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89 Cards in this Set
- Front
- Back
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What is the difference between a non-conforming loan and a non-conventional loan? |
Non-conventional loans are government insured loans.
Non-conforming loans are conventional loans (non govt. insured loans) that do not meet the Fannie mae / Freddie mac underwriting guidelines. |
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Can a borrower get an FHA insured loan for a condominium?
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Yes. In addition to the primary fixed rate program for the purchase or refinance of 1-4 family dwellings, FHA offers programs for the purchase of a condominium.
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The Dept. of Veteran Affairs requires each veteran to obtain a Certificate of Eligibility.
True or False? |
True. It's referred to as a "COE".
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Which non-conventional loan is made for the purpose of assisting low income borrowers purchase homes in rural areas?
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US Dept. of Agriculture (USDA) loans. These are called Section 52 loans.
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Does the Federal Housing Administration (FHA) make loans?
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No. Neither the FHA, nor the VA, make loans. They insure loans.
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What is the maximum entitlement amount for a veteran?
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$36,000
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What is a "conventional" loan?
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Any loan not insured by the government.
(i.e. a mortgage not obtained through the Federal Housing Administration (FHA), the Department of Veteran Affairs (VA), or the US Dept. of Agriculture (USDA)). |
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What is a payment cap?
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A limit on the amount the payment can change during one adjustment period on an ARM.
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What is a non-conforming loan?
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A conventional loan that does not meet the FNMA / FHLMC guidelines.
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What is the maximum loan guaranty from the VA?
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4x the amount of the eligibility (entitlement) listed on the veteran's Certificate of Eligibility (COE).
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Which non-conventional loan has a funding fee associated with it?
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VA loans. The funding fee ranges from .5% to 3%, but is waived for qualifying disabled veterans.
**Remember: a non-conventional loan is one that is insured by the federal government. (FHA, VA, or USDA loan)** |
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What is a variable rate mortgage?
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A mortgage with an interest rate that may change one or more times during the life of the loan. |
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What is a "conforming" loan?
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A conventional loan (one not insured by the government) that meets the guidelines for purchase established by Fannie mae (FNMA) and Freddie mac (FHLMC). |
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In a bi-weekly mortgage payment plan, how many extra mortgage payments are made every year?
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One. There are 26 bi-weekly periods in a year, which equals 13 payments.
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The Truth-in-Lending Act requires lenders to provide applicants for adjustable rate mortgages (ARMs) with an information booklet to ensure that borrowers understand the amount of interest that they will pay during the term of a variable rate (AKA adjustable rate) mortgage.
What is the name of the booklet? |
The Consumer Handbook on Adjustable Rate Mortgages (CHARM)
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What is negative amortization?
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A monthly mortgage payment that is not large enough to pay all of the interest due on the mortgage; therefore, the balance is not reduced. AKA deferred interest.
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What is an initial rate cap?
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A limit on the amount that the interest rate can increase during the first adjustment period for an ARM.
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What is a periodic rate cap?
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A limit on the amount that the interest rate can change during any adjustment periods.
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What is the 2009 conforming loan limit for a one-family property?
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$417,000
(This limit goes up to $625,000 for high cost areas.) |
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What is lifetime rate cap?
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A limit on the amount an interest rate can change over the life of an ARM. (AKA rate ceiling) |
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What is an adjustment period?
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The agreed upon adjustment frequency established in the ARM.
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What application do the Treasury Bill Index, the 11th District Cost of Funds Indexes (COFI), and the London Interbank Offered Rate (LIBOR) have in Adjustable Rate Mortgages?
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ARM interest rate changes are tied to an index such as these. A predetermined margin is added to the index to compute the interest rate adjustment. |
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Is the margin on an ARM a fixed number or is it subject to change during the term of the loan.
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The margin in an ARM is a fixed number.
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What is a fully amortizing mortgage?
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A loan on which the payments cover the principal and interest required to pay the loan balance off on schedule.
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What is a balloon mortgage?
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A balloon mortgage is a mortgage which requires the borrower to make one large payment at the end of the loan term. This payment may also be referred to as a "call," a "demand," or a "bullet." |
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What is a loan modification?
