expensive.
Fee Splitting
splitting fees with an unlicensed person
Unearned Fees
upfront fees/advanced fees
If you take any unearned fees (upfront fees) from a borrower/client, which law are you violating?
Section 8 of RESPA (Reg X)
Explain section 9 of RESPA (Reg X).
Deals with title insurance. Prohibits seller from requiring the home buyer to use a particular title insurance company, either directly or indirectly, as a condition of sale. Allows buyers to sue for an amount equal 3x (treble damages) all charges made for the title insurance.
Any question that deals with title insurance deals with what law?
Section 9 of RESPA (Reg X)
Can a borrower sue if there is a requirement/condition to use a specific title company? if so, how much?
yes - treble damages = 3x; the amount equal to 3x all charges made for the title insurance.
Which law allows borrowers to sue a lender in regard to title insurance?
Section 9 of RESPA (Reg X)
Please explain section 10 of RESPA (Reg X).
deals with escrow accounts. it sets limits on the amounts that a lender may require a borrower to put into an escrow account for purposes of paying taxes, hazard insurance and other related charges.
What are other words for escrow account?
impound accounts
What can lenders require borrowers to pay each month towards escrow accounts?
no more than 1/12th of annual disbursement (basically month to month, cannot take any more upfront)
At closing, how much can a lender allow into an escrow account?
cushion of 2 months = 1/6th the annual amount.
How much of a cushion?
2 months
Which law requires an annual escrow analysis?
Section 10 of RESPA (Reg X)
At what point is a lender required to return any money in regards to an escrow account?
if they took $50 too much.
What information is necessary to have a complete application?
- Name of borrower(s)
- SSN of ea. borrower
- Gross mo. income of borrower.
- Loan Amount
- Address of Subject Property
- Estimate of property value.
For the subject property for a purchase, what information/exception is acceptable? What is not allowed?
- UNK & TBD (allowed)
- N/A (not allowed)
Once a complete application is obtained and the borrower has indicated their intent to proceed, what is required?
initial disclosures
When should initial disclosures be provided?
once all 6 required information is received from borrower to have a complete application
What are the instances when the lender doesn’t have to provide initial disclosures?
- the applicant withdraws the application (must be within the 1st 3 days)
- the lender turns down the loan before the 3 business day period end.
Does RESPA deal with timing?
yes
What are disclosures?
notices the borrower must get
Before settlement =
before doc signing
Settlement =
doc signing
At settlement =
at the doc signing
What are the initial disclosures?
- Home Loan Toolkit
- Loan Estimate
- Mortgage Servicing Disclosure Statement
- List of HUD Approved Home Counselors
When are the initial disclosures required to be delivered?
at or within 3 business days of application
Home Loan Toolkit
RESPA Doc. For purchases ONLY; a booklet given to the borrower and explains how to purchases work.
When should a borrower receive the home loan toolkit?
at or within 3 business days of application
Loan Estimate
TILA document but RESPA says when the borrower must receive it. Formally the Good Faith Estimate (GFE).
What law says a borrower must receive a Loan Estimate?
TILA (Reg Z) - Truth in Lending Act
What law says the borrower must receive a Loan Estimate at or within 3 business days of an application?
RESPA (Reg X) - Real Estate Settlement Protection Act
Mortgage Servicing Disclosure Statement
Intent. Explains if the lender intends to service the loan themselves or will pass on to someone else.
List of HUD Approved Home Counselors
Allows the borrower to have someone not associated with the loan process regarding the loan, terms, etc.
What should the borrower receive before settlement (doc signing)?
Affiliated Business Arrangement (AfBA) Disclosure (only if the own 1% or more of the business they referred the client to) and Closing Disclosure (CD)
Closing Disclosure (CD)
formally the HUD
When do borrowers receive closing disclosures (CD)?
3 days before closing and again at the doc signing
Consummation =
doc closing
What law says the borrower must receive a Closing Disclosure (CD)?
TILA (Reg Z) - Truth in Lending Act
What law says the borrower must receive the closing disclosure 3 days before closing?
RESPA (Reg X) - Real Estate Settlement Protection Act
What does the borrower receive after settlement (Doc Signing )?
Escrow statement and servicing transfer statement
What does the borrower receive at settlement (doc signing)?
finalized closing disclosures and initial escrow statement
When do you need to provide the initial escrow statement?
within 45 days of closing
Annual Escrow Statement
a document the borrower receives every year that explains how much they pay taxes and insurance.
What law says you must receive the Annual Escrow Statement annually?
Section 10 of RESPA (Reg X)
What is another name for the servicing transfer statement?
Goodbye Letter
Goodbye Letter
Lets the borrower know who their loan is getting transferred to and who to start making payments to. This is provided after settlement and must be provided 15 days prior to transfer and no penalty for the 1st 60 days.
When must the Goodbye Letter be provided?
15 days prior to the transfer of the loan
If loan servicing has been transferred, what is the grace period for the borrower on a missed/late payment?
No penalty for the 1st 60 days
Which documents are TILA documents?
Closing Disclosure (CD)
Loan Estimate
What does the Loan Estimate combine?
Good Faith Estimate (GFE) and the Truth in Lending Statement
What can be charged prior to delivering the loan estimate form?
no fee, except the credit report fee
When should a loan estimate be delivered/mailed?
3 business days of receipt of complete application
How long is the Loan Estimate available/good for?
10 business days
What does TIP mean?
Total Interest Percentage
What is the difference between TIP and APR?
TIP is the total interest which expresses a percentage. APR is the total interest plus all other fees added together expressed as a percentage
TIP
Total Interest Percentage - total interest expressed as a percent
APR
Annual Percentage Rate - total interest plus all other fees expressed as a percentage
Is the Rate Lock and The Lock the same thing?
yes
Where do you find information regarding the rate lock?
on the Loan Estimate
Is the rate lock only on the loan estimate?
yes
Closing Disclosure (CD)
actual fees, generally must contain the actual terms and costs of the transaction
What does the closing disclosure replace?
existing HUD form and the final Truth in Lending Statement
Who completed the Closing Disclosure and for whom?
The creditor (bank/lender) is responsible for providing the statement for the borrower.
The settlement agent (title agent) is responsible for providing the statement to the seller.
Who provided the CD statement to the borrower?
The creditor (lender/bank)
Who provides the CD statement to the seller?
settlement agent (title agent)
What does CD stand for?
Closing Disclosure
What is a creditor?
bank/lender
What is a settlement agent?
title agent
When must the initial closing disclosures be delivered to the borrower?
3 business days prior to loan consummation
When must a final closing disclosure be delivered?
at loan consummation
When does a borrower receive a new 3 day waiting period?
if there is a change to the closing disclosure due to a valid change in circumstance
What are the valid change in circumstances to cause a new 3 day waiting period?
