☑️ Chapter 6: Non-Traditional & Non-Conforming Loans Flashcards
1
Q
Non-Traditional / Non- Conforming Loans and Financing:
Mortgage Products:
It is important for the MLO to understand how each MORTGAGE PRODUCT works to help customers reach their goals.
For example, if the goal is to LOWER the monthly payment, INSTEAD OF giving the borrower a HIGHER down payment, the borrower can:
• PREPAY some of the interest at closing as ______ points to the lender, which buys DOWN the interest rate and, therefore, LOWERS the required monthly payment.
• Agree to assume part of the lender’s interest RATE risk with an ______ Rate Mortgage.
Since the lender is NOT locked into a fixed-interest rate for the loan term, the lender can offer the borrower a LOWER interest rate as a _____ rate.
• Apply for an INTEREST-ONLY mortgage, which has lower monthly payments but generally has a _____ feature.
A
A. Discount
B. Adjustable Rate Mortgage (ARM)
C. Start
D. Balloon
2
Q
Non-Traditional / Non- Conforming Loans and Financing:
Jumbo Loans and B and C Borrowers:
There are two main reasons why a loan is classified as a nonconforming loan and, thus, is not saleable to _____ or _____:
•________: So-called jumbo loans exceed the maximum loan amount established by the Federal Housing Finance Agency for Fannie Mae and Freddie Mac conforming mortgage loan limits. The 2022 single-family home conforming loan maximum is $______ ; or $________ for high-cost areas, including Metro Washington, DC, Metro New York, Orange County and the San Francisco Bay Areas of California.
A
A. FNMA or FHLMCB
B. Size of the Loan
C. $647,200
D. $970,800
3
Q
Non-Traditional / Non- Conforming Loans and Financing:
Jumbo Loans and B and C Borrowers:
There are two main reasons why a loan is classified as a nonconforming loan and, thus, is not saleable to FNMA or FHLMC:
•________: A borrower who does not meet the minimum CREDIT standards established by Fannie Mae/Freddie Mac may be classified as a ___ or ___ borrower. This might be someone who had a credit problem in the past, such as a bankruptcy within the past 7 to 10 years; someone with late or unpaid medical bills; or someone whose credit scores are low because he owns multiple investment properties, has been self-employed for too short a period of time or for other reasons. These borrowers may still be able to receive mortgage loans through other loan programs, such as ______-INSURED mortgages.
Lenders, such as neighborhood banks, may also offer loans to these borrowers, but the loans CANNOT be sold to ____ or ____.
A
A. Credit Quality of Borrower
B. B or C
C. FHA-Insured
D. Fannie Mae or Freddie Mac.
4
Q
Non-Traditional / Non- Conforming Loans and Financing:
Alt-A and A-Minus Loans:
______ loan’s also named “_______ Documentation Loans” is for borrowers with GOOD credit that have DIFFERENT documentation standards than traditional loans. It is possible that a borrower with EXCELLENT credit and a LARGE down payment will NOT be required to furnish as much DOCUMENTATION as a borrower with average scores and an average down payment. The ____ recognizes a good credit risk and may require a REDUCED list of documentation; for example, only verbal verification of employment as opposed to ____ years of W-2s.
A
A. Alt-A Loans
B. ALTERNATIVE documentation loans
B. AUS
C. 2
5
Q
Non-Traditional / Non- Conforming Loans and Financing:
Alt-A and A-Minus Loans:
_______ LOANS is for borrowers with credit _____ blemishes, such as being 30 days late ONE or TWO times over the past year, having LOWER credit scores usually under ____ FICO, having LIMITED funds for a down payment, a HIGH debt-to-income ratio, or a record of BANKRUPTCY and/or FORECLOSURE. A-minus loans are RISKIER than _____ mortgages but NOT as RISKY as ______ mortgages. The APPROVAL can be obtained through an AUS. Since the loan is RISKIER, the _____ rate is HIGHER.
A
A. A-minus Loans
B. record
C. 680
D. prime
E. subprime
F. interest
6
Q
Non-Traditional / Non- Conforming Loans and Financing:
Buydown Plans:
Recall that a point is simply ___ percent of the loan amount. Points may be charged for a variety of reasons, such as to cover the costs of processing or servicing a loan. Discount points are additional funds paid to a lender at the START of the loan term to LOWER the _____ INTEREST rate and, therefore, LOWER the monthly payments.
Such a buydown could make it EASIER for a borrower to qualify for the loan.
Typically, a borrower pays for a buydown by simply prepaying some interest at closing. Therefore, a buydown in the form of discount points appears on a Loan Estimate as a _____ to the borrower.
A
- 1%
B. NOTE
C. CHARGE
7
Q
Non-Traditional / Non- Conforming Loans and Financing:
Buydown Plans:
Advantages to a buydown plan include:
• The borrower’s monthly payment is _____.
• The lender may evaluate the borrower for loan qualification based on the reduced _____ after the buydown.
A
A. Lower
B. Payment
8
Q
Non-Traditional / Non- Conforming Loans and Financing:
Buydown Plans:
While a _____ buydown plan may allow a borrower to lower monthly payments, borrowers must weigh their monthly savings over the life of the loan against what they are paying in upfront points at closing to buy down the interest rate. To CALCULATE how many months it would take to ____ those upfront points, divide the payment difference between the two interest rates by the cost of the discount points.
A
A. Permanent
B. Recoup
9
Q
Non-Traditional / Non- Conforming Loans and Financing:
Buydown Plans:
Another option is for the seller or other interested third party, such as a builder/developer or an employer to help facilitate the move of an employee being transferred, to pay discount points to buy down the ____ rate for the borrower. While this means less money in the _____ pocket, it may be necessary to make the deal.
The lender determines what the buydown amount is and subtracts that amount from the loan proceeds paid to the seller for the property (reflected on the Closing Disclosure as a ____ to the seller). The borrower still signs a note for the full amount but receives a lower interest rate over the ____ of the loan.
A
A. Interest
B. Seller’s
C. CHARGE
D. Life
10
Q
Non-Traditional / Non- Conforming Loans and Financing:
Buydown Plans:
A _____ BUYDOWN is when points are paid to a lender to reduce the interest rate and loan payments for the entire LIFE of the loan. When a buyer’s interest rate is reduced for the life of the loan, the lender writes that ____ interest rate into the promissory note. Thus, the _______ RATE also known as the ____ RATE is stated in the note AS the ACTUAL reduced interest rate.
