SAFE exam Flashcards
4 C’s to Underwriting
- Capacity
- Collateral
- Cash
- Character
If every C is good, they approve/ clear
OKTC - Okay to close
Capacity: Borrowers ability to repay a loan
Collateral: is appraisal of subject property
Cash: Assets/ Capital
Character: credit history - how much you’ve paid in the past. -main thing they look at
-if 30 days late on any account past 24 months, could cause someone not to qualify
How much does a credit pull affect the score as long as you shop around within in 45 days?
1% of your score
and you can get it pulled by as many lenders as you like within in 45 days
FNMA,
FHLMC
Investers are all what market?
Secondary market
What are listed as Primary Market?
1st point of contact
Banks (Depository) Credit Union (Depository) Credit Unions (Depository) Thrifts (Depository) Lenders (NON- Depository!)
MBS
Mortgage Backed Security
-bundle of mortgages securitized for secondary market
Securitization
Securing a bundle of loans to sell to Fanny Mae, Freddy Mac, and Investor Banks with documents in order
Fanny Mae, Freddy Mac, and Investor banks will sell mortgage securities to each other
Portfolio Lender never leaves the ?
company that’s taking care of it
Servicer
an individual or entity that services a loan by performing responsibilities such as sending statements to borrowers, accepting payments, issuing late payment notices, and managing escrow accounts.
Section 6
15/15/60 Rule
When your loan is paid off by original
- They have 15 days to provide document to new lender
- Servicer has 15 days to send a new welcome letter
- If borrower accidentally makes a payment to original company, it cannot be considered late in that 60 days
RESPA means? and deals with?
Real Estate Settlement Procedures Act
to provide consumers with info. on costs of closing so they can shop for settlement services
Regulated by HUD and CFPD
4 main things of RESPA (SK-TE)
S- Servicing. Section 6 - 15/15/60 rule
K- Kickbacks- Section 8 -
No kickbacks or referral fees are allowed between third party and lender.
T- Title - section 9- cannot force borrower to use a certain title company
E- Escrow - Section 10 - a bank cannot keep $50 or over than what is needed in escrow account
Escrow is meant to?
- Get rid of co-mingling of funds
- is any account established or controlled by a servicer on behalf of a borrower to pay taxes, insurance premiums, or other charges related to a mortgage loan, including charges to which the borrower and servicer have voluntarily agreed.
- lenders must maintain an escrow account if required
Documents required for escrow account
- Initial Escrow analysis / statement
- Due at closing or 45 days after closing - Annual Escrow Statement
-Due at closing or within 30 days of closing
(bank has max 30 days to send out)
1/6 Rule
Lenders cannot have more than needed in the escrow account.
Only a 2 month cushion is allowed by lender
RESPA only applies to what type of properties?
1-4 Unit residential properties
Condos/homes/apartments
A manufactured home MUST be permanently fixed to the ground and must be in a slab, not pillars
Balloon Loan Not covered by RESPA except if:
If the balloon loan has a automatic refinance provision built into it (meaning they will pay interest only then it will roll into a fixed interest rate loan)
and a
1. Construction Loan (blue prints must be drawn up and built in 24 months for RESPA to apply
Good Faith Estimate
Includes a rate lock fee- underwriting
This allows the customer to shop around for best rate
- this estimate must be sent in 3 days
- good for 10 days from date of application (sundays and federal holidays don’t count)
HUD 1
tells interest rate and closing costs
Due at closing or 1 day Before closing
- We don’t work for the seller so they never get a copy
Section 8 Violation is:
$10,000 fine and 1 year in prison
TILA - Regulation Z
Truth in Lending Act
“Teela Zeela” 1968
- Enacted under the Consumer Protection Act (CCPA) to protect consumers by disclosing the costs and term of credit
- Creates uniform standards for stating cost or credit to encourage consumers to compare diff. options
- Ensures that advertising is truthful and gives consumers the right to rescind certain loans
- Federal Reserve Board issues regulations
FTC handles the enforcement for mortgage professionals - *** Applies to ALL businesses that regularly offer or extend credit for personal, family, or household purposes
- Does not apply to business, agricultural, or organization or credit in excess of $25K unless secured by real property
Basic purpose is to provide in disclosure to provide true cost and terms of credit being abstained
- APR
- Finance charge
Finance charge (used to calculate APR) COUIM
C- Closing agent fee, Settlement fee
O- Origination fee (bank charge/fee), processing fee
U- Underwriting fee, loan commitment
I- Interest (total)
M- Mortgage broker fee , PMI, MIP
Final TIL (Truth in Lending) disclosure is due
3 days in person or 7 days if in the mail
Fixed rate loan and APR cannot be
1/8 of 1 point that you said on LE
If doing a refinance
Right to cancel or Rescission form (both are same thing)
(Only apply to owner occupied home)
If APR is higher than what it should be, customer has 3 years to cancel AND
Customer must get 2 copies of Final TIL or 3 years to cancel
CFPB monitors
monitors RESPA, TILA, ECOA
Bait and switch
saying one price and then selling it for another
Triggering terms must show APR with it
Fee packing (TILA cont…)
illegal extra charges
Docking fee is illegal
HOEPA / or High Cost loan
Limits in %?