- Changes in loans APR
- Change in the loan amount
- the addition of a PPP (pre-payment penalty)
What does TILA deal with?
credit, APR, and advertising
What law deals with credit, APR, and advertising?
TILA (Reg Z) Truth in Lending Act
What regulation is TILA?
Reg Z
Which law requires the lender to disclose the complete cost of credit to consumer loan applicants?
TILA (Reg Z) - Truth in Lending Act
TILA (Reg Z) requires lenders to disclose ____________________ to consumer loan applicants.
the complete cost
3-Day Rescission
in a HELOC/REFI, the borrower has a 3 days to change their mind (even if they sign docs)
Which law established a 3-day rescission?
TILA (Reg Z) - Truth in Lending Act
What transactions did TILA (Reg Z) establish a 3-day rescission for?
HELOC (Home Equity Line of Credit) & Refinances
What type of transactions do borrowers have a right to a 3-day rescission?
HELOC’s and Refi’s
How many borrowers does it take to have a loan cancelled?
only 1 borrower to rescind
When does the rescission period start?
the day after the documents are signed
How long does the creditor/lender have to return any money collected related to the loan?
20 calendar days
When is the deadline for a consumer to rescind the credit transaction?
until midnight of the 3rd business day
How many copies must the borrower receive of a Notice of Right to Rescind?
2 copies
If a borrower was not properly notified of the Right to Rescind, how long can the rescission period be extended to?
3 years
How many installments are needed on a transaction in order for TILA to apply?
more than 4 installments
TILA applies to transactions that are payable by written agreement with _______ installments.
more than 4
What are the only fees that may be collected prior to TILA (Reg Z) Disclosures?
credit report fees
What law only allows credit report fees to be collected?
TILA (Reg Z) - Truth in Lending Act
How long must TILA Disclosures be kept? Are there any exceptions? Explain.
2 years.
Exceptions for the Loan Estimate = 3 years; and the Closing Disclosure = 5 years.
How long must you keep the Loan Estimate?
3 years
How long must you keep the Closing Disclosure?
5 years
What do the TILA disclosures include?
- Loan Estimate and Closing Disclosure.
- Consumer Handbook on Adjustable Rate Mortgage (CHARM Booklet).
- When your Home is on the Line Disclosure (HELOC/Refi)
What does CHARM stand for?
Consumer Handbook on Adjustable Rate Mortgages
When would the borrower get the CHARM Booklet?
when they are getting an adjustable rate mortgage
When would the borrower get the When your Home is on the Line Disclosure?
if they are getting a HELOC or Refi
Which law requires the disclosure of the annual percentage rate (APR)?
TILA (Reg Z) - Truth in Lending Act
What disclosure does TILA (Reg Z) require?
Annual Percentage Rate (APR)
What is another word for Interest Rate?
Note Rate or Nominal Rate
What does APR stand for?
Annual Percentage Rate
What is another word for APR?
Effective Rate
What are the penalties for violating TILA?
- $5,000 per day for single violation..
- $25,000 per day for reckless violation.
- $1,000,000 per day for knowingly violating TRID.
What is the penalty for a single violation of TILA (Reg Z)?
$5,000 per day
What is the penalty for reckless violation of TILA (Reg Z)?
$25,000 per day
What is the penalty for knowingly violating TRID?
$1,000,000 per day
What does MDIA stand for?
Mortgage Disclosure Improvement Act
Is MDIA apart of TILA?
yes
What is another name for Mortgage Disclosure Improvement Act (MDIA)?
3/7/3 Rule
Are 3/7/3 Rule and MDIA the same thing?
yes
Please explain Mortgage Disclosure Improvement Act (MDIA) / 3/7/3 Rule.
- initial disclosures sent within 3 business days of receipt of completed application.
- earliest consummation on 7th business day after disclosures delivered/mailed.
- redisclosed - consumer must receive corrected disclosure at least 3 business days before loan can be consummated if there was a significant variance in the APR.
What does consummation mean?
close/closing
What does redisclose always meant?
always 3 business days
Explain 3/7/3 Rule
MDIA;
3 business days initial disclosures.
7 business days is the soonest they can close.
3 business days to redisclose.
Explain TILA Accuracy/Redisclosure.
APR is accurate if no variance above or below initial disclosure by more than:
1/8 (.125%) for regular transactions (30 yr fixed).
1/4 (.25%) for irregular transactions (not 30 yr fixed)
1/8 is equal to
.125
1/4 is equal to
.25
Regular transaction
30 year fixed
Irregular transaction
not a 30 year fixed
If you quote someone 4.25% and then once they receive official paperwork at 6%, do you need to redisclose?
yes, because the loan changed by more the 1/8 or 1/4.
When do you have to redisclose for a regular transaction (30 year fixed)?
if the rate changes by 1/8 (.125) or more.
When do you have to redisclose for a irregular transaction (not a 30 year fixed?
if the rate changed by 1/4 (.25) or more.
When can the redisclosure period be waived?
bona fide financial emergency
Who determines a bona fide financial emergency?
the lender
In which of the following can a redisclosure be waived:
- House Burned down
- borrowers dad died
- cat died
- bona fide financial emergency
bona fide financial emergency
What is a business day according to TILA?
all calendar days except sundays and legal public holidays
What law says saturday is a work day?
TILA (Reg Z) Truth in Lending Act
What law says sunday and legal public holidays are NOT working days?
TILA (reg Z) - Truth in Lending Act
What is the exception to TILA’s business day rule?
“initial loan Estimate” - any day in which the creditors office is open for business
Initial Loan Estimate
any day in which the creditors office is open for business
Does TILA also deal/mandate advertising?
yes
Triggering Terms
if they use a number to describe credit terms and the number is not the APR, then it triggers. If they use the APR, they don’t have to say anything else.
Difference between business day vs. calendar day?
if its 0-9 its a business day.
if its 10 or over its a calendar day.
If an advertisement contains any one of the triggering terms about the loan, that advertisement must include:
- Amount of percentage of down payment.
- Terms of Repayment.
- Annual Percentage Rate, using the term spelled out in full or APR.
What if an ad contains only APR?
no additional disclosures are required
Does triggering terms require you to redisclose?
yes
Do non-triggering terms require you to redisclose?
no
Examples of triggering terms.
- 20% down.
- Pay only $700 per month.
- only 360 payments
- 1% finance charge
- 30 year financing available
Examples of non-triggering terms.
- 5% APR loan available here.
- Easy mo payments
- FHA financing available.
- Terms to fit your budget
- 100% VA financing available.
