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99 Cards in this Set
- Front
- Back
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The 1003 is also known as…
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The Uniform Residential Loan Application (URLA). 1003 is Fannie Mae’s form number. Freddie Mac refers to the same form as Form 65.
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A borrower must obtain flood insurance…
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If the appraiser determines the property is located in a flood zone. Zones A and V require mandatory flood insurance.
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The Government Monitoring Section of the 1003…
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Is voluntary for loan applicants. If they decline to provide the demographic information in this section, loan originators should make a best guess based on visual observation.
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Back-end DTI is concerned with…
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A borrower’s ability to meet housing and debt expenses based on monthly income.
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Credit reports include…
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Information available in public records and data reported by creditors (including derogatory information such as late payments).
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Credit scoring was designed by…
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The Fair Isaac Company. Credit scores are often known as FICO scores.
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How is MIP determined?
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Based on loan-to-value. The mortgage insurance premium required on all FHA loans for five years is determined based on the borrower’s LTV.
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The sales comparison approach is…
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An appraisal method which compares the subject property to comparable properties recently sold in a close proximity. It is also called the “market approach.”
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LTV is…
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The ratio of the principal loan balance to the appraised value of the property. Loan-to-value is used in borrower qualification to assess risk.
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Credit report red flags may include…
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Recently opened accounts
Misspellings and errors Uncharacteristic use or sudden increase in use of credit Large number of recent inquires Credit history that doesn’t match what you know about the applicant |
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The total debt ratio is also called…
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The back ratio. Back ratio looks at the percentage of a borrower’s housing debt + other consumer debts compared to his/her monthly gross income.
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Why analyze a borrower’s capacity?
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To determine if he/she is capable of repaying a loan. Capacity is one of the “three C’s” of borrower qualification. The other two are credit character and collateral.
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Conventional/conforming loans use a back end ratio of…
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36%. The back end ratio – or total debt ratio – is a comparison of all monthly debts (including housing) to the applicant’s monthly income.
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A “point” equals…
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1% of the loan amount. Discount points are often used to buy down the interest rate on a loan.
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The size of a borrower’s debt burden…
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Determines the ability to meet the financial demands of loan repayment. Existing debt and its ratio to a borrower’s income – also known as the debt-to-income ratio – is a primary factor in a lender’s analysis of a borrower’s ability to repay a loan.
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The sales comparison approach uses…
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A comparison of value for three similar, recently sold properties. They generally must be within a mile of the subject property and sold within a recent period of time.
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FHA loans use a back end ratio of…
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43%. The back end ratio – or total debt ratio – is a comparison of all monthly debts (including housing) to the applicant’s monthly income.
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The Adjustable Rate Mortgage Disclosure…
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States that a loan has payment or loan terms that can change. When a borrower obtains an ARM which is secured by their principal dwelling and has a term of more than one year, creditors must provide the special disclosures for variable/adjustable rate mortgages.
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The Settlement Cost Info Booklet is used…
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For new home purchases. It explains the settlement process and the borrower’s rights under RESPA.
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The Market Conditions Addendum is used with…
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The 1004 – Uniform Residential Appraisal Report (URAR). The addendum provides information on housing trends and market conditions.
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VA loans use a back end ratio of…
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41%. The back end ratio – or total debt ratio – is a comparison of all monthly debts (including housing) to the applicant’s monthly income. VA programs only use the back end ratio – they do not consider the front end ratio.
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The underwriter is responsible for…
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Determining loan approval based on lender guidelines and borrower qualifications. The underwriter is responsible for making sure a loan applicant and subject property meet the requirements for a specific loan program.
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The 1004 is also known as…
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The Uniform Residential Appraisal Report (URAR). It is the standard form appraisers use to document the findings from an appraisal.
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The purpose of the application interview…
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Is to capture information from the applicant in order to complete the loan application. It may take place in person, over the phone or even over the internet.
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CLTV is…
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A loan-to-value ratio used when dealing with second liens. CLTV is calculated by combining the cost of all mortgages on a home and comparing the combined cost to the value of the home securing the loans.
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After completing a loan application…
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The applicant will be asked to provide documentation. The documentation supports information disclosed on the application and may include employment verification, tax and income documents, etc.
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HLTV is…
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A loan-to-value ratio used when dealing with second liens that involve lines of credit. The HLTV looks at the total amount available through the line of credit, which may cause LTV ratios to exceed the value of the home.
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A VOE is...
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A verification of employment. It is one form of loan applicant documentation used for employees who are not self-employed.
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Overtime and bonus pay…
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Must be consistently received for a period of 2 years in order to be used for income qualification. The employer must verify that the additional income is likely to continue.
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“Loan suitability” means…
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Loan programs are diligently matched to the current financial circumstances of each customer. Some states have passed laws making loan suitability a regulated standard.
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New rules for Section 32 loans require…
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Analysis of repayment ability
Reliable income verification |
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If a rate lock agreement expires prior to closing…
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The borrower will be required to obtain the current interest rate. This is generally a situation borrowers and loan originators want to avoid, particularly if rates have increased.