and BAPS
Home Owners Equity Protection Act - Under TILA
Section 32- High Cost
to address abusive practices in refinances and closed-end home equity loans with high interest rates or high fees.
Exceeds APOR by:
- 5% on first
- 5% on subordinate
"BAPS" no Balloon payment ATR no Prepayment penalty Speak to HUD counselor
Prepayment penalties (not allowed for HOEPA loans under any circumstances)
HPML
High Priced Mortgage loans
Section 35
if APR exceeds APOR by
- 5% on first
- 5% on subordinate
“APE”
ATR
no Prepayment penalty
requires Escrow
“32 comes before 35 so cost comes before price”
Section 32 is High cost
Section 35 is High priced
APOR = Avg Prime Offered Rate - published by CFPB
Consumer Hand Book is required by:
TILA
TRID stands for?
and ALIENS?
TILA - RESPA Integrated Disclosure
-CFPB - Dodd Frank Act
LE and CD
Requires 6 pieces of information for an application to be received (ALIENS)
A- Address L- Loan amount I- Income - Gross monthly E- Est. of property value N- Name S- SSN
TRID has 3 buckets (tolerances from LE to CD)
- No tolerance
- Zero Tolerance: COAT
- once put on LE, nothing can change - 10% tolerance- they can pick (we use this one)
COAT (from the 2nd bucket of TRID)
C- Credit Report
O- Origination (bank charges)
A- Appraisal Report
T- Transfer taxes
Tolerances explained
10% tolerance is when we have a list of companies we are associated with and they can pick off that list if they request the list of title companies
Zero tolerance is when the lender forces you to use a particular company
CD
Closing disclosure
7 days by mail or 3 days in person before closing
ECOA - Regulation B
Equal Credit Opportunity
Regulation B (“babies/black” - race and pregnant women
-1974
Illegal to discriminate against “MS. NORA SPARC”
M - Marital status (can ask if married or un married) N O - National Origin (can ask if U.S citizen or green card holder) R- Race A- Age S- Sex P- Public assistance R- Religion C- Color
Applies to all stages of loan process
Enforced by CFPB and Dept. of Justice
Who regulates ECOA
CFPB
Consumer financial protection bureau
ECOA has 4 documents
- Adverse Action Notice
- Notice of Action Taken (ex. moving forward with loan)
- Notice of incomplete application
- Right to receive a copy of your appraisal - Due within 3 days of application
Disparate Treatment
Intentional
When a lender uses one or bases to determine credit availability
when an employer discriminates against a specific individual or employee because of that persons race, color, national origin, sex, or religion
- If reasonable business justification such as profitability factors- then no violation occurs
Disparate Impact
often Unintentional
when there is collateral effect on potential borrowers
- Usually involves failure of a lender to provide the same level of assistance to all applicants such as marginally qualified minority applicants
Disparate-Impact occurs when an employer discriminates against an entire protected class
Overt Discrimination
blatant statement of act that clearly evidences discrimination
Steering
deliberately guiding an applicant toward or away from certain loan products
using prohibited bases to refer applicants to subsidiary, affiliates, or lending channels
HMDA - regulation C
Home Mortgage Disclosure Act
Section 10 of the 1003
“C’s for discrimination”
- Race/ Sex/ Ethnicity
- Federal Reserve Board issues regulations- enforcement is handled by indiv. federal agencies (FDIC, NCUA, etc)
You ask customer is they would like to answer, but they don’t need to.
