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Suitability of products and programs
Suitability of products and programs
The Dodd-Frank Act requires that a lender determine whether each individual borrower is suitable for a product, even if there is clear and conspicuous disclosure of product terms, and even if the lender concludes that the customer understands the product.
Suitability refers to the appropriateness of a mortgage loan’s terms for the borrower’s specific situation.
A suitability standard requires RMLOs to make certain that applicants are financially capable of handling a particular loan before and after payment increases, and that they fully understand the cons as well as the pros of the mortgage type they select.
Even if applicants are willing to sign up for home loans that are clearly beyond their financial capabilities or knowledge, the RMLO should not go along.
The most critical lender component in establishing suitability is matching a borrower with a loan that he or she can repay. A suitability standard requires RMLOs to determine an applicant’s suit-ability for a particular loan program based on:
- Employment status, income level, assets and likelihood that income or employment could change.
- Other recurring expenses and the impact they could have on the borrower’s capacity to repay.
- The potential for higher future monthly payments based on the structure of the loan program itself.
- A suitability standard also prohibit RMLOs from steering less-sophisticated borrowers to higher- cost mortgages than those for which they could otherwise qualify, such as pushing them into risky and complicated subprime loans when they could qualify for prime rates and simpler programs.
- Loans requiring counseling include:
HOEPA, HECM, FNMA Home Ready Purchase Mortgage Loans, FHLMC Home Possible Mortgage Loans
HOEPA and HPML
HOEPA A.P.O.R. 6.5% or above 50K/8.5% below/8.5% junior
HOEPA Points Fees: 5% or more $21,980 or more/8% or less and 1099
Prepayment Penalty Coverage Test = high Cost Loan if the lender charges a prepayment penalty: More than 36 months after consummation or account opening, or exceed 2% of that amount
HPML= 1.5 Conforming/2.5 Jumbo/3.5 Sub
HOEPA and QM
HOEPA can be a QM
- Can be QM
HOEPA High Cost can charge pre-payment penalty
SOCIAL SECURITY AND DISABILITY USING NONTAXABLE INCOME TO ADJUST THE BORROWER’S GROSS INCOME
SOCIAL SECURITY AND DISABILITY USING NONTAXABLE INCOME TO ADJUST THE BORROWER’S GROSS INCOME
The lender may give special consideration to regular sources of income that may be nontaxable, such as:
Child support payments.
Social Security benefits.
Certain types of public assistance payments.
Food stamps.
The lender must verify that the particular source of income is nontaxable.
award letters, policy agreements, account statements, or any other documents that address the nontaxable status of the income.
After Verification of non taxable status:
lender may develop an “adjusted gross income” for the borrower by adding an amount equivalent to 25% of the nontaxable income to the borrower’s income.
Finance Charge
Finance Charge = Anything user wouldn’t have to pay if it’s a cash deal.
Section 1 of 10 on FNMA 1003 SIX ITEMS
I. FORM 1003
TYPE OF MORTGAGE AND TERMS OF LOAN P. 1
In this section, the lender indicates:
In this section, the lender indicates:
- Type of loan applied
- Agency and Lender Case Numbers.
- Loan amount;
- Interest rate;
- Term in months
- Amortization Type
Acceptable Sources of Down Payment and Closing Cost
Acceptable Sources of Down Payment and Closing Cost
Fannie Mae requires guaranteed funds such as a cashier’s check from abank or reputable financial institution to pay the closing costs; personalchecks are not acceptable.
The proceeds from the sale of a currently owned home are a common andacceptable source for the down payment and closing costs on a new house.
Aphotocopy of the HUD-1/Closing Disclosure should be submitted to the lender.
Sweat equity is not an acceptable source of funds.
What is the name of the four federal agency that oversee the SAFE ACT?
The Conference of State Bank Supervisors,
American Association of
Residential Mortgage Regulators
Consumer Financial Protection Bureau oversee compliance with the SAFE Act.
Employment Documentation Provided by a Third-Party Employment Verification Vendor.
The lender may receive employment and income verification directly from a third-party employment verification vendor.
These verifications are acceptable as long as
- The borrower provided proper authorization for the lender to use this verification method.
- The lender has determined that the vendor has made provisions to comply with reasonable quality control requests from both the lender and any subsequent mortgagee.
- The lender understands it will be held accountable for the integrity of the information obtained from this source.
Unacceptable Sources of Reserves
Unacceptable Sources of Reserves
- Funds that have not been vested.
- Funds that cannot be withdrawn under circumstances other than the account owner’s retire-ment, employment termination, or death.
- Stock held in an unlisted corporation.
- Stock options and non-vested restricted stock.
- Unsecured borrowed funds.
- Interested party contributions (IPCs).
- Cash proceeds from a cash-out refinance transaction.
Lien Priorities
Typical lien priority and order of payoff areas follows:
- Government expenses of sale.
- Delinquent property taxes.
- Special assessment liens.
- Federal estate tax lien.
- 1st mortgage (Senior Mortgage).
- 2nd mortgage (Junior Mortgage).
- 3rd mortgage (Junior Mortgage).
Unlimited possible number of additional junior mortgages, in order ofrecording time. - IRS Tax Liens and other creditors.
Risk Analysis OBLIGATIONS INCLUDED IN LIABILITIES
OBLIGATIONS INCLUDED IN LIABILITIES
The lender’s risk analysis must include all liabilities affecting income or assets that will affect the borrower’s ability to fulfill the mortgage payment obligation.
FHA Loan Program Type
FHA Loan program types: 203b-fixed rate- 10 to 30 yrs 251-ARM 203k- purchase and rehab (construction) 234c-condominiums HECM Streamline refinance
Credit Report
Credit Report = 120 days
Credit app is valid for = 90 days
Designated zones for flood insurance
Designated zones for flood insurance
All flood zones beginning with the letter “A” or “V
Lien Priorities
Lien Priorities
GPS-F Senior Junior Tax
Government Expenses Property Taxes Special Assessment liens Federal Tax lien Senior mortgage Junior mortgage IRS tax liens
Four Types or Qualified Mortgages
There are four types of QMs – General, Temporary, Small Creditor, and Balloon-Payment (bridge Loan)
1) General QM:
no negative amortization, no interest-only or ballon payments, 3% points and fees, no loan terms in excess of 30 years, no balloon, 43% DTI
2)Temporary QMs (Transitional Period) no negative amortization, no interest-only or ballon payments, 3% points and fees, no loan terms in excess of 30 years, no balloon, must keep loan for three years, also eligible to be insured by the Federal Housing Administration or Rural Housing Service, flexible DTI,
3) Small Creditor QM:
no negative amortization, no interest-only payments, 3% points and fees, no loan terms in excess of 30 years, no balloon, must keep loan for three years, flexible DTI
4) Balloon-Payment QM:
no negative amortization, no interest-only payments, 3% Point Fees, 30 years, 43% DTI
Loan Estimate New Information
New Info on Loan Estimate
TIP - Total payment while mortgage insurance is in place compared to when it is no longer in place.
Comparison of payments made and principal reduction in the first five years of the loan.
Estimated cash to close shows earnest money deposit deducted.
Delivery of appraisal to borrowers
Likelihood of future refinance transactions
A place for borrowers to sign that they received the LE
LE is only for TRID coverages = construction, large lot, vacant land, Five or fewer loans per year
Forms used to authorize the release of information
Blanket Authorization Form
Rather than having the applicant sign multiple forms, the lender may have the applicant sign an authorization form which gives the lender blanket authorization to request the information it needs to evaluate the applicant’s creditworthiness.
When the lender uses this type of blanket authorization, it must attach a copy of the authorization form to each VOD it sends to the depository institutions in which the applicant has accounts.
