Qualified and Non-Qualified Mortgage Programs PrepXl

Question 1

A borrower requesting maximum FHA financing must have a credit score of at least:

A.640
B.500
C.620
D.580

Answer 1

The answer is 580.

An applicant with a credit score of at least 580 can qualify for maximum FHA financing, that being a cash investment of 3.5%. An applicant with a credit score between 500 and 579 can qualify for a cash investment of 10%. A person with a score below 500 is not eligible for an FHA-insured loan.

Question 2

What is the maximum prepayment penalty which may be charged in the first year of the loan if the loan is considered a qualified mortgage?

A.Zero
B.2% of the outstanding balance
C.3% of the outstanding balance
D.1% of the outstanding balance

Answer 2

The answer is 2% of the outstanding balance. If a qualified mortgage provides for a prepayment penalty, the penalty may not apply after the three-year period following consummation and must not exceed statutory percentages of the amount of the outstanding loan balance prepaid. If the loan is prepaid in the first two years, the prepayment penalty may not exceed 2% of the amount prepaid.

Question 3

A jumbo loan:

A.Is for subprime borrowers only
B.Is another name for a VA loan
C.Exceeds conforming loan limits
D.Is illegal

Answer 3

The answer is exceeds conforming loan limits. Conventional loans that meet the maximum loan limit eligibility guidelines for purchase by Fannie Mae or Freddie Mac are considered conforming loans. Loans that exceed this loan limit are called jumbo loans, or nonconforming loans.

Question 4

According to the Statement on Subprime Mortgage Lending, which of the following would not be a characteristic of a subprime borrower?

A.A foreclosure in the past 24 months
B.A credit score of 645
C.Bankruptcy within the last three years
D.Two 60-day delinquencies in the last year

Answer 4

The answer is a credit score of 645. According to the Statement on Subprime Mortgage Lending, a subprime borrower may have one or more of the following characteristics: a bankruptcy in the last five years, a foreclosure in the last 24 months, or one or more 60-day delinquencies in the last 24 months, among other indicators.

Question 5

All of the following could be used to correctly describe Fannie Mae, except:

A.Government owned
B.Government sponsored
C.Private sector
D.Government regulated

Answer 5

The answer is government owned. Fannie Mae is a government-sponsored enterprise, regulated by but not owned by the federal government. It engages in secondary mortgage market transactions, purchasing conforming conventional loans, FHA-insured loans, VA-guaranteed loans, and US Department of Agriculture-guaranteed loans.

Question 6

Which of the following contains only terms which apply to VA loans?

A.Guaranty fee, veterans, eligibility
B.Residual income, funding fee, insuring
C.Upfront mortgage insurance premium, 100% financing, base loan amount
D.Residual income, guaranty, certificate of reasonable value

Answer 6

The answer is Residual income, guaranty, certificate of reasonable value. One method of qualifying for a VA loan is through the residual income method. Under that method, a determination is made as to whether the veteran has enough income, after paying fixed debts, to cover daily living expenses. In this manner, a veteran borrower can be qualified if the debt-to-income ratio exceeds the general 41% limit. A VA loan is guaranteed by the Department of Veterans Affairs. A veteran cannot borrow more than the value shown on the VA appraisal, called a Certificate of Reasonable Value (CRV); however, he or she may buy the property for a higher purchase price if he or she pays the difference in cash.

Question 7

When would a lender be required to cancel private mortgage insurance?

A.Once the borrower has made 24 payments and a new appraisal shows the equity at 80%
B.Once the LTV reaches 78%, based on a new appraisal
C.After five years
D.Once the LTV reaches 78%, based on the lower of the original appraisal or purchase price

Answer 7

The answer is once the LTV reaches 78%, based on the lower of the original appraisal or purchase price. A lender is required to cancel private mortgage insurance once the borrower pays their mortgage down to 78% of the original value or when the loan reaches the midpoint of its amortization period (e.g., after 180 payments of a 30-year loan).

Question 8

The Interagency Guidance on Nontraditional Mortgage Products applies to:

A.Any adjustable-rate mortgage
B.Any mortgage with a prepayment penalty
C.Any mortgage that requires a determination of ability to repay
D.Any mortgage which allows the deferment of principal or interest

Answer 8

The answer is:

any mortgage which allows the deferment of principal or interest.

Under the Guidance, the term “nontraditional mortgage product” refers to a closed-end residential mortgage loan product that allows a borrower to defer payment of principal and sometimes interest.

Question 9

The Interagency Guidance on Nontraditional Mortgage Products applies to:

Answer 9

Nontraditional mortgage products typically include:

interest-only mortgages,
payment option adjustable-rate mortgages (ARMs), and other products that allow borrowers to defer repayment of principal or interest.

The guidance aims to ensure that these products are offered responsibly and that borrowers understand the associated risks.

Question 10

Which of the following transactions would carry monthly mortgage insurance?

A.VA 100% LTV, 30-year fixed
B.Conventional 80% first, 15% second; combined LTV of 95%
C.Conventional 30-year fixed, 72% LTV
D.FHA 30-year fixed, 20% down

Answer 10

The answer is:

FHA 30-year fixed, 20% down.

