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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.