Section 7 of 10 on FNMA 1003
FORM 1003
VII. DETAILS OF TRANSACTION
The information listed here pulls from the Loan Estimate/Good Faith Estimate. The details of transaction information section is used to display how much money the borrower will need in order to closing the transaction The final figure should be the same as the amount reflected on the Loan Estimate/Good Faith Estimate.
Section 8-10 Page 4
Delivery dates
Satisfaction of Mortgage letter = 60 days after loan paid off
Initial Til = 3 days after application
Initial Til = Placed in Mail 7 business days after application
Loan Estimate (Business Days) = Mailed 7 days before consummation
Revised Loan Estimate (Recession Day) = must be received 4 business days prior to the consummation of the loan.
Revised GFE =
Closing Disclosure = Received three business days before consummation
Lender Refund Variance HUD-1 = 30 days
Lender Refund Variance In LE and CD = 60 Days
Final Til (APR) = 3 business days finalized prior to closing
HUD-1 (Final Statement of Closing Cost) = 1 business days before closing if borrower request
HUD-1 = Federally Related mortgage loans, and Reverse
ECOA Appraisal independence = sent our Promptly or three days before consummation
An appraisal report = is valid for six months but needs to be recertified after four months
FHA Appraisal = valid for 120 days
Covered Loans
Respa Covers = Fed related , manufacture homes, refinance,
TILA Covers = HELOC, Manufactured home, homebuyer assistance program, APR, Refinance recision, ARM , Mobile, subordinate
TRID Covers = Closed End, Construction-only loans., Loans secured by vacant land, Loan with 25 or more acres.
HOEPA Covers = CROP = Purchase-money mortgages, Refinances, Closed-end home equity loans, Open-end credit plans (HELOCs).
HPML Covers = 3rd Party Verification, can pay for 7 years of loan, debt credit verification, No Pre-Payment Penalty
Ability to Pay/QM Covers = Closed End , Primary and Investment Property
Frank Dodd: includes closed-end loans, not open-end loans. A closed-end loan means the amount borrowed has to be paid back at a certain time.
If the Gross Rent Multiplier (GRM) decreases, the property value:
A.) Increases B.) Decreases C.) Does not change D.) Can increase or decrease B.) Decreases
B
Non-employed income versus non-taxable income
Non-employed income is from sources other than employment or self-employment and includes retirement income, interest, and dividend income, rent, or royalties.
nontaxable, such as: Child support payments. Social Security benefits. Certain types of public assistance payments. Food stamps.
TRANSACTION COVERED BY THE ABILITY TO REPAY RULE
TRANSACTION COVERED BY THE ABILITY TO REPAY RULE
The Ability to Repay Rule (ATR) applies to almost all closed-end consumer credit transactions secured by a dwelling including subordinate lien loans.
Residential structures covered under the rule include :
- One to four units.
- An individual condominium unit.
- Cooperative unit.
• Mobile home.
• Trailer if it is used as a residence.
Timing of title reports and commitments.
Timing of title reports and commitments.
After appraisal and before title policy insurance is issued.
A title insurance binder is a commitment that lists all the known defects.
The title insurance policy itself is issued after closing, and the title insurance premiumis a one-time closing cost to either the seller or borrower. Who pays is a matter of convention and negotiation.
Stated Income vs Non-Qualifying Loans
Stated income loans or no-doc mortgages
Lenders just needed a borrower’s stated income — hence the name “stated income” loans.
To compensate for the risk being taken by your mortgage lender, stated income loans usually have higher interest rates and requires the following:
- Large amount in savings
- High credit score requirement (700+)
- Bank statements are needed
- High level of income
Non-income verifying loan
No income verification mortgages are home loans for which the lender doesn’t require you to prove that your income meets certain requirements. Generally, when you apply for a mortgage, you’re required to show proof of income through pay stubs and W-2 forms. However, income verification can be difficult for some borrowers, especially those who are self-employed or who receive a commission-based salary. In this case, a no income verification mortgage may be used.
Methods of verifying employment
This verification can be provided by the borrower, by the borrower’s employer, or by third-party employment verification vendor.
The lender must verify employment income for all borrowers whose income is used to qualify for the mortgage loan.
A two-year employment history is required for both wage earner and self-employed borrowers.
TYPES OF ClASSIFICATION ASSETS
TYPES OF ClASSIFICATION ASSETS
The applicant must show sufficiency in two areas:
- Liquid Assets
Liquid assets are cash on hand or any tangible or intangible item that can be converted quickly and easily into cash, typically without losing much of their value.
Liquid assets typically include:
- Any cash on hand if sourced.
- Funds in a checking account.
- Funds in a savings account.
- Funds in a money market account.
- Certificates of Deposit.
- Mutual Funds.
- Stocks.
- Bonds.
- Non-liquid asset
An asset or possession that cannot be converted into cash quickly.
Non-liquid assets are the tangible property of a borrower, such as:
- Buildings.
- Furniture and other Household Goods.
- Real estate.
- Automobiles.
- Office Equipment.
- Appliances.
- Sporting Equipment
Borrowers should demonstrate positive net worth.
For most borrowers, non-liquid assets must be counted to establish positive net worth.
Reserve requirements for multiple properties on a . 1-4 property home is A. 2% B. 4% C. 6% D. 8%
Answer A
Multiple Properties Reserve:
1-4 Properties = 2%
5-6 Properties = 4% of the aggregate UPB (Unpaid Balance Principal)
7-10 Properties = 6% of the aggregate UPB if the borrower has seven to ten financed properties (DU only).
Hypothecation
Hypothecation occurs when an asset is pledged as collateral to secure a loan, without giving up title, possession, or ownership rights, such as income generated by the asset
Model State Law Federal Banking Agency
Model State Law Federal Banking Agency
The Board of Governors of the Federal Reserve System
Director of the Office of Thrift Supervision
National Credit Union Administration.
Comptroller of the Currency.
Federal Deposit Insurance Corporation.
Acceptable assets that may be used for a down payment
Acceptable assets that may be used for a down payment
Must be verified - Funds held in a checking, savings, money market, certificate of deposit, or other depository accountsfunds may be used for the down payment, closing costs, and financial reserves must be verified. Unverified funds are not acceptable for the down payment, closing costs, or financial reserves.
REQUIRED DISCLOSURE HPML APPRAISAL
REQUIRED DISCLOSURE for HPML
The creditor shall disclose the following statement, in writing, to a consumer who applies for a higher- priced mortgage loan:
We may order an appraisal to determine the property’s value
and charge you for this appraisal. We will give you a copy of any
appraisal, even if your loan does not close. You can pay for an
additional appraisal for your own use at your own cost.”
The disclosure shall be delivered or placed in the mail no later than the third business day after the creditor receives the consumer’s application for a HPML. In the case of a loan that is not a higher priced mortgage loan at the time of application, but becomes a higher-priced mortgage loan, the dis-closure shall be delivered or placed in the mail not later than the third business day after the creditor determines that the loan is a HPML.
Temporary buy down
Temporary buy down
A temporary buy down is created when funds are placed in escrow outside the control of the borrower or the lender to offset the monthly payment required by the terms of the note.
The funds in escrow reduce the effective payment rate but not the note rate.
A temporary buydown may be for 1, 2, or 3 years. A buy down for 2 years is referred to as a 2-1 buy down and one for 3, is notated as a 3-2-1.
To illustrate, a 2-1 buy down for a typical 30-year fixed rate mortgage at 7% with two points could carry an effective payment of 5% in year 1, 6% in year 2 and then revert to the note rate of 7% in year 3.