For all FHA insured mortgages involving an original principal obligation less than or equal to 90% LTV, regardless of amortization terms, an annual mortgage insurance premium will be assessed until the end of the mortgage term or for the first 11 years of the mortgage term, whichever occurs first.

Question 11

why are answers A-C not valid?

Answer 11

To determine which of the given transactions would carry monthly mortgage insurance, let’s evaluate each option in detail:

1. A. VA 100% LTV, 30-year fixed:
   
   • VA loans do not require monthly mortgage insurance. Instead, they require a one-time funding fee, which can be financed into the loan. Therefore, this option does not carry monthly mortgage insurance.
2. B. Conventional 80% first, 15% second; combined LTV of 95%:
   
   • This is known as a piggyback loan. The primary loan is 80% LTV, and the second loan is 15% LTV, combining to a total of 95% LTV. Typically, private mortgage insurance (PMI) is required for conventional loans with an LTV above 80%. However, because the primary loan itself is 80% LTV, it avoids PMI. The second loan does not typically require monthly mortgage insurance either, but may have higher interest rates.
3. C. Conventional 30-year fixed, 72% LTV:
   
   • For conventional loans with an LTV of 80% or less, private mortgage insurance (PMI) is generally not required. Since the LTV here is 72%, this loan would not carry monthly mortgage insurance.
4. D. FHA 30-year fixed, 20% down:
   
   • FHA loans require both an upfront mortgage insurance premium (UFMIP) and an annual mortgage insurance premium (MIP) regardless of the down payment amount. In this case, even though the down payment is 20%, FHA rules mandate that annual MIP is required for at least 11 years if the LTV is 90% or less, and for the life of the loan if the LTV is above 90%. Therefore, this option would carry monthly mortgage insurance.

Given the above explanations, the answer is D because FHA loans require monthly mortgage insurance premiums regardless of the LTV or down payment percentage. The other options do not require monthly mortgage insurance based on their respective loan types and LTV ratios.

Question 12

Which of the following is NOT a required characteristic of a general qualified mortgage (QM)?

A.APR does not exceed the APOR by more than 2.25%
B.Qualifying points and fees charged may not exceed 3% of the loan amount
C.The borrower must make a down payment
D.Loan must be fully amortizing

Answer 12

The answer is the borrower must make a down payment. A qualified mortgage (QM) is a covered transaction that provides for substantially-equal, regular periodic payments that do not result negative amortization or a balloon payment or allow the borrower to defer the repayment and for which the lender determines repayment ability based on statutory guidelines. A QM may not have a term that exceeds 30 years or provide for points and fees that exceed 3% of the total loan amount, and the APR may not exceed the APOR by more than 2.25%.

Question 13

a general qualified mortgage (QM)?

Answer 13

1. do not result negative amortization or a balloon payment or allow the borrower to defer the repayment and for which the lender determines repayment ability based on statutory guidelines

2.A QM may not have a term that exceeds 30 years

3.provide for points and fees that exceed 3% of the total loan amount

4. the APR may not exceed the APOR by more than 2.25%.

Question 14

Loan limits for products like conforming loans and FHA loans vary based on:

A.State
B.County
C.Municipality
D.Acreage

Answer 14

The answer is County.

Loan products, such as conforming loans, jumbo loans, FHA loans, and some VA loans are based on county loan limits. Low-cost areas and high-cost areas have different limits, and available loan amounts for these programs will vary accordingly.

Question 15

Which of the following refers to the amount that the government will guarantee to repay a lender of a VA loan in the case of borrower default?

A.Premium amount
B.Entitlement
C.Insured amount
D.Funding fee limit

Answer 15

The answer is Entitlement.

While the VA does not have a maximum loan amount, it does limit the amount that it can guarantee to repay a lender in the event of borrower default.

The amount that the government will guarantee to a lender is known as a veteran’s entitlement.

Question 16

Which of the following is true regarding a borrower’s ability to qualify for FHA financing if their credit score is 560?

A.they are not eligible for FHA financing
B.they are eligible for FHA financing up to 85% LTV
C.they are eligible for FHA financing up to 96.5% LTV
D.they are eligible for FHA financing up to 90% LTV

Answer 16

The answer is they are eligible for FHA financing up to 90% LTV.