If someone asked you for the current rates and you provide them a rate percentage, did you violate TILA (Reg Z)?
yes and you need to redisclose
If someone asked you questions regarding a mortgage loan and all you provided was an APR, did you violate TILA (Reg Z)?
no
If you provide a rate, % down, mo payment, or any figure associated with actual terms to help trigger a borrower, what must you include?
- Amount or percentage of down payment.
- Terms of Repayment
- Annual Percentage Rate, using that term-spelled out in full or APR.
What does QM stand for?
Qualified Mortgage
What is a safe harbor?
legal protection / bail out money
Is a qualified mortgage (QM) apart of TILA (Reg Z)?
yes
Qualified Mortgage (QM)
sees if the lender qualifies for a safe harbor (legal protection / bail out money).
If a lender issues a qualified mortgage (QM) and the borrower later goes into foreclosure, what do they receive?
safe harbor
Explain the QM Rule.
Creates new categories of mortgages and imposes minimum underwriting standards for most home loans, which is referred to as the ability-to-repay (ATR) requirements.
What are the prominent clauses of the QM Rule requirements?
- No doc loans / NINA Loans (not allowed).
- Sets a maximum debt to income ratio of 43%.
- Capts points and fees at 3% / 3 points.
- Loan terms over 30 years prohibited.
- Interest only loans not allowed / negative amortization loans not allowed.
- Prohibits use of teaser rates in affordability calculations.
- Requires that adjustable rate mortgages (ARM’s) be underwritten to the maximum interest rate that can be charged during the first 5 years of the loan term.
- PPP are prohibited, except for certain fixed rate, qualified loans.
What does ATR stand for?
Ability to Repay
What are the 8 types of information creditors must consider when establishing a borrowers ATR on a mortgage loan?
- Current income/assets.
- Current employment status.
- Borrowers credit history.
- Monthly payments for mortgage.
- Borrowers monthly payment on other simultaneous mortgage loans.
- Monthly payments for other mortgage related expenses.
- Other debts of the borrower.
- Monthly debt payments compared to the borrowers monthly income (DTI cannot exceed 43%).
What does HOEPA stand for?
Home Ownership and Equity Protection Act
What law is HOEPA apart of?
TILA (Reg Z) - Truth in Lending Act
What are the sections of HOEPA?
Section 32 and Section 35
What does APOR stand for?
Average Prime Offer Rate
What is an Average Prime Offer Rate (APOR)?
exactly that, the average rates today.
HOEPA Section 32 are…..?
Higher cost loans
What are the triggers for Section 32 of HOEPA (Home Ownership and Equity Protection Act)?
6.5% on First Lien Loans and 8.5% on Second Lien Loans
Please explain in detail, the triggers for Section 32 of HOEPA (Home Ownership and Equity Protection Act).
The APR exceeds the APOR by more than 6.5% on First Lien Loans of $50,000 or higher or more than 8.5% on First Lien Loans of less than $50,000.
When the APR exceeds the APOR by more than 8.5% on Second Lien Loans.
If the total fees charged exceed 5% of the total loan amount.
The APOR is 4%, Danny applied to a loan with cash but they approved him with 26%, is it a section 32 or section 35 of HOEPA?
Section 32 of HOEPA because it exceeded by more than the 6.5% and 8.5%.
HOEPA Section 35 are……?
Higher priced loans
When are HOEPA Section 35 (higher priced loans) triggered?
when loans exceed the average prime offer rate by:
- 1.5% for First Mortgage Lien
- 2.5% for First Lien Jumbo Loans over $417,000.
- 3.5% Subordinate Mortgage Lien
When a First Mortgage Lien exceeds the average prime rate by ___%, what HOEPA Section is triggered?
1.5%
Section 35
When a First Lien Jumbo Loan over $417,000 exceeds the average prime rate by ___%, what HOEPA Section is triggered?
2.5%
Section 35
When a Subordinate Mortgage Lien exceeds the average prime rate by ___%, what HOEPA Section is triggered?
3.5%
Section 35
What does ECOA stand for?
Equal Credit Opportunity Act (Reg B)
What regulation is ECOA (Equal Credit Opportunity Act)?
Regulation B
What does Equal Credit Opportunity Act (ECOA) - Reg B deal with?
The discrimination when granting credit.
What is the difference between ECOA (Reg B) versus Fair Housing?
ECOA (Reg B) deals with discrimination when granting credit. Vs. Fair Housing deals with discrimination in the sale/lease of property.
Explain ECOA (Reg B).
A federal law that ensures that all consumers are given an equal chance to obtain credit.
How long do creditors/lenders have to notify applicants of their lending decision?
within 30 days of the filing of a complete application.
What is a Adverse Action Letter?
A denial letter
What is a protected class?
A class of individuals that cannot be used as a source of discrimination/denial when approving a credit application.
What are the protected classes of ECOA (Equal Credit Opportunity Act) - Reg B?
Sex, Race, Religion, Color, National Origin, Age, Marital Status, & Public Assistance.
What classes are protected by Fair Housing?
Sex, Race, Religion, Color, & National Origin.
What classes are ONLY protected by ECOA?
Age, Marital Status, & Public Assistance
What does Public Assistance mean?
Social Security Income, Child Support Income, Alimony, Retirement, etc. (Any type of non-taxed income).
Under ECOA (Reg B), when can & cannot a creditor deny a loan?
A creditor cannot deny a loan based on the borrowers income source but they can deny based on the amount of income.
Can a creditor deny a borrower based on their source of income?
No
Can a creditor deny a borrower based on the amount of income?
Yes
According to ECOA (Reg B), what is the correct way to ask about marital status?
Are you married, unmarried, or seperated?
Unmarried is equal to….?
single, divorced, widowed
Under ECOA (Reg B), the creditor CANNOT consider age unless….?
the applicant is under 18 or the applicant is at least 62 years of age for a reverse mortgage.
How long must ECOA Disclosures be retained/kept for?
25 months (2 years and 1 month)
How long does a borrower have to sue (civil action filed) under ECOA Violations?
up to 24 months (2 years)
Why must ECOA Disclosures be retained/kept for 25 months?
Civil action may be filed for ECOA Violations for up to 24 months (2 years) if a consumer believes his rights have been violated.
What is the penalty for violating ECOA?
$10,000 for each individual action.
If an application is denied based on the appraisal report, how long does the consumer/borrower have to request a copy of the appraisal report? How long does the lender have to provide the appraisal?
Borrower has 90 days (3 months) to request the appraisal report.
The lender has 30 days (1 months) to provide the appraisal report.
If an application is approved, how long does the lender have to provide the appraisal to the consumer/borrower?
No later than 3 business days prior to the close of the first lien loan.
Fair Housing Act
Prohibits discrimination against protected classes in the sale or lease of a residential property.
What are the protected classes of the Fair Housing Act?
