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96 Cards in this Set

  • Front
  • Back
Interest is defined as…
Money that a lender earns from a loan. The rate of interest depends on the market rates for the type of loan and the qualifications of the borrower.
Seller financing for LTV of 90%+ is…
Limited to 3%. Limitations for seller financing – or seller concessions – are established by Fannie Mae and Freddie Mac for conforming loans. Limits are based on the down payment, or loan-to-value (LTV).
“PFC” stands for…
Prepaid finance charge. Prepaid finance charges are items paid at closing such as discount points, prepaid interest, etc.
FHA loans are beneficial because…
They are insured by the federal government. This provides security for the lender in the event the borrower defaults on payments.
A deed of trust is…
A document used in place of a mortgage to secure the payment of a promissory note. This method is used in many states.
COFI stands for…
The Cost of Funds Index. COFI is a common index used to determine rate adjustments on adjustable rate programs
APR means…
Annual percentage rate. This is the cost of credit expressed as a percentage. The Truth-in-Lending Act requires disclosure of this amount to loan applicants.
A non-conforming loan…
Is one that exceeds Fannie Mae and Freddie Mac’s loan limits or underwriting standards.
A reconveyance clause provides for...
Removal of a lien from a property following full payment of a mortgage loan. Reconveyance is used in deed of trust states.
MIP is mandatory when a loan is…
An FHA loan. The mortgage insurance premium is required on all FHA loans for a period of 5 years.
A reverse mortgage is best suited for…
Homeowners over the age of 62. It is a type of loan program that provides the borrower with funds based on equity. They do not have to repay the loan as long as they live in the home.
A subordinate lien is…
The same thing as a second mortgage. It may also be called a junior lien.
A HECM is...
A reverse mortgage. The Home Equity Conversion Mortgage is specifically a government reverse mortgage program.
What is a mortgage?
A legal document that connects a promissory note with the collateral used to secure the note. In the case of a mortgage the collateral is the subject property.
A loan with a balloon payment provision…
Is made up of a series of smaller periodic payments with a larger lump sum due at maturity. Many of these loans include a refinance provision so that the borrower can avoid the larger payment and start a new amortization schedule on the remaining loan amount.
A deed is…
A legal instrument that conveys title to real property.
An amortization schedule…
Is a table providing the periodic payments needed to pay off a loan by the end of its term. The payments include principal and interest.
Fannie Mae’s purpose is…
Source of funds for lenders. This is accomplished in the secondary market through securitization.
What kind of loans are assumable?
VA loans. The loan program for veterans continues to permit loan assumption. Most other loan programs have discontinued the option.
The Federal Housing Administration…
Insures loans. FHA loans are insured by the federal government against borrower default.
What is foreclosure?
The sale of a property after a borrower has defaulted on payments to the lender. The exact procedure for handling foreclosure varies from state to state.
Option ARMs can result in…
Negative amortization. This occurs when the borrower makes payments at an introductory rate which are not sufficient to pay the interest on the loan. The unpaid amount is added to the loan balance resulting in negative amortization.
MBSs are used in…
The secondary market. Mortgage backed securities are an investment vehicle used to generate revenue based on an underlying pool of loans. This revenue provides renewable access to funds for lenders.
Negative amortization results when…
A loan program permits a borrower to pay less than the required amount of interest on the loan. The unpaid interest is added to the loan balance and eventually results in a balance greater than the original loan amount.
A funding fee is required on…
VA loans. The VA requires a funding fee for participation in a VA loan program. The amount is used to support the VA’s guaranty against borrower default.
The note rate is…
The stated interest rate on a mortgage or loan agreement.
Conventional loans are those…
Not insured/guaranteed by a government agency such as FHA or VA. Fannie Mae and Freddie Mac buy conventional, conforming loans.
A non-conforming loan is…
A conventional loan that exceeds loan limits and underwriting standards established by Fannie Mae and Freddie Mac. The category includes jumbo loans, Alt-A loans and subprime loans.
A second mortgage is also known as…
A subordinate lien. Subordinate liens sit in second (or third, etc.) place behind a first or primary lien. In the event of foreclosure, subordinate liens do not get satisfied until the first lien.
Borrowers of nontraditional ARMs should be told…
About the possibility of payment shock when amortizing payments begin. The Guidance on Nontraditional Mortgage Product Risks recommends communicating this to borrowers.
Negative amortization can lead to…
Loss of equity. When loan programs do not require payments sufficient enough to cover interest due, the unpaid amount is added to the loan balance. This results in the loan amount being greater than the initial loan.
LIBOR stands for…
London Interbank Offered Rate. LIBOR is one of the many indices used for determining ARM adjustments.
