Term
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Definition
| To insure banks from mortgage losses, in order to inject much needed capital into the market following the Great Depression. |
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Term
| Why were Fannie Mae and Freddie Mac chartered? |
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Definition
| To purchase loans that were insured by the FHA. |
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Term
| What is the purpose of the Department of Housing and Urban Development? |
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Definition
| HUD provides incentives for urban development. It has since expanded. |
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Term
| What are the main federal regulations that govern the mortgage industry? |
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Definition
| TILA, RESPA, ECOA, FCRA, and GLB. |
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Term
| Who is the mortgagor? Who is the mortgagee? |
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Definition
Mortgagor = Borrower
Mortgagee = Lender |
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Term
| What are the three major components of a mortgage loan? |
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Definition
| Amount, interest rate, term. |
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Term
| What is the correct term for the process known as "closing." |
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Definition
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Term
| What services are typically included in settlement? |
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Definition
| title searches, title examinations, the provision of title certificates, title insurance, services rendered by an attorney, document preparation, property surveys, credit reports, appraisals, pest and fungus inspections, real estate and broker services, loan origination, handling of the processing and settlement. Other things |
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Term
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Definition
| Institutions that do not lend their own money. |
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Term
| What is mortgage insurance? |
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Definition
| Insurance that protects a lender in the event of a loan default. |
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Term
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Definition
| Specially trained professionals that use special equipment to determine boundaries of a property. |
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Term
| What duties are performed by Attorneys and Title Companies? |
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Definition
| Preparation of a clean title and making sure there are no outstanding liens or judgments against the property. |
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Term
| Who usually handles mortgage loan closings? |
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Definition
| Title companies and attorneys. |
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Term
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Definition
| a right or interest in a property held by one who is not the legal owner of the property. |
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Term
| What are three examples of physical encumbrances? |
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Definition
| Easements, public and private restrictions, encroachments. |
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Term
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Definition
| an interest or encumberance held by a creditor in a debtors real or personal property for the satisfaction of a debt. |
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Term
| What are examples of voluntary liens? |
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Definition
| transactions that the owner willingly entered into, such as a mortgage. |
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Term
| What are examples of involuntary liens? |
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Definition
| taxes and assessments, mechanic's liens, and judgment liens. |
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Term
| what is a mechanic's lien? |
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Definition
| A govt. lien intended to protect a contractor or construction worker if they are not paid for their work. |
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Term
| What are different lien theories? |
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Definition
| Title theory, lien theory, intermediate theory. |
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Term
| What is the title theory? |
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Definition
| Favors the lender. Lender holds on to the title while the mortgage is being paid. Lender could legally dispossess the borrower without notice at the first default of the loan. |
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Term
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Definition
| It is in favor of the borrower as the legal owner of the property while the lenders have equitable rights in the property. This can also be abused like title theory. |
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Term
| What are typical requirements of a mortgage contract? |
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Definition
They must be in writing.
Be accurate when describing the interest and the collateral.
Include complete info regarding repayment.
Be executed by legally competent parties.
Sufficient consideration must be paid. |
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Term
| What is a trust defined as? |
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Definition
| a right of property, either real or personal, being held by one party for the benefit of another. |
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Term
| Who is the trustor, trustee, and beneficiary in a deed of trust? |
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Definition
Trustor - borrower
Trustee - third party
Beneficiary - lender |
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Term
| Where is the deed of trust used? |
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Definition
| In states that utilize title theory. |
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Term
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Definition
| The promise to repay a debt and the Mortgage/Deed of trust is the instrument that secures it to the property. |
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Term
| What is an unsecured note? |
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Definition
| A debt instrument that does not have any collateral. |
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Term
| What provisions are included on the note? |
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Definition
| Date signed, identity, promise to pay, payment due dates, amount and terms, reference to security, signatures and endorsements, co-signers. |
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Term
| What instruments are part of a mortgage? |
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Definition
| Recording info, participants, pledge, property description, covenant of seisin, taxes and insurance, defeasance and acceleration clause, signatures and acknowledgement, release of mortgage. |
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Term
| What is a defeasance clause? |
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Definition
| a clause that states that the mortgagor will regain full free and clear title upon the repayment of the debt. Defeasance "defeats" foreclosure. |
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Term
| What is an acceleration clause? |
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Definition
| It outlines what will happen if the borrower fails to honor the terms of the agreement. |
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Term
| What is a contract for deed? |
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Definition
| The seller finances the sale of the property so he will receive the payments of the mortgage over the period of the repayment. |
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Term
| What is a contract for deed also known as? |
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Definition
SELLER HELD MORTGAGE
Land Contract
Real Estate Contract
Contract for Sale
Agreement for Deed
Installment sale
Articles of Agreement
Seller held mortgage |
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Term
| What is a lock-in clause? |
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Definition
| A drastic form of prepayment control in which a borrower is forbidden to pay a mortgage loan in full before a certain date, which can be up to 10 years after the loan is closed. |
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Term
| What is a due-on-sale clause? |
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Definition
| A clause in which a lender requires the balance of the mortgage/deed of trust to be paid immediately upon the sale or transfer of ownership of the home. |
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Term
| *ON TEST - What is the exculpatory clause? |
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Definition
It protects the borrower in the event of a future default?
