Unit 13 - 4 State - Types of Mortgages and Sources of Financing Flashcards
Unit 13
Calculated Interest Rate
Assume borrower has ARM tied to the one-year T-bill rate with a margin of 2.25. If the T-bill rate is 4%, the calculated interest rate is?
index + margin = calculated interest rate
4% + 2.25% = 6.25%
Unit 13
Triggering Terms
TILA (truth in lending act = lenders must give consumer info about product and services) requires advertisement credit terms called TRIGGER TERMS such as:
1. amount or % down payment
2. number of payments
3. period (term) of repayment
4. amount of any payment
5. amount of any finance charge
6. amount or %
If 1 through 6 is TRIGGERED, then they must disclose:
1. amount or % down payment
2. terms of repayment
3. APR and if increases in the future
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Examples of triggering terms that TILA not allowed
*owner will finance
*favorable financing terms available
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Right of rescission
“cooling off period” of 3 days where you can cancel the loan without losing any money. Applies to:
HELOC (Home Equity Line of Credit)
Second mortgages
refinance loans
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Purchase of Title Insurance protected by RESPA
If the seller is paying for the buyer’s title insurance policy, seller can select the title insurance company
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Conventional vs Nonconventional Mortgage Loan
conv = no gov't guarantee or gov't insurance for lender if borrower defaults nonconv = backed by federal gov't (FHA and VA loans)
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HER
Housing Expense Ratio
HER = monthly PITI + PMI / monthly gross income
Recommended = 28% for Conventional, 31% FHA
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TOR
Total Obligation Ratio (debt to income ratio)
TOR = (PITI + PMI + LTO) / monthly gross income
LTO = long-term obligations like child support and anything that shows on credit report Recommended = 36% Conv, 43% FHA, 41% VA
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Index vs Margin
Index = changes, based on economy Margin = fixed, lender's cost + profit
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FHA vs VA loans
FHA
fully gov’t, does not originate the loans
3.5% minimum down
assumable
no due-on-sale clause
VA loan
partial gov’t guarantee
can originate the loan
0% down
no limit
assumable
no due-on-sale
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partially amortized mortgage loan
aka balloon payment
large final payment
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intermediation
flow of funds into deposits held by primary lenders increasing the mortgage money supply
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Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act)
sets minimum standards for licensing and registering of mortgage loan originators
work for bank (federal agency) = no MLO needed
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dis-intermediation
shortage of mortgage funds, lenders sell loans and use cash to originate new loans
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Secondary market with Gov’t corporation (HUD)
Ginne Mae