Section 10 of 10 of FNMA 1003
SECTION X: INFORMATION FOR GOVERNMENT MONITORING PURPOSES
The final section on the 1003, “Information for Government Monitoring Purposes,” is related to government statistics. The section is referred to as the Home Mortgage Disclosure Act (HMDA) Section. It requests information regarding race, sex and ethnicity. The application includes a para-graph explaining that none of this information can be used to discriminate against the loan applicant, stating that the applicant can opt not to complete this section. If the applicant decides not to furnish this information, it will be up to the loan originator to make an “educated guess” concerning the demographic information to report to the government (only in regards to face-to-face applications; not Internet, mail, or telephone).
BENEFITS OF PMI
BENEFITS OF PMI
Financing with mortgage insurance creates opportunities for borrowers.
Increased Buying Power: Mortgage insurance makes it possible to buy a home with less than 20% down.
Homebuyers can reach savings goals faster and become homeowners sooner than otherwise possible.
Move-up buyers are able to consider a wider range of homes and leverage their invest-ment in their current home.
Escrow Requirement
Escrow And Reserves
FNMA Reserve Requirements = 2 months mortgage PITI payments
Respa Escrow= 2 months advance
HPML Escrow = 5 years
HPML that is QM Loan = exempt from HPML appraisal escrow rule
Initial Escrow Stmt: Itemizes the estimated taxes, insurance premiums, and other charges anticipated to be paid from escrow acct. in first 12 mos., including any cushion though usually given at settlement, the lender has 45 days from settlement to deliver
Completion Escrow
The lender establishes a “completion escrow” for the postponed
improvements, by withholding from the purchase proceeds funds equal to atleast 120 percent of the estimated cost for completing the improvements.
Settlement/Closing Agent
Settlement/Closing Agent
The person in charge of the closing must be independent, as he or she represents all sides of the transaction and makes sure that all the terms of the contract are met.
The escrow or closing agent’s general responsibilities include:
- Holding financial deposits in trust.
- Writing detailed closing instructions based on the purchase agreement.
- Gathering all legal documents related to the transaction.
- Ordering a title examination or preliminary report on the property
- Clearing all title issues discovered during the search.
- Securing title insurance.
- Collecting documents from the buyer’s lender.
- Making sure all terms and conditions of the purchase contract are met.
- Recording the deed and other necessary documents.
- Ensuring that the process moves along smoothly and that the transaction closes on time.
Employment Documentation Provided by the Borrower’s Employer.
The lender may use the Request for Verification of Employment VOE to document income for a salaried or commissioned borrower.
- Verification of Employment (VOE). This document is used by mortgage lenders to verify the employment history of a borrower, to determine the borrower’s job stabil-ity and cross-reference income history with that stated on the 1003. Lenders require a completed VOE declaring all positions held for the last two years of employment histor y.
When the borrower authorizes the lender to obtain verifications of employment and income directly from the employer, the lender must have the borrower:
- Sign a VOE or
- Sign a signature authorization form, which gives the lender blanket authorization to request the information it needs to evaluate the applicant’s creditworthiness.
Documentation for SELF-EMPLOYMENT INCOME
Documentation for SELF-EMPLOYMENT INCOME
When determining the appropriate qualifying income for a self-employed borrower, it is important to note that business income (specifically from a partnership or S corporation) reported on an individual IRS Form 1040 may not necessarily represent income that has actually been distributed to the borrower.
The fundamental exercise, when conducting a self-employment income cash flow analysis, is to determine the amount of income that can be relied on by the borrower in qualifying for their personal mortgage obligation.
Lenders generally require a two-year history of the borrower’s prior earnings as a means of demon-strating the likelihood that the income will continue to be received. The lender will verify a self-employed borrower’s employment and income by obtaining from the borrower copies of his or her signed federal income tax returns (both individual returns and business returns) that were filed with the IRS for the past two years (with all applicable schedules attached).
Information on Form 1003
Information on Form 1003
The Uniform Residential Loan Application (URLA) is the official application form for all residential loans and is the central document of the residential loan application process. The URLA form 1003 gathers all the crucial information about the prospective borrower that the lender will need to evaluate the applicant’s creditworthiness.
There are two form 1003s used in the processing of the loan application:
• Initial form 1003
• Final form 1003
The Initial 1003 application must include sufficient information for the underwriter to reach an informed decision about whether to approve the mortgage loan.
The Final 1003 application is prepared at the time of loan closing and is prepared by the lender.
Before or at the loan closing, the borrower(s) must sign the Final 1003 application that the lender prepares based on its verification of the information that the borrower(s) provided in the Initial 1003 application.
Appraisal Law
The Home Valuation Code of Conduct (HVCC) = prevents a mortgage
broker from choosing the appraiser for loans that are sold to Fannie Mae.
appraiser must keep client information and appraisal results confidential. Results can only be reported to the client, client-authorized individuals, state regulatory agencies and peer review committees
Closing Cost
Closing Cost = responsibility of Buyer fees paid in return for the services of all who were involved in the homebuying process. These include fees assigned by lenders, appraisers, title companies and governments.
For each liability, the lender must determine
For each liability, the lender must determine:
- The unpaid balance.
- The terms of repayment.
- The borrower’s payment history.
- Verify any other liability that is not shown on a credit report.
If the credit report does not contain a reference for each significant open debt shown on the loan application (including outstanding mortgage debt, bank, student, or credit union loans) the lender must provide separate credit verification.
If a current liability appears on the credit report that is not shown on the loan application, the borrower should provide a reasonable explanation for the undisclosed debt. Documentation may be required to support the borrower’s explanation.
Percentage of bank account assets attributable toward a loan application
Acceptable assets that may be used for a down payment: 50% of your gross monthly income.
Title Theory
Title Theory State: which the mortgagee (lender) or a third party keeps the deed until the loan is satisfied.
The borrower has equitable title in which they are allowed to occupy, rent and sell the property, but the security instrument may be a deed of trust, instead of a mortgage.
borrower does not receive the deed at closing and deed of trust may be the
security instrument.
Pre-paid Interest = Per Diem
Pre-paid Interest = Per Diem
Reserve and loan type
Reserve - Conventional Loans
Primary residence - 2 months (could be as high as 6 months).
Vacation homes - 3-4 months.
Investment property - 6 months.
Reserve - FHA Loans
• No reserves for 1-2 units.
• 3-4 units - 3 months.
Reserve - VA Loans
• No reserves for 1-2 units.
• 3-4 units - 6 months.
Services you cannot shop for
Services you cannot shop for = Anything that the borrower can use to compromise the result
Flood,appraisal
Multiple property reserve
Multiple Properties Reserve:
1-4 Properties = 2%
5-6 Properties = 4% of the aggregate UPB (Unpaid Balance Principal)
7-10 Properties = 6% of the aggregate UPB if the borrower has seven to ten financed properties (DU only).
Prepaid Items
Prepaid Items - Prepaids are expenses or items that the homebuyer pays at closing, before they are technically due. They are necessary to create an escrow account. Prepaids can include:
• Property Taxes.
• Hazard Insurance.
• Private Mortgage Insurance.
• Flood Insurance.
• Special Assessments.Occupancy types
Occupancy types
- Primary home: This means you are buying a house that you will be living in most of the time.
- Occupied by the borrower for at least six months out of the year and the address of record for taxes, voter registration, etc.
- Located within a reasonable commuting distance to the borrower’s place of employment
- Borrower declares an intention to occupy the property as a primary residence
- The property must be occupied by the borrower within sixty (60) days of closing or completion - Second home: This is a house you intend to occupy for only part of the time. The house must also be: - suitable for year-round occupancy (i.e., not an unheated cabin in a remote area) - distant from your primary residence. - Available for the borrower’s exclusive use and enjoyment.
