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100 Cards in this Set
- Front
- Back
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The 1003 is also known as... |
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... |
If appraiser notes property is in a flood zone Zones A and V require mandatory flood insurance |
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The Government Monitoring Section of the 1003... |
Is voluntary If declined- loan originators should make a best guess based on visual observations |
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Back-end DTI is concerned with... |
Ability to meet monthly housing and other fixed debt expenses based on monthly income |
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Credit reports include... |
Info available in public records Data reported by creditors (including derogatory information such as late payments) |
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Credit scoring was designed by... |
The Fair Isaac Company Often known as FICO scores |
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How is annual MIP determined? |
Based on loan amount, loan term, and loan-to-value MIP required on all FHA loans is collected as an upfront premium (UFMIP) and on a monthly basis (annual MIP, divided into 12 equal parts) |
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The sales comparison approach is... |
An appraisal method Compares subject property to recently-sold comparable properties in close proximity Also called the "market approach" |
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LTV is... |
Ratio of the principal loan balance to the appraised value of the property Used in borrower qualification to assess risk |
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Credit report red flags may include... |
Recently opened accounts Misspellings and errors Uncharacteristic use or sudden increase in use of credit Large number of recent inquiries Credit history that does not match what the originator knows about the applicant (age, etc) |
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The total debt ratio is also called... |
The back ratio Percentage of housing debt plus other consumer debts compared to monthly gross income |
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Conventional/conforming loans use a back end ratio of... |
36% |
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A "point" equals... |
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... |
Determines ability to meet the financial demands of loan repayment Existing debt and its ratio to income (DTI ratio) is a primary factor in a lender's analysis of ability to repay a loan |
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FHA loans use a back end ratio of... |
43% |
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The Adjustable-Rate Mortgage Disclosure... |
States that a loan has a payment or loan terms that can be changed ARM secured by principal dwelling with term of more than 1 year requires disclosures for variable/adjustable rate mortgages |
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"Your Home Loan Toolkit: A Step-by-Step Guide" is used... |
For new home purchases Explains settlement process and borrower's rights under RESPA |
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VA loans use a back end ratio of... |
41% VA only uses back end ratio VA does not consider front end ratio |
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The underwriter is responsible for... |
Determining loan approval based on lender guidelines and borrower qualifications Making sure an applicant and subject property meet requirements for specific loan program |
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The 1004 is also known as... |
The Uniform Residential Appraisal Report (URAR) Standard form appraisers use to document findings from an appraisal |
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The purpose of the application interview... |
Capture information from the applicant in order to complete the loan application May take place in person, over the phone, or even over the internet |
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CLTV is... |
LTV ratio used when dealing with second liens Calculated by combining cost of all mortgages and comparing the combined cost to the value of the home securing the loans |
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Section I of the 1003 is... |
Called "Type of Mortgage and Terms of Loan" Used to select the type of loan for which the applicant is applying |
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After completing a loan application... |
The applicant will be asked to provide supporting documentation Documentation supports information disclosed on the application May include employment verification, tax and income documents, etc |
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A VOE is... |
Verification of Employment Used for applicants who are not self-employed |
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Overtime and bonus pay... |
Must be consistently received for a period of 2 years in order to be used for income qualification Employer must verify that the additional income is likely to continue |
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"Loan suitability" means... |
Loan programs are diligently matched to the current financial circumstances of each customer Some states have passed laws making regulated standard |
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The cost approach to appraisal... |
Considers replacement value of the property Often used for new properties and analyzes what it would cost to build a substitute residence, plus the value of the land |
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Refinance transactions must have a... |
Tangible net benefit |
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Assets include... |
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... |
Automated underwriting systems (AUSs) Fannie Mae- Desktop Underwriter (DU) Freddie Mac- Loan Prospector (LP) FHA/VA- have their own proprietary systems |
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A borrower's front ratio... |
Only considers the housing debt Percent of mortgage payment (or rent) to monthly income |
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Net adjustments to comparables... |
May be made up to 15% Fannie Mae/Freddie Mac- 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... |
Determine the value of the property Also used to establish any deficiencies that affect the marketability of the property |
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Borrower income is... |
Important consideration for most loan programs In the past, nontraditional programs did not always verify Today lenders take close look at ATR |
