Non Traditional Mortgage Products

Question 1

How does the SAFE Act define a non-traditional mortgage?

Answer 1

Anything other than a 30 year fixed rate mortgage.

Question 2

How does the SAFE Act define a traditional mortgage?

Answer 2

30 year fixed rate mortgage.

Question 3

Conforming mortgages meet standards set by who?

Answer 3

Fannie Mae & Freddie Mac

Question 4

Conforming mortgages may be sold in the ________?

Answer 4

Secondary market (where lenders sell existing loans to other lenders)

Question 5

What are non-conforming mortgages?

Answer 5

They do not meet standards of Fannie Mae/Freddie Mac. Cannot be sold on the secondary market. Also called jumbo loans.

Question 6

What is another name for non-conforming loans?

Answer 6

Jumbo loans.

Question 7

What is an interest only promissory note also called?

Answer 7

Straight Note

Question 8

What is a straight note/interest only note?

Answer 8

Calls for payments of interest-only during term of note.

Question 9

What is a partially amortizing note also called?

Answer 9

Balloon payment/installment note with balloon

Question 10

What is a partially amortizing note/balloon payment?

Answer 10

Calls for periodic payments of principal/interest during loan term with balloon payment at end of term to pay off balance due.

Question 11

What is negative amortization?

Answer 11

Monthly payment is not sufficient to cover the accrued interest from previous month.

Question 12

What is a fully amortizing installment note also called?

Answer 12

Self-Liquidating Loan

Question 13

What is a fully amortizing note?

Answer 13

Calls for regular payment of principal/interest, calculated to pay off entire balance by end of loan term.

Question 14

What are the 4 types of promissory notes?

Answer 14

1. Straight Note/Interest Only Note
2. Partially Amortizing/Balloon Payment
3. Negative Amortization
4. Fully Amortizing/Self-Liquidating Loan

Question 15

What is the acceleration clause?

Answer 15

Gives lender right to declare entire loan balance due immediately because of borrower default or for violation of other contract provisions.

Question 16

What is the alienation clause?

Answer 16

Gives lender certain stated rights when there is transfer of ownership in the property.

Question 17

What is the alienation clause also known as?

Answer 17

Due On Sale Clause

Question 18

What is the rate for an ARM made up of?

Answer 18

Index + Margin = Rate (Fully Indexed Rate)

Question 19

What is the Index (ARMs)?

Answer 19

The index is often referred to as the cost of money.

Index is the part that “adjust” (goes up and down)

Question 20

What is the Margin (ARMs)?

Answer 20

The Margin, which is sometimes referred to as a spread, remains fixed for the life of the loan.

Question 21

What are the 3 components of an ARM?

Answer 21

1. Index
2. Margin
3. Rate

Question 22

What are buydown plans also known as?

Answer 22

Discount points

Question 23

What are buydown plans (discount points)?

Answer 23

Money paid up front to buy-down interest rate and/or lower monthly mortgage payments

Question 24

Who can pay for buydown plans?

Answer 24

Borrower, seller, builder, etc.

Question 25

What are the 2 types of buydown plans (discount points)?

Answer 25

Permanent buy downs reduce payments for life of loan.

Temporary buy downs reduce payments for a specific period of time.

Question 26

1 Point = __ % of the loan amount

Answer 26

1%

Question 27

How old must a borrower be in order to qualify for a Reverse Mortgage?

Answer 27

62 years old

Question 28

What does a reverse mortgage do?

Answer 28

Allows qualified borrowers (62 and older) to convert equity in home without selling or making payments

Question 29

What happens to the loan in a reverse mortgage?

Answer 29

Balance of loan rises as equity shrinks (rising debt, falling equity)

Question 30

What is FHA’s Reverse Mortgage?

Answer 30

HECM - Home Equity Conversion Mortgage

Question 31

What 4 reasons would a Reverse Mortgage end?

Answer 31

When last surviving borrower:

1. Dies
2. Sells the home
3. Non-payment of taxes and insurance
4. Ceases to live in home for 12 consecutive months

Question 32

What is a Hybrid ARM?

Answer 32

An ARM with an initial fixed rate period greater than one year (period). For example, 3/1, 5/1, 7/1, or 10/1 ARMs.

Question 33

How many payments would a borrower make with a bi-weekly mortgage plan?

Answer 33

26 annual payments (equals1 extra monthly payment each year)

Question 34

What does a blanket mortgage cover?

Answer 34

More than one parcel of land or lot. Usually used to finance subdivision developments.

Question 35

What is a bridge mortgage? (swing loan)

Answer 35

Occurs between the termination of one mortgage and the beginning of the next. When the next mortgage is taken out, the bridge mortgage is repaid.

Question 36

What is a Home Equity Loan?

Answer 36

Usually a one-time loan for a specific amount of money/specific purpose; a closed-end loan.

Question 37

What is a Home Equity Line of Credit (HELOC)?

Answer 37

Money that is available to the homeowner to be borrowed as needs arise; an open-end loan.

Question 38

What is a package mortgage?

Answer 38

A mortgage that includes personal property, like appliances, in the property sale and all are financed together in one contract.