Sex, Race, Religion, Color, National Origin, Disability, & Familial Status.
What the classes that are protected ONLY by the Fair Housing Act?
Disability & Familial Status.
Blockbusting
Trying to induce owners to sell their homes by suggesting that the ethnic or racial composition of the neighborhood is changing with the implication that property values will decline.
What is Familial Status?
Anything having to do with children, being pregnant, etc.
What are the 3 laws under the Fair Housing Act?
Blockbusting, Steering, Redlining
Steering
Channeling prospective real estate buyers or tenant to particular neighborhoods based on their race, religion, or ethnic background.
Redlining
Refusal to make loans on property located in a particular neighborhood for discriminatory reasons.
How long does a borrower have to sue under the Fair Housing Act?
1 year (12 months)
Blockbusting
Panic selling
Please briefly explain Redling, Steering and Blockbusting (these are apart of the Fair Housing Act).
Redlining is drawing a line or boundary on what location they lend. Steering pushes buyers to buy in certain areas. Block busting is panic selling.
What law deals with Blockbusting, Steering, and Redlining?
Fair Housing Act
Who can possibly redline a borrower?
the lender
Who can possible blockbust/panic sell a borrower?
Real estate agent
Who can possibly steer a borrower?
Real estate agent
Is redlining the law that led o the creation of HMDA?
yes
What law led to HMDA?
Redlining
What requires the house logo with 2 thick lines and says “Equal Housing Opportunity”?
Fair Housing Act
What does HPA stand for?
Homeowners Protection Act
Explain Homeowners Protection Act (HPA).
Requires lenders/servicers to provide disclosures concerning private mortgage insurance (PMI) on residential transactions.
What does PMI stand for?
Private Mortgage Insurance
When can a borrower request to cancel PMI?
at 80% Loan-to-Value (LTV)
When is PMI automatically cancelled?
at 78% Loan-to-Value (LTV), if the borrower is current.
How much of the loan must be paid off in order for the borrower to request a cancellation of PMI?
20%
How much of the loan must be paid off in order for the lender to automatically cancel PMI?
22% and the borrower must be current.
What does HMDA stand for?
Home Mortgage Disclosure Act
What regulation is HMDA?
Regulation C
Explain the Home Mortgage Disclosure Act (HMDA - Reg C).
This is designed to identify possible discriminatory lending patterns.
What does Home Mortgage Disclosure Act (HMDA - Reg C) require of lenders?
To file “monthly” reports regarding the ethnicity, race, sex of all applicants. Monthly reports are called LAR (Loan Activity Reports).
How often do lenders have to file Loan Activity Report (LAR)?
monthly
What does LAR stand for?
Loan Activity Report
What law requires lenders to file monthly reports regarding ethnicity, race and sex of their applicants? What is the report called?
HMDA - Home Mortgage Disclosure Act.
Loan Activity Report (LAR)
What section is HMDA on the loan app? What is another name for it?
Section 10.
Information for Government Monitoring Purposes.
What does FCRA stand for?
Fair Credit Reporting Act
What regulation is Fair Credit Reporting Act (FCRA)?
Regulation V
What does Fair Credit Reporting Act (FCRA - Reg V) deal with?
credit reporting agencies
According to the Fair Credit Reporting Act (FCRA - Reg V), consumers have what 5 rights?
- The right to an Adverse Action Notice (denial letter).
- Free copy of Consumer Credit File/Credit Report.
- Request credit score (although credit is not free).
- The right to dispute incomplete or inaccurate info.
- The right to limit prescreened offers.
What law says a lender MUST provide the consumer with the name , address, and phone number of the agency that they used to pull the credit report, if app is denied?
Fair Credit Reporting Act (FCRA - Reg V)
Per the Fair Credit Reporting Act (FCRA - Reg V), consumers are entitled to a free copy of their credit report, if what 4 reasons occur?
- Info resuled in adverse action (denial).
- Victim of identity theft with fraud alert.
- Inaccurate info was a result of fraud.
- On public assistance or unemployed.
Can the credit reporting agencies report outdated negative credit info?
no, per the Fair Credit Reporting Act (FCRA - Reg V)
How long can negative credit info stay on a credit report?
no more than 7 years
How long do bankruptcies stay on credit reports?
10 years
How long do unpaid federal tax liens stay on report?
they do not expire
How long do criminal conviction stay on credit reports?
They do not expire
Paid federal tax lien is equal to….?
negative credit info will expire in 7 years
When can you pull someone’s credit?
if you have a legitimate business need ONLY.
What does FACT Act stand for?
Fair and Accurate Credit Transaction Act
What is another name for FACT Act?
FACTA
What law amended Regulation V (FCRA)?
FACT Act/FACTA - Fair Accurate Credit Transaction Act
What is the purpose of FACT Act/FACTA?
To. help consumers fight identity theft.
What is another name for Section 114 Rules?
FTC Red Flags Rule (Identity Theft Rule)
Which law has Section 114 rules/FTC Red Flags Rule (Identity Theft Rules)?
FACT Act/FACTA - Fair and Accurate Credit Transaction Act
What does Section 114 rules require?
Requires card issuers to assess the validity of change of address requests.
What law says they must verify the validity of any change of address?
Section 114 of FACTA/FACT Act
What law allows consumers to receive a free credit report each year (annually)?
FACT Act/FACTA - Fair and Accurate Credit Transaction Act
What is the website that FACT Act/FACTA uses for borrowers to get their free annual credit report?
www.annualcreditreport.com
What are the rights under the FACT Act law?
- Businesses to truncate credit/debit card receipts.
- Consumer can place fraud alerts and credit freezes.
- Requires measures to secure and dispose of sensitive consumer credit info
What does truncate mean?
shorten - for ex: on receipt they only put the last 4 of the card #.
What law says businesses must truncate (shorten) the credit/debit card receipts?
FACT Act/FACTA - Fair and Accurate Credit Transaction Act
What law requires consumers to place a credit freeze or fraud alert (password)?
FACT Act/FACTA - Fair and Accurate Credit Transaction Act
Secure and Dispose is equal to….?
burn/shred/locked
Which law requires businesses to secure/dispose (burn/shred/lock) of sensitive consumer credit info?
FACT Act/FACTA - Fair and Accurate Credit Transaction Act
What law did the Loan Officer violate, if he left his computer unlocked during his lunch?
FACT Act/FACTA - Fair and Accurate Credit Transaction Act
What does GLBA stand for?
Gramm-Leach Bliley Act
What is another name for Gramm-Leach Bliley Act (GLBA)?
Financial Services Modernization Act
What does SPF stand for?
Safeguard Rule
Pretexting Provisions
Financial Privacy Rule
What law is SPF (Safeguard Rule, Pretexting Provisions, Financial Privacy Rule) apart of?
