Non-conforming Mortgages Flashcards
This section focuses on this unconventional loan type more broadly and tests your knowledge on being able to define and identify what this mortgage type is as well as offer it to people in exceptional circumstances. You will also come to understand why these mortgages are riskier than others.
What is a non-conforming mortgage?
A. A mortgage outside of government-sponsored enterprises (GSE)
guidelines.
B. A mortgage that can purchase things outside of homes.
C. Jumbo loans and government-insured loans.
D. All the above.
Correct answer: D
D is correct, as a non-conforming mortgage does not follow GSE guidelines so will never be bought by Fannie Mae, Freddie Mac, and other loan-buying organizations. A non-conforming mortgage means it has its own unique processes compared for conforming ones, so it will be less straight forward to get a loan of this type, such as a jumbo loan, a VA loan, a USDA loan, and an FHA loan.
Based on the above definition, are jumbo loans non-conforming mortgages?
A. Yes.
B. No.
Correct answer: AA is correct because it is absolutely true that a jumbo loan is a non-conforming loan as it sits outside of the box of a typical conventional loan. A client benefits from a higher loan for a million-dollar home and it is offered at a higher risk to lenders, so it is harder to get this
mortgage type than others.
What luxury high-end purchase would be covered by a non-conforming mortgage?
A. A five-million-dollar home.
B. A 500,000-dollar sports car.
C. A ten-million-dollar jet.
D. Flying lesions.
Correct answer: AA is correct because the only thing you can buy with anon-conforming mortgage is a home, with some loans also offered for repairs or extensions to homes. So, a borrower cannot buy a sports car, a jet, or flying lessons
The unique nature of non-conforming mortgages means:
A. Its longer wait times to get loan approval.
B. Higher financing requirements.
C. They give borrowers extra unique benefits.
D. Borrowers can buy more than just houses.
E. A & B
Correct answer: E
E is correct, as non-conforming mortgages will have more extended waiting
periods as underwriters spend longer scouring through finances as the
lenders’ stakes for these loans are much higher. There are also higher credit
ratings and income requirements as borrowers must show they will not
default on payments and can afford to repay regularly. Borrowers cannot
buy other purchases outside of a house, and they do not get extra benefits
from other loans.
What is not a non-conforming mortgage?
A. Jumbo loan.
B. VA loan.
C. USDA loan.
D. Conventional loan.
E. FHA loan.
Correct answer: D
D is correct because a non-conforming mortgage does not fit into conventional mortgage guidelines outlined by Fannie Mae and Freddie Mac. A jumbo loan fits into this umbrella as it pays for high-end homes
above a conventional mortgage’s maximum cover. VA and USDA loans are non-conforming as they have set requirements for borrowers (such as military service or living rurally) and even have a $0 deposit fee to secure a loan. FHA loans are non-conforming as they are government-insured and targeted for those with low incomes and credit ratings
What are Fannie Mae and Freddie Mac’s standards?
A. Low-interest rates.
B. Mortgages able to be sold to mortgage-buying agencies.
C. Home loans under $726,200.
D. All the above.
Correct answer: D
D is correct, as if you didn’t know mortgages can be bought by loan-buying agencies to give lenders more money to continue lending out to clients. The big names in this industry are Fannie Mae and Freddie Mac who have helped forge the standards for conventional mortgages, as well as purchasing only these types of loans to ensure continued cashflow in the industry