If they don’t answer then you need to guess
Lenders report because banks must keep a HMDA in file registry of: sir name, loan #,
location (zip code, city and state),
type & purpose of loan, was it approved or denied,
race, sex, ethnicity, & income of applicant
identification of a loan that is subject to HOEPA
This info is used to see if there are any patterns of discrimination
CRA
Community Re- Investment Act
Regulation BB
Tells lenders if you have done business in a certain area
- Redlining is there are certain zip codes that a bank won’t lend to
Reverse redlining is targeting certain zip codes
GLB Act. Reg. P
OR (GLBA)
Gramm Leach Bliley Act
“SPF”
S- Safeguarding
Safeguard Rules- all paperwork with Personal Information must never be left out and you must shred it when done
P- Pretexting- (“pretending”) to be someone else to find out information
F- Financial Privacy - protection of NPI
Also known as the Financial Services Modernization Act of 1999
FCRA
Fair Credit Reporting Act
Reg V
(“very good or very bad credit”)
-*Creates obligations/restrictions for CRA’s (consumer reporting agencies). FTC enforces
Deals with credit
Regulates how credit info is collect, used, & shared
Enables borrowers right to dispute data on their credit reports
Big 3 are: Equifax, Transunion, Experian
Notice of adverse action taken
If dispute, 5 day window for company to mail customer letter they are fixing it then 30 days to fix the bad reporting
FACTA
Fair and Accurate Credit Transactions Act - 2003
This is an amendment to FCRA
- Goal is to reduce risk of identity theft by regulating how personal info is handled
- Credit reporting agencies must provide borrowers with 1 free credit report if requested
FTC Federal Trade Commission- Red Flag Rules is part of this and banks must establish an ID theft policy
Primary Market
Where loans are orginated/ transactions - Depository institutions (banks) - Registered Originators FDIC and NCUA - take deposits (Federal deposit insurance co & National Credit Union Assoc.
From 2008 - Regulation G - all banks have to be _______ with the US government
registered
depository banks
Secondary Market:
Where the securities are traded by investors
Primary is where they are created
Behind the scenes/ who is backing- where the $$$ comes from
market where existing securities or other assets are bought and sold
Lenders make money on sale of loans- Service Release Premium (SRP)
Non depository are _____ & ______
Licensed and Registered
Regulation H = License
To tell states they must meet the minimum requirements for loan officers
(“home- need license in home state”)
Brokers are
the middle man
“licensed” originator
Title insurance is paid by
the owner but is for the lender
Regulation H - Minimum requirements
20 hours of pre-licensing
3- federal
3- ethics
2- non traditional mortgage products
Then every year 8 hours of cec
3 federal
2 ethics
2 non traditional mortgage
must pass the 125 question exam with 75%+
part of Reg. H - requirements are to include _____ _____, pay into state fund, or maintain a minimum net worth
Ensurity bond
Exceptions of Reg. H where you don’t need to be licensed
- If you work for the government and negotiate mortgage contracts
- if you’re an attorney and your fiduciary responsibility is to negotiate a mortgage
- Asked by a close friend or family member
- If the home is your primary residence
Fannie Mae - FNMA
1938 - FNMA.
Federal National Mortgage Association
- Buys “conforming” loans (conforms to FNMA & FHLMC reqs for funding)
- Government Sponsored Entity - GSE- 2008 placed in conservatorship
What is same for both Fanny and Freddie:
Provides a source of funds for the lenders- this is called Securitization
- They buy loans and pay service companies to service the loans
- Mortgage backed securities - bundle mtg loans & sell as bonds to Inv. (graded A, B, C)
- Both GSE and placed in conservatorship
(Government Sponsored Entity)
Freddie Mac - FHLMC
Federal Home Loan Mortgage Corporation
- Created to complete FNMA (fanny) and similar to FNMA, but a little more flexible
- Overseen by FHA- Federal Housing Finance Agency
- Better LTV than Ginnie Mae
- Won’t accept someone one foreclosure in past 7 years
Ginnie Mae
Government National Mortgage Association
(*Bookkeeper)
- Provides insurance to investors purchasing MBS in the secondary market
- Independent private gvt agency
- Deals with govt insurance/ insuring guaranteed loans
- From VA/ FHA/ USDA/
-Fannie and Freddie buy as well
97% of all loans follow Fanny and Freddy
Private Investors
If a loan doesn’t meet govt guidelines, and has no govt backing in the event of default, that loan can still be written, but would be funded by a private bank or investor who will take the risk
***“Non-Confoming” or Jumbo loans/ Non Agency
Encumbrance
a legal claim on a property
encumbrance is a third party’s right to, interest in, or legal liability on property that does not prohibit the property’s owner from transferring title.