Gramm-Leach Bliley Act (GLBA)
What are the 3 laws/policies of the Gramm-Leach Bliley Act (GLBA)?
Safeguard Rule
Pretexting Provisions
Financial Privacy Rule
What law deals with Safeguard Rule?
Gramm-Leach Bliley Act (GLBA)
What law deals with Pretexting Provisions?
Gramm-Leach Bliley Act (GLBA)
What law deals with Financial Privacy Rule?
Gramm-Leach Bliley Act (GLBA)
Safeguard Rule
Requires financial institutions to design and maintain safeguards to protect of consumer data.
Pretexting Provisions
Protects consumers from individuals and companies that obtain their personal financial information under false, fictitious or fraudulent pretense.
Financial Privacy Rule
Governs collection of non-public personal info and how its shared. Consumers have the right to opt in/out.
What law requires that lenders must verify DOB, SS#, and Ethnicity?
U.S.A Patriot Act
Why was the U.S.A Patriot Act created?
in response to the 911 Terrorist Attacks
What law requires the establishment of anti-money launering programs?
USA Patriot Act
What does DNC stand for?
Do Not Call List
What does the Do Not Call List (DNC) allow for consumers?
The ability to file complaints with FTC.
What must the Loan Originator do prior to calling the consumer?
Search the internet do not call list.
How often should the LO/telemarketer check the do not call list (DNC) & delete names from the call list?
Every 31 days
What are the 2 types of Do Not Call List (DNC)?
National List
Internal List
How often is the National List Updated?
Every 90 days/3 months
How often is the internal list updated?
Every 30 days/1 month
What is the penalty for violating the Do Not Call List?
Fines up to $16,000 per incident
Anna called one consumer twice on the Do Not Call List, what is the max fine she can be penalized?
$32,000
($16,000 x2)
Anna called someone 2x on the DNC list, what is the max penalty per incident?
$16,000 - due to asking per incident not overall.
What does EBR stand for?
Established Business Relationship
What is the meaning of Established Business Relationship (EBR)?
that you’ve done business with them
If someone is on the DNC List & you closed business with them, how long can you call the consumer?
18 months after the last transaction
If someone is on the DNC List, the consumer made an inquiry/submitted an application, how long can you call the consumer?
3 months after inquiry made
Dana just closed a loan with you, she is on the DNC List. She expressed for you to stop calling. How often can you call her?
you can’t continue calling her.
What does MARS stand for?
Mortgage Assistance Relief Services Rule
What law/rule addresses loan modification, short sale, and foreclosure to relief scams?
MARS - Mortgage Assistance Relief Service Rule.
What law bans collecting fees until homeowners have acceptable written offer from lender/servicer?
MARS - Mortgage Assistance Relief Service Rule.
What law prohibits advising consumers to discontinue communication with lenders?
MARS - Mortgage Assistance Relief Service Rule.
What is the fine for violating MARS - Mortgage Assistance Relief Service Rule?
$11,000 per occurrence & $11,000 per day may be incurred.
What does BSA stand for?
Bank Secrecy Act
What is another name for Bank Secrecy Act (BSA)
Anti-Money Laundering Act (AMLA)
What does AMLA stand for?
Anti-Money Laundering Act
If a consumer deposits withdrawals or transports cash transactions exceeding $10,000, what happens? What law is this?
Financial institutions are required to file reports on the consumer.
BSA/AMLA - Bank Secrecy Act / Anti-Money Laundering Act
What is the definition for a Non-Traditional Mortgage according to the SAFE Act?
Anything other than a 30-year fixed rate mortgage.
According to what law is a 30-year fixed rate mortgage a Traditional Mortgage?
SAFE Act
Conforming mortgages meet the standards of who?
Fannie Mae & Freddie Mac
Non-conforming loans do not meet the standards of who?
Fannie Mae & Freddie Mac
Where can conforming loans be sold?
Secondary Market
Can non-conforming loans be sold on the secondary market?
no
What is another name for a non-conforming loan?
Jumbo Loan
Do subprime loans allow more risk than are allowed in the conforming loan market?
yes
Secondary Financing
buyer borrowers money from another source (other than the primary lender) to pay part of the purchase price or closing costs.
How much of a down payment do secondary lenders require?
5% down payment
Fixed Rate
won’t change; loan terms remain constant for the life of the loan. Generally 15-30 years
Interest Only
Straight note; Only paying the interest. Period of induced payments for a specified time, then payment increases to fully amortizing by end of term.
Adjustable Rate Mortgage (ARM)
At some point the rate will adjust. Interest rate periodically adjusted to reflect fluctuations in cost of money.
Another name for note?
Promissory Note
How many promissory notes?
4
What are the promissory notes?
- Straight Note/Interest Only Note
- Partially Amortizing Installment Note/Installment Note w/ Balloon
- Negative Amortization
- Fully Amortizing Installment Note
Straight Note/Interest Only Note
Only paying interest
Partially Amortizing Installment Note/Installment Note w/ Balloon
Means it has a balloon payment at end of term to pay off balance due. Includes periodic payments of principal/interest during loan term.
Negative Amortization
Monthly payment not sufficient to cover the accrued interest from previous month.
What do you call a loan that continues to grow but you have a monthly payment on?
Negative Amortization
What is another name for a Fully Amortizing Installment Loan?
Self-Liquidating Loan
What type of loan is it when the borrower makes a payment every month for 30 years and at the end of the 30-years the whole thing is paid off?
Fully Amortiizing
Acceleration Clause
Speeds up when the payment is due because of default. Loan balance due immediately due to default/violation of contract provisions.
Alienation Clause
Transfers of ownership in the property (due on sale clause)
Index + Margin =
Rate
Index
Part that goes up and down; what makes it adjust.
Margin
Stays the same for the life of the loan; profit the bank makes.
What part goes up and down and adjust?
Index
What stays the same for the life of the loan and is how the bank makes profit?
Margin
Are Buydown Plans and Discount Points the same thing?
yes
Buydown
discount points paid to buy down interest rate and/or lower monthly mortgage payments
Point
1% of the loan amount
How old does the borrower have to be to qualify for a reverse mortgage?
62 years
In a reverse mortgage, what increases and what decreases?
Loan increases (debt) & equity shrinks (equity)
What does HECM stand for?
Home Equity Conversion Mortgage
What is a Home Equity Conversion Mortgage (HECM)?
FHA name for a reverse mortgage
Tenure
over time
Tenure Payment Option
Equal monthly payments while living in the property
What are instances for a reverse mortgage to be over?
Death of last surviving borrower.
Sells home
Ceases to live in home for 12 consecutive months.
Non-payment of taxes and insurance.