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Timing and accuracy of disclosures…
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Is a critical component to loan origination. In order to be compliant, it is important to understand disclosure timelines and issue disclosures according to federal and state regulations.
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The cost approach to appraisal…
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Considers the replacement value of the property. It is often used for new properties and analyzes what it would cost to build a substitute residence + the value of the land.
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The Good Faith Estimate is required…
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Within 3 business days of loan application. It provides an estimate of closing costs in dollar amounts and is required by RESPA.
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If a borrower switches loan programs…
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New disclosures (e.g. GFE, TIL Disclosure) must be issued. This is particularly true for changes such as fixed rate to adjustable rate, etc. In the case of switching to an ARM,
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Assets include…
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Cash reserves
Gift funds Stocks and bonds IRA/401K Accounts Other real estate Cash surrender value of life insurance Value of automobiles |
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Many underwriting decisions are made by…
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Automating underwriting systems (AUSs). Fannie Mae’s system is called Desktop Underwriter and Freddie Mac’s system is known as Loan Prospector. FHA and VA also have their own proprietary systems.
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A borrower’s front end ratio…
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Only considers the housing debt. Debt ratios look at the percentage of debt to monthly income. The front or housing ratio only takes the mortgage payment (or rental payment) into consideration.
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Discount points are used to…
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Change the note rate of a loan. A discount point is a fee paid to the lender at closing and is used to prepay a portion of the interest on the loan.
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Adjustments to comparables…
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Fannie and Freddie permit net adjustments of 15% and gross adjustments of 25% to comparables in the sales comparison approach to appraisal.
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The underwriter uses the appraisal to…
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Determine the value of the property. The appraisal is also used to establish any deficiencies that affect the marketability of the property.
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Borrower income is…
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An important consideration for most loan programs. In the past nontraditional programs did not always verify income. However today, lenders take a close look at a borrower’s ability to repay a loan.
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Income documentation for salaried loan applicants…
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Typically includes paystubs for the last 30-day period and W-2s for the last 2-year period.
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Liabilities include…
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Promissory notes payable to financial institutions and other creditors/lenders
Credit accounts with outstanding balances Unpaid income taxes and interest Child support and alimony Previous bankruptcies |
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Loan applicants owning more than 25% of a business…
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Must provide tax returns for the most recent 2-year period.
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Non-taxable income may be grossed up…
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By 25%. This type of income typically includes Social Security, public assistance and disability. Loan applicants must still provide comprehensive documentation for these types of income.
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A VOD is…
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A verification of deposit. It is documentation provided by a loan applicant’s bank verifying funds he/she has on deposit and account history.
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FHA loans require a borrower investment of…
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3.5%. This amount is based on the sales price or appraised value of the property and can be the borrower’s own funds, gift funds, or a grant.
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The HUD-1 Settlement Statement is required…
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At closing. However a borrower may request it one business day prior. It provides the actual, final dollar amounts for closing costs and is required by RESPA.
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What % of rental income may be used for qualification?
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75%. Investment properties generating rental income are just one type of special income that cannot be used at 100% for qualification purposes.
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IRS 4506-T is used to…
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Obtain a transcript of a loan applicant’s tax returns. Lenders use this to perform an independent verification of tax documentation. Form 8821 is also used to authorize release of other tax information.
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Gross adjustments to comparables…
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May be made up to 25%. Fannie and Freddie permit gross adjustments of 25% and net adjustments of 15% to comparables in the sales comparison approach to appraisal.
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Income calculation for hourly pay…
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{base rate} x {hours} = {weekly income}
{weekly income} × {weeks worked} = {annual income} {annual income} ÷ 12 = {monthly income} |
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Loan applicants earning more than 25% commission…
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Must provide tax returns for the most recent 2-year period. The tax returns typically must document the commission payments have been received for at least 12-months.
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Income calculation for bi-weekly pay…
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{bi-weekly salary} × 26 = {annual income}
{annual income} ÷ 12 = {monthly income} |
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Self-employed and commissioned income is…
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Usually averaged over a 2-year period. Self-employed income would come from the tax return, commissioned income may be taken from W-2s or tax returns.
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Bankruptcies stay on a credit report for…
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10 years. This is longer than standard credit account information which is purged after 7 years.
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Self-employment/commission income requires caution…
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When evaluating the capacity of the borrowers’ ability to repay a loan. This is because these forms of income are often less stable than traditional salaried employees.
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Information on consumer credit…
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Is gathered and sold by Consumer Reporting Agencies. The credit report (or consumer report) is the method for obtaining credit information.
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Credit scores are developed…
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Using a statistically validated system. This is required by consumer protection laws such as ECOA and FCRA.
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Account information on a credit report…
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Is generally reported for a period of 7 years. There are some exceptions for information that may be reported for a longer period.
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Child support and alimony…
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May be used for income qualification if they are court ordered. The loan applicant must be able to show a stable history of receiving the payments.