Nontraditional ARMs are risky when they include:
No rate caps
A low introductory rate that expires after a short period
Limited documentation for loan approval
Prepayment penalties
The finance charge is defined as…
A uniform measurement of the cost of a loan expressed as a dollar amount. It is the total of all fees and charges required to bring a loan to settlement.
In a bi-weekly mortgage program, the borrower…
Effectively makes an extra mortgage payment every year. By making payments every 2 weeks (26 payments), the borrower technically pays 13 months’ of mortgage payments in a calendar year.
Margin is defined as…
The amount added to the index for an ARM. The margin is set by the lender and is the amount above the index that the interest rate can adjust. Index plus margin is the formula used to determine a new interest rate on an adjustable rate mortgage.
The debt-to-income ratio…
Is analyzed to determine the size of the borrower’s existing debt load, or burden. It is a primary factor in the lender’s analysis of the borrower’s ability to repay a loan.
Jumbo loans are used…
To finance properties in high-cost regions of the country. Jumbo loans exceed Fannie Mae/Freddie Mac loan limits, however there are GSE-eligible loans available.
The Government Sponsored Entities (GSEs) are…
Fannie Mae and Freddie Mac. They are entities operated under a Congressional charter and act as key players in the secondary market.
Index and margin are used to…
Determine the interest rate change on an ARM. The index is the basis for future rate changes. The margin is set by the lender and is the amount added to the index to create the ARM rate.
The conforming loan limit for one-family properties…
Is $417,000. This amount is set annually by the Federal Housing Finance Agency – the agency which oversees Fannie Mae and Freddie Mac.
High-cost areas are…
Areas of the country with higher conforming loan limits. High-cost areas exist all over the country, with the exception of the Midwest.
Income documentation for salaried borrowers…
Includes paystubs for the most recent 30-day period and W-2s for the most recent 2-year period.
A MIP is required for….
A minimum of 5 years on FHA loans. The premium is used to build a pool the agency uses to pay claims on loans in default.
The APR is defined as…
A uniform measurements of the cost of a loan, including interest and financed closing costs, expressed as a percentage.
Borrowers earning more than 25% commission…
Must provide up to 2 years of tax returns for income qualification.
USDA guarantees loans for properties located…
In rural areas. Loans under the USDA’s Rural Development Housing & Community Facilities Programs are for made for the purpose of assisting low-income borrowers purchase homes in rural areas.
A review of a borrower’s credit history looks at…
Credit capacity and credit character. These answer the questions: Is the borrower able to repay the loan? & Is the borrower willing to repay the loan?
Advantages of FHA loans include…
Low down payment
No prepayment penalties
Fee limits on closing costs
What is the marketplace for MBSs?
The secondary market. The secondary market helps fund the primary market where loans are made to borrowers.
FHA loans require a borrower investment of…
3.5%. A mortgage insurance premium is also required for a period of 5 years on all FHA loans.
FHA’s primary fixed rate program is…
Called 203(b). It is used to purchase or refinance one- to four-unit family dwellings.
What is a note?
A legal document that obligates a borrower to repay a loan. It specifies the terms by which the repayment will occur. It may also be called a promissory note.
The Department of Veterans Affairs…
Guarantees loans. VA loans provide a guaranty to lenders for a certain percentage of the loan amount.
FHA 2-1 buydowns require…
Borrowers to qualify at the note rate. However funds placed in an escrow account will allow them to pay a lower interest rate for 2 years - 2% lower in the 1st year and 1% lower the 2nd year.
The par rate of a loan is…
The retail interest rate that a borrower may receive without paying discount points.
To qualify for a VA loan, a veteran…
Must obtain a Certificate of Eligibility. Eligibility is based on length of service. COEs are not issued to veterans who are dishonorably discharged.
The amount of the VA funding fee depends on…
The type of loan and whether the veteran’s eligibility has been used before. Disabled veterans are generally exempt from paying the funding fee.
Origination fees on VA loans…
Are limited to 1%. There are limitations on certain types of charges and closing costs cannot be financed in purchase transactions.
VA underwriters use a debt ratio of…
41%. The VA only looks at the total debt ratio. However, underwriters do look at the veteran’s residual income for qualification purposes.
What are points?
Points are used to adjust the price of a loan. A point costs 1% of the loan amount. One discount point reduces the interest rate by approximately .25%.
The VA loan guaranty is based on a veteran’s…
Entitlement. VA guarantees a loan amount four times greater than the eligibility listed on the veteran’s Certificate of Eligibility.
USDA loans are made for a term of…
30 years. They do not require a down payment but lenders must use debt ratios to ensure the borrower can repay the loan.
Alt-A loans…
Are used for borrowers who do not represent the credit risk of subprime but who do not meet the underwriting requirements for conforming prime rate loans.