A mortgage is a lien and Encumbrance
Abstractor
His job is to research ownership for the past 3 years and check county records
A title report has a fee to make sure there are no encumbrances
1008 Form is what type of report?
Transmitter Summary Report
- “Index” that says tells you where pages are
- Once stack is complete, underwriter gets it and only they can approve it
Title/ Deed. Vs. Lien
Evidence of ownership. Formally recorded at the courthouse
Shows chain of ownership, and any liens on property
Lien is - debt secured against your house/ property (collateral)
“Mechanics” Lien
Mechanics Lien:
placed by contractor for unpaid work. They can put a lien on house until work is completed & paid in full
Hypothecation
You hold the title, bank has the loan
Re-conveyance
Title goes to you when loan is paid in full
They “re-turn” it to you
A Defeasance clause - allows Reconveyance to happen
Mortgage
Document that connects loan to home
Creates a “Security Instrument” in case of foreclosure
- Also called a “Deed of Trust”
-Once the mortgage is recorded, it becomes a new Lien
Deed
Evidence of ownership
Typically refiled with every change of ownership
Acquisition Costs =
purchase price + closing costs
Down payment - 2 types
- Seasoned - how long they’ve had it
Needed to have it at least 2 months - Out of pocket - Can be gifted, granted
There is also “Earnest Money” - deposit towards downpayment, made in Good Faith
Seller Concessions
Used to cover closing costs
***Can never be used to borrowers down payment
<10%, the seller can contribute up to 3%.
If down payment is 10% - 24.9%, the seller can contribute up to 6%
VA- 4%
If your down payment is more than 25%, the seller can contribute up to 9%
Rate Term Refinance vs. Cash-out-Refinance
Rate Term Refinance:
Replacing old mtg(s) w/new one
New loan amt = Old mtg balance + Closing costs
Cash-out-Refinance:
Paying off old mtg(s) + possibly consumer debts or getting extra cash our from equity
HERA “Housing and Economic Recovery Act”
= Federal Law
Fanny & Freddy were so bad they had a conservator put over them by the government
FHEA monitored them
Balloon Loan
Periodic payments including final payment is larger than preceding payments
(180/360) Amortizes over 30 years, but balance is due at year 15.
Construction Loan - also called
Interim loan
periodic disbursements as builders progress
Bridge loan
Short term loan collateralized by borrowers current home and used to close a new home before the present home is sold (Aka- swing loan)
“Buying down” the Rate
Investing money into the loan, taking a lower interest rate and lower payment (rate goes down, cost goes up)
Discount point
Bought to lower the rate below Par
Charged 1% of the loan amount per point
Point = 1% of loan amount
“YSP’s” Yield Spread premium-
now known as a “borrower credit”
Dodd- Frank Wall Street Reform and Consumer Protection (Dodd- Frank) Act
given as credit toward towards closing costs by the lender for taking a rate above Par
a yield spread premium (YSP) is a fee collected by a broker or lender which the borrower uses as a credit toward closing costs in exchange for paying a higher interest rate -(above Par)
Benefit must go to the borrower
YSP must be fully disclosed as a dollar amount/ Recent QM/ ATR Rule
Prohibits UDAAP - Unfair Deceptive or Abuse Acts & Practices
APR
a uniform measurement of the cost of a loan, including interest and financed costs of closing, expressed as a yearly % rate
APR reflects interest rate, but also the points, broker fees, certain closing costs. For that reason, the APR is usually higher than the interest rate.
