Level 13

Front 1

Primary Mortgage Market

Back 1

Mortgages funds originate in the primary mortgage market. This is where mortgage lenders and borrowers come together to negotiate and create new mortgages.

Front 2

Savings and loan associations

Back 2

S&Ls are chartered by the government and must meet the qualified thrift lender (QTL) test to retain that charter and receive benefits from the Federal Home Loan Bank System.

Front 3

Intermediation

Back 3

In the financial system, commercial banks are the intermediaries—they collect and hold much of the funds that move between the government and consumers.

Front 4

Disintermediation

Back 4

is when money is flowing out of the banks. A sudden and large disintermediation would cause a run on a bank that could create a financial crisis, as occurred during the stock market crash preceding the Great Depression.

Front 5

Commercial banks are notable for:

Back 5

Being the largest form of investment funds in the US.

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Mortgagebanker

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Loan money.

They function more in the role of intermediaries rather than a source of lending capital.

a mortgage banker's primary business is to earn the fees associated with loan origination.

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Mortgage broker

Back 7

is a licensed professional who originates mortgage loans that are financed by one of several lenders the broker works with.

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Seller financing

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When a seller provide all the financing for the person who is buying their home.

Front 9

Government National Mortgage Association (GNMA), or Ginnie Mae.

Back 9

was created in 1968 as an offshoot of Fannie Mae.

Ginnie Mae's mission is to expand affordable housing financing.

Ginnie Mae is not a GSE and is still wholly owned by the United States Government

Front 10

Securitization

Back 10

The act of pooling together debt to be sold to investors

Front 11

adjustable-rate mortgage (ARM)

Back 11

a loan with an interest rate that can increase and decrease periodically throughout the life of the loan, often based on a market index.

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index rate

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a benchmark rate that the ARM is tied to. It is used by investors to compare how the mortgage is doing compared to other similar types of mortgages.

So the index rate is where the loan's rate adjusts to after the initial-rate period of the ARM.

Front 13

ARM Margin

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(also known as the spread) is a fixed percentage above the index which the borrower will pay. For example, if the margin on a loan is 3%, then the borrower will always pay 3% above whatever the index is at the last adjustment.

Front 14

fully indexed rate

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The rate you get when you add the index and the margin

Front 15

rate cap

Back 15

The stopping point for the interest rate on an ARM

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Periodic rate cap

Back 16

limits the change in interest rate between adjustment periods.

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Lifetime cap (ceiling)

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limits the increase of interest over the life of the loan.

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Payment caps

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limit the amount of the monthly loan payment for the borrower, which is stated in dollars and not in percentage points.

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Straight Loans (Interest-Only Loans)

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a type of balloon-payment loan that calls for periodic payments of interest.

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The word entitlement, when referring to VA loans, is:

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The amount of money, the government will guarantee on a home loan.

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Residual income

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is defined as the amount of monthly income remaining after all the debts are deducted, including:

Income tax

Social security tax

Maintenance and utilities

Front 22

Inquiry

Back 22

Request for credit history

Front 23

What are two concerns or risks that a lender faces regarding the appraisal they have done on a property?

Back 23

The appraisal would be wrong from the beginning or that it would become invalid with a change in the real estate market.

Front 24

Covering the debt

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Consistently produce the cash flow necessary to pay the debt obligations.

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Straw buyer

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a buyer who is in on the mortgage fraud scheme, and actively participates to defraud the company

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Buyer rebate

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When a buyer receives money during a closing without the lenders knowledge.

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usury laws

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limit the maximum interest rate a lender can legally charge (usury is the illegal act of lending money at unreasonably high interest rates).

Front 28

According to TILA, who must a loan disclosure be given to?

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All borrowers seeking credit

Front 29

According to RESPA rules, what is the MAXIMUM number of months of payments a lender can keep in escrow for a borrower?

Back 29

14 months

Front 30

Why is the APR an important tool for borrowers shopping for loans?

Back 30

It lets them compare the true cost of each loan

Front 31

In an amortized loan, the monthly interest payment is always based on:

Back 31

The remaining principal

Front 32

Why is it good for a borrower to make larger mortgage payments if they can?

Back 32

It will decrease the amount of money they pay in interest

Front 33

What happens when a borrower takes out a reverse mortgage?

Back 33

The lender has a lien on the property.

Front 34

Jeremy took out a 5/1 ARM. What does the 5 mean?

Back 34

The interest rate is fixed for 5 years

Front 35

The word entitlement when referring to VA loans means?

Back 35

The amount of money, the government will guarantee on a home loan.

Front 36

What is a buyer rebate?

Back 36

When a buyer receives money during a closing without the lenders knowledge.

Front 37

Polly applies for a loan on her pending home purchase. She has a gross annual income of $75,000. What is the maximum amount of monthly principal and interest payments she can afford while conforming to a housing expense ratio of 35% (rounded)?

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$2,188

Front 38

a fixed percentage above the index which the borrower will pay

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Margin

Front 39

Bruce took out an amortized loan of $300,000 with a 5.2% interest rate. His monthly payment is $1,647.33. How much will he pay in interest on his first monthly payment?

Back 39

$1,300

Front 40

Yolanda took out a $400,000 amortized loan at 4.5%. She has monthly payments of $2,200. How much will she pay in interest on her second payment?

Back 40

$1,497

Front 41

Jeremy has a monthly income of $4,000. His payment to income ratio is %20 how much is his monthly payment?

Back 41

$800

Front 42

Jaselle took out an amortized loan of $440,000 with a 6% interest rate. Her monthly payment is $2,638.02. How much will she pay in interest on her first monthly payment?

Back 42

$2,200

Front 43

Savanah took out a $500,000 30 year amortized loan. Her monthly payment is $2,500. How much will she end up paying in interest after 30 years of paying the loan?

Back 43

$400,000