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A permanent change in the terms of a loan (either term, interest rate, or both) in response to a borrower's long-term inability to make payments.
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For what type of mortgage does a borrower have to agree to counseling prior to obtaining the mortgage?
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Home Equity Reverse Mortgage (HECM)
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What happens when a negative amortization cap is reached on a mortgage?
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The monthly payments are recast as a fully amortizing loan. (The mortgage terms are rewritten with a payment large enough to pay the interest due each month and reduce the principal, so that the mortgage pays off on schedule.)
Lender normally caps the negative amortization at 110% - 125% of the original principal balance. |
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Does a Conditional Refinance Provision on a balloon mortgage loan guarantee refinancing?
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No. The borrower must qualify for the conditional refinance.
There is no income or credit qualifying at the time of the conversion, but the borrower must still live in the property, must be current on the payments for the last 12 months, have no 2nd mortgage or liens, and have a new rate no higher than 5% over the current rate. |
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What is securitization?
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The bundling of mortgage loans to resell to investors - they become mortgage-backed securities (MBSs) and are sold on the secondary market.
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What is forbearance?
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When a lender agrees to a reduction or suspension of loan payments for an agreed upon period of time.
At the end of this period, the borrower is responsible for resuming payments and for making up past due amounts. |
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What is a Home Equity Reverse Mortgage (HECM)?
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A mortgage that allows an older homeowner to use the equity in his/her home to receive fixed monthly payments, a line of credit, or a combination of payments, and credit line.
Borrowers must complete counseling with a HUD-approved HEMC counselor in order to obtain the loan. |
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What is the primary difference between the Good Faith Estimate (GFE) and the HUD-1 Settlement Statement?
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The GFE discloses to the borrower reasonable estimates of the costs and fees associated with a potential loan at the time of loan application.
The HUD-1 is used to outline the actual costs and fees associated with the loan during the closing. |
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A second mortgage is also known as a subordinate lien.
True or False? |
True
It is also known as a junior mortgage. |
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What are Service Release Premiums?
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Fees which lenders may receive for selling or transferring their mortgage loan servicing rights.
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What is the Note rate?
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The stated interest rate on a mortgage or loan agreement.
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Can a VA loan be assumed?
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Yes. VA loans are assumable.
The buyer must meet credit qualifications, but does not have to be a veteran. |
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What is a short sale?
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When the lender agrees to a reduced payoff on a loan when the subject property is sold.
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What is a seller carry-back?
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A purchase transaction, often involving an assumable mortgage, in which the party selling the property provides all or part of the financing.
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What is an interest-only loan?
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A loan that requires only interest payments. At the end of the loan, the borrower essentially owes a balloon payment of the entire principal of the laon.
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What is the finance charge?
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A uniform measurement of the cost of a loan expressed as a dollar amount.
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What is a 5/25 mortgage loan?
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A fixed rate mortgage with payments calculated based on a 30 year amortization, but that has a balloon (call) feature at the end of 5 years.
The fact that it is shown as a 5/25 mortgage instead of a 5/30 mortgage indicates that there is a conditional refinance option for the remaining 25 years. |
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What is the difference between a judicial foreclosure and a non-judicial foreclosure?
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For a judicial foreclosure, the mortgage does not include a power of sale clause, so the lender must file a lawsuit, requesting the court to enter an order of foreclosure.
For a non-judicial foreclosure, the deed of trust includes a power of sale clause, which allows the lender to begin foreclosure without filing a lawsuit. |
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On what 2 documents/disclosures must YSPs be included?
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YSP = Yield Spread Premium
1. Good Faith Estimate 2. HUD-1 |
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What is a permanent buy-down?
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The use of discount points to lower the rate of interest for the full term of a loan.
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What is an index?
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A published interest rate (that is combined with a margin) that is used as the basis upon which the note rate of an ARM will adjust.
Typical indices are Treasury Bill Index, the 112th District Cost of Funds Indexes (COFI), and the London Interbank Offered Rate (LIBOR). |
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VA funding fee is not charged to disabled veterans or their spouses, or spouses of vets who died in service.