What is FHA’s name for a reverse mortgage?
Home Equity Conversion Mortgage (HECM)
For a reverse mortgage, how long must you reside in the home?
12 consecutive months
Balloon Payment
Also known as a partially amortized loan. It’s a type of fixed-rate mortgage with a monthly payment based on a 30-year schedule.
What is another name for a balloon payment?
Partially Amortizing Loan
What is another name for a partially amortizing loan?
Balloon Payment
Balloon Payment is equal to
Partially Amortizing Loan
What type of payment has a fixed-rate mortgage with a monthly payment based on a 30-year schedule?
Balloon Payment/Partially Amortizing Loan
Hybrid ARM
An adjustable rate mortgage with an initial fixed rate period greater than one year (period). For example, 3/1, 5/1, 7/1, or 10/1 ARM’s
What do you call a 3/1, 5/1, 7/1, or 10/1?
ARM’s
What type of payment/loan allows for an adjustable rate mortgage with an initial fixed rate period greater than one year (period)?
Hybrid ARM
What are examples of Hybrid ARMs?
3/1, 5/1, 7/1, & 10/1
Bi-Weekly Mortgage
Payment plan on fixed rate mortgage setup like a standard 30-year conventional loan but payments are made every 2 weeks instead of every month. 26 annual payments = one extra payment each year.
For a bi-weekly mortgage, how many payments in a year?
26
Blanket Mortgage
Covers more than one parcel of land or lot and is usually to finance subdivision developments.
Partial Release Clause
Allows the borrower to pay a certain amount to release some of the lots with the mortgage continuing to cover the remaining lots.
What type of mortgage usually allows borrowers to have a partial release clause?
Blanket Mortgage
Bridge Mortgage
Occurs between the termination of one mortgage and the beginning of the next. When the mortgage is taken out, the bridge mortgage is repaid.
Cash Out Mortgage is equal to…?
Refinance
Cash out Mortgage/Refinance
Allows borrowers to get cash for the equity that has built up in a property (Home equity loan for a specific purpose or refi’s and receives cash at the closing). Tap into equity + retain ownership.
Home Equity Loan
A one-time loan for a specific amount of money/specific purpose (closed-end loan)
WHat type of loan must have a net-tangible benefit?
Cash-Out Refi Mortgage
Home Equity Line of Credit (HELOC)
Money that is available to the homeowner to be borrower as needs arise (open-end loan).
What does HELOC stand for?
Home Equity Line of Credit
Please explain the difference between Home Equity Loan and Home Equity Line of Credit (HELOC).
HELOC is open-end loan and Home Equity Line is close-end loan
Construction Mortgage is equal to…?
Interim Loan
Construction Mortgage (interim Loan)
A temporary loan used to finance the construction of improvement and buildings on lands.
Explain the process of buying a home that is being built from ground up.
- Construction Loan/Interim Loan
- Once construction is complete the appraiser verifies that specifications have been met and the original opinion is valid.
- Take out loan/permanent loan.
Take Out Loan
The loan that replaces the construction (interim loan) once the project is completed permanen financing.
What is another name for Equity Participation Mortgage?
SAM = Shared Appreciation Loan or Participation Loan
Equity Participation Mortgage (SAM)
Permits the lender to share part of the earnings, income, or profits from a real estate project (participation plan).
What is an example of a Equity Participation Mortgage (SAM)?
Borrower is upside down or behind on payments. The bank/lender agrees to do the loan but agreement is once the home is sold, the lender gets 5% of the equity.
Package Mortgage
A mortgage that includes personal property, like appliances in the property sale and all are financed together in one contract but generally requires an added security instrument to lien the personal portion of the sale.
Wrap Around Mortgage
When an existing loan on a property is retained while the lender gives the buyer another larger loan.
The total = new second loan + existing loan - is treated like one loan and the borrower pays one payment.
Are you considered a loan officer or a loan originator?
Loan Originator
What are the steps to the loan process?
- origination
- processing
- underwriting
Origination
loan originator (LO); the process of making or initiation a new loan.
Processing
verifying data in the loan file; coordinating loan process (processor)
Underwriting
Evaluation and deciding whether to make a new loan (bank/lender)
Is servicing apart of the loan process?
no, this is the result of completion/approval from the loan process.
Servicing
Continued maintenance of a loan after close
What is the standard loan application for Fannie Mae?
Form 1003 = Uniform Residential Loan Application (URLA)
What is the standard loan application for Freddie Mac?
Form 65
What are the types of underwriting?
Automated (AUS) and Manual
Explain underwriting.
Underwriter evaluates the documentation, borrower info, and various risk factors to make a decision.
Automated Underwriting (UW) or AUS
Information fed into automated underwriting system
Manual Underwriting (UW)
Done by individual who works for the lender
What UW system does Fannie Mae use?
Desktop Underwriter (DU)
What UW system does Freddie Mac use?
Loan Prospector (LP)
Is a conventional loan insured or guaranteed by a government entity?
no
What loan type is insured by the government?
FHA
What loan type is guaranteed by a government entity?
VA
What is the qualifying ratio for a conventional loan?
28% / 36%
Please explain the 2 parts to the qualifying ratios for loans.
Top % = housing expense ratio
Bottom % = total debt to income ratio
For a conventional loan, when is the PMI required?
if LTV is greater than 80%
What is the late fee on a convetional loan?
5% of the P&I Only.
Are FHA loans insured?
yes
Explain FHA loans.
FHA insures mortgage loans made by approved lenders.
What is the down payment for an FHA loan?
3.5%
What are the qualifying ratios for an FHA loan?
31%/43%
How much can a seller contribute for an FHA loan?
up to 6% of the lesser of the sales price of the appraised value toward closing costs.
For an FHA loan, the borrower must occupy as principal residence within…?
60 days of closing the loan, for at least 12 months.
What loan requires MIP?
FHA
Explain MIP in regards to an FHA loan.
Required regardless of down payment
When is MIP required?
On all FHA loans regardless of the down payment.
What loan also required UFMIP?
FHA Loans
Does FHA loans have Prepayment Penalty Fee (PPP)?
no
What is the late fee for an FHA loan?
4% of the P&I only
What does MIP stand for?
Mortgage Insurance Premium
What does UFMIP stand for?
Upfront Mortgage Insurance Premium
What does VA stand for?
Veteran Administration
Who is VA guaranteed through?
The Veteran Benefits Administration
What is the max guaranty for a VA loan?
25% of the purchase price or appraised value (whichever is lower)
With VA loans, veterans eligibility is based on length of service with what required documentation?
DD-214 & COE
What is a DD-214?
Discharge papers
What does COE stand for?
Certificate of Eligibility
Certificate of Eligibility (COE)
Tells the borrower the max they are qualified for.