Second home must not be:
- Subject to any timesharing or other shared ownership arrangement
- A unit in a condominium hotel – aka “condotel”
- Subject to any rental pools or agreements that require the Borrower to rent the property, give a management company control over the occupancy of the property, or involve revenue sharing between any owners and the developer or another party.
- Investment property: This is aproperty you are buying to either rent out, flip, or both.
Section 3 of 10 on FNMA 1003
BORROWER INFORMATION P. 1
III. FORM 1003 -
BORROWER INFORMATION P. 1
The borrower will be asked to provide the following:
Full name of the primary borrower, Social Security Number, home phone, age of the borrower, and number of years of school completed.
Borrower’s present address, and whether the borrower is a renter or owner. If the borrower has been living at his or her present address less than two years, former address information will be required.
The marital status of the borrower. Federal regulations state that borrowers are only permitted to be asked, “Are you married, unmarried or separated?” If the borrower states he or she is unmarried, the lender cannot ask if he or she is single, widowed or divorced because this is a violation of the Equal Credit Opportunity Act.
Section 8 of 10 on FNMA 1003
VIII. DECLARATIONS
In this section, the borrower(s) will be asked to answer questions about any legal problems or other issues (past or present) that may affect their financial standing.
For example:
- Are you presently delinquent or in default on any Federal debt or any other loan, mortgage, financial obligation, bond, or loan guarantee?
- Are you obligated to pay alimony, child support, or separate maintenance?
- Is any part of the down payment borrowed?
- Are you a co-maker or endorser on a note?
The declarations also require the loan applicant to disclose his/her status as a U.S. citizen or as a permanent resident alien.
If an applicant indicates in his or her response states that they are not a U.S. citizen, and also indi-cates in his or her response to that they are not a permanent resident alien, the RMLO may wish to ask whether the applicant is a non-permanent resident alien or otherwise is lawfully present in the United States.
EMPLOYMENT GAPS
EMPLOYMENT GAPS
Lenders must verify employment for the most recent two full years. Borrowers must provide written explanation for employment gaps that span one or more months. Lenders will generally will not deny a loan based solely on the presence of significant employment gaps.
Conventional Conforming guidelines consider income stability above job stability. A borrower with gaps in employment but returned to work in the same line of work within the past two years may still qualify if they advance in income or benefits.
Acceptable reasons for extended employment gaps include:
- School/Education: Borrowers who have been in school full time, the schooling is considered the same as employ-ment history.
- Military: Borrowers in the military during the most recent two full years.
- Same Line if Work: A borrower with gaps in employment but returned to work in the same line of work within the past two years may still qualify if they advance in income or benefits
UFMIP on FHA
UFMIP on FHA = 1.75 of loan amount
Section 4 of FNMA 1003
EMPLOYMENT INFORMATION
IV. EMPLOYMENT INFORMATION
For both borrowers and co Borrowers
The lender will also want to know how long the borrower has been employed in this line of work. If the borrower has been at his or her current job less than 2 years, the former employ-ment information should be included.
Power of attorney limitation
Power of Attorney = Cannot sign Loan Estimate
Cannot be anyone related to the seller or process such as employees or employer of the seller.
Real estate agents etc.
Can be related to the borrower side like borrower employer
Non-Traditional mortgages
Non-Traditional mortgages = include balloon
interest-only
payment-option adjustable-rate mortgages (ARMs).
Debt Type
Debt
Installment = recurring
Revolving = Credit
Federal Banking Agencies
Federal banking agencies include
Federal Reserve System Board of
Governors,
National Credit Union Administration,
Comptroller of the Currency
Federal Deposit Insurance Corporation.
FNMA FORMS
FNMA FORMS
FNMA 1003 = URLA Loan Application
FNMA 1005 = Verification of Employment
FNMA 1006 = Verification of Deposit
FNMA 1008 = Transmittal Summary summarize borrower data
APR Fees
APR Fee = Lenders expense, Admin Cost, Origination cost, Legal, wire transfer, mortgage interest payment
APR Variance on Fixed Rate = 1/8th percent
APR Variance on Adjustable = 1/4th percent
APPRAISALS FOR HIGHER-PRICED MORTGAGE LOANS
APPRAISALS FOR HIGHER-PRICED MORTGAGE LOANS
The Higher-Priced Appraisal Rule requires creditors to take certain steps before extending credit in the form of an HPML.
Creditors who originate a higher-priced first-lien or subordinate-lien loan covered by the HPML Appraisal Rule must:
- Obtain a written appraisal performed by a certified or licensed appraiser who has conducted a physical visit of the interior of the property.
- Provide a disclosure within three business days (general definition) of application explaining the consumer’s rights with regard to appraisals.
- A creditor shall provide to the consumer a copy of each written appraisal: No later than three business days (rescission definition) prior to consummation of the loan.
In the case of a loan that is not consummated, no later than 30 days after the creditor determines that the loan will not be consummated.
- Requires a HPML mortgage loan creditor to obtain a second appraisal, at no cost to the borrower, in connection with certain flipped properties.
If the creditor must obtain two appraisals
the creditor may charge the consumer for only one of the appraisals.
The second appraisal would be required where:
a. The seller acquired the property 90 or fewer days prior to the date of the con-sumer’s agreement to acquire the property and the price to acquire the property exceeds the seller’s acquisition price by more than 10 percent.
b. The seller acquired the property 91 to 180 days prior to the date of the consum-er’s agreement to acquire the property and the price in to acquire the property exceeds the seller’s acquisition price by more than 20 percent.
Section 6 of 10 FNMA 1003
ASSETS AND LIABILITIES:
FORM 1003
VI. ASSETS AND LIABILITIES:
For both borrowers and co Borrowers
Name, address, number of employer Type of Business Position held Number of years employed. Monthly Income
The lender will verify that the borrower has sufficient funds to pay the down payment and closing costs with some reserves left over to deal with emergencies.
The assets and all liabilities of the borrowers are entered here. The is required to provide detailed information of all real estate owned by the borrowers in the Scheduled of Real Estate Owned.
Section 6-7 P. 3
Closing costs and prepaid items
Some common closing cost expenses include:
Closing costs and prepaid items
Some common closing cost expenses include:
Appraisal - This is paid to the appraisal company to establish the fair market value of the home.
Credit Report Fee - A Tri-merge credit report is pulled to get a credit history and score.
Closing Fee or Escrow Fee - This is paid to the title company, escrow company or attorney for conducting the closing. The title company or escrow oversees the closing as an independent party in your home purchase. Some states require a real estate attorney be present at every closing.
Title Company Title Search or Exam Fee - This fee is paid to the title company for doing a thor-ough search of the property’s records. The title company researches the deed to the property, ensuring that no one else has a claim to the property.
Survey Fee - A fee for obtaining a drawing of the property showing the location of the lot, any structures, and any encroachments. This fee goes to a survey company to verify all property lines. This is not required in all states.
Flood Determination or Life of Loan Coverage - This is paid to a third party to determine if the property is located in a flood zone. If the property is found to be located within a flood zone, the borrower will need to buy flood insurance.
Courier Fee - This covers the cost of transporting documents to complete the loan transaction as quickly as possible.
Homeowners’ Insurance - This covers possible damages to the home. The first year’s insurance is often paid at closing.
Attorney Fees - Both the homebuyer and the seller might have their own legal representation to prepare and record legal documents.
Transfer Taxes - This is the tax paid when the title passes from seller to buyer.
Recording Fees - A fee charged by the local recording office, usually city or county, for the record-ing of public land records.
Pre-Paid Interest - This money is paid at closing in order to get the interest paid up through thefirst of the month.
Acceptable Asset as Sources of Reserves
Acceptable Asset as Sources of Reserves
- Checking or savings accounts.
- Investments in stocks, bonds, mutual funds, certificates of deposit, money market funds, andtrust accounts.
