Section 13 Flashcards
Loan not guaranteed or insured by the government
conventional mortgage
loan backed by the government, such as Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA) loans
Non-conventional mortgage
covers any of the 20 percent not put down by the borrower in case of default on a conventional mortgage.
Private mortgage insurance or PMI
Loans are made in the
primary mortgage market
Loans are sold in the
secondary market
the maximum percentage of debt to income that is allowed as a standard of measurement to qualify for a loan
Total Obligation Ratio (TOR)
To qualify for a conforming conventional mortgage, a borrower cannot exceed maximum total monthly obligation ratio of .
36%
TOR =
Total Monthly Obligations (including PITI + PMI)
÷
Monthly Gross Income
negotiable between the buyer and the lender
Interest rates
the central banking authority of the government.
The Federal Reserve System (the Fed)
established to provide a safer and more stable monetary system and to influence the availability and cost of money and credit
The Federal Reserve System (the Fed)
The Fed conducts monetary policy through:
Open-market operations
Discount rate
Reserve requirements.
features a Due-on-sale clause
Conventional mortgage
do not include a due-on-sale clause and are therefore assumable
VA and FHA loans
have a combined principal and interest payment that remains the same
Amortized mortgages
As more and more payments are made, the balance of the mortgage is
killed
consistently charges the same interest rate
fixed rate mortgage
Mortgages may be offered with an adjustable rate known as an
ARM
Index + Margin =
Full Indexed Rate
Many ARMs start with a low rate known as a
teaser rate
A partially amortized mortgage has a payment schedule that will leave a large balance to be paid at the end of the loan period called a
balloon payment
loans against equity and may be taken as one amount.
Home equity loans
line of credit using home equity as collatoral
Home equity line of credit (HELOC)
insures the mortgages protecting the lender from losses should the homeowner default
FHA
A down payment of at least ___ of the purchase price is required to secure an FHA loan
3.5%
dictate the maximum purchase price a home may be to qualify under an FHA mortgage
FHA loan limits
The cost of the FHA loan which acts as insurance to lenders is passed on to the borrower as:
Upfront Mortgage Insurance Premium (UFMIP)
Mortgage Insurance Premium (MIP)
FHA borrowers must meet TOR of up to ___
43%
FHA borrowers must meet a Housing Expense Ratio (HER) of ___
31%
HER =
Monthly housing expenses (PITI and MIP)
÷
monthly gross income
Sellers are allowed to pay up to ___ of the sales price towards the buyer’s closing costs for FHA loans
6%
the standard FHA loan used for the purchase of single-family homes
Section 203(b)
provides a component for rehabilitation and repair of single family properties
Section 203(k) FHA program
FHA loans may be made for condominium purchases if the condominium is included on the
FHA Approved Condominium Projects list
FHA loans may be either a fixed rate or
FHA ARM
FHA loans may be either an FHA ARM or
fixed rate
offer a partial guarantee to lenders
Veteran’s Administration (VA) loan
Designed to provide home ownership for Service members, Veterans, and eligible surviving spouses.
VA program
must be as Owner-Occupied
VA purchases
To qualify for a VA loan, the borrower must meet TOR requirements of up to ___
41%
VA does not set a limit for the purchase price; however, the value of the home must be verified through a
Certificate of Reasonable Value
VA has established loan guarantee limits. This provision limits the purchase price that can be bought without a
down payment
The amount that the VA will guarantee is referred to as
Entitlement
The test for the amount of eligible Entitlement is based on ___ of the home’s value.
25%
charged to a VA borrower as a percentage of the loan amount and can be financed into the loan or paid at closing
funding fee
VA Lenders may charge discount points. Loan origination fee of up to ___ of the loan may also be
charged.
1%
Should a seller agree to contribute to a VA Program buyer’s closing costs, the amount of contribution is limited to ___
4%
Included in VA loans, which allows the loan to be paid off early
Prepayment Clause
Not included in VA loans, so VA loans may be assumed
due-on-sale clause
Mortgage lenders are in business to
loan money
conduct loan origination activities by acting as an intermediary brokering mortgage loans between borrowers and lenders
Mortgage brokers
created minimum standards for licensing and registering mortgage loan originators
The Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act) of 2008
The SAFE ACT requires all MLO’s to register with the
Nationwide Mortgage Licensing System (NMLS)
State Bond loans provide eligible borrowers a below market interest rate to purchase a home as a first-time home buyer and are issued by the state
Housing Finance Agency (HFA)
are personal property of the lender and bought and sold as chattel
Mortgages
Loans are pooled together and traded as
mortgage-backed securities
A non-conforming loan fails to conform to
government sponsored enterprises (GSE) guidelines
hold loans in the bank’s portfolio of assets
Portfolio lenders
a privately-owned corporation, sponsored and under conservatorship of the federal government.
Fannie Mae
buys and sells conventional, FHA, and VA mortgages in the secondary market.