True or False? |
True
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Which mortgage loan document contains the borrower's contractual promise to pay?
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Note, or promissory note. (Neither a mortgage nor a deed of trust contains a contractual promise to pay.)
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What does PITI stand for?
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Principal, Interest, Taxes, and Insurance
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When identifying property rights, what is the difference between Fee Simple and Leasehold?
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Fee Simple: Implies that the property being purchased includes the improvements and the land that it sits on.
Leasehold: Implies that the property being purchased only includes the improvements. The land it sits on would be leased (i.e. a mobile home that is permanently affixed to a foundation on family land - you buy the home, but pay rent on the land). |
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To meet the purchase guidelines of Fannie mae and Freddie mac, what type of insurance must a borrower have purchased if the LTV exceeds 80%?
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PMI
(Private Mortgage Insurance) |
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What is a subprime loan?
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Loans made to borrowers whose debt-to-income or credit characteristics do not meet the guidelines of Fannie mae or Freddie mac.
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What is a Float agreement?
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A type of lock-in agreement that allows the interest rate and/or points to rise and fall with the market while processing an applicant's loan.
Lenders may allow loan applicants to lock in an interest rate without locking the points. Or lenders may agree to float both the interest rate and the points, allowing the loan applicant to lock in the rate and points between the time of the loan application and the date of closing. |
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What is the difference between the primary and secondary mortgage lending markets?
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The primary market is made up of all activities involved in the origination and closing of loans.
The secondary market is where previously made loans are bundled and sold to investors. |
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What is a jumbo loan?
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A loan that exceeds the maximum loan limits backed by Fannie mae and Freddie mac.
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What is joint tenancy?
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Equal and undivided ownership of a property by 2 or more individuals, taking possession together and acquiring title at the same time.
When one co-owner dies, his/her interest goes to the other co-owner(s). |
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What is a Lock-In agreement?
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An agreement made by a lender to hold (lock-in) a specific interest rate and a specific number of points while processing an applicant's loan.
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What does the acronym PUD stand for?
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Planned Unit Development. Most commonly a subdivision having common areas reserved for the use of some or all of the property owners int he development.
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What is the difference between PMI (Private Mortgage Insurance) and MIP (Mortgage Insurance Premium)?
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They serve similar purposes.
PMI is required by lenders on conventional loans when the loan-to-value (LTV) is more than 80%. MIP is required on all FHA loans. Unlike PMI, it is required on all loans for five years, regardless of the LTV. |
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At what LTV does the Home Ownership Protection Act require that PMI is automatically discontinued on a loan by the lender?
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78%. A homeowner can request the lender drop the PMI when the LTV reaches 80% (must meet certain proof requirements) but PMI is not automatically dropped until it reaches 78%.
Note: 22% equity position - another way 78% LTV may be stated. |
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What is the difference between mortgage broker and mortgage banker?
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A mortgage broker arranges mortgage loans through a mortgage banker or other lender. The broker does not fund loans.
A mortgage banker originates and funds loans in his/her own name for resale in the secondary market. |
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FHA down payment funds can be from borrower's own funds, gift funds, or housing authority grants.
True or False? |
True
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Instead of mortgage insurance, every VA (and USDA) loan includes what type of fee?
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Funding Fee
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What is tenancy in common?
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One of the ways to own property by 2 or more individuals (concurrent ownership).
There is no limit to the # of individuals & ownership interests do not have to be equal. When one co-owner dies, his/her interests go to his/her heir(s). |
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What does the acronym USDA represent?
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United States Department of Agriculture
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What are Freddie mae & Freddie mac?
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Fannie mae & Freddie mac are Government Sponsored Entities (GSEs), which are not government agencies, but have the implied support of the government.
They purchase pools of loans that conform to their guidelines, and sell mortgage backed securities. |
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What is temporary buy-down?
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A borrower places funds in escrow in an amount sufficient to offset the monthly payment required by the terms of the loan for the desired period.