An applicant with a credit score of at least 580 can qualify for the maximum FHA financing - that being a cash investment of 3.5%. An applicant with a credit score between 500 and 579 can qualify for a cash investment of 10%. A person with a score below 500 is not eligible for an FHA-insured loan

Question 17

An applicant with a credit score of at least 580 can qualify for the __________ FHA financing

Answer 17

Maximum, that being a cash investment of 3.5%

Question 18

An applicant with a credit score between 500 and 579 can qualify for a cash investment of ____%

Answer 18

10%

Question 19

A person with a score below 500 is ____ eligible for an FHA-insured loan

Answer 19

not

Question 20

Explain this “qualify for the maximum FHA financing - that being a cash investment of 3.5%. An applicant with a credit score between 500 and 579 can qualify for a cash investment of 10%. A person with a score below 500 is not eligible for an FHA-insured loan”

Answer 20

This statement explains the requirements for qualifying for an FHA-insured loan based on an applicant’s credit score and the required cash investment (down payment). Here’s a breakdown of the information:

1. Maximum FHA financing with a 3.5% cash investment:
   
   • To qualify for the maximum financing under an FHA loan, which allows for a lower down payment of 3.5% of the home’s purchase price, the applicant must have a credit score of 580 or higher. This means if the applicant’s credit score is at least 580, they only need to make a down payment of 3.5% of the home’s purchase price.
2. Credit score between 500 and 579:
   
   • Applicants with a credit score between 500 and 579 can still qualify for an FHA loan but must make a larger down payment of at least 10% of the home’s purchase price. This higher down payment requirement helps mitigate the higher risk associated with lending to individuals with lower credit scores.
3. Credit score below 500:
   
   • Applicants with a credit score below 500 are not eligible for an FHA-insured loan. The FHA sets this minimum credit score requirement to ensure that borrowers have a certain level of creditworthiness and to reduce the risk of default.

In summary:
- Credit score of 580 or higher: Eligible for maximum FHA financing with a 3.5% down payment.
- Credit score between 500 and 579: Eligible for FHA financing with a 10% down payment.
- Credit score below 500: Not eligible for an FHA-insured loan.

These requirements are in place to balance the goal of making homeownership accessible to more people while managing the risk to lenders and the FHA insurance fund.

Question 21

According to the Interagency Guidance on Nontraditional Mortgage Product Risks, a borrower’s repayment ability:

A.Should be based on the initial payment terms of the loan
B.Should be based on a fully-amortizing repayment schedule
C.Is irrelevant if there is sufficient equity
D.Is irrelevant if the borrower has sufficient assets

Answer 21

The answer is should be based on:

a fully-amortizing repayment schedule.

The Guidance on Nontraditional Mortgage Product Risks suggests that a lender base a borrower’s repayment ability on a fully-amortizing repayment schedule. With implementation of the Ability to Repay Rule, that recommendation is expanded. The Rule states that a creditor must make a good faith determination of the borrower’s ability to repay the loan based on an equal periodic payment that fully amortizes the loan over its term and that the payment amount be calculated based on the fully-indexed rate of the loan.

Question 22

If a borrower’s mortgage loan includes an APR that exceeds the APOR by more than 2.25%:

A.The loan is a subprime loan
B.The loan is not eligible for sale on the secondary mortgage market
C.The loan may not be considered a qualified mortgage
D.Mortgage insurance will be required

Answer 22

The answer is the loan may not be considered a qualified mortgage. A qualified mortgage is a covered transaction that provides for substantially-equal, regular periodic payments that do not provide for negative amortization, allow the borrower to defer repayment of principal, or result in a balloon payment. The loan may not have a term that exceeds 30 years or provide for points and fees that exceed 3% of the total loan amount. The APR on the transaction may not exceed the APOR by more than 2.25%.

Question 23

A veteran with full eligibility and who is seeking a loan greater than $144,000 would be able to obtain a maximum guaranty of:

A.$548,250
B.100% of the loan amount
C.$144,000
D.25% of the loan amount

Answer 23

The answer is 25% of the loan amount. A veteran with full eligibility who is obtaining a loan greater than $144,000 can get a maximum guaranty of 25% of the loan amount, regardless of the conforming loan limit.

Question 24

Which of the following is true concerning qualified mortgages and prepayment penalties?

A.A qualified mortgage may never include a prepayment penalty
B.A qualified mortgage may include a prepayment penalty for up to the first three years
C.A qualified mortgage may include a prepayment penalty for up to the first five years
D.A qualified mortgage may include a prepayment penalty for up to the first four years

Answer 24

The answer is a qualified mortgage may include a prepayment penalty for up to the first three years.

Under the ATR/QM Rule, a qualified mortgage may not include a prepayment penalty unless it is permitted by law.

A prepayment penalty may only be included if the QM is not a higher-priced mortgage and the prepayment penalty does not exceed 2% of the outstanding loan balance prepaid if prepaid during the first two years following consummation or 1% of the outstanding loan balance prepaid if prepaid during the third year following consummation.

Question 25

A homeowner has an FHA mortgage that is assumable. The homeowner would like to sell his home and arrange for the buyer to take on the mortgage as it is. The homeowner’s current FHA loan would not be paid off. Which of the following is most true?

A.The homeowner can legally allow the buyer to assume the existing loan, provided that the buyer is qualified
B.The homeowner is violating the assumability clause in their loan and risks having the loan called due and payable
C.The homeowner is violating the due-on-sale clause and risks having the loan called due and payable
D.Because the loan is FHA-insured, it is not assumable even if the buyer is qualified

Answer 25

The answer is the homeowner can legally allow the buyer to assume the existing loan, provided that the buyer is qualified. FHA loans are assumable, meaning that if a borrower sells the home, the homebuyer could potentially assume - i.e., take over - the existing FHA loan