A
A. Permanent Buydown
B. Lower
C. Nominal Rate (Coupon Rate)
11
Q
Non-Traditional / Non- Conforming Loans and Financing:
Buydown Plans:
A buydown paid to reduce the borrower’s payments early in the loan is called a ______ buydown.
Whoever pays for the buydown-often the seller or developer, sometimes the borrower-deposits funds at _____ with the lender that will be used to supplement the borrower’s reduced monthly out-of-pocket payment.
The supplemental funds allow the lender to receive the full payment, based on the _____ interest rate, during the months of the temporary buydown when the borrower’s monthly payments are less than what is called for in the note according to the permanent interest rate. Once the “deposited” funds run out; in other words, the specified temporary buydown period ____; the borrower must make the ___ required monthly payment out-of-pocket.
A
A. Temporary
B. Closing
C. Permanent
D. Ends
E. Full
12
Q
Non-Traditional / Non- Conforming Loans and Financing:
Buydown Plans:
Limits on Interested
Party Contributions and Other Considerations:
Fannie Mae, Freddie Mac, and the FHA LIMIT ______ and other _______ (IPCs). This is an interested party that can be anyone other than the buyer who has a financial interest in or can influence the terms and the sale or transfer of, the subject property.
Limits are placed on these items so buyers aren’t induced into BUYING a property they ______ afford.
A
A. points
B. Interested Party Contributions (IPCs)
C. CANNOT
13
Q
Non-Traditional / Non- Conforming Loans and Financing:
Buydown Plans:
Fannie Mae / Freddie Mac:
Fannie Mae and Freddie Mac guidelines impose _____ on DISCOUNTS, BUYDOWNS, and other forms of interested party CONTRIBUTIONS to help buyers get into homes.
These other contributions include finance costs, such as prepaid interest, and escrows for property taxes, hazard insurance, and mortgage insurance. IPCs may ____ be used to make the borrower’s down payment, meet finance reserve requirements, or borrower minimum contribution requirements.
A
A. LIMITS
B. NOT
14
Q
Non-Traditional / Non- Conforming Loans and Financing:
Buydown Plans:
Fannie Mae / Freddie Mac: Fannie Mae and Freddie Mac guidelines regulate contributions by sellers or other interested parties and they are LIMITED to a PERCENTAGE of the sale PRICE of a property OR its APPRAISED value, Whichever is _______. If the contributions EXCEED Fannie Mae and Freddie Mac guidelines, the CONTRIBUTION amount must be _______ from the APPRAISED value or SALE price of the property whichever is LESS before determining the maximum LOAN amount.
A
A. Less
B. Deducted
15
Q
Non-Traditional / Non- Conforming Loans and Financing:
Buydown Plans:
Fannie Mae / Freddie Mac: Fannie Mae and Freddie Mac guidelines impose limits on discounts, buydowns, and other forms of interested party contributions. These maximum Interested Party Contributions (IPCs) are based on the type of property and the loan-to-value:
Property Type:
• INVESTMENT Property
LTV/CLTV Ratio: ALL CLTV Ratios
Maximum Contribution Of ____%
A
A. 2%
16
Q
Non-Traditional / Non- Conforming Loans and Financing:
Buydown Plans:
Fannie Mae / Freddie Mac:
Fannie Mae and Freddie Mac guidelines impose limits on discounts, buydowns, and other forms of interested party contributions. These maximum Interested Party Contributions (IPCs) are based on the type of property and the loan-to-value:
Property Type:
• PRINCIPAL Residence
• SECOND Home
LTV/CLTV Ratio: 90% or MORE
Maximum Contribution Is: ____%
A
A. 3%
17
Q
Non-Traditional / Non- Conforming Loans and Financing:
Buydown Plans:
Fannie Mae / Freddie Mac:
Fannie Mae and Freddie Mac guidelines impose limits on discounts, buydowns, and other forms of interested party contributions. These maximum Interested Party Contributions (IPCs) are based on the type of property and the loan-to-value:
Property Type:
• Principal Residence
• Second Home
LTV/CLTV Ratio: 75.01% - 90%
Maximum Contribution: ____%
A
A. 6%
18
Q
Non-Traditional / Non- Conforming Loans and Financing:
Buydown Plans:
Fannie Mae / Freddie Mac:
Fannie Mae and Freddie Mac Secondary Market guidelines impose limits on discounts, buydowns, and other forms of interested party contributions. These maximum Interested Party Contributions (IPCs) are based on the type of property and the loan-to-value:
Property Type:
• Principal Residence
• Second Home
LTV/CLTV Ratio: 75% or LESS
Maximum Contribution: ____%
A
A. 9%
19
Q
Non-Traditional / Non- Conforming Loans and Financing:
Buydown Plans:
FHA and VA Guidelines:
FHA guidelines on Limits on Interested Party Contributions also impose limits on discounts points, buydowns, and other forms of seller/interested party contributions to help buyers purchase homes.
The FHA does NOT permit underwriting at a _____ buydown rate on FIXED-rate mortgages; it REQUIRES the borrower to qualify at the ____ rate. Furthermore, the buydown must NOT result in a reduction of more than ____% percentage points BELOW the INTEREST rate on the note.
The FHA allows maximum IPCs of ____% of the lesser of the sale price or appraised value. If the contribution is more than the allowable limit, like Fannie Mae and Freddie Mac, the FHA deducts the excess from the maximum loan amount.
NOTE: For this rule, remember that SELLER-paid contributions include any items normally ___ by the BUYER.
A
A. temporary
C. Note
D. 2% Percentage Points
E. 6%
F. Paid
20
Q
Non-Traditional / Non- Conforming Loans and Financing:
Buydown Plans:
FHA and VA Guidelines:
VA guidelines on Limits on Interested Party Contributions
The VA has ____ set limits on Interested Party Contributions (IPCs), although the seller payment of _____ as defined by the VA Lenders Handbook as LIMITED to ____% of the LESSER of the sale price or appraisal.
A
A. NO
B. CONCESSIONS
C. 4%
REMEMBER:
• IPC in FHA/FNMA/FHLMC is Interested Party Contributions.
• IPC in the VA is called Interested Party Concessions.