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To obtain a credit report, you must have…
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Certification of a permissible purpose. This is required by FCRA. Checking an applicant’s credit for loan qualification is an example of a permissible purpose.
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Credit accounts on a consumer report…
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Usually provide:
The company name Date the account was opened Date information for the account was reported Months reviewed/date of last activity Credit limit (“high credit”) Balance and past due amounts Timeliness of payments |
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The “Big 3” CRAs are…
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Equifax, Experian and TransUnion. Not all creditors report to all 3 agencies.
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Nontraditional credit includes…
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Payments for items such as rent and utilities. First time homebuyers or consumers with little credit history may sometimes use nontraditional credit to establish creditworthiness.
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Conventional/conforming loans use a front end ratio of…
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28%. The front end ratio – or housing ratio – is the comparison of housing debt to the applicant’s monthly income.
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FHA loans use a front end ratio of…
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31%. The front end ratio – or housing ratio – is the comparison of housing debt to the applicant’s monthly income.
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LTV is calculated by…
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Dividing the amount of the mortgage by the appraised value or purchase price of the home, whichever is less. Loan-to-value determines the loan program an applicant may qualify for.
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A lock-in agreement is used to…
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Contractually hold the interest rate and points for a loan. They are usually made in writing and the lender is bound to honor the rate at closing.
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Unpaid tax liens can stay on a credit report…
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From 15 years, up to indefinitely. The actual time period is determined by the jurisdiction where the consumer lives but some will remain forever. Paid tax liens remain for 7 years.
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Past credit performance is considered an indicator of…
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A borrower’s attitude toward credit obligations and a prediction of his/her future actions. Creditors/lenders assume that if an individual has met his/her obligations in the past, he/she will continue to do so in the future.
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To evaluate income consistency, underwriters review…
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W-2’s and 1040s. Substantial income increases and decreases must be addressed.
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To ensure a property meets lender guidelines…
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The underwriter will review:
The appraisal report The preliminary title report Any inspections requested by the borrower or required by the lender |
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A lender is concerned with property marketability…
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In case the borrower defaults and the lender is required to foreclose.
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Flood insurance is required if…
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A property is located in a zone identified as flood prone. The appraiser determines if the property is located in such an area.
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When underwriters review derogatory credit information…
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They are looking for an explanation of the derogatory credit. Without an explanation or documentation that makes sense the derogatory information can be used as the basis for loan denial.
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Typical property inspections include…
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Inspection that required repairs have been made
Termite Well Septic Roof |
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Lenders rely on property appraisals to…
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Ensure that the value of the property is adequate to serve as security – or collateral – for the loan. For this reason a licensed appraiser much conduct the appraisal.
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The income approach to appraisal is used…
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For investment properties. It would generally not be used for a single family home being used as a borrower’s primary residence.
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Homeowner’s title insurance…
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Provides protection for the borrower for potential title liabilities. These include mechanics liens, unreleased mortgages and other third party rights. Obtaining this type of policy is voluntary on the part of the homeowner.
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A lender’s title policy…
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Protects the lender from title defects or undisclosed liens that should have been cleared up prior to closing. Lender’s typically make this type of policy mandatory – the borrower is required to cover the cost of obtaining it.
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Real property is defined as…
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Land and anything that is permanently affixed to it. Personal property includes items that can be moved,
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Liens are…
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Monetary claims that provide a creditor with the right to foreclose. A mortgage is an example of a lien.
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Involuntary liens may include…
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Tax liens
Mechanics liens Judgments Attachments |
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Lien priority is defined as…
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The chronological order in which liens are filed against a property. The order establishes the priority of the liens in the event the property is foreclosed. Lenders want 1st priority for the mortgage on a property.
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Private mortgage insurance is used to…
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Provide security to the lender in the event of default. PMI also allows the borrower to make a smaller down payment.
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Interest per diem
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Loan x % = annual interest / 365 = daily interest
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Down payment
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Down Payment = Sales price - Loan
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Down payment
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Down Payment = (100%-LTV) x lower of Sales Price or Value
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LTV
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Loan/lower of Sales Price or Value = LTV
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CLTV
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1st Loan + 2nd Loan (or amount of HELOC draw) / Price or Value = CLTV
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TLTV
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1st Loan + HELOC limit / Price or Value = TLTV
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Housing ratio (Front end ratio)
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(PITI including PMI or MIP + HOA) / Gross Income = Housing Ratio
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Expense ratio (Back end ratio)
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(PITI including PMI or MIP + HOA) + Other Fixed Debts / Gross Income = Expense Ratio
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Fixed (discount points) interest rate buydowns
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Cost of discount points = % x Loan
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Temporary interest rate buydowns
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Cost of buydown (temporary buydown) = difference in payments between rates with and without buydown
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ARMs (e.g., fully indexed rate)
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Changed rate = lower of (1) Current rate + cap; or (2) Fully indexed rate (index + margin)
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