- The amount vested in a retirement savings account.
- The cash value of a vested life insurance policy.
Closed-End Mortgages
CLOSED-END (Fully Amiritized)= Upfront Funding HEL Governmental Loans Conventional Secured and Unsecured Loans
Escrow Exemption
Limited exemption for certain types of property insurance:
No escrow account is required for
insurance premiums on condos
planned unit developments
other common interest communities which require participation in a governing association that maintains a master policy for all dwellings.
The American Land Title Association (ALTA)
The American Land Title Association (ALTA) = founded in 1907, is thenational trade association and voice of the abstract and title insurance
industry, and it standardized the forms used by the title companies.
What establish lien position
The date and time of recording establish lien position of the mortgage for junior liens.
Lien Position determines the order in which lien holders are paid when the property is sold.
Subordinate Lien mortgages
List subordinate lien mortgages
- -HELOC
- -HEL
- -Piggyback Loans
FINANCIAL RESERVE REQUIREMENTS
FINANCIAL RESERVE REQUIREMENTS
Liquid financial reserves are liquid or near liquid assets that are available to a borrower after the mortgage closes.
Examples of Liquid Reserves
Liquid financial reserves include cash and other assets that are easily converted to cash by the borrower by:
- Drafting or withdrawing funds from an account.
- Selling an asset.
- Redeeming vested funds.
- Obtaining a loan secured by assets from a fund administrator or an insurance company.
***How are reserved measured?
Reserves are measured by the number of months of monthly housing expenses (PITI) that a borrower could pay using his or her financial assets.
Appraisers and Loan Type
Appraisers and Loan Type
Fannie Mae holds the lender responsible for the quality of the appraisal. The appraiser is paid a flat fee for the report, and not a fee based on the value of the property.
FHA requires appraisers to perform a limited home inspection report with the appraisal,
VA-approved appraisers operate on a rotation system controlled by the VA.
Methods for Verifying Income
Methods of verifying income and assets
The lender can use any of the following types of documentation to verify that a borrower has sufficient funds for closing:
- Request for Verification of Deposit (VOD). The information must be requested directly from the depository institution, and the complete, signed, and dated document must be sent directly from the depository institution.
For First Mortgages: The lender must send the request directly to the employers as hand-carry the verification form is not allowed on first Mortgages.
For Second Mortgages:
The borrower may hand-carry the verification to the employer. The employer will then be required to mail this form directly to the lender. The lender retains the original form in its mortgage file.
- Copies of bank statements or investment portfolio statements. The statements must cover account activity for the most recent two-month period (or, if account information is reported on a quarterly basis, for the most recent quarter).
The statements must:
- Clearly identify the borrower as the account holder
- Include the account number.
- Include the time period covered by the statement.
- Include all deposits and withdrawal transactions (for depository accounts).
- include all purchase and sale transactions (for financial portfolio account include the ending account balance.
If the lender is the holder of the borrower’s account, the lender may produce a printout or other alternative verification of the asset(s) directly from its system.
The printout or alternative verification is acceptable as long as all required data (above) is supplied and documented.
- Direct verification by a third-party asset verification vendor. These verifications are acceptable as long as:
- The borrower provided proper authorizations for the lender to use the verification method.
- The verified information provided must conform with the information that would be provided on a VOD, or on bank statements,
- The lender understands it will be held accountable for the integrity of the information obtained from this source.
- Copies of retirement account statements. They must be the most recent statements, and they must identify the borrower’s vested amount and the terms.
- If the latest bank statement is more than 45 days earlier than the date of the loan application, the lender should ask the borrower to provide a more recent, supplemental, bank-generated form that shows at least the last four digits of the account number, balance, and date.
- The statements may be computer-generated forms, including online account or portfo-lio statements downloaded by the borrower from the Internet.
***Documents that are faxed to the lender or downloaded from the Internet must:
clearly identify the name of the depository or investment institution and the source of information—for example, by including that information in the internet or fax banner at the top of the document.
TIP
Loan Estimate TIP
The Total Interest Percentage (TIP) is a disclosure that tells you how much interest you will pay over the life of your mortgage loan. You can find the TIP for your loan on page 3 of your Loan Estimate or page 5 of your Closing Disclosure. The TIP is most useful as a comparison point between different Loan Estimates.
Board of Governor’s (Federal Reserve Board)
DescriptionThe Board of Governors of the Federal Reserve System, commonly known as the Federal Reserve Board, is the main governing body of the Federal Reserve System. It is charged with overseeing the Federal Reserve Banks and with helping implement the monetary policy of the United States.
Tolerances
Tolerances
Zero Tolerance = Origination, Credit or charge points after lock in rate, adjusted origination fee, and transfer taxes
10% Tolerance variance = Required Services (MLO selection), Title Service (MLO Selection), Lender and Owner Title Insurance (MLO Select), Recording Fees
Unlimited Variances = required Services (your own choice), Title Service (your pick), Lender and Owners Title Company (your pick), Escrow Deposit Initial, Daily interest, Homeowners Insurance
SECURITY INSTRUMENT - Cannot Act as attorney-in-fact or agent under a power of attorney unless required by law
Cannot Act as attorney-in-fact or agent under a power of attorney unless required by law
- The lender or any affiliate of the lender.
- Any employee of the lender or any other affiliate of the lender.
- The loan originator.
- The employer of the loan originator or any employee of the employer of the loan originator.
- The title insurance company providing the title insurance policy or any affiliate of such title insurance company (including, but not limited to, the title agency closing the loan), or any employee of either such title insurance company or any such affiliate.
- Any real estate agent with a financial interest in the transaction or any person affiliated with such real estate agen
Lien Theory
Lien Theory state since the borrower obtains the deed to the
property at closing and agrees to allow the lender to place a lien on the
property in exchange for the loan. The mortgage is the security instrument.
INCOME CATEGORIES
INCOME CATEGORIES
Conventional conforming guidelines break income down into three categories:
Employed income is from a borrower’s employment and can include salary, over time, bonus, and commission.
Self-employed income is from a business in which the borrower has an ownership interest of25% or more.
Non-employed income is from sources other than employment or self-employment and includes retirement income, interest, and dividend income, rent, or royalties.
AUS System
AUS System
DU and LP = Conventional, FHA and VA
Can make a recommendation to approve/eligible.
Manual Underwriting Six properties including primary residency = purchasing a non owner occupied rental
property
Desktop Underwriter (10 properties including primary residency) = is a flexible, automated underwriting system that analyzes salaried, commission and self-employed borrowers for their credit worthiness and their ability to repay thedebt.
This system provides one of three responses to the lender: Approve, Refer or caution
Service Release Premium (SRP)
Service Release Premium (SRP)
The service release premium is a one-time fee paid to the lender that sells the servicing rights and is typically 1.25% to 1.75% of the loan amount, depending on when the rights are sold and other loan terms including the mortgage rate and program.
Proof of Income
Commission as 25% or more income = or business, needs = 2 years tax returns
Salary or hourly income = 30 days pay stub and 2 years W2 forms
Fannie Mae requires Verifiable funds, 2 years address and stable 2 year work history
Section 9 of 10 on FNMA 1093
SECTION IX: ACKNOWLEDGMENT AND AGREEMENT
The Acknowledgment and Agreement section allows applicants to affirm that they understand the purpose of the loan application and any loan that is offered as a result of the application will be secured by a deed of trust on the property described in the application. Applicants are required to sign this section and acknowledge that all information contained in the 1003 is true and correct to the best of their knowledge. As previously noted, loan originators should advise loan applicants that failure to truthfully complete the application could result in civil liability or criminal prosecution for mortgage fraud.