21
Q
Non-Traditional / Non- Conforming Loans and Financing:
Adiustable Rate Mortgage (ARM):
An ______ FREES lenders from being LOCKED into a fixed-interest rate for the ENTIRE life of a loan as with this type of loan interest rates are expected to ADJUST, according to the TERMS in the NOT, to REFLECT the CURRENT COST of MONEY.
A
A. Adiustable Rate Mortgage (ARM)
22
Q
Non-Traditional / Non- Conforming Loans and Financing:
Adiustable Rate Mortgage (ARM):
Adiustable Rate Mortgage (ARM) are popular alternative financing tools as they may help borrowers ______ more easily for a HOME loan or for a MORE expensive home. Many lenders LIKE these types of mortgages because they can PASS the risk of _____ INTEREST RATES on to borrowers. Lenders may offer multiple TYPES of ARM programs.
A
A. qualify
B. fluctuating
23
Q
Non-Traditional / Non- Conforming Loans and Financing:
Adiustable Rate Mortgage (ARM): Because their risk is lower, lenders normally charge a _____ start rate for an ______ than for a fixed-rate loan.
Although most borrowers prefer the security of a fixed rate (provided the rate is not too high), ARMs have maintained a place in the market despite comparatively LOW mortgage rates. Of course, as interest rates RISE, so does ARM popularity.
Terms, rate changes, and many other aspects of ARMs are regulated by several agencies, depending on the type of lender. Any applicable guidelines or requirements of Fannie Mae, Freddie Mac, the FHA, and/or private mortgage insurers must be followed as well.
A
A. Lower
B. Adiustable Rate Mortgage (ARM)
24
Q
Non-Traditional / Non- Conforming Loans and Financing:
Adiustable Rate Mortgage (ARM): Components of ARMs:
There are several components to an ARM:
• _______ - benchmark interest rate that reflects general market conditions
• _______ - a number set by your lender when you apply for your loan.
• Rate ______ Period - The period between rate changes. Ex. 1-Year ARM > Interest rate and Payment can change once every year.
• Interest Rate ____ (if any) - This LIMITS the possible INCREASE in an adjustable-rate mortgage’s (ARM) interest rate during each year.
• Interest Rate ____ (if any) - An agreed upon rate in the LOWER range of rates associated with a FLOATING rate loan product.
• ______ Option (if any) - This clause allows the borrower to change their ARM loan to a FIXED-rate loan after a period of TIME, and usually for a FEE.
NOTE: The borrower’s INITIAL interest rate is determined in by the market _____ of money on the DATE the loan is made.
A
A. Index
B. Margin
C. Adjustment
D. Cap
E. Floor
F. Conversion
G. Cost
25
Non-Traditional / Non- Conforming Loans and Financing:
Adiustable Rate Mortgage (ARM): Components of ARMs:
_______: Once the INITIAL interest rate for the ARM loan is SET, the _____ RATE of the loan is tied to this CRITICAL number which is widely recognized and published in the mortgage market.
A. Index
B. INTEREST
26
Non-Traditional / Non- Conforming Loans and Financing:
Adiustable Rate Mortgage (ARM): Components of ARMs:
The ____ is often referred to as the COST of MONEY.
At the time a loan is made, the preferred VALUE of this number is selected by the borrower based upon what the lender OFFERS. Because of the MARKET forces, this VALUE _______ during the term of the loan, CAUSING the borrower's ACTUAL interest rate PAYMENT to INCREASE and DECREASE. The ______ moves in step with other short-term interest rate debt instruments. This is determined and affected by market conditions and regularly listed in major publications, such as The WALL STREET JOURNAL.
A. Index
B. Fluctuates
C. Index
27
Non-Traditional / Non- Conforming Loans and Financing:
Adiustable Rate Mortgage (ARM): Components of ARMs:
Common Indices include:
• _______ (MTA) - based on a 12 MONTH MOVING average of certain TREASURY bonds
• 11th District ________ (COFI) - based on MONTHLY AVERGAE of interest rates paid on CHECKING and SAVING accounts offered by ARIZONA, CALIFORNIA and NEVADA financial institutions
• _______ (CMT) - based on WEEKLY or MONTH average YIELDS on U.S. Treasury SECURITIES
• _______ (LIBOR) - AVERAGE interest rate which GLOBAL banks borrow from EACH another based on 5 currencies (EURO, British POUND, Japanese YEN, Swiss FRANC and U.S. DOLLAR) It has been used since the late 1980s for many types of securities including ARMs offered in the United States. It is scheduled to become UNAVAILABLE after 2023 with publication of its rates being discontinued by the end of 2021.
• ________ (SOFR) - a TRANSACTION -based rate which is a broad measure of the COST of borrowing cash OVERNIGHT COLLATERALIZED by U.S. Treasury SECURITIES .
Remember: CCLMS
Remember: CCLMS
A. Treasury Bill Index also called the “Moving Treasury Average” (MTA)
B. 11th District Cost of Funds Indexes (COFI)
C. Constant Maturity Treasury (CMT)
D. London Interbank Offered Rate (LIBOR)
E. Secured Overnight Financing Rate (SOFR)
28
Non-Traditional / Non- Conforming Loans and Financing:
Adiustable Rate Mortgage (ARM): Components of ARMs:
INDICES have RATES that are ______ publicly. The index is subject to CHANGE over time and is, therefore, likely to be _____ each time there is an ADJUSTMENT to the loan's interest rate. In general, indices with LONGER terms offer borrowers more PROTECTION from short-term ______ in the economy than indices with SHORTER terms.
Example: a borrower with an ARM that uses a _____ - month Treasury Bill Index (MTA) as the INDEX has LESS PROTECTION from INCREASES in the INTEREST rate than a borrower who uses a _____ - year Treasury Bill Index (MTA) as the INDEX who will have MORE protection.
A. PUBLISHED
B. different
C. fluctuations
D. 6 Month
E. 3 Year
29
Non-Traditional / Non- Conforming Loans and Financing:
Adiustable Rate Mortgage (ARM): Components of ARMs:
Index:
The Bureau of Consumer Financial Protection has set forth a final “LIBOR ______ RULE” that AMENDS Regulation Z to address the anticipated Sunset (Retirement) of LIBOR, which is expected to be DISCONTINUED for most U.S. Dollar (tenors in June 2023).