What is the qualifying ratio for VA?
41% (total debt to income ratio - back end only)
WHat are the 2 names for VA appraisal?
CRV - Certificate of Reasonable Value
NOV - Notice of Value
Do VA loans require a down payment?
no
Do VA loans have PPP fee?
no
What kind of loan has a non-refundable variable funding fee?
VA Loans
When can a non-refundable variable funding fee be waived?
If you are a disabled veteran or surviving spouse.
For a VA loan, when must the borrower occupy as a principal residence?
Within 60 days of closing the loan, for at least 12 months.
What is the late fee for a VA loan?
4% of P&I Only
On a VA loan, lenders can charge a flat fee of what?
Up to 1% to cover lender cost.
USDA Loan
Provides financial support to low-income home buyers in rural communities or farm communities.
Section 502 Loans =
USDA Loans
What is another name for a USDA Loan?
Section 502 Loans
What loans are 100% fianncing?
USDA Loans/Section 502 Loans
Rural
can include small towns up to 35,000 people.
WHere does the money come from for a USDA Loan?
The Department of Agriculture
Who administers USDA Loans/Section 502 Loans?
The Department of Agriculture
Do USDA Loans have a max loan amount?
no
Do USDA loans have a PPP fee?
no
What is the late fee for USDA Loans?
4% of the P&I Only
What are the types of appraisal approaches?
- Sales Comparison/Market Approach
- Cost Approach/Replacement Cost Approach
- Income Approach/Capitalization Approach
Sales Comparison Approach =
Market Approach
Sales Comparison/Market Approach
Compares property being appraised with other similar properties (comparables/comps) sold recently in the same market area; best for residential properties.
What appraisal approach is best for residential properties?
Sales Comparison/Market Approach
How many comparables/comps are required for a sales comparison approach/market approach? Why?
Minimum of 3 comparables/comps.
Ensures an accurate appraisal from sufficient data.
Cost Approach =
Replacement Cost Approach
Cost Approach/Replacement Cost Approach
Calculates cost of the land, site improvements, and to build the structure, any depreciation, and best used for relatively new construction, vacant land, and unusual or special purpose properties with few or no comparables and that do not produce income. Also used when evaluating the cost to replace property that was damaged due to natural disasters.
What does the cost/approach/replacement cost approach calculate?
Cost of land, site improvements, and to build the structure and any depreciation.
What is the cost approach/replacement cost approach best used for?
Relatively new construction vacant land, and unusual or special purpose properties with few or no comparables and that do not produce income. When evaluating the cost to replace property that was damaged due to natural disasters.
Income Approach =
Capitalization Approach
Income Approach/Capitalization Approach
Estimates values by analyzing current or potential revenue compared it to other similar properties; best for commercial or investment properties.
What is the purpose of the income approach/capitalization approach?
Estimates value by analyzing current or potential revenue compares it to other similar properties.
What is the income approach/capitalization approach best used for?
Commercial or Investment Properties.
If a borrower is self-employed what employment documentation is required?
Personal and Corporate Tax Returns (Min. of 2 years)
If a borrower is a wage earner, what employment documentation is required?
Continuous employment for 2 years in the same field (W-2, Tax Returns, Paystubs); if not, changes for advancement or special education and training is acceptable.
What source of income is optional for the borrower to use?
Alimony
Child Support
Maintenance
What law must accept alimony and/or child support?
ECOA - Equal Credit Opportunity Act
For tax fee/public assistance income, how much can be grossed up?
25%
In order for the borrower to use alimony and/or child support, what is required?
Must continue for 3 years.
Tax Free/Public Assistance income MUST be grossed up by how much?
25%
If the child is over 18 and NOT in college, can the borrower still use child support income for their loan?
no
What is rental income calculated by? Why?
75%
To allow for vacancy loss of 25%.
What is a 4506-T?
Document used to order a transcript of the borrowers tax return.
What is an 8821?
Document used to get the full copy of a tax return.
To do any income calculation, what should you start with?
Gross monthly income
What is the difference between bi-weekly and bi-monthly?
Bi-weekly = 26
Bi-monthly = 24
For any math problem, what figure do you use, the sales price or the appraised value?
Which ever is lower
Wage income calculation?
Hourly Wage x Hours worked per wk x 52 (weeks per yr) / 12
Weekly income calculation?
of weeks x 52 (weeks per yr) / 12
Bi-weekly income calculation?
Bi-weekly pay x 26 (# of paydays per yr) / 12
Semi-Monthly/Bi-Monthly income calculation?
Pay x 24 (# of paydays per year) / 12
LTV Calculation?
1st loan amount / Lesser of the sales price or appraised value
The combined loan-to-value (CLTV) calculation?
(1st loan amount + 2nd loan amount) / lesser of the appraised value or sales price
If you have a home that has an appraised value of $120,000, a sales price of $125,000 and the loan amount on the 1st TD of that home is $90,000 and the loan amount on the 2nd TD is $10,000.
What is the LTV? What is the CLTV?
$90,000 / $120,000 = 0.75 or 75% LTV
$90,000 + $10,000 = $100,000
$100,000 / $120,000 = 0.8333 or 83% CLTV
Front End Ratio =
Housing Expense Ratio (HER)
Front End Ratio/Total Obligations Ratio (TOR)
The relationship of the borrower’s total monthly housing expense (PITI) to income, expressed as a percentage.
Formula for Front End Ratio/Housing Expense Ratio?
PITI / Gross Monthly Income = Ratio %
Back End Ratio =
Total Obligations Ratio (TOR)
Back End Ratio/Total Obligations Ratio (TOR)
The relationship of the borrowers total monthly debt obligations (PITI + long term debts) to income, expressed as a percentage.
How many payments allows you to not count for the back end ratio/total obligations ratio?
10 payments or less do not count, unless its a lease you have to count every time.
Formula for Back End Ratio/Total Obligations Ratio (TOR)?
(PITI + Debt) / Gross Monthly Income = Ratio %
What debt should you calculate in your equations?
only calculate debt that shows up. on the credit report.
Smith’s annual income is $60,000. The expected PITI is $1,550 and monthly recurring debt payments are $450. What is the borrowers front-end ratio and back end ratio?
$1,550 / $5,000 = 0.31 or 31% Front End.
$1,550 + $450 = $2,000
$2,000 / $5,000 = 0.4 or 40% Back End
Answer: 31/40
How to determine maximum mortgage amount for an FHA and Conv. loan?
- Monthly gross income x Front Ratio = Max PITI.
- (Monthly gross income x Back Ratio) - debt = Max PITI
- The lower of the 2 is the answer to the problem.
A borrower has a stable monthly income of $4,000 and recurring debts of $600. If he is getting an FHA loan, what’s the maximum monthly payments for which he would qualify?