It prevents the lender from going after other forms of property that the borrower may have. |
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Term
| *ON TEST - A builder has a single loan from his local bank that he has used to fund the construction of multiple homes. He does not want to pay off the entire loan balance when he seels a single home, so what does he make sure his mortgage has? |
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Definition
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Term
| Courtney would like to purchase a home from Chuck. Because of her prior credit problems, she is unable to obtain conventional financing. Chuck decides to sell Courtney the property, but he will retain title until the purchase price of the property is paid in full. What type of agreement have they executed? |
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Definition
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Term
| What are the nine steps of the mortgage loan process? |
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Definition
1. Pre-application client contact.
2. The loan application
3. Loan processing begins
4. Document collection and review
5. Purchase agreement
6. Title Examination
7. Lender underwriting
8. Mortgage insurance underwriting.
9. Closing |
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Term
| How much employment history must be verified in a VOE? |
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Definition
| 2 years history, gross income, as well as verifying the probability of continuing employment. |
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Term
| What funds are the borrower required to have in the loan process? When is the exception to this rule? |
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Definition
At least 3-5% of his or her own funds for the down payment, sufficient funds to close the loan, and 2 months cash reserves of PITI.
Exception in certain FHA and VA scenarios. |
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Term
| How long must have all funds been on deposit in VOD situations? |
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Definition
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Term
| How much mortgage insurance is required for anything other than 15 and 20 year fixed rate mortgages? 15 and 20 year fixed rate mortgages? |
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Definition
other than 15+20 years - >80-85% requires 12% coverage
>85-90% =25% coverage
>90% requires 30% coverages?
15-20 years:
80-85% = 6% coverage
85-90% = 12% coverage
>90% = 25% coverage |
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Term
| How much coverage does the FHA provide for the loans it insures? |
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Definition
| 100%. It also allows for lower down payments and less stringent underwriting standards. |
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Term
| How much financing do VA loans provide? How much of the loan does the VA insure? |
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Definition
| 100%, 25% of the loan, up to a maximum $60K |
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Term
| When will closing of a loan be scheduled? |
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Definition
Only after:
The loan is approved, title insurance is ordered, and all approval contingencies are met. |
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Term
| What factors are typically used to determine the approval or denial of a loan application? |
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Definition
| Borrowers ability (income and assets) and willingness (credit history), along with the property value. |
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Term
| What defines a conventional loan? |
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Definition
| A lender agreement that is not guaranteed by the federal govt under the VA, FHA, Rural Housing Service of the USDA. |
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Term
| What is a conforming loan? |
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Definition
| Conventional loans that follow the terms and conditions set by Fannie Mae and Freddie Mac. $417K max loan for a single-family to four unit dwelling. |
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Term
| What are non-conforming loans? Are they still considered conventional? |
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Definition
| Loans that do not meet Fannie Mae or Freddie Mac guidelines. Still conventional though. |
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Term
| What is the FHA a division of? |
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Definition
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Term
| *IMPORTANT - What are Features of FHA Loans? |
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Definition
1. Programs are administered by HUD
2. Lenders are approved by HUD to administer FHA loans.
3. FHA Offers two types of Mortgage Insurance *Upfront MIP and MIP.
4. Anyone regardless of race, color, religion, sex, marital status, or national origin living in the US is eligible.
5. 100% gift funds can be used for Cash to Close.