The LIBOR TRANSITION RULE amends the OPEN-end and CLOSED-end provisions to provide examples of REPLACEMENT indices for LIBOR indices that meet certain TILA/Regulation standards. Generally, current LIBOR references in Regulation Z and sample disclosure forms will CHANGE to reference the ____ (SOFR). The LIBOR Transition Rule is effective April 1, 2022. For certain change-in-terms notice provisions, creditors and card issuers can begin complying on April 1, 2022, although MANDATORY compliance does not begin until October 1, 2022.
A. “LIBOR Transition Rule”
B. Regulation Z
C. Secure Overnight Financing Rate (SOFR)
30
Non-Traditional / Non- Conforming Loans and Financing:
Adiustable Rate Mortgage (ARM): Components of ARMs:
A _______ which is also known as the ______, remains FIXED or CONSTANT for the duration of the loan.
A. Margin
B. Spread
31
Non-Traditional / Non- Conforming Loans and Financing:
Adiustable Rate Mortgage (ARM): Components of ARMs:
The _____ is the number of PERCENTAGE points ADDED to the INDEX and SET by the lender. The INDEX plus the MARGIN equals the _______ INTEREST RATE or _____ INDEXED RATE the borrower pays on the loan assuming it does NOT EXCEED the interest rate _____. The MARGIN can VARY greatly between DIFFERENT lenders. The _____ is defined as the actual COST of MONEY. The MARGIN is defined as the ____ margin being made BY the LENDER.
A. Margin
B. Adjustable Interest Rate or Fully Indexed Rate
C. CAP
D. Index
E. Margin
F. Profit
32
Non-Traditional / Non- Conforming Loans and Financing:
Adiustable Rate Mortgage (ARM): Components of ARMs:
The _______ period is the length of time between interest rate changes with ARMs.
A. Rate Adjustment
33
Non-Traditional / Non- Conforming Loans and Financing:
Adiustable Rate Mortgage (ARM): Components of ARMs:
Teaser Rates:
When the _____ rate on an ARM, which is also known as the ____ rate, is **LESS** than the FULLY _____ RATE, it is considered a ______ INDEX RATE, which is also referred to as a ____ rate. Lenders OFFER teaser rates initially to make ARMs more ATTRACTIVE to borrowers.
A. INITIAL
B. START
B. INDEXED
C. DISCOUNTED
D. TEASER
34
Non-Traditional / Non- Conforming Loans and Financing:
Adiustable Rate Mortgage (ARM): Components of ARMs:
Interest rate ______ are used with ARMs to LIMIT the number of ______ points an INTEREST rate can INCREASE during the term of a loan, helping to ELIMINATE LARGE _____ in mortgage payments.
A. Caps
B. Percentage
C. Fluctuations
35
Non-Traditional / Non- Conforming Loans and Financing:
Adiustable Rate Mortgage (ARM): Components of ARMs:
Interest Rate Caps:
These are often shown as two numbers; for example, 2/6, where:
• 2/6: The FIRST number (2) indicates the MAXIMUM amount the interest rate can INCREASE or potentially DECREASE from one _____ period to the NEXT; this is called the ______ Cap.
• 2/6: The SECOND number (6) indicates the MAXIMUM amount the interest rate can INCREASE during the ____ of the loan; this is called the ______ Cap.
EXAMPLE: If you see a rate cape described as 5/2/6 the the interest CANNOT increase more than:
• 5% Increase or Decrease Allowed at the _____ Adjustment
• 2% Increase or Decrease Allowed for _____ Adjustment Periods
• 6% Increase Allowed Total Over The _____ Of The Loan
A. Adjustment
B. Periodic Cap
C. LIFE
D. Lifetime Cap
• FIRST
• SUBSEQUENT
• LIFE
36
Non-Traditional / Non- Conforming Loans and Financing:
Adiustable Rate Mortgage (ARM): Components of ARMs:
Interest Rate Caps:
Some ARMs allow for a HIGHER rate change at the first adjustment and then apply a periodic adjustment _____ to future adjustments.
These ARMs are usually identified with three numbers: 1. The first number: is the interest rate cap for the ____ adjustment.
2. The second number: is the _____ adjustment cap.
3. The third number: is the _____ interest rate cap.
If you see a rate cap described as 5/2/6, the interest rate cannot increase more than:
• 5% at the first adjustment.
• 2% for subsequent adjustment periods.
• 6% total over the life of the loan.
A. Cap
B. First
C. Periodic
D. Lifetime
37
Non-Traditional / Non- Conforming Loans and Financing:
Adiustable Rate Mortgage (ARM): How an ARM Works:
When attempting to understand how an ARM works and how payments adjust, think of an ARM as a set of stair steps. The LOAN _____ also called the LOAN ________, is where the ARM begins, this is the period of time subject to the INITIAL, START, or TEASER interest rate.
A. Floor / Base
38
Non-Traditional / Non- Conforming Loans and Financing:
Adiustable Rate Mortgage (ARM): How an ARM Works:
With 2/6 interest rate caps:
The FIRST calculation is the MAXIMUM ____ at the FIRST rate change date is the CURRENT Interest rate in this case, the START rate of 3.00% + the rate CAP in this case, 2%. These need to be added together to get the _____ Indexed Rate.
This sets the maximum FULLY INDEXED one-year adjustment period rate at 5.00%.
NOTE: This formula is used for each ______ interest rate adjustment calculation.
• The SECOND calculation is the _______ RATE.
Assume that the current index is 2.125% and the margin is 2.25%. The fully indexed rate is the SUM of these two figures or 4.375%. (Add The Index To The Margin To Calculate The Fully Indexed Rate)
• The THIRD calculation COMPARES which is the _____ VALUE between the MAXIMUM INTEREST rate CAP and the FULLY INDEXED rate sets is the interest rate for the UPCOMING adjustment period. In this example, the maximum interest rate per the periodic cap is 5.00% AND the fully indexed rate is 4.375%. Which is the LOWER number? Following the rule of using the LESSER rate, the SECOND one-year adjustment period interest rate is ______%.
A. Interest Rate
B. Fully
C. Successive
D. Fully Indexed Rate
E. Lesser
F. 4.375%
39
Non-Traditional / Non- Conforming Loans and Financing:
Adiustable Rate Mortgage (ARM): How an ARM Works:
Use the same concepts for calculation of the interest rate adjustment. Again, remember the "stairs."