Escrow - Initial payment at Closing
Escrow - Initial Paymemt at Closing
Homeowner Insurance = 2 months
Mortgage Insurance = 2 months
Property Tax = 2 months
Pre-paid fees
Pre-paid fees
Prepaid Items - Prepaids are expenses or items that the homebuyer pays at closing, before they are technically due. They are necessary to create an escrow account.
Prepaids can include:
• Property Taxes.
• Hazard Insurance.
• Private Mortgage Insurance.
• Flood Insurance.
• Special Assessments.Disclosure Requirements for Loan Type
Respa = GFE, HUD-1, ABA, Service Disclosure, Initial/Annual Escrow Statement
TILA = Initial/Final TIL, CHARM Booklet, ARM, Right of Rescission, Appraisal Independence
TRID = LE, CD, Home Loan Tool Kit
Loan Estimate (30 days) = Initial TILA Disclosure + GFE
Closing Disclosure (60 days) = Final TILA Disclosure + HUD-1
ECOA MARS RC RN H = Right to receive Appraisal, Adverse Action, LE Tolerances
TYPES OF LIABILITY
TYPES OF LIABILITY A borrower’s liabilities include the following: - Housing expense on the borrower’s principal residence. - All revolving charge accounts - Installment loan debts with a remaining payment term greater than 10 months. - Lease payments. - Real estate loans. - HELOCs. - Non-reimbursed employee expenses. - Alimony and child support. - Maintenance payments. - All other debts of a recurring nature.
PROMISSORY NOTE -Note disclosures on a loan
A promissory note is the legal document which outlines payment terms of a mortgage loan. Prom-issory means “promise.” The note is the promise to repay the money loaned by the lender.
The note includes the:
- Name(s) of the borrower. - Property address. - Interest rate (fixed or adjustable). - Term (number of years). - Late charge amount. - Amount of the loan.
Unlike a mortgage or deed of trust, the promissory note is not recorded in the county land records.
The lender holds the promissory note while the loan is outstanding. When the loan is fully paid off, the note will be marked as paid in full and returned to the borrower.
Types of escrow expenses
Types of escrow expenses
Closing Fee or Escrow Fee - This is paid to the title company, escrow company or attorney forconducting the closing. The title company or escrow oversees the closing as an independent party in your home purchase. Some states require a real estate attorney be present at every closing.
Direct Endorsement Underwriter (DE)
Direct Endorsement Underwriter (DE) = enabled to approve FHA residential loans for a-lender and proceed to closing without prior approval for mortgage insurance(MIP) from the FHA?
UTILIZING CAPITAL GAINS INCOME ON AN APPLICATION
UTILIZING CAPITAL GAINS INCOME ON AN APPLICATION
Income received from capital gains is generally a one-time transaction; therefore, it should not be considered as part of the borrower’s stable monthly income.
However, if the borrower needs to rely on income from capital gains to qualify, the income must be verified in accordance with the follow-ing requirements.
- Document a two-year history of capital gains income by obtaining copies of the borrower’s signed federal income tax returns for the most recent two years, including IRS Form 1040, Schedule D.
- Develop an average income from the last two years and use the averaged amount as part of the borrower’s qualifying income as long as the borrower provides current evidence that he or she owns additional property or assets that can be sold if extra income is needed to make future mortgage loan payments.
- Note: Capital losses identified on IRS Form 1040, Schedule D, do not have to be considered when calculating income or liabilities, even if the losses are recurring.
Reverse Mortgage
Reverse Mortgage = Tenure, Term, Line of Credit, Modified Tenure and Modified Term
***Question: Is a reverse mortgage a refinance? Yes
Providing the escrow analysis statement
Providing the escrow analysis statement
the servicer shall conduct an escrow account analysis before establishing an escrow account to determine the amount the borrower shall deposit into the escrow account.
After conducting the escrow account analysis for each escrow account, the servicer shall submit an initial escrow account statement to the borrower at settlement or within 45 calendar days of settlement for escrow accounts that are established as a condition of the loan.
Escrow account analysis means the accounting that a servicer conducts in the form of a trial running balance for an escrow account to:
(1) Determine the appropriate escrow target balances;
(2) Compute the borrower’s monthly payments for the next escrow account computation year and any deposits needed to establish or maintain the account; and
(3) Determine whether shortages, surpluses or deficiencies exist.
EXEMPTION FROM THE HPML APPRAISAL REQUIREMENTS
EXEMPTION FROM THE HPML APPRAISAL REQUIREMENTS
The HPML appraisal requirements do not apply to:
- Any loan that is a “Qualified Mortgage”.
- A transaction secured by a new manufactured home.
- A transaction to finance the initial construction of a dwelling.
- A loan with maturity of 12 months or less, if the purpose of the loan is a “bridge”loan converted with the acquisition of a dwelling intended to become the consumer’s principal dwelling.
- A Reverse Mortgage.
Required documents when using a property as collateral
On a mortgage collateral not fully paid off, a deed, MORTGAGE STATEMENT or NOTE, HOA declaration and appraisal is needed
When a property fully paid off is used as a collateral:
Deed, NOTICE OF SATISFACTION, homeowners insurance declarations, appraisal
FLOOD INSURANCE
Fannie Mae requires flood insurance for any property that has a residential building, dwelling, struc-ture, or improvement situated in a Special Flood Hazard Area (SFHA) that:
• Has federally mandated flood insurance purchase requirements, or
• Is located in the Coastal Barrier Resources System or Otherwise Protected Area
Title Insurance Forms
Title Insurance Binder - a commitment that lists all the known defects.
Title Insurance policy= is issued after closing
Title Insurance Premium = is a one-time closing cost to either the seller or borrower. Who pays is a-matter of convention and negotiation.
Survey Property Description
Property Description Approaches
Monument Method (Crudest) = The crudest of these approaches is the in which property lines are delineated based on natural landmarks such as rivers, trees and boulders.
Lot and Block (Most Common) PLAT = the most common and occurs after a
subdivision is platted. A plat map is a recorded drawing showing all the
blocks in a subdivision which have been subdivided into individual lots. Theplat map may also indicate streets, green areas, utility lines, etc.
Government Land Survey Method = Method was developed after the
Revolutionary War and is based on a grid of intersecting lines that divide state into townships, ranges and sections.
Metes and Bounds Method (Most Accurate) = Method is the most accurate and involves a surveyor measuring the distance (metes) and direction (bounds) between the metal plaques in the corners of the property. The direction of a boundary line is expressed using compass directions and is given in degrees, minutes and seconds. Distances are measured in feet. The surveyor must start and end hismeasurements at the same place (the Point of Beginning (POB)).
Section 2 of 10 on FNMA
II. FORM 1003 -
PROPERTY INFORMATION AND PURPOSE OF LOAN P. 1
This section collects basic information on the property and transaction including:
- Property address (street & legal)for the loan collateral;
- Purpose of loan (Purchase, Construction, Refinance, Construction-Permanent or Other;
- Loan purpose (Primary residence, Secondary residence, or Investment;
- Title information (title will be held in what name(s) & manner in which title will be held)
MARS
MARS - prohibits mortgage relief companies from collecting any advance fees until they have provided consumers with a written offer from their lender or servicer that the consumer decides is acceptable
Pre-payment penalty
Pre-payment penalties =only allowed on fixed-rate or step-rate QMs which are not higher priced.
SIGNATURE REQUIREMENTS FOR SECURITY INSTRUMENTS
SIGNATURE REQUIREMENTS FOR SECURITY INSTRUMENTS
The following person(s) must sign the security instrument:
• Each person who has an ownership interest in the security property, even if the person’s income is not used in qualifying for the mortgage.
• The spouse or domestic partner of any person who has an interest in the property, if his or her signature is necessary under applicable state law (community property) to waive any property right he or she has by virtue of being the owner’s spouse or domestic partner.
