Section II: MLO Part G- Pricing and Loan Products

Question 1

Par

Answer 1

• Base rate

- the standard rate offered by the lender for a specific lending product

Question 2

discount point/permanent buy down

Answer 2

• “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

Question 3

Yield Spread Premium (YSP)

Answer 3

• paid to a mortgage broker by a lender

- the credit provides for a reduction in fees in exchange for a higher interest rate

Question 4

Rate Lock

Answer 4

an interest rate is set (or locked) and cannot change unless the rate lock period expires

Question 5

Rate Lock Agreement

Answer 5

form signed by the borrower that authorizes the MLO to lock n the interest rate for a specified time with the creditor

Question 6

Rate Lock period

Answer 6

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

Question 7

Rate lock expiration

Answer 7

a date in which the locked rate is available through without returning to the current market rate

Question 8

QM rule

Answer 8

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

Question 9

categories of qualified mortgages

Answer 9

• general definition category of QMs
• Temporary definition category of QMs (GSE-eligible)
• Seasoned definition category of QMs
• Small creditor category of QMs

Question 10

General definition category of QMs

Answer 10

Any loan that meets the product feature requirements with a debt-to-income ratio of 43% or less is a QM

Question 11

Temporary definition category of QMs (“GSE-eligible”)

Answer 11

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

Question 12

Second definition category of QMs

Answer 12

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

Question 13

Small creditor category of QMs

Answer 13

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

Question 14

QMs 3 types of features

Answer 14

• uses of basic underwriting standards to verify ability to repay
• limits on points and fees
• restrictions on loan features

Question 15

uses of basic underwriting standards to verify ability to repay

Answer 15

documentation and verification of income

Question 16

limits on points and fees

Answer 16

these fee limits range from 8% to 3% depending on the size of the loan

Question 17

restrictions on loan features

Answer 17

a QM loan prohibits risky features such as interest only payments, negative amortization or allowing balloon features

Question 18

ability to repay

Answer 18

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

Question 19

8 factors when considering if an applicant can repay

Answer 19

• 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

Question 20

Points and fees

Answer 20

maximum threshold on a QM loan is generally 3 percent of the loan balance

Question 21

fees that are excluded

Answer 21

• 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

Question 22

Standard 1: Safe Harbor

Answer 22

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

Question 23

Standard 2: Rebuttable Presumption

Answer 23

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

Question 24

Higher-Priced Mortgage Loan (HPML)

Answer 24

• 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

Question 25

2 HPML categories

Answer 25

- standard | - prime

Question 26

Thresholds

Answer 26

- First Lien Mortgages margin 1.5% - First Lien Jumbo loans margin 2.5% - Junior (subordinate) Mortgages margin 3.5%

Question 27

HPML requirements

Answer 27

- Ability to repay must be verified - Escrow accounts - Creditors originating an HPML are prohibited from imposing a Pre-Payment Penalty

Question 28

HOEPA

Answer 28

- to address abusive lending practices and require additional disclosure data for HCLs. - designed to (define HCLs and protect consumers from aggressive predatory practices

Question 29

HOEPA Protections

Answer 29

- specific disclosures requirements - ability-to-repay requirements - restrictions on transaction terms - a pre-loan counseling requirement - restrictions on certain fees and practices

Question 30

Loan types covered

Answer 30

- real property or person property - mortgages on manufactured housing - primary residence

Question 31

loan types not covered

Answer 31

- 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)

Question 32

HOEPA High Costs Thresholds

Answer 32

- points and fees - APR - PPP

Question 33

Points and Fees threshold for HCL

Answer 33

- 5% of a loan amount >= $22,052 | - 8% of a loan amount < $22,052 or $1,103 (whichever is less

Question 34

APR thresholds

Answer 34

- 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

Question 35

Prepayment Penalty Threshold (PPP) (no prepayment penalty may be charged

Answer 35

- >36 months after consummation | - >2% of the loan amount

Question 36

Restrictions on rates and fees

Answer 36

- 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

Question 37

limitations on loan terms for High-Cost mortgages

Answer 37

- 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

Question 38

HOEPA prohibited practices

Answer 38

- 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