• The FIRST calculation is the MAXIMUM _____ rate, which is the current rate 4.375% + the rate cap 2.00% = _____%.
• The SECOND calculation is the ______ rate. For the NEXT ONE-year ADJUSTMENT period, assume that the index has risen to 5.50%.
To calculate the fully indexed rate, add the INDEX 5.50% to the MARGIN which is FIXED at 2.25%). After ADDING the INDEX to the fixed MARGIN the fully indexed rate is _____%.
• The THIRD calculation is to use the _____ of the MAXIMUM interest rate or the FULLY indexed rate in this scenario is ______%. Remember that the new interest rate is always the LESSER of the two calculations that are performed at the time of rate adjustment.
A. Interest
B. 6.375%
C. Fully Indexed
D. 7.75%
E. Lesser
F. 6.375%
40
Non-Traditional / Non- Conforming Loans and Financing:
Adiustable Rate Mortgage (ARM): A ______ AMR is an ARM with an initial fixed-rate period _____ than one year (period). This means that the loan has a FIXED rate for a SPECIFIED number of ____, and then the interest rate begins to ADJUST _____ after this PERIOD for the remainder of the LIFE of the loan TERM, according to the TERMS of the note.
Example: A 3/1 hybrid ARM has an INTRODUCTORY rate PERIOD or TEASER rate for ____ years from the date of the loan. It will then adjust EVERY _____. Other options include 5/1, 7/1, or 10/1 ARMs, where the fixed period is for FIVE, SEVEN, or TEN years and the interest rate adjusts ANNUALLY for the remainder of the loan term.
MLOs need to be careful about how they discuss these loans so that consumers aren't confused by the term "FIXED."
A. Hybrid ARM
B. GREATER
C. Years
D. Regularly
E. 3 Years
E. Year
41
Non-Traditional / Non- Conforming Loans and Financing:
Adiustable Rate Mortgage (ARM): Hybrid ARM - How it Works:
The CALCULATION for the interest rate CHANGE at the END of the fixed period (e.g., three years) FOLLOWS the calculations previously introduced, using the INITIAL ______ Adjustment RATHER than the _____ cap.
A. Initial Rate Cap Adjustment
B. Periodic
42
Non-Traditional / Non- Conforming Loans and Financing:
Adiustable Rate Mortgage (ARM): Hybrid ARM - How it Works:
• The FIRST calculation is to find the FIRST interest rate adjustment maximum, FIRST ADD the current INTEREST rate (3.50%) to the INITIAL rate RATE CAP (5.00% from the 5/2/6 figure) for a sum of _____% is the ______.
• The SECOND calculation is the fully indexed rate is then CALCULATED and COMPARED with the first calculation (initial rate cap adjustment) and the LESSER of the two calculations is selected. For the initial rate adjustment, assume the index has risen to 5.50%. To calculate the fully indexed rate, add the index (5.50%) to the margin (fixed at 2.25%). This makes the _______ Indexed Rate ______%.
After the INITIAL interest rate adjustment, the 2/6 CAPS are the ______ CAPS used after the INITIAL percentage has been used for the INTRODUCTORY rate. The loan and rate adjustments function in the same manner as a STANDARD ARM.
A. 8.50%
B. Initial Rate Cap Adjustment
C. Fully
D. 7.75%
E. ONLY
43
Non-Traditional / Non- Conforming Loans and Financing:
Adiustable Rate Mortgage (ARM): The last number in either example the "____" in EITHER the 5/2/6 or 2/6 adjustment guidelines DENOTES the MAXIMUM percentage amount the interest rate is ALLOWED _____ that can be charged by the lender during the life of the loan. This maximum rate is calculated by adding the starting interest rate of 3.5% to the maximum rate cap 6.0% which would equal the LIFETIME interest rate.
• Using the start rate of 3.5% and adding it to the maximum rate cap of 6.0%, the maximum LIFETIME interest rate would be ______%,
A. 6
B. RISE
C. 6.00%
D. 9.50%
44
Non-Traditional / Non- Conforming Loans and Financing:
Adiustable Rate Mortgage (ARM): Hybrid ARM Conversion Option:
A HYBRID Conversion option gives the borrower the right to _____ from an ARM to a _____-rate loan. ARMs with a conversion option normally identify the following factors in the note:
• Interest rate - often, the INITIAL rate and CONVERTED rate are _____
• Limited time to convert - Must Conversion MUST occur between the 1st and ____ year)
• Conversion fee - typically about ___%
A. Change
B. FIXED
C. Higher
D. 5th
E. 1%
45
Non-Traditional / Non- Conforming Loans and Financing:
Adiustable Rate Mortgage (ARM): ARM Loan-to-Value Ratios:
ARMs with loan-to-value ratios (LTVs) of 80%, 90%, and 95% may be available, depending on current conditions in the local market. Loans with LTVs HIGHER than _____%, though, are often subject to some restrictions. Due to additional DEFAULT potential that determines qualification for INCREASING payments, ARMs may be subject to HIGHER underwriting standards such as a _____ FICO® score requirement, a ________ loan-to-value ratios, and _____ debt-to-income ratios.
A. 95%
B. HIGHER
C. LOWER
D. LOWER
46
Non-Traditional / Non- Conforming Loans and Financing:
Adiustable Rate Mortgage (ARM):
ARM Disclosures:
Lenders offering residential financing, including ARMs, must comply with federal guidelines under Regulation Z of the Truth in Lending Act that require certain disclosures to borrowers.
• A lender is required to give the loan applicant the _______ (CHARM), prepared by the Federal Reserve Board, within _____ business days of loan application.
• The rules also REQUIRE certain specific disclosures if relevant to the specific ARM program and the DISCLOSURE of the _____ Percentage Rate (APR) is REQUIRED.
A. Consumer Handbook on Adjustable Rate Mortgages (CHARM Book)
B. Three
C. Annual Percentage Rate (APR)
47
Non-Traditional / Non- Conforming Loans and Financing:
Adiustable Rate Mortgage (ARM): ARM Disclosures:
The LENDER or SERVICER must comply with ALL the TERMS of the loan as indicated in the note, including any changes that occur during the life of the loan to the index, the rate, the payment, etc. The note will also indicate specific TIME NOTIFICATION requirements for DISCLOSING ____ changes to the RATES to the borrower.