Adjustable rate
interest rate is adjusted periodically based on pre determined margin, index, and adjustment interval
5/1 ARM- fixed for 5, adjusts annually after
Indexes of the ARM
the index determines how the ARM will adjust
a. Indices- LIBOR - London Interbank Offered Rate
Fast moving adjustments
b. COFI- Eleventh District Cost of Fund index
Slow moving
c. 10 yr T-Note
*Treasury bill- Tied to U.S stock market
FHA
Non- Conventional govt loan
Federal Housing Administration
31/43
FHA insures loans - they don’t “give” loans
3.5% down payment
(500 credit score - need 10% down)
MIP Required!!!
If LTV = 78% MIP goes away at 11 yr mark
If loan is 15 years or less - only MIP for 11 years
UFMIP- 1.75% of loan amount
no prepayment penalties, and fee limits on closing costs (origination fees) cannot exceed 1% of loan amount
(know the 203 (b) and 203 (k) )
Reverse mortgage- HECM
Conforming/ Conventional
Home Equity Conversion Mortgage- Insured by the FHA
- A form of mortgage in which the lender makes scheduled periodic payments to the borr. using the borrowers equity in the home as. security for the loan.
Borr. pays T&I (taxes & insurance)
- Must be 62
USDA
Non- Conventional govt loan
U.S Dept of Agriculture - Low income & Rural housing
29/41
100% financing
RHS Direct
2.75% guarantee fee can be financed
-“Lender Guaranteed Loan”
- Always 30 Year fixed Rate
Section 502 loans are made for the purpose of assisting low income borrowers purchases homes in rural areas (the approved areas on map are updated regularly)
Which section of USDA loan has purpose of assisting low income borrowers purchases homes in rural areas
Section 502
and has 2 types:
RHS Direct Loans, which are funded directly by the U.S. Government, and
RHS Guaranteed Loans, which are funded by private lenders, but are guaranteed by the RHS in the event that the borrower’s loan goes into foreclosure
both offer 100% financing.
USDA has a monthly guarantee fee of ______ of annual balance
0.35% of annual balance
PITNIA payment = 0.35% x balance / 12
Seller Concession can go up to how much on a USDA loan?
6%
VA loan
Non- Conventional govt loan
Veterans Administration
VA guarantees home loans
41
COE required (certificate of eligibility)
Funding fee charged one time (can be financed) and also waived for disabled vets
100% financing
No down payment
No MPI or MIP
Low rates
Form DD-214 - This says when they were enlisted and where
- Must have served in a war or served a full 4 years
(or 6 years for Reserves)
Seller Concession can go up to how much on a VA loan?
4%
What are the Funding Fees associated with the VA loan?
Upfront Fund Fee is waived if disability
1st time use: 2.15% of loan amount
Repeated use: 3.34% of loan amount
Define Novation (of VA loan)
when one eligible veteran assumes another eligible veterans loan
Assumption is when a civilian takes over the loan and that veteran will not be allowed to get another loan until that one has been paid off
203 (b) of FHA and 251 program of FHA
203 (b) This is FHA’s primary program
It is a fixed rate program used to purchase and refinance 1-4 unity dwellings
251 program of FHA: is the adjustable rate program- it is based on 203 (b).
The different type of ARM’s include: one-, three-, five-, seven-, and ten-, year versions
203 (k) of FHA is used for what?
is used to purchase a home that needs rehabbing or needs repairs
“k= knock down walls”
Types of Insurance:
Hazard:
HOI/ sometimes pymnt held in escrow
- Dwelling coverage - costs of rebuilding home, internal contents
Flood insurance:
Necessary in in FEMA flood zone
Zone A= inland
Zone V= coastal (“V - virginia”)
Title insurance:
One time closing cost, paid by borrower that covers any errors in title search
(2 types - lender policy and owners policy)
Mortgage Insurance (MI)
What are the two types of Title insurance?
Lenders Policy:
Required by banks/ lenders
Owners Policy:
Can be recommended, (esp if purchasing a new home)
HPA- Homeowners Protection Act
Applies to conforming/ conventional loans when PMI is involved
PMI must go away at 22% equity/ 78% LTV
For PMI to be taken off, customer Must have a good pay history (no more than 30 day late payment in past 12 months)
HPA protects customers and the PMI applies to conventional
TILA = HPA
Value of Property = _____ + ________
LTV + Equity = value of property (estimated or appraised value)
PI/ PITI
Principle, Interest, Taxes, & Insurance payment
Borrower pays T&I on their own
Taxes and Insurance are part of the mortgage payment, bank pays it out of an escrow account
PITIMI
Principle, Interest, Taxes, Insurance and Mortgage Insurance payment
MIP or PMI/ One payment to bank that covers everything
PITI & PITIMI are only items that can ____ ?
escrow
The PITI or PITIMI is calculated as _____ ____ while calculating DTI for approval limits.