6. Non-traditional credit and no credit score still qualifies (that may have been amended)
7. Leniency on Credit and Employment history.
8. Bankruptcy: 2 years from Ch 7 Discharge; 1 year from Ch 13 filing.
9. LTV HIGHER THAN 96.5% on purchase.
10. LTV up to 85% on Cash-Out refi
11. Rates as low or lower than FNMA/FHLMC conforming rates.
12. No prepayment penalties
13. No reserve requirements
14. Up to 6% seller contribution
15. Energy efficient mortgages available to finance up to 8K in improvements
16. RATIOS UP TO 31/43 FOR MANUAL UNDERWRITING AND 33/45 IF HOME IS ENERGY EFFICIENT
17. Non-occupying Co-Borrowers Allowed. |
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Term
| True or false, FHA insured mortgages require mortgage insurance. |
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Definition
|
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Term
| What is the amount charged for mortgage insurance? |
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Definition
| .55% times the loan amount divided by 12. |
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Term
| What is the FHA UMIP charge on purchase loans, full credit qualifying refinances and cash out refinances? |
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Definition
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Term
| When will FHA MIPs automatically be terminated? |
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Definition
| when LTV goes below 78% on mortgages. BUT, if the term is lower than 15 years and LTV is lower than 89.99% mortgages will not be charged. |
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Term
| What do Section 245 FHA loans enable a borrower to do? |
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Definition
| they enable a borrower with limited income that is expected to grow the ability to buy a home sooner by making mortgage payments that start small and increase gradually over time. |
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Term
| Does the VA purchase loans or insure loans? |
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Definition
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Term
| What is the maximum guaranty on a VA loan? |
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Definition
| 240K depending on the borrowers income level and the appraised value of the property. There is technically no maximum loan amount though. |
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Term
| *IMPORTANT! What are features of a VA Loan? |
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Definition
1. The VA gaurantees a percentage of the loan amount after closing.
2. The maximum cash out for a VA loan is 100%
3. THERE IS NO MINIMUM INVESTMENT ON BEHALF OF THE BORROWER.
4. A funding fee is an investment on behalf of the borrower to help defray the costs of insuring the loan.
5. A VA loan may be assumed by purchase of the subject property allowing the interest rate to remain the same upon qualification.
6. VA QUALIFYING RATIO IS 41% BACK-END ONLY
7. VA loans require a certificate of eligibility.
8. Seller can contribute a 4% seller concession allowance.
9. There is a funding fee of 2.15% on initial use and a 3.30% for subsequent use of eligibility.
10. A VA loan appraisal is known as a CRV (certificate of reasonable value) |
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Term
| What qualifies a vet for a VA loan? |
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Definition
| Creditworthiness, honorable discharge, Certificate of Eligibility from the VA DD214, satisfactory DTI, Proof of owner occupancy. |
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Term
| What are advantages of VA loans? |
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Definition
| No down payment required, loan can be applied to many types of residences, VA loans are assumable, underwriting guidelines are very flexible. |
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Term
| Homes that qualify for USDA loans must be in cities that are how big? |
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Definition
| 10,000 or less and under certain conditions between 10,000 and 25,000 residents. |
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Term
| *ON TEST - How much can USDA loan amounts be for? |
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Definition
| 100%, but 102% if the guarantee fee is included in the loan. |
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Term
| What may USDA loans be made to refinance? |
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Definition
| Either existing USDA loans or with Section 502 Direct housing loans. |
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Term
| What is the charge to refinance USDA loans? |
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Definition
| .5%, which is typically passed on from the lender to the borrower. |
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Term
| What are non-conforming loans also known as? |
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Definition
|
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Term
| What are common types of mortgages? |
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Definition
Fixed rate / fixed payment
Fixed rate / changing payment
ARMs
Balloon
GPMs
Reverse Annuity
Home Equity Loans (2nd mortgages) |
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Term
| What makes up an interest rate? |
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Definition
|
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Term
| What is a fully-indexed rate? |
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Definition
| The rate at the time of adjustment, figured by taking the index and adding the margin. |
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Term
| What is the interest rate cap and the lifetime cap? |
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Definition
Interest rate cap limits the amount of upward adjustment on a yearly basis. usually a max of 2%
Lifetime cap limits the amount for the entirety of the loan. Usually a max of 6% |
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Term
| What is the most common type of insurance on a property? |
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Definition
| Hazard of Homeowner's insurance |
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Term
| How much of a property's value does Hazard insurance have to cover? |
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Definition
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Term
| What other type of insurance (other than hazard) may the lender require? Why? |
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Definition
| Flood, if the property resides in a flood zone as determined by FEMA flood maps. |
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Term
| What is Private Mortgage Insurance? |
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Definition
| insurance that protects the lenders from loss if a borrower stops making mortgage payments. |
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Term
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Definition
| Insurance against financial loss from defects in title to real property and from the invalidity or unenforcability of mortgage liens. |
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Term
| Why was the National Flood Insurance Act passed? |
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Definition
To address the fact that homeowners insurance does not cover flood damage.