A. Pending
48
Non-Traditional / Non- Conforming Loans and Financing:
Adiustable Rate Mortgage (ARM): ARM Disclosure Requirements for Interest Rate/Payment Changes:
A loan servicer MUST provide a borrower with an ARM DISCLOSURE:
• At least ______ calendar days notice before an interest rate CHANGE occurs, if that change will result in a NEW PAYMENT amount. The NOTICE is required to alert the borrower that the payment is about to INCREASE.
• An INITIAL interest rate CHANGE disclosure MUST be given _____ to _____ months BEFORE the FIRST payment is due at the NEW rate. The notice MUST show the ____ RATE and PAYMENT or at LEAST an _____ of the NEW rate AND payment.
A. 60 Days
B. 7 to 8 Months
C. NEW
D. Estimate
49
Non-Traditional / Non- Conforming Loans and Financing:
Adiustable Rate Mortgage (ARM): MLOs working with consumers on an Adjustable Rate Mortgage should ______ use the term "FIXED RATE" even when discussing the PERIOD between adjustments during which that interest rate remains UNCHANGED. A consumer will hear "FIXED" and that PERCEPTION could create certain expectations about the loan that are false. Complete DISCLOSURE of how an ARM works and the IMPACT on the borrower is REQUIRED by law and is simply the ETHICAL behavior expected from all mortgage professionals.
NEVER
50
Non-Traditional / Non- Conforming Loans and Financing:
Adiustable Rate Mortgage (ARM): ARM Annual Percentage Rate:
REMEMBER that the _____ is the relationship between the COST of borrowing money and the total AMOUNT financed, represented as a percentage. Regulation Z disclosures regarding the APR CANNOT be made based solely on an ARM's ______ rate. For an ARM, the disclosure of the APR in the URLA on Page 3 is the "________" section of the LOAN ESTIMATE this MUST reflect the FINANCE charges and fees as well as the ____ APR; this number is a COMPARISON of the INTIAL payment rate and the FULLY indexed rate that could exist for the REMAINING years of the loan term.
Example:
If the INITIAL rate on a 30-year loan is 6% for ONE year but adjusts to the Cost of Funds Index (COFI) for illustration purposes, let's say the COFI INDEX is 3%. You ADD this plus 5% for the initial cap, the lender's disclosed payment schedule should reflect a COMPOSITE APR based on 6% for 12 payments and 8% which is the 3% + 5% for the remaining 348 payments.
• The MAIN point is that a lender must DISCLOSE more than the LOW _____ rate. A REQUIRED disclosure under Regulation Z, is the ____ composite rate is which is DESIGNED to let consumers' comparison SHOP for rates among lenders, since all lenders must calculate APR the same way.
A. APR
B. Initial/ Teaser/Introductory
C. COMPARISON
D. Composite APR
E. Initial/ Teaser/Introductory
F. APR
51
Non-Traditional / Non- Conforming Loans and Financing:
Construction Loans:
Another type of _____ -TRADITIONAL loan program is a CONSTRUCTION mortgage, which is an interim, or short-term, temporary loan used to finance the CONSTRUCTION of _____ and buildings on land. Generally, an appraiser will value the property for a construction loan by evaluating the building plans and specifications, completing a "_______" appraisal.
A. Non-Traditional
B. Improvements
C. “Subject To”
52
Non-Traditional / Non- Conforming Loans and Financing:
Construction Loans:
_________ Disbursement Plan: This non-traditional loan pays a SET percentage of funds at a SET time. These are often called obligatory ______, these are paid out at VARIOUS stages of construction as follows:
• FIRST Release:
Draw ____% of Loan
Project 20% complete
• SECOND Release:
Draw ____% of Loan
Project 40% complete
• THIRD Release
Draw ____% of Loan
Project 60% complete
• FOURTH Release
Draw ____% of Loan
Project 80% complete
• FIFTH Release
Draw ____% of Loan
Project 100% complete
A. Fixed Disbursement Plan
B. Obligatory Advances
C. 10%
D. 20%
E. 20%
F. 20%
G. 20%
53
Non-Traditional / Non- Conforming Loans and Financing:
Construction Loans:
After this non-traditional loan is approved and funded, the construction funds are set aside in a special account and released to the borrower and builder called "_____" or Obligatory _______, to FINANCE the construction of the dwelling. To protect themselves, lenders use PLANS for DISBURSING construction loan FUNDS to guard against _____ by the borrower.
The THREE MOST common disbursement plans are the:
• ______ Disbursement Plan - Pays A SET Percentage Of Funds At A SET Time.
• ______ System - Borrower pays their OWN bills and then submits the receipts to the LENDER for Reimbursement.
• ______ System - Lender pays the bills to the Contractors Directly from an ESCROW account.
A. Draws
B. Advances
C. OVERSPENDING
D. Fixed
E. Voucher
F. Warrant
54
Non-Traditional / Non- Conforming Loans and Financing:
Construction Loans:
Lenders often hold the final _____% or more LEFTOVER from the loan proceed disbursement until the LIEN PERIOD has EXPIRED to protect against any UNPAID _____ liens, which could affect the marketability of the property. If a VALID Mechanic's Lien is RECORDED, the construction loan AGREEMENT usually allows lenders to PAY it from the ____ of the loan that was NOT disbursed.
_______ System: The contractor or borrower must pay their own bills, and then submit the _____ to the lender for reimbursement.
________ System: The lender pays bills _____ to the various suppliers and laborers on a project. During construction, the borrower makes an _____-only payment to the lender on the outstanding funds that have been ADVANCED. A lender may collect these payments monthly or put the interest FUNDS in an "______" at the closing of the loan.
New construction can take a YEAR or MORE to complete, depending on the size of the home to be constructed; therefore, some contracts may include _____ RATE LOCKS. Construction loans are NON-TRADITIONAL loans they can be profitable, but lenders regard them as RISKY.