Housing Costs
*This is the Front end number
This number is is called the “housing debt”
Ex. P & I = 820 (Banks money) T= 120 (Tax escrow) I= 70 (homeowners insurance into escrow account) MI= 85 (Mortgage insurance)
HOA and condo association must be calculated into this front end
Housing Costs/ Gross monthly income = front end #
“Back end” Ratio
= DTI
All recurring monthly debts/ gross monthly income
Items excluded are: utilities, medical debts, installment debt w/ <10 payments (except lease)
Limits for FHA, Conv, USDA, VA
Conv/conforming: 28/36
USDA: 29/41
FHA: 31/43
VA: 41
VA underwriting does not look at the housing (front-end) debt ratio
LTV
Loan to Value Ratio =
Balance of 1st loan / est or appraised value
*Always the first loan!
CLTV
Combined Loan to Value =
Balance of 1st mortg + balance of 2nd mortg / value of home
TQ:
John has a 1st mort of $40K and 2nd mortg of $45K and home value is $100K, what is his CLTV?
40,000 + 45,000 = 85,000/100,000 = 85%
TLTV
Total loan to value
balance of 1st mortg + high limit (total value of HELOC) / value of home
TQ:
1st mortg has a balance of $35k. HELOC has a balance of $17K, but has a max line of credit of $50K. Assuming his home value is $100K, what it the TLTV?
35,000 + 50,000 = 85,000 / 100,000 = 85% TLTV
HLTV
High Loan to Value
Mortgage(s) equal more than the value of the home
1st mortg/ value of home OR 1st mortg + 2nd mortg/value of home
TQ:
Jake has a 1st mortg of $75K and 2nd mortg of $60K. assuming his home is worth $100K, what is his HLTV?
75K + 60K = 135K/ 100K = 135%
Max cash out against equity for FHA, Conv, and VA?
FHA and Conv : 80%
VA: 100%
SAFE Act
Secure and Fair Enforcement for Mortgage Licensing ACT of 2008
- Part of HERA (Housing Economic Recovery Act)
- caused creation of NMLS
Requires 20 hours of education and pre-licensing exam
Requires credit analysis and background checks
-***Enforced by CFPB
Loans NOT covered by RESPA
- 25 + acres
- business, commercial, or agricultural
- temp financing (bridge loans)
- loans secured by vacant land
- loan assumptions that do not require lender approval and loan conversions where no new note is required
RESPA disclosures
- Good Faith Estimate (GFE)
- Settlement Cost Booklet (Information booklet)
- Mortgage Servicing Disclosure Statement
- Affiliated Business Arrangement Disclosure
- HUD-1 Settlement Statement
- Initial Escrow Statement
- Annual Escrow Statement
- Servicing Transfer Statement
Lending practices PROHIBITED by RESPA
- Giving or accepting fee/ kickback/ in exchange for referral of settlement business (Section 8) Fine is $10K + 1 yr in prison!