Fannie Mae
functions by issuing mortgage-back securities to investors
Fannie Mae
the largest single private mortgage purchaser
Fannie Mae
a GSE that guarantees loan payments in the secondary mortgage market
Ginnie Mae
a government wholly owned corporation under HUD
Ginnie Mae
acts as a payment passthrough entity for FHA and VA mortgages with “full faith and credit guarantee” for investors that all payments including interest are made in full and on time
Ginnie Mae
came under conservatorship of the Federal
Government in 2008
Freddie Mac
a publicly traded GSE that purchases conventional loans in the secondary mortgage market
Freddie Mac
pools mortgages and sells them as a mortgage-backed security to investors.
Freddie Mac
Designed to expand the secondary market by purchasing conventional loans made by savings associations
Freddie Mac
Acting as a direct mortgage lender, they have the authority to underwrite their own loans funded by their investors.
correspondent lenders
specialized mortgage brokers offering loans funded by private money investors.
Hard money lenders
a common type of mortgage fraud
straw borrower
involves having someone act as the borrower when the real purpose of the loan is for someone else’s use
straw borrower
prone to fraudulent applications and therefore are now illegal
No document loans
include inflated appraisal reports and significant sales price adjustments not supported by market data.
Mortgage fraud red flags
prohibits discrimination in loan underwriting based on sex, marital status, race, religion, age, or national origin, income from alimony, child support, public assistance, or part-time employment.
ECOA
provides the procedural framework for fair lending regulation
ECOA
makes it unlawful to inquire about an applicant’s children or plans for children
ECOA
Title I of the Consumer Credit Protection Act promotes the informed use of consumer credit by requiring disclosures about its terms and costs
Truth in Lending Act (TILA)
pairs with the Federal Reserve Regulation Z for actual implementation of the act’s provisions
Truth in Lending Act (TILA)
TILA requires disclosure of loan terms in 4 formats:
Finance charge
Total amount financed
Total amount of payments
Annual percentage rate (APR) – Within ⅛ of 1%.
Advertisement for mortgages containing trigger terms requires the ad to also include:
The amount or percentage of the down payment
The terms of repayment
the APR.
Triggering terms are:
The amount of the down payment, expressed either as a percentage or as a dollar amount
The amount of any payment expressed either as a percentage or as a dollar amount
the period of repayment (the total time required to repay)
The 3-day right of rescission does not apply to home mortgages except as
refinances
home equity loans
created to control increasing loan costs for consumers caused by companies engaging in undisclosed kickbacks
Real Estate Settlement Procedures Act (RESPA)
Responsible for administering and enforcing RESPA.
The Consumer Financial Bureau (CFPB)
consolidated consumer protection agencies under CFPB to simplify oversight and compliance
TILA-RESPA Integrated Disclosure Rule (TRID)
RESPA requires the borrower be provided a booklet of information regarding closing costs by the financial institution or mortgage broker at the time of a written application or no later than __ business days after application is received
3
RESPA requires that no later than the ____ business day after the submission of a loan application, the borrower is provided with a Loan Estimate
third
must be provided to the borrower within 3 business days BEFORE the loan closing.
Closing Disclosure form
RESPA requires that no later than the third business day after the submission of a loan application, the borrower is provided with a
Loan Estimate
allows for the interest charged to fluctuate depending upon the terms outlined in the loan
adjustable rate mortgage (ARM)
The loan balance that is unpaid at the end of the loan has to be made in one large payment
balloon payment
payments are based on a regular amortization schedule, but divided in half and set up to pay every 2 weeks instead of once a month
biweekly mortgage
using this strategy, the
mortgage is paid off in 22.6 years instead of 30
biweekly mortgage
Loans that follow the standards expected in order to be sold in the secondary market are said to be
conforming loan
occurs when depositors take their money out of financial institutions because they can earn more money in other investments
disintermediation
when you borrow money using the equity in your home as collateral
home equity loan
the normal flow of money into financial institutions from the public in the form of deposits
intermediation
Amortizing a loan over a specified period so that equal payments can be made each payment period
level payment plan
Limits the amount that the rate increases in total over the life of the loan.
lifetime cap
The amount the lender adds to the index in order to make the loan profitable
margin
charged to borrowers at closing as a closing fee. Goes into a fund in case the borrower defaults.
UFMIP
occurs when someone deliberately falsifies information to obtain mortgage financing that would not have been granted otherwise
mortgage fraud
a loan that doesn’t conform to guidelines established by government i.e. Fannie Mae or Freddie Mac
non conforming loan
a mortgage agreement that provides home financing including real property, property improvements and movable equipment.
package mortgage
set a limit of how much the payment can actually be increased in between terms.
payment cap
limits the amount of increase that a loan may increase to during one adjustment period (usually a year).
periodic cap
called seller financing or owner financing, is a home-financing technique in which the buyer borrows from the seller instead of, or in addition to, a bank
purchase money mortgage
a mortgage for homeowners 62 and older who have a significant amount of equity built up in their house
reverse annuity mortgage
UFMIP stands for
Up-front mortgage insurance premium