Permanent buy down (Rate Discount)
Permanent buy down (Rate Discount)
A permanent buy down is also known as a rate discount i.e., paying discount points to permanently reduce the rate of the mortgage.
A permanent buy down is for the life of the loan.
For example, a lender may offer a rate of 7% with no points or 6.375% with 2 points. Thus, the six and three-eighths percent in this example constitutes the discounted rate.
Borrower Analysis
Assets
Lenders review the borrower’s assets to analyze the borrower’s eligibility in two areas:
- Confirm that the applicant has sufficient assets to meet closing costs and program reserves guidelines.
- Verify that such assets are acceptable.
Loan Coverage Exemption
Coverage Exemption
HOEPA prohibits = refinancing a high-cost loan within a one-year period of timeexceptfor bridge loans
HOEPA Exempts = Reverse, Government, Construction, Investment
HPML Exempts = Reverse, Construction, Bridge Loans, Home Equity
RESPA Exemption = 25 Acres, commercial, temp loans, vacant lot
TRID Does Not Cover = HELOC, reverse, mobile home, not attached to real property (vacant land), no interest loan, creditor with five or fewer.
HELOC and HEL
HELOC = Home Equity Line of Credit Open ended mortgage debt, like a credit card.
Home Equity Loan (HEL) = Closed-end mortgage debt and “cash out refinance”
Appraisal Approaches
Appraisal Approach
Sales Comparison Approach (Residential) = 1-4 units = the appraiser researches a minimum ofthree closed sales that are similar in characteristics to the subject property (the property being appraised).
Cost Approach (Construction Loan) =the appraiser estimates the cost to reproduce or replace the structures as if they were new; he subtracts a value for depreciation because the structure is not new, and adds in the value of the land and. improvements such as landscaping or a driveway.
Income Capitalization (Income Producing) = 5 Units or more
Neighborhood Gross Rent Multiplier GRM = Market Value / Monthly Rent
Gross Rent Multiplier GRM = 1-4 units = quickly determine a ballpark figure for the value of a property based on the average sale price and rents of the area’s comparable properties.
Gross Income Multiplier (GIM) = Market Value / Annual Gross Income
Annual gross income = includes the rent and any other generated income including money from vending machines, washers and dryers, and parking.
Appraisal = Uniform residential appraisal report
USPAP uniform Standard of Professional Practice = 3 Comparable Properties
Section 5 of FNMA 1003
MONTHLY INCOME AND COMBINED HOUSING EXPENSE INFORMATION
V. MONTHLY INCOME AND COMBINED HOUSING EXPENSE INFORMATION
Assets - Cash Deposit, Name of bank, Account number and Amount
Liability- Name of company, Account Number, Monthly payments and months left to pay, Unpaid balance
This section contains the income information for the borrower and co-borrower.
When establishing income, the borrower will need to provide proof of income from reliable third-party documentation.
The Combined Monthly Housing Expense information details the borrower’s present and proposed housing expenses.
Open-Ended Loans
OPEN-END (Partial or Negative) = HELOC, Most Reverse Mortgages, flexible, revolving,
construction loans
Preliminary Title Report
Preliminary title reports
Before the title company issues a policy, they will investigate county records to verify that the title is clear (free of any defects or judgments) and the seller has the right to sell the property. If any issues are uncovered during the discovery period, your title company will assist with resolving those before you close.
In the case of unpaid taxes, for example, you can typically resolve the issue with the seller by requesting they pay the judgment or having the amount deducted from the sales price and settling it yourself.
Pre-Paid items
Pre-Paid = items are items that you’ll pay in an Escrow. The same amount regardless if which escrow is used. Including Homeowner Insurance, Mortgage Insurance, Property Tax, Hazard Insurance, pre-paid interest
Loan Type Monthly Reserve Requirements
Reserve - Conventional Loans
Primary residence - 2 months (could be as high as 6 months).
Vacation homes - 3-4 months.
Investment property - 6 months.
Reserve - FHA Loans
• No reserves for 1-2 units.
• 3-4 units - 3 months.
Reserve - VA Loans
• No reserves for 1-2 units.
• 3-4 units - 6 months.
Title insurance fees
It can be paid by the lender, Borrower or both. The lender requires it, but does not have to pay for it.
Employment Documentation Provided by the Borrower.
Lender may use the documentation, provided by the borrower, to verify employment.
Acceptable borrower employment documents include:
Tax returns for the most recent two years. Personal and federal income tax returns must be copies of the original returns that were filed with the IRS. All supporting schedules must be included.
- W-2s for the most recent two years. The W-2 forms must clearly identify the borrower as the employee. “Most recent” W-2 is defined as the W-2 for the calendar year prior to the current calendar year.
- Pay stubs for the past 30 days. The pay stub must be dated no earlier than 30 days prior to the initial loan application date and it must include all year-to-date earnings.
- Documents must be computer-generated or typed by the borrower’s employer(s), although pay stubs that the borrower downloads from the Internet are also acceptable. Documents must clearly identify the employer’s name and source of information.
- IRS Form 4506-T. Fannie Mae requires lenders to have each borrower (regardless ofincome source) complete and sign a separate IRS Form 4506-T at or before closing.
Qualified Mortgage
QM Loan =
3% = on $109,898 loan or above
$3,297 = $65,939 - $109,898
5% = $21,980 - $65,939
$1,099 = $13,737 - $21,980
8% = less than $13,737
Loan term not >30 yrs (except in high cost areas)
RESPA requires four pre-settlement disclosures
RESPA requires four pre-settlement disclosures: Special information
booklet, Good Faith Estimate (GFE) of settlement costs for reverse
mortgages or the Loan Estimate for most closed-end loans, Mortgage
Servicing Disclosure Statement and list of housing counseling agencies.
These must be sent to the borrower within three business days of receipt of
the signed application.
Loan Amortization Type
Reverse - negative amortization Balloon- Partial Term interest only - Non amortized Fixed - Fully amortized HELOC- Open End Non Amortized
NET TANGIBLE BENEFIT
NET TANGIBLE BENEFIT
The “net tangible benefit” standard is a consumer protection standard against flipping and equity stripping, directed toward frequent refinancings by unscrupulous lenders in which the borrower does not receive a net tangible benefit from the transaction.
Lenders must document, under certain state laws enacted to combat predatory lending, that the loan provides a net tangible benefit to the borrower or that the transaction is in the ‘borrower’s interest.
Fannie Mae uses the term “benefit provision” in its Selling Guide to say that borrowers must receive at least one or more basic advantages from refinancing.
The benefit categories include:
- A reduced monthly mortgage principal and interest payment;
- A more stable mortgage product;
- A reduction in the interest rate; or
- A reduction in the amortization term.
The way that lenders determine if a refinance makes sense is to determine the net tangible benefit.
The equation used by each lender will vary, but the bottom line is to determine that the borrower financially benefits from the transaction in order to avoid making the situation worse rather than better.
MONTHLY OBLIGATIONS NOT INCLUDED IN LIABILITIES
MONTHLY OBLIGATIONS NOT INCLUDED IN LIABILITIES
Some obligations, often identified on a borrower’s pay stub, are not considered a liability and will not be included as a debt or deducted from the borrower’s gross income when calculating the borrower’s debt-to-income ratio.
These obligations include items such as:
• Federal, state, and local taxes.
• Federal Insurance Contributions Act (FICA) or other retirement contributions, such as 401(k) accounts.
• Commuting costs.
• Union dues.
• Voluntary deductions.