- Seller may not require homebuyer to use a particular title company
- Lender/broker may not charge a fee for prep of Truth in Lending docs (TIL), HUD-1, and escrow statements
- Prohibits referrals to affiliates w/out providing a business arrangement disclosure
- Lender may not charge fees other than credit report fee until the loan applicant receives the GFE
- HUD-1 may not list charges in excess
- Markups are prohibited
- Servicers may Not require a borrower to maintain more than 1/6 the amount of annual taxes/ insurance (worth 2 months) in an escrow account
RESPA broken down into R-E-S-P-A
R: Referrals are prohibited
E: Escrow - Can hold 2 month cushion on T&I (anything above $50 must be refunded
S: Servicing: Mtg Discl (3days) - Tells borrower we will transfer servicing of loan. Servicing transfer statement - 15 days prior to transfer
P: Purchases- Settlement Cost Booklet (RESPA requires borrower to hold docs for 5 years)
A: AfBA- Affiliated Business Arrangement- given at time of referral (seller can’t force buyer to use their title co)
Penalties for violation of RESPA
Section 6 violation: (servicing) Up to $10K in individual action + up to $500K in class action suits
Section 8 violation : Up to $10K + 1 year prison
Section 10: $55 for each violation up to $100K within a 12 month period for escrow violations
ECOA
4 Disclosures and due dates
Notice of Right to Rec’v Appraisal Report - Due with 3
business days of application
Notice of Adverse Action - Due w/in 30 days of appl
Notice of Action Taken - Due w/in 30 days of appl
Notice of Incomplete Appl - Due w/in 30 days of appl
Penalties for violation of ECOA
- Civil penalties of $5K per day
- Up to $25K if pattern of discrimination exists
- Punitive damages up to $10K for individual actions
- For class actions, punitive damages up to the lesser of $500K or 1% of creditors net worth
Redlining and Steering are against which Act?
ECOA - Regulation B
TILA drives a Z “car”
“CAR”
C- Cost of credit (expressed as APR% and finance is expressed as dollar amount)
A- Advertising - trigger terms require additional info
R- Recission
3 days to void contract
(must give 2 copies or right to cancel to EVERYONE with ownership interest or 3 years to cancel)
Consumer Handbook on Adjustable Rate Mortgages (CHARM) must give 3 days from application
(HOEPA and HPML- high priced mortgages right in the car with TILA)
Disclosures for Open-End Credit
USA Patriot Act
Passed after 9/11, part of Bank Secrecy Act
Banks must report suspected terrorism and or money laundering
OFAC - Office of Foreign Assets & Control
Telemarketing Sales/ Do not Call Provisions
Set times: 8am - 9pm / Can’t hide business #
Company list is updated every 31 days
National list is updated every 3 months
Once # is on DNC list- it is there forever
If someone makes an inquiry, can call for 3 months.
If they do business, can call for 18 months
What is the fine if you violate the DNC provision?
$43,792 per call
Regulated by FTC
Bank Secrecy Act of 1970 (Anti- Money Laundering Law)
Required banks to aid in detection & prevention of money laundering
Must file reports if daily aggregate exceeds $10,000
- CTR - Currency Transaction Report
- SAR - Suspicious Activity Report - report cash transactions where Bank Safety Requirements are avoided
***Enforced by FinCEN - Financial Crimes Enforcement Network
Home Valuation Code of Conduct (HVCC)
Lenders can’t influence appraised values/ Appraisers can’t over - inflate values
Banks order appraisals through middleman
Borrowers must get a copy of their appraisal
Penalties for violations of TILA
Individual Civil Actions: Recovery of actual damages, statutory damages equal twice the amount of the finance charge or damages of not less than $400 or more than $4,000 for closed-end transactions secured by real property
Class actions: total recovery limited to the lesser of $500,000 or 1% of the creditors net worth. Willful and knowing violations are subject to criminal penalty of $5,000 and or 1 yr imprisonment
FTC (Federal Trade Commission) handles _________ for mortgage professionals
enforcement
What Are Qualified Mortgages?
A qualified mortgage is a
- closed-end loan
- will not result in negative amortization
The loan’s term does not exceed 30 years
The points and fees for the loan do not exceed 3% of the total loan amount,
The borrower’s debt-to-income ratio does not exceed 43%
Qualified mortgages may be
fixed-rate mortgages or adjustable-rate mortgages, and, in limited circumstances, they may include balloon mortgages.
- it is typically prime borrowers who qualify for qualified mortgages)
Specifically, a loan is a general QM if its APR exceeds the APOR for a comparable transaction by no more than:
- 25%, - equal to $114,847
- 5%, greater than or equal to $68,908 but less than $114,847
- 5%, less than $68,908
Conforming loans
conventional - non govt loan
Eligible for sale to Fannie and Freddie
620 credit score
2 years of income
DTI:
28/36
PMI is required at less than 20% down
Loan limit:
One-Family Properties:
$647,200 in most locations, but as high as $970,800 in high-cost areas (differs by county)
Nonconforming loans
conventional - non govt loan
Private investors buy these
Not eligible to be sold to Fannie Mae and Freddie Mac.