It sought to provide relief for individuals who suffered losses through flood insurance. They mapped flood plains resulting in FLOOD INSURANCE RATE MAPS. |
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Term
| What act practically required Flood Insurance protection? |
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Definition
| The Flood Disaster Protection Act of 1973 |
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Term
| What did the 1994 National Flood Insurance Reform Act do? |
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Definition
| required mandatory escrows for flood insurance. |
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Term
| What form is known as the 1003? |
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Definition
| The universal loan application. |
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Term
| What are types of supporting documents included in a loan application? |
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Definition
1. Appraisal report
2. Credit report
3. Tax forms
4. Title Search
5. Employment Verification
6. Other income verification
7. Bank account verification
8. Debt Verificaiton
9. Other. |
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Term
| What forms are used for appraisals? |
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Definition
| The URAR, Uniform Residential Appraisal Report. |
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Term
| What is the sales comparison appraisal approach? |
|
Definition
| A method where the appraiser compares similar, recently sold properties to the subject property. Usually 3 of tem. |
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Term
| What is the cost approach in appraisals? |
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Definition
| A method where the appraiser assesses the value of the subject property by determining the amount necessary to construct a replica. |
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Term
| What is the income approach for appraisals? |
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Definition
| The appraiser determines the value of the property by using an estimate of the rent that the property could earn. |
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Term
| What form is required by appraisers on or after April 1, 2009. |
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Definition
| The Market Conditions Addendum (Form 1004MC) |
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Term
| What are the three types of credit reports that provide info on a borrower's liabilities and payment histories? |
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Definition
In file credit report - non-verified report received from one of the national credit bureaus.
Tri-merge credit report
Factual data report. |
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Term
| What is the most common credit scoring model? What does it stand for? |
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Definition
| FICO, Fair Isaacs Company |
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Term
| When does an ALERT message appear when looking up credit reports? |
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Definition
| When the input address, SSN, or surname does not match what is on file or when a minimum of four inquiries have been made against the file within the last 60 days. |
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Term
What is the length of time each record is held on the Credit Reporting Agency's record?
Civil Judgments, Unpaid tax liens, paid tax liens, various bankruptcies. |
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Definition
Civil Judgements 7 years, unpaid tax liens indefinite, paid tax liens 7 years, chapter 7, 11, or 12, 10 years
Chapter 13 bankruptcy filings 10 years
Chapter 13 bankruptcy dismissals 7 years |
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Term
| What is the housing ratio also known as when calculating DTI? |
|
Definition
|
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Term
|
Definition
| By adding the proposed first and second loan amounts and dividing that sum by the lower of the purchase price or the appraised value. |
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Term
| What are the 6 possible pre-approval results? |
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Definition
1. Approve/Eligible
2. Approve/Ineligible
3. Out of scope
4. Refer/Eligible
5. Refer/Inelegible
6. Refer with caution |
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Term
| What is the difference between a locked-in interest rate -- locked in points, and a locked-in interest rate -- floating points? |
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Definition
|
|
Term
| what does mortgage servicing include? |
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Definition
| sending monthly payment statements and collecting monthly payments, maintaining records or payments and loan balances, collecting and paying taxes and insurance, remitting funds to the note holder, and following up on delinquencies. |
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Term
| How many days in advance must the borrower be notified of mortgage servicing transfers? |
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Definition
|
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Term
| What should a mortgage servicing transfer notice include? |
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Definition
| name, address, and telephone number for the new and old servicer, date of transfer, and a statement of any changes in terms of the servicing agreement. |
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Term
| Define yield spread premium. |
|
Definition
| the cash rebate paid to a mortgage broker based on selling an interest rate above the wholesale par rate that the borrower qualifies for. |
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