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Income documentation for salaried loan applicants... |
Typically include paystubs for the last 30-day period W-2s for the last 2-year period |
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An example of a voluntary lien is... |
A mortgage Homeowner voluntarily allows the lien to be placed on the property in order to secure a loan from the lender |
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Liabilities include... |
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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Non-taxable income may be grossed up... |
By as much as 25% Includes Social Security, public assistance, and disability Must still provide comprehensive documentation for the types of income |
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FHA loans require a minimum borrower investment of... |
3.5% Based on the sales price or appraised value of the property Can be borrower's own funds, gift funds, or a grant |
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What percentage of rental income may be used for qualification? |
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... |
Obtain a transcript of a loan applicant's tax returns Used to perform an independent verification of tax documentation Form 8821 is also used to authorize release of other tax information |
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Income calculation for hourly pay... |
base rate * hours = weekly income weekly income * weeks worked = annual income annual income / 12 = monthly income |
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Section II of the 1003 is... |
Called "Property Information and Purpose of Loan" Used to designate information concerning the property address and how the loan proceeds will be used |
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Income calculation for bi-weekly pay... |
bi-weekly salary * 26 = annual income annual income / 12 = monthly income |
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Self-employed and commissioned income is... |
Usually averaged over 2-year period Self-employed- from tax return Commissioned- from W-2s or tax return |
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Bankruptcies stay on a credit report for... |
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... |
When evaluating capacity of ATR These forms of income are often less stable than traditional salaried employees |
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Section III of the 1003 is... |
Called "Borrower Information" Used to capture applicant's personal information such as name, Social Security Number, address, age, and marital status |
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Information on consumer credit is... |
Gathered and sold by consumer reporting agencies Method for obtaining credit information |
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Credit scores are developed... |
Using a statistically-validated system Required by consumer protection laws such as ECOA and FCRA |
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Account information on a credit report... |
Generally reported for a period of 7 years Some information may be reported longer |
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Section IV of the 1003 is... |
Called "Employment Information" Used to capture applicant's current and 2 year employment history |
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Child support and alimony... |
May be used for income qualification if court-ordered Must be able to show stable history of receiving payments |
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Section V of the 1003 is... |
Called "Monthly Income and Combined Housing Expense Information" Used for information needed to calculate applicant's DTI ratios |
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Credit accounts on a consumer report... |
Usually provide: Company name Date account opened Date account information 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... |
Equifax, Experian, and TransUnion Not all creditors report to all 3 |
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Nontraditional credit includes... |
Payments for items such as rent and utilities 1st time homebuyers or consumers with little credit history sometimes use to establish credit worthiness |
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Section VI of the 1003 is... |
Called "Assets and Liabilities" Used to capture assets (cash, bank accounts, 401Ks, etc) and debts (credit cards, loans, alimony, child support, etc) |
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Conventional/conforming loans use a front end ratio of... |
28% |
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Section VII of the 1003 is... |
Called "Details of Transaction" Used to determine how much money needed for closing |
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FHA loans use a front end ratio of... |
31% |
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Section VIII of the 1003 is... |
Called "Declarations" Contains questions about judgments, defaults, citizenship, and occupancy status Can affect underwriting and result in additional conditions or adverse action |
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Section IX of the 1003 is... |
Called "Acknowledgment and Agreement" Allows applicants to confirm that they understand the purpose of the application and that is is a binding agreement |
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LTV is calculated by... |
Dividing amount of mortgage by appraised value or purchase price (whichever is less) Determines loan program an applicant may qualify for |
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A lock-in agreement is used to... |
Contractually hold the interest rate and points for a loan Usually made in writing and the lender is bound to honor the rate at closing |
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Section X of the 1003 is... |
Called "Information for Government Reporting Purposes" Requests voluntary demographics information on the applicant If applicant declines- loan originator must make a best guess based on visual observation |
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Past credit performance is considered an indicator of... |
Borrower's attitude toward credit obligations and a prediction of his/her future actions Assumed that if obligations met in past, will continue to do so in future |
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To evaluate income consistency, underwriters review... |
W-2s and 1040s Substantial income increases and decreases must be addressed |