Loan Type
Loan Type
80-10-10 loan (piggyback) =
Bridge Loan (Swing Loan) = Not HPML
Interest Only = Term or Straight Term Mortgage
Construction Loan - Take our Loan replaces construction loan and long term finance 30 years
Easy Qualifier Loan - SPFI
Equity Participation Mortgage - Commercial Investors
HELOC - One time Loan for specific antigen of money
Package mortgage no movable stuff
Purchase money mortgage - usually senior liens
Reduction Option Mortgage
Variable balance mortgage
Wraparound = All inclusive Trust Deed
Limits of flood insurance
Limits of flood insurance
The minimum amount of flood insurance required for most first mortgages secured by one-to-fourunit properties, individual PUD units, and certain individual condo units (such as those in detached condos, townhouses, or row houses) is the lowest of:
• 100% of the replacement cost of the insurable value of the improvements.
• The maximum insurance available from the NFIP, which is currently $250,000 per dwelling; or • The unpaid principal balance of the mortgage.
ATR EXEMPT TRANSACTION
ATR EXEMPT TRANSACTION
The rule does not apply to:
• Open-end credit plans (such as home equity lines of credit, or HELOCs).
• Time-share plans.
• Reverse mortgages.
• Temporary or bridge loans with terms of 12 months or less.
• A construction phase of 12 months or less.
• Consumer credit transactions secured by vacant land.
• Loan modifications.
Required documents when using a property as collateral
Required documents when using a property as collateral
Note disclosures on a loan
Providing the escrow analysis statement
Periodic interest
Effect of escrow on mortgage
Order of payments and importance of payments to the underwriting of loan
Discount Points: interest rate buy-downs
Permanent note
SECURITY INSTRUMENTS- USE OF A POWER OF ATTORNEY (POA)
USE OF A POWER OF ATTORNEY (POA)
The following persons may sign security instruments on a borrower’s behalf:
An attorney-in-fact may sign the security instrument, as long as the lender obtains a copy of the applicable power of attorney.
The name(s) on the power of attorney must match the name(s) of the person on the affected loan document, and the power of attorney must be dated such that it was valid at the time the affected loan document was executed.
The power of attorney must be notarized and, unless otherwise required by applicable law, must reference the address of the subject property.
A court-appointed guardian may sign the security instrument if the borrower is not legally competent, provided that he or she has unlimited power over the ward’s affairs, including the power to hold, convey, and give a lien against real property owned by the ward, to make payments from the ward’s assets, and to permit inquiries concerning the ward’s credit.
Except as otherwise required by applicable law, or unless they are the borrower’s relative, none of the following persons connected to the transaction shall sign the security instrument or note as the attorney-in-fact or agent under a power of attorney:
Loan Estimate Application
Loan Estimate Application
Consumer’s name,
Consumer’s income,
Consumer’s Social Security number to obtain a credit report,
Address of the property,
Estimate of the value of the property, and
Estimate mortgage loan amount sought.
Retention
Retention
25 Months = Adverse Action Notices & Incomplete Application Notices files, loan application for 25 months
2 Years (24 months) from notice = Escrow Cancellation, Partial Payment Policy, Advertising
3 Years (36 months) = GFE/LE Loan Estimate Forms – 3 years after consummation.
Compensation - 3 Years
5 Years = HUD, ABA, CD (HAC)
HUD-1 - 5 Years after settlement
ABA Disclosures - 5 years
CD – 5 years after consummation
Obtaining a Title Report
Obtaining title reports
Before the title insurance policy is issued, the title company will do a search Of public records to try and uncover any impediments. For example,
involuntary liens such as mechanic’s liens or tax liens will have to be paid
before title can be transferred. A voluntary lien, such as a mortgage, will be
paid off at closing or assumed. The loan originator orders this preliminary
title report once the appraisal has been completed.
Types of escrow fees
An escrow account is an account designed to safely hold funds temporarily. The escrow provider should be a disinterested third party with no preference about who ultimately receives funds from the account.1 For example, in a real estate transaction, the escrow account does not belong to the buyer or seller. Escrow accounts are useful in several ways:
Homebuying: An earnest money deposit should stay in an escrow account to protect both the buyer and seller.
2. Monthly payments: A homeowner might make deposits into an escrow account with each monthly payment, helping to smooth out large annual expenses.
3. Renters and landlords: Escrow accounts can help protect the interests of renters and settle disputes.
4. Buying goods and services: Escrow is an option for almost any transaction where buyers and sellers want a “referee” to oversee payment.5
Initial Closing Disclosure/Early Notice
Initial Closing Disclosure/Notice
Once all the pieces are in place for your closing, your title or escrow agent (or attorney) must send you a formal closing notice with the time, date, participating real estate agents (buyer’s and seller’s) and location of the closing, which is typicallythe title or escrow agent’s office, or the office of an attorney involved in the transaction.
The notice also explains what you need to bring to the event, usually including the following:
- Both buyers (if a married couple),or notarized power of attorney documentationpermitting the present buyer to sign for the non-present one
- Photo ID (passport or state-issued ID)
- List of your residences over the past 10 years
- Sufficient payment to cover closing costs (usually a bank check or wire transfer
Closing Disclosure (Official) or HUD-1
Closing Disclosure (Official) or HUD-1 Your title or escrow agent is also required to send an official closing disclosure at least three business days prior to the closing date. Before October 2015, the HUD-1 or “settlement statement” served the same purpose as the closing disclosure.
Like the loan estimate, the closing disclosure is a plain-language document that outlines all of your actual financial obligations related to the transaction – your actual closing costs, ongoing tax and insurance obligations, and a breakdown of your mortgage loan.It roughly follows the template of the loan estimate, though it’s generally more detailed and often contains accounting line items or disclosures and caveats that weren’t present in the estimate.
^^^Discrimination ECOA vs. FHA
Na
^^^ Assumable Loans
Na
^^^ Acceptable practices when acting on behalf of a lender
NA
** Discrimination from seller
Discrimination from seller
Fair Housing Act - This means that homeowners may not refuse to lease or sell property based on race, religion, gender, color, or national origin.
In some localities, special housing discrimination ordinances or laws also cover sexual orientation. This does not mean, however, that sellers must sell you their home. It means that you could take legal action if the seller refuses to sell and you believe it was due to discrimination.
A homeowner can face serious financial penalties if found in violation of this law. The potential buyer could sue for actual monetary losses as well as attorney’s fees, court costs, and even punitive damages.
A homeowner may lawfully discriminate on economic grounds. Without too much fear of legal action, a seller could refuse the bid of a buyer with a poor credit rating or inability to obtain a loan. The homeowner’s argument could be that he or she cannot be forced to remove the home from the market while waiting for a loan commitment that had little chance of materializing. Perhaps the safest thing for the seller to do if the economic viability of an offer is in question is to tell the buyer that offer might be accepted once the loan commitment is obtained—if no other offers were received in the interim.
Federal banking agency
Federal banking agency
In the SAFE Act, this term collectively refers to:
the Board of Governors of the Federal Reserve System;
the Office of the Comptroller of the Currency (OCC);
the National Credit Union Administration (NCUA); and
the Federal Deposit Insurance Corporation (FDIC). [12 USC §5102(2)]
Loan Limits
Loan Limits Conventional Loan = $510,400 FHA = $331,760 VA = $510,400 RHS = 1-4 member households = $90,300 5-8 member = $119,200
APR Charge
APR charge Interest Rate Discount Points Lender Fees Mortgage Insurance
Finance Charge and fees
Finance Charge = Interest Rate Discount Points Lender Fees Mortgage Insurance Origination charges Appraisal and credit report fees Pre-Paid
Pre-Paid
Pre-Paid = Homeowner Insurance Mortgage Insurance MIP Pre-Paid Interest /Per Diem Property Taxes
Closing Cost
Closing Cost = Origination fee Appraisal fee Survey and inspection fee Recording fee Transfer tax Title policy Title insurance Escrow Pre-Paid