Subprime loans…
Are higher interest rate loans made to borrowers with blemished credit or other qualification issues. The loans do not conform with Fannie Mae and Freddie Mac underwriting requirements.
Nontraditional mortgage products are defined as…
Loans which allow borrowers to exchange lower payments during the initial period for higher payments during a later amortization period. This definition is included in the Guidance on Nontraditional Mortgage Product Risks.
An example of risk layering…
Is offering a nontraditional mortgage to a borrower with a poor credit scores and using reduced documentation. This example produces 3 distinct types of risk in making the loan.
FHA’s adjustable rate program is…
Called 251. It is based on the 203(b) program and offers a number of adjustment options ranging from 1 year to 10 years.
In a fixed rate mortgage…
The interest rate is set at the time of settlement and does not change during the life of the loan. Monthly payments would only change if the loan servicer finds a shortage or surplus in the escrow amount (i.e. taxes and insurance premiums).
In an adjustable rate mortgage…
The interest rate may change one or more times over the life of the loan. ARMs are often initially made at lower interest rates than fixed rate mortgages.
An initial rate cap is…
A limit on the amount that the interest rate can increase at the end of the first adjustment period for an ARM.
A periodic rate cap is…
A limit on the amount an interest rate can change at the end of an adjustment period for an ARM.
A lifetime rate cap…
Is the limit on the amount that an interest rate can change over the life of an ARM. It is also known as a rate ceiling.
The adjustment frequency…
Establishes how often an interest rate adjustment can occur on an ARM. The frequency can be annually, every few years or even monthly.
Discount points are paid…
To the lender at closing to reduce the note rate of the loan.
Securitization is used to…
Pool similar types of loans to create mortgage backed securities for sale on the financial market. These securities are used to create a renewable source of funds for lenders.
The index for an ARM must be disclosed…
On the early ARM disclosure provided at application and on the promissory note when the loan goes to closing.
The risk of a balloon mortgage can be minimized…
If the loan agreement contains a conditional refinance provision. This gives the borrower the option to convert the loan to a regular fixed-rate loan at its maturity date.
A home equity loan is an example of…
Closed-end credit. A cash-out refinance is an example of a home equity loan.
Borrowers owning more than 25% of a business…
Must provide up to 2 years of tax returns for income qualification.
A HELOC is an example of…
Open-end credit. In a HELOC, a borrower pays off the principal and then can continue to make withdrawals. This is similar to a credit card.
An 80/10/10 loan is an example of…
A piggyback loan. In a piggyback loan scenario, a borrower takes a simultaneous second mortgage. In an 80-10-10 loan, the 1st lien is 80% LTV, the 2nd is 10% LTV and the borrower makes a 10% down payment.
A construction loan is…
An interim loan used to pay for the construction of a home. They are short-term financing and often handled as interest-only transactions.
Borrowers who obtain interest-only loans…
Qualify for a larger loan amount. They are also able to keep payments low by only paying the interest due. However, at the end of the term, the borrower still owes the principal amount of the loan.
No ratio loans…
Ignore the borrower’s debt-to-income ratios.
Conforming loans…
Meet loan limits and underwriting standards established by Fannie Mae and Freddie Mac.
A promissory note includes…
Identification of the borrower and the lender
The borrower’s promise to repay the loan
Amount of the loan
Interest rate charged on the unpaid principal
Period of the term for repayment of the loan
Reference to the real estate used to secure the loan
Provisions for the imposition of late charges for overdue payments
Signature(s) of borrower(s)
Social security income can be…
Grossed up by 25% for income qualification purposes. Other non-taxed income such as disability and public assistance may be grossed up as well.
No doc loans…
Only use the credit report and appraisal for documentation. The value of the home and the borrower’s credit history are the only qualifications used for loan approval.
Closing costs include…
Origination fees
Property taxes
Title insurance
Escrow costs
Appraisal fees
Taxes
Fees owed to state and local government
What is a seller carry-back?
A purchase transaction where the party selling the property provides all or part of the financing. This often occurs in a loan assumption.
The debt-to-income ratio is…
The relationship between a borrower’s monthly debt obligations and his/her gross monthly income. It is expressed as a percentage.
Equity is defined as…
The difference between the fair market value of a property and the current balances of any liens against the property.
Two years’ worth of tax returns would be required….
As income documentation for borrowers who are commissioned or business owners. This is a conforming loan guideline if the borrower receives more than 25% of his/her pay in commissions or owns more than 25% of a business.
Strategies for paying off a fixed-rate loan more quickly…
Include prepayment and bi-weekly payments. Prepayment allocates more funds to the loan principal as time goes by. A bi-weekly plan amounts to an additional mortgage payment every year.
An example of a voluntary lien is…
A mortgage, A homeowner voluntarily allow the lien to be placed on the property in order to secure a loan from the lender.