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To ensure that a property meets lender guidelines... |
Underwriter will review: Appraisal report 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... |
In case of default and is required to foreclose |
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When underwriters review derogatory credit information... |
They are looking for an explanation of the derogatory credit If no explanation or doesn't make sense- can be used as basis for loan denial |
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Underwriting for qualified mortgages must consider... |
Current and reasonably-expected income or assets Employment Credit history Current debt obligations Mortgage-related obligations Payments on any simultaneous loans |
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Lenders rely on property appraisals to... |
Ensure the value of the property is adequate to serve as security (collateral) for the loan Licensed appraiser must conduct appraisal |
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The income approach to appraisal is used... |
For investment properties Would generally not be used for single-family home used as primary residence |
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Homeowner's title insurance... |
Provides protection for borrower for potential title liabilities Include mechanic's lien, unreleased mortgages, other third party rights Voluntary |
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A lender's title policy... |
Protects lender from title defects or undisclosed liens that should have been cleared up prior to closing Typically mandatory- borrower required to cover cost |
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Real property is defined as... |
Land and anything that is permanently affixed to it (Personal property- items that can be moved) |
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Liens are... |
Monetary claims that provide a creditor with the right to foreclose Mortgage is example |
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Involuntary liens may include... |
Tax liens Mechanics liens Judgments Attachments |
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Lien priority is defined as... |
Chronological order in which liens are filed against a property Order establishes priority of the liens in the event the property is foreclosed Lenders want first priority |
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Private mortgage insurance (PMI) is used to... |
Provide security to the lender in the event of default Allows borrower to make a smaller down payment |
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Upfront MIP is collected on... |
All FHA loans |
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Fee simple is... |
Desired form of holding ownership to property Has fewest restrictions Almost all residential mortgages involve estate held in fee simple |
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An estate held in fee simple means that... |
Owner is entitled to entire property and has "unconditional power of disposition" during lifetime Property will descend to heirs upon death |
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Counseling is required for... |
Borrowers accepting high-cost home loan 1st time borrowers accepting negative amortization loan Any borrower seeking reverse mortgage loan from FHA Encouraged for any borrowers choosing ARM instead of fixed-rate |
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The ATR Rule and QM Rule became effective... |
January 2014 |
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The ATR Rule requires verification of income using... |
Reasonably-reliable 3rd party documents, such as tax returns, W-2 forms, payroll statements, bank statements, etc |
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Loans excluded from the ATR Rule... |
Open-end credit plans Timeshare plans Reverse mortgage loans Temporary/bridge loans with terms of 12 months or less Construction phase of 12 months or less in a construction-to-permanent loan Designated extensions of credit from certain entities/agencies |
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Reasonable, good faith determination of ability to repay considers... |
Current/reasonably-expected income/assets (not including equity) Current employment status Monthly mortgage payments Monthly payments on any simultaneous loans secured by the property Monthly payments for property taxes/insurance, other property-related obligations Debts/alimony/child support Monthly DTI or residual income Credit history |
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In title theory states... |
Borrower gives legal title to lender, but retains equitable title Lender "owns" property via deed of trust Lender has right to possession of property in event of default Legal title is returned to borrower upon repayment and satisfaction of debt |
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In lien theory states... |
Borrower retains legal and equitable title to the property Mortgage is a lien against the property In event of default, lender must institute foreclosure proceeding to obtain legal title |
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"Table funding" is... |
Broker originates and closes a loan in their own name, then transfers the loan to a lender at closing Lender provides funds for disbursement |
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Dry settlement occurs when... |
Parties meet to execute documents, but funds are not disbursed Funds are not disbursed and property is not conveyed until certain conditions are met |
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Wet settlement occurs when... |
Parties meet to execute documents and funds are subsequently disbursed Lenders are required to ensure that closing agent has adequate funds to close |
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Loan applicants that make a false statement on the 1003... |
May face 5 year jail term |
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Liquid assets include... |
Deposit or "earnest money" held in escrow Cash Checking/savings accounts, with account numbers Stocks and bonds Cash value and face amount of life insurance policies |
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Non-liquid assets include... |
Real estate Retirement accounts Net worth of businesses Automobiles |
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Re-disclosure of APR is required... |
At least 3 bd before closing any time APR varies by more than 1/8 of 1% (0.125%) |
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Notice of Right to Receive Appraisal Report is due... |
No later than 3 bd after receiving application secured by first lien on a dwelling |