Jumbo loan
Subprime
SISA -Stated income stated assets
NINA
Can you avoid PMI? How?
If a borrower does not have cash for a significant down payment, the purchase of private mortgage insurance (PMI) may enable him/her to succeed in securing a conventional/conforming loan.
To avoid having to pay PMI, a borrower will need to make a down payment of 20% or more.
Non-conventional mortgages are mortgages guaranteed or insured
government agencies such as the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA) and the Rural Housing Service (RHS) of the U.S. Department of Agriculture.
The Federal Housing Administration - FHA- does not make, buy, or sell loans; it
insures loans
Home equity conversion mortgage: HECM
Conventional - Non govt loan
a home equity conversion mortgage (HECM) is the FHA’s version of a reverse mortgage.
62 or older
HUD approved counseling required
Must have equity
No principle and interest as long as borrow lives in home
Non-taxable income and must pay taxes on the home annually UPMIP
and who have a low mortgage balance or no mortgage on their homes.
Margins (ARMS)
margin represents the lender’s operating costs and profit margin. Margins vary from lender to lender and range from 2.5% to 3%
After the initial fixed period of an ARM expires, the calculation of an increase is made by adding the index to the margin.
The Truth-in-Lending Act (TILA) includes a number of special requirements for ARMs that are intended to reduce the risks associated with these products. These include the following disclosure requirements:
CHARM Booklet
Loan program disclosures
Rate change disclosures
The APR thresholds for first-lien and subordinate-lien high-cost mortgages are:
- 5% for First Lien
8. 5% for second lien
The only transactions that are exempt from HOEPA are:
Reverse mortgage loans
Bridge loans
Loans originated by a housing finance agency and for which the agency is the creditor
Loans originated by the USDA
HOEPA allows for the waiver of the three-business-day waiting period if the funds to be obtained from a loan are needed to meet a “___ ___ personal emergency.”
bona fide
in order to get the the 3 business day waiting period waived:
the borrower must
- Give the lender a dated and written statement that describes the emergency (the use of printed forms is not allowed)
- Obtain signatures from all parties who are entitled to the waiting period (the recipients of the disclosures)
Special HOEPA Disclosure and must be in:
“conspicuous type size.”
HOEPA prohibits the use of these terms in high-cost mortgages because these lending terms are often found in predatory home loans
Balloon payments (unless the loan is a bridge loan related to construction of a home that will be the borrower’s principal dwelling)
Negative amortization
Advanced payments
Increased interest rate after default
Improperly calculated rebates
Prepayment penalties (not allowed for HOEPA loans under any circumstances)
Acceleration of debt
piggyback loan
In some cases, second mortgages will close in conjunction with a first mortgage from the same lender. This is known as a “piggyback loan.”
One example of this type of arrangement is an 80-10-10 loan.
In an 80-10-10 transaction, the borrower has funds to make a down payment of 10%. The borrower obtains a first mortgage at 80% LTV, with a simultaneous second mortgage at 10% LTV.
Closing costs
“Opt- eat”
Closing costs normally include an
origination fee, property taxes, title insurance escrow costs, appraisal fees, Taxes
Closing costs will vary according to the area of the country and the lenders used.
Uniform Residential Loan Application (URLA)
also known as Form 1003, is the standard form that applicants must complete when applying for a mortgage
flexible document- allowed to make changes
-Min. 8pt font
What would be considered to be a high-cost home loan if the average prime offer rate is 3%?
a loan is a high-cost home loan if the annual percentage rate exceeds the average prime offer rate by more than 6.5 percentage points for a first lien loan; or 8.5 percentage points for a subordinate lien loan
[10% (APR) − 3% (APOR) = 7%; 7% exceeds the 6.5% threshold].
Cost approach
the cost that would be necessary to rebuild the property. This approach is often used on new construction
Income approach
typically used on rental and investment properties.
It bases value on the net income that the owner will receive and the rate of return (capitalization rate)
Market approach / “sales comparison approach”
compares the subject property with sales data for comparable properties in the same area to establish value
- is the preferred and most common appraisal method for valuing single-family residential properties
The promissory note contains: (NIPLL)
N- borrower’s Name I- Interest rate P- Provision requiring notices in writing L- Loan amount L- Loan terms
A promissory note does not contain a legal description of the property.