A. 10%
B. Mechanic's Lien
D. Portion
E. Voucher
E. Receipts
F. Warrant
G. Directly
H. Interest
I. Escrow Account
J. Extended Rate
55
Non-Traditional / Non- Conforming Loans and Financing:
Construction Loans:
Permanent Financing:
When construction is complete, the appraiser VERIFIES that plans and specifications have been MET and the original appraised OPINION of value is ______; the loan is then replaced by a _____ FULLY-AMORTIZING loan, OFTEN called a ______ loan. A PERMANENT loan is a long-term mortgage loan that "TAKES OUT" the INTERIM NON-_________ construction loan and REPLACES it with PERMANENT Financing, similar to a CONVENTIONAL or GOVERNMENT-insured loan.
A. VALID
B. permanent
C. TAKE-OUT Loan
D. NON-Traditional
56
Non-Traditional / Non- Conforming Loans and Financing:
Subprime Loan:
A mortgage loan extended to a borrower who has experienced some form of CREDIT TRAUMA or currently CANNOT verify income to REPAY the loan, thus increasing the risk of the loan, is known as a _______ Loan.
A subprime mortgage is a non-traditional loan that does NOT conform to ______ market standards and, thus, is NOT considered a ____ loan.
A. SubPrime - MORE Risky Than Prime Loans: Does Not Conform To Secondary Market Standards
B. Secondary
C. Prime - LESS Risky Than SubPrime Loans: Does NOT Conform To Secondary Market Standards
57
Non-Traditional / Non- Conforming Loans and Financing:
Subprime Loan:
These types of non-traditional loans became popular in the 1990s until the mortgage meltdown of 2008-2009. Borrowers who did _____ meet the guidelines of the local bank or conform to the government-regulated secondary markets turned to subprime lending as a method of meeting their financial difficulties or goals. Borrowers were willing to accept a mortgage loan with a higher interest rate or other toxic features (as defined by the Qualified Mortgage regulation) in exchange for the lender making a loan that contained a higher amount of risk. Many of the lenders that offered subprime loans were forced into ______ when the default ratios for these types of loans skyrocketed.
A. NOT
B. Insolvency - The INABILITY to pay one's debts.
58
Non-Traditional / Non- Conforming Loans and Financing:
Subprime Loan:
Characteristics of a Subprime Loan:
A basic characteristic of a NON-TRADITIONAL subprime loan is the ALLOWANCE for _____ risk factors when COMPARED with a standard conventional loan. SUBPRIME loans MUST possess at least ONE or MORE of the following features:
1) HIGH interest rates
2) HIGH debt-to-income ratios
3) LOW down payment requirements
4) LITTLE or NO verification of ability to REPAY the mortgage debt
5) EXCESSIVE loan fees
6) LOWER FICO® score approved
7) Hybrid loan features such as a lower initial interest rate for a short time (recall that a hybrid ARM can be shown as a 5/1 ARM, with the "5" denoting the INITIAL _____ period of interest and the "1" denoting the _______ adjustment period.)
A. Increased
B. Fixed (Unchanging)
C. Subsequent (Next)
59
Non-Traditional / Non- Conforming Loans and Financing:
Subprime Loan:
Subprime Interest Rate Components:
Leading up to the 2007-2008 mortgage crisis, the cost of a non-traditional subprime loan was driven primarily by the collateral value, the borrower's equity, and the credit score of the borrower to assess the risk associated with the loan.
Today, the borrower's _____ (ATR) the debt is the PRIMARY factor in most subprime loans.
A. Repay
60
Non-Traditional / Non- Conforming Loans and Financing:
Subprime Loan:
Subprime Loan Underwriting Standards:
The Interagency Guidance on Nontraditional Mortgage
Product Risks indicates that mortgage loan underwriting standards should ADDRESS the EFFECT of a substantial ____ INCREASE on the borrower's capacity to repay a Non-Traditional mortgage loan when amortization begins.
A. Payment
61
Non-Traditional / Non- Conforming Loans and Financing:
Subprime Loan:
Subprime Loan Underwriting Standards:
When an underwriter identifies MORE than ONE risk factor associated with the mortgage loan, this is referred to as a _____ OF RISK, including:
• Interest-only loans where NO payment toward principal REDUCTION is made.
• _____ loans where the monthly payment made is INSUFFICIENT to pay the ENTIRE amount of INTEREST due
• ARMs with a SHORT introductory interest rate period
• Low FICO® scores
• Payment DELINQUENCIES
• Charge-OFFS, BANKRUPTCIES, FORECLOSURES, or JUDGEMENTS
• REDUCED documentation loans
• HIGH loan-to-value LTV
• Secondary financing, which REDUCES the borrower's EQUITY or DOWN payment
• HIGH debt-to-income ratios DTI
• LACK of employment or job stability
• Significant INCREASE in the borrower's current housing EXPENSE in relation to the proposed housing expense
The PRESENCE of these, among other, risk factors in a non-traditional subprime loan RAISE a _____ and should motivate the underwriter to use CAUTION in considering the loan. When risk factors (or multiple risk factors) are PRESENT, the ______ factors should be present and DOCUMENTED to offset the risk. Compensating factors are factors that add STRENGTH to a mortgage loan file; (i.e., LARGE down payment, LOW debt-to-income ratios, LOW payment shock, etc.)
A. Layering
B. Negative amortization
C. RED FLAG
D. Compensating
62
Non-Traditional / Non- Conforming Loans and Financing:
Subprime Loan:
______ Loans are re-emerging as an alternative loan product in today's market, though with a new look and new requirements. Many homeowners who experienced financial trauma in the past due to their credit reports or household income are returning to the market to purchase homes, but have credit scores in the lower brackets. These "________ BUYERS" still may NOT meet the criteria for a prime loan, but have sizeable assets for a large down payment towards a property. A subprime loan that is more forgiving of credit situations may provide a suitable resource for the financing of their "______ HOME".
Subprime Loans:
Subprime Lenders are again entering the lending arena but with a different manner of making mortgage loans than what was previously offered. Today's subprime lender:
• Must comply with a variety of laws, including; _____ (high-cost loan) provisions, ______ requirements, and a verification of each borrower's ability to ____ (for owner-occupied properties) the mortgage loan they are seeking.
• Must assume a more RESPONSIBLE attitude about the borrower's loan than what was experienced in the past. Lenders, through the implementation of The ______ Act, are exercising greater CAUTION in the borrower's loan qualification and have a higher regard for the STABILITY of the loan outcome.
There continues to be a strong market for these non-traditional loans, despite the greater regulations imposed. Of course, no one can predict the occurrence of life's challenges, but the subprime secondary market can have confidence that today's subprime loans provide greater STABILITY for their investment portfolio and greater protections for the consumer.