The escrow funds "temporarily" reduce the payment amount for the selected period of time after which the payment amount defaults to the original amount that was established by the terms of the note. The note rate does not change during the temporary buy-down period. |
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What percentage of down payment is required on USDA loans?
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0%
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What is tenancy by the entirety?
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One of the ways to own property by more than one person (concurrent ownership).
The co-owners must be husband and wife, both of whom own the whole property. When one of the two dies, his/her interest goes to the surviving spouse. |
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What is a fully indexed rate?
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AKA the Fully Indexed Accrual Rate (FIAR). This is the "real" or "true" interest rate of an ARM.
ARMs often have introductory or temporarily discounted rates. The fully indexed rate is the result of adding the index and margin. |
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What is a COFI loan?
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An adjustable rate mortgage that uses the Cost of Funds Index (COFI) for interest rate adjustments.
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What is the "worst case scenario" for an ARM?
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The worst case scenario is the highest interest rate the loan could produce over the life of the loan based on the interest rate and adjustment caps.
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Which type of automated underwriter does Fannie mae & Freddie mac use?
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Fannie mae uses a Desktop Underwriter.
Freddie mac uses a Loan Prospector. |
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A 10-year old property is being sold. What is the best approach for an appraiser to evaluate the property?
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The Market Approach, AKA the Market Data Approach, or the Sales Comparison Approach.
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Mortgage broker fees are always included in the finance charge.
True or False? |
True
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What is the difference between Finance Charge and Annual Percentage Rate?
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Finance Charge - a uniform measurement of the cost of a loan expressed in a dollar amount.
Annual Percentage Rate - a uniform measurement of the cost of a loan, including interest & financed costs of closing, expressed as a yearly percentage. |
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Define "Creditor"
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A person or entity to whom an obligation is owed, such as a loan.
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When must the affiliated business arrangement disclosure be given to the borrower?
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When a settlement service provider refers a loan applicant to an affiliated business for settlement services - the affiliated business arrangement must be disclosed at the time of referral.
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Define "Buy-Down"
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The paying of fees (buying) to reduce (down) the payments on a mortgage and qualifying for a larger loan. A buy down may be permanent or tempoarary.
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Define a "Point"
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1% of the loan amount. For example, 1 point on a $100,000 loan would equal $1,000. 3 points on a $250,000 loan would equal $7,500.
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Define "Rate Discount"
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AKA as a permanent buy down, a rate discount allows the borrower to pay discount points to permanently reduce the rate of the mortgage.
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Define "Markup"
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A "markup" occurs when a mortgage broker, banker, or other mortgage lender increases (marks up) the charge from a settlement service provider for the purpose of collecting and retaining an additional fee from the borrower.
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What charges are always included when calculating Finance Charges?
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Examples of some standard items that are always included in finance charge interest are:
- Transaction Fees - Loan Origination Fees / Consumer Points - Credit Guarantee / Insurance Premiums Mortgage Broker Fees |
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What charges are never included when calculating Finance Charges?
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Examples of some standard items that are never included in finance charges are:
- Charges payable in a comparable cash transaction, such as fees for appraisals, document preparation, title insurance, and pest inspections - Seller's points - Participation in membership fees |
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Define "Amortization"
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Periodic payments on a loan requiring payment of enough principal and interest to ensure complete repayment of the loan by the end of the loan term.
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Define "Fully Indexed Rate"
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In an Adjustable Rate Mortgage (ARM), the interest rate indicated by adding the current index value and the margin.
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Define a "Seller Carry-Back"
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A purchase transaction, often involving an assumable mortgage, in which the party selling the property provides all or part of the financing. AKA Owner Financing.
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Fannie mae & Freddie mac allow borrowers to obtain "seller financing" in conforming loan transactions.
True or False? |
True. Fannie mae & Freddie mac do allow borrowers to obtain "seller financing," AKA "concessions" in conforming loan transactions.
Seller financing (aka concessions) is limited to 6% for borrowers who make a down payment of 10%, or higher. Seller financing (aka concessions) is limited to 3% for borrowers who make a down payment of less than 10%. |
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On a FHA loan, in what time frame must a borrower establish possession of the home?
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60 days
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