A - $1,054
B - $1,120
C - $1,240
D - $1,462
B - $1,120
1.
$4,000 x .31 = $1,240
2.
$4,000 x 0.43 = $1,720
$1,720 + 600 = $1,120
3.
Whichever is lower of the 2 = $1,120
FHA Qualifying Ratio?
31/43
What do you do if they are asking you to calculate a ratio?
Divide
What do you do if they are asking you to calculate a payment?
Multiply
Fraud
misrepresentation, concealment, or omission of material facts
Actual Fraud
Intent to deceive
Constructive Fraud
Unintentional; the result of carelessness or negligence.
Mortgage fraud
Any misrepresentation or concealment used in an attempt to obtain a mortgage loan.
What is another name for mortgage fraud?
Consumer fraud
What are the differences between actual fraud and constructive fraud?
Actual fraud is intentional and constructive fraud is unintentional.
Fraud for Property (Consumer Fraud)
Borrower’s misrepresented info on loan applications to qualify such as, income, expenses, lying about the property being owner occupied versus tenant occupied, lying about the source of income of the down payment.
Who commits fraud for property?
Homeowners, potential consumers, homebuyers
Who commits fraud for profit?
Industry insiders
Fraud for Profit
More sophisticated version of mortgage fraud because it involves real estate agents, appraisers, lenders, and closing agents or attorneys.
What are examples of fraud for profit?
flipping, straw buyers, bogus sales, inflated appraisals, and air loans.
Air Loan
Non-existent loans and no-collateral loans.
Deed Scam
Forged seller’s signature on the deed. Properties is fraudulently transferred and deed recorded.
Double Sold Loans
Primary mortgage holder sells loan to fraudulent company for servicing. The borrower signs multiple copies of the same application or documents that the loan originator submits to different lenders.
Unrecorded or Silent Second
Buyer gives a seller a second mortgage without informing the lender or makes the lende aware but never intends to file the lien of to make any payments to the seller agreement.
Equity Skimming
Make loans or rescues knowing that the borrower will not be able to pay.
Loan Flipping
Refinance with fee-rich loan that has no benefits to the borrower.
Straw buyer
A person who makes a purchase on behalf of another person. They are used when the real buyer cannot complete the transaction for some reason.
Bait and Switch
Alluring but insincere offer to sell product or service. Purpose is to switch consumers from buying advertised product.
Bona Fide Offer
Refusal of advertiser to show, demonstrate or sell product offered. Disparagement of advertised product. Showing or demonstrating product that is defective, unusable, or impractical for purpose represented.
What law created the SAFE Act?
HERA - Housing & Economic Recovery Act
What does HERA stand for?
Housing & Economic Recovery Act
What does SAFE Act stand for?
Secure & Fair Enforcement Act - for mortgage licensing act
What does the N stand for in NMLS?
Nationwide
What is the SAFE Act also known as?
Title V (Title 5) of HERA
Secure & Fair Enforcement Act (SAFE)
Requires states to implement an MLO licensing process that meets certain standards through the nationwide mortgage licensing system and registry (NMLS or NMLSR).
What does the R stand for in NMLSR?
Registry
What 2 entities created the entire NMLS?
CSBS - Conference of State Bank Supervisors
AARMR - American Association of Residential Mortgage Regulators
Who establishes minimum standards for licensing or registration of all MLO’s?
CSBS - Conference of State Bank Supervisors
AARMR - American Association of Residential Mortgage Regulators
What does an LO (Loan Originator) rol consist of?
- Takes a residential mortgage loan application.
- Offers or negotiates terms of a residential mortgage loan for compensation or gain.
When do you need an LO License?
- Takes a residential mortgage loan application.
- Offers or negotiates terms of a residential mortgage loan for compensation or gain.
What do you not need an LO (Loan Originator) license?
- Administrative or clerical tasks.
- Extending credit on timeshare plans.
- Negotiating mortgage loan for themselves or immediate family members.
- A loan processor or UW who does not represent to the public through advertising.
- Attorney who negotiates loan terms as an ancillary service and who aren’t compensated by a LO/lender.
The SAFE Act requires all MLO’s to be identified by a unique NMLS Identifier # either as, what?
Registered Loan Originator or State-Licensed Loan Originator
Registered Loan Originator
Loan Originator who is an employee of a depository institution (a bank) regulated by a federal banking agency, or an institution regulated by the Farm Credit Administration.
State-Licensed Loan Originator
Loan Originator who is licensed by his or her state, registered with the NMLSR and isn’t employed by a depository institution.
If you had an MLO license revoked in any government jurisdiction, can you get it back/requalify?
never
What are the MLO License qualifications when it pertains to an individual being convicted or plead guilty or nolo contendere to a felony?
- Cannot have a felony in the past 7 years (unless it was pardoned).
- Can NEVER have any felony involving an act of fraud, dishonesty, or a breach of trust or money laundering.
How many hours for pre-licensing for NMLS?
20 hours
How many hours of Federal Law and Regulation for NMLS?
3 hours
How many hours of Ethics including fraud, consumer protection, and fair lending?
3 hours
How many hours of electives for NMLS?
12 hours
How many hours must and LO complete every year for continuing education (CE)?
8 hours
How many hours of lending standards for non-traditional mortgage products for NMLS?
2 hours
What do the continuing education (CE) hours consist of?
3 hours - Federal Law & Regulation
2 hours - Ethics, including Fraud, consumer protection, & fair lending
2 hours = Non-traditional mortgage products
1 hour = elective
Successive Year Rule
A licensed MLO may only receive credit for a CE course in the year in which the course is taken.
Who is in charge of MLO’s?
State Regulatory Authority
What 3 protection options does the state regulatory authority requires each state to have in place?
- Minimum net worth
- Surety Bonding
- State Recovery Fund
Can the state & federal regulating authorities impose a prison sentence?
no
What is the penalty for violating the SAFE Act for each act or ommission?
$25,000 each
What does the state regulatory authority provide?
Effective supervision and enforcement of the law (suspension, termination, etc) for a violation of state or federal law.
Who ensures all state-licensed MLO’s operating in the state are registered with NMLS?
State Regulatory Authority
Who regularly reports violations, as well as enforcement actions to the NMLS?
State Regulatory Authority
Whas the authority to conduct investigations and deal with violations or complaints arising under the SAFE Act?
State Regulatory Authority
Who has access to such records and may interview the MLO’s and related persons concerning their business?
State Regulatory Authority
Who issues licenses to conduct business, including the authority to write rules or regulations or adopt procedures necessary for licensing?
State Regulatory Authority
Who can deny, suspend, condition or revoke licenses issued under the act?
State Regulatory Authority
