Section II: MLO Part G- Pricing and Loan Products Flashcards
Par
- Base rate
- the standard rate offered by the lender for a specific lending product
discount point/permanent buy down
- “charge to the borrower” or a “Buy down”
- paid to the lender in exchange for a “lower than par” interest rate
- 1 discount point = 1% of the loan amount
- buy down the note rate
Yield Spread Premium (YSP)
- paid to a mortgage broker by a lender
- the credit provides for a reduction in fees in exchange for a higher interest rate
Rate Lock
an interest rate is set (or locked) and cannot change unless the rate lock period expires
Rate Lock Agreement
form signed by the borrower that authorizes the MLO to lock n the interest rate for a specified time with the creditor
Rate Lock period
the length of time the locked interest rate will be available without returning to the current market rate
-most locks are for 30 or 60 days
Rate lock expiration
a date in which the locked rate is available through without returning to the current market rate
QM rule
limiting risky loan features and requiring creditors to adopt minimum responsible underwriting standards to ensure that lenders determine a consumer’s “ability to repay” the mortgage loan
categories of qualified mortgages
- general definition category of QMs
- Temporary definition category of QMs (GSE-eligible)
- Seasoned definition category of QMs
- Small creditor category of QMs
General definition category of QMs
Any loan that meets the product feature requirements with a debt-to-income ratio of 43% or less is a QM
Temporary definition category of QMs (“GSE-eligible”)
any loan that meets the product feature requirements and is eligible for purchase, guarantee, or insurance by GSE, FHA, VA, or USDA regardless of the debt-to-income ratio
Second definition category of QMs
any loan that is a first-lien, fixed rate loan that meets the product feature requirements and that meets certain performance requirements over a seasoning period of at least 36 months
Small creditor category of QMs
if you have less than $2B in assets and originate 2,000 or fewer first mortgages per year, loans you make and hold in portfolio are QMs as long as you have considered and verified a borrower’s debt-to-income ratio
QMs 3 types of features
- uses of basic underwriting standards to verify ability to repay
- limits on points and fees
- restrictions on loan features
uses of basic underwriting standards to verify ability to repay
documentation and verification of income
limits on points and fees
these fee limits range from 8% to 3% depending on the size of the loan
restrictions on loan features
a QM loan prohibits risky features such as interest only payments, negative amortization or allowing balloon features
ability to repay
make a reasonable, good-faith determination or when you consummate a covered mortgage loan that the consumer has a reasonable ability to repay the loan
8 factors when considering if an applicant can repay
- current/reasonably expected income
- current employment status
- expected monthly payments are based on fully indexed rate
- ability to pay the expected monthly payment on any simultaneous loan the creditor knows of or has reason to know
- expected monthly payment for their total mortgage related obligations
- total current debt obligations (PITIA)
- current and expected monthly DTIC ratio or residual income
- credit history
Points and fees
maximum threshold on a QM loan is generally 3 percent of the loan balance
fees that are excluded
- bona fide third party fees unless paid to an affiliate
- up to two bona fide discount points
- FHA UFMIP, MIP, PMI, and VA funding fees (under certain conditions
Standard 1: Safe Harbor
provided when a creditor presumes to comply with ability to repay rules, the loan is not a higher-priced mortgage, and meets the following attributes
- limited risky features (no negative amortization, balloons, or interest only). Loans with these risky features are considered “non-standard” loans
- the loan term does not exceed 30 years
- the points and fees do not exceed threshold
Standard 2: Rebuttable Presumption
a creditor falls under this when they comply with all the requirements outlined under Safe Harbor; however the loan is considered Higher-Priced under TILA
Higher-Priced Mortgage Loan (HPML)
- one with an APR higher than a benchmark weight called Average Prime Offer Rate (APOR)
- any closed-end consumer credit loan, purchase, or refinance which is secured by the principal dwelling of the borrower
2 HPML categories
- standard
- prime
Thresholds
- First Lien Mortgages margin 1.5%
- First Lien Jumbo loans margin 2.5%
- Junior (subordinate) Mortgages margin 3.5%
HPML requirements
- Ability to repay must be verified
- Escrow accounts
- Creditors originating an HPML are prohibited from imposing a Pre-Payment Penalty
HOEPA
- to address abusive lending practices and require additional disclosure data for HCLs.
- designed to (define HCLs and protect consumers from aggressive predatory practices
HOEPA Protections
- specific disclosures requirements
- ability-to-repay requirements
- restrictions on transaction terms
- a pre-loan counseling requirement
- restrictions on certain fees and practices
Loan types covered
- real property or person property
- mortgages on manufactured housing
- primary residence
loan types not covered
- reverse mortgages
- standalone construction loans w/ term of more than 1 year
- loans originate and financed by a housing finance agency
- loans originated under the USDA Rural Development Direct Loan Program (USDA Guaranteed Loans are not exempt)
- Mortgages secured by vacation or second homes (must be primary residence)
HOEPA High Costs Thresholds
- points and fees
- APR
- PPP
Points and Fees threshold for HCL
- 5% of a loan amount >= $22,052
- 8% of a loan amount < $22,052 or $1,103 (whichever is less
APR thresholds
- 6.5% for first lien transaction with a loan amount >= $50,000
- 8.5% for first lien transaction with a loan amount < $50,000 and secured by personal property serving as the primary residence
- 8.5% for second lien transaction
Prepayment Penalty Threshold (PPP) (no prepayment penalty may be charged
- > 36 months after consummation
- >2% of the loan amount
Restrictions on rates and fees
- increasing the interest rate when in default
- late fees cannot be more than 4% of the past due payment
- points and fees cannot be financed
- fees for payoff statements are generally banned
limitations on loan terms for High-Cost mortgages
- balloon payments are generally banned unless its a bridge loan with a term less than a year, when payment schedule is adjusted to accommodate seasonal or irregular income, or a creditor is serving a rural or under served area
- negative amortization
- due-on-demand features
HOEPA prohibited practices
- refinancing any high-cost mortgage with another high-cost mortgage within one year unless it is in the consumer’s “best interest”
- collateral-based lending
- paying a contractor directly from the proceeds
- advanced payments
- selling a high-cost mortgage without providing s high-cost mortgage notice to the assignee
- recommending default on an existing loan in order to refinance a borrower with a high-cost mortgage
- purposely structuring a transaction to evade HOEPA coverage
- pre-payment penalties
- originating a high-cost loan without assessing ability to repay
- originating a high-cost loan without requiring an escrow account