A. Subprime
B. Boomerang Buyers
C. Boomerang Home
D. HOEPA
E. Qualified Mortgage
F. Repay
E. Dodd-Frank
63
Non-Traditional / Non- Conforming Loans and Financing:
Balloon Mortgage Loan:
A Balloon Mortgage Loan is also known as a non-traditional partially-amortizing loan, calls for periodic payments of principal and interest during the loan term with a balloon payment at the end of the term to pay off the _____ due. Example: a balloon mortgage loan could be expressed as "360/120".
• The "360" identifies the AMORTIZATION period the _____ payment is calculated on.
• The "120" identifies the term when the monthly payment STOPS and the final balloon payment is ____.
A. Balance
B. Monthly
C. Due
64
Non-Traditional / Non- Conforming Loans and Financing:
Balloon Mortgage Loan:
Non-traditional _____loans are often expressed as 30/15, which denotes a 30-year loan ____ with a _____ payment REQUIREMENT in 15 years. Non-traditional Balloon mortgage loans were OFTEN utilized in _____ Loans and Home _____ loans.
A. HOME EQUITY
B. term
B. balloon
C. Subprime Loans & Home Equity Loans
65
Non-Traditional / Non- Conforming Loans and Financing:
Home Equity Loan:
A ______ loan or ______line of credit is a loan SECURED by a mortgage one’s own principal residence.
• A home equity loan is typically a _____- End loan that offers a fixed amount of money that can be repaid with regular payments over a fixed term.
• A Home Equity Line Of Credit is a type of ______- End loan in which a borrower is granted a specific credit limit from which he can draw and pay back principal ONLY as it is USED. As the balance is PAID down, the principal is AVAILABLE to be used again.
• HELOCs usually have two PHASES: A _____ period during which borrowers commonly pay INTEREST-ONLY, and a _____ period during which payments are generally AMORTIZE.
Usually, these financing vehicles ATTACH a junior mortgage to the property. Both are considered Non-Traditional loans.
A. Home Equity Loan
B. Home Equity Line Of Credit (HELOC)
B. Closed-End
C. Open-End
D. Draw
F. Repayment
66
Non-Traditional / Non- Conforming Loans and Financing:
FHA Reverse Mortgage:
Reverse Mortgage is a type of non-traditional mortgage whose purpose of this type of mortgage is to provide a monetary VEHICLE for a borrower who has a LARGE amount of _____ in a property to CONVERT that ACCUMULATED equity (AT a _______) to CASH and FINANCE additional debt WITHOUT selling the property and WITHOUT making payments to the lender.
A. Equity
B. COST
67
Non-Traditional / Non- Conforming Loans and Financing:
FHA Reverse Mortgage:
Seniors can use the equity in their home by utilizing a non-traditional REVERSE MORTGAGE for any use, including, but NOT limited to START a small business, pay OFF credit card debt, health care BILLS, home REPAIRS and UPKEEP, a dream VACATION, and/or to MAINTAIN a lifestyle that is otherwise unaffordable. A reverse mortgage may also be called a REVERSE ____ mortgage or a REVERSE _____ mortgage. The most popular reverse mortgage program is the FHA's _____ .
A. Equity
B. Annuity
C. Home Equity Conversion Mortgage or HECM = Reverse Mortgage
68
Non-Traditional / Non- Conforming Loans and Financing:
FHA Reverse Mortgage:
Most non-traditional reverse mortgage loans that are made today are called "_______" or AMORTIZING mortgage loans, where the loan balance DECREASES and the equity INCREASES. With a typical REVERSE mortgage, the BALANCE or the _____ of the loan RISES as the borrower RECEIVES money from the lender and incurs _____ on the outstanding loan balance. Since the borrower is NOT making any payments, by the time a reverse mortgage becomes DU , the borrower may have a HIGH loan PRINCIPAL balance AND LITTLE to NO, or even NEGATIVE equity. For most reverse mortgages, the amount owed GROWS and the equity SHRINKS, which creates a "______ DEBT, ______ EXPENSES" scenario.
A. Forward
B. Principal
C. Negative Amortization
D. Interest
E. Rising Debt, Falling Expenses
69
Non-Traditional / Non- Conforming Loans and Financing:
FHA Reverse Mortgage:
Eligibility Requirements:
Reverse mortgages have some very specific requirements that address the borrower's ability and willingness to continue to pay _____ charges (property taxes and hazard/flood insurance), and some less stringent requirements that make the qualification for a Home Equity Conversion Mortgage more flexible than conventional or government-insured loans.
A. Property
70
HUD Guidelines for Non-Traditional / Non- Conforming Loans and Financing:
FHA Reverse Mortgage:
Initial Funds Disbursement to a Borrower:
HUD initial disbursement guidelines for today's HECM insurance program include:
1. Implementation of a MAXIMUM INITIAL LUMP sum disbursements during the first ____ months of closing OF EITHER ____% of the PRINCIPAL limit of the total proceeds available at loan closing OR the SUM of the mandatory OBLIGATIONS (closing costs, mortgage insurance, etc.) plus ____% of the principal limit to the borrower.
Example:
If the principal limit for a HECM is **$100,000**, a borrower in the first **12** months of the loan may receive the greater of:
• $______, or
• The sum of the payoff amount, the mandatory obligations, mortgage insurance, and $_____.
A. 12
B. 60%
C. 10%
D. $60,000
E. $10,000
71
HUD Guidelines for Non-Traditional / Non- Conforming Loans and Financing:
FHA Reverse Mortgage:
Initial Funds Disbursement to a Borrower:
For FIXED-interest rate HECMs, with CASE NUMBERS issued after June 25, **2014**, HUD will ONLY insure a FIXED-rate, _____ LUNP sum disbursements that do NOT ALLOW for future _____ by the mortgagor under ANY circumstances. The HECM borrower continues to be responsible for the payment of taxes and insurance while the HECM loan is outstanding.
If the mortgagor (BUYER) FAILS to pay the _______ charges, according to the contract guidelines the mortgagee (LENDER) must seek remedies according to Mortgagee Letter 2011-01.
A. Single
B. Draws
C. Property
72
HUD Guidelines for Non-Traditional / Non- Conforming Loans and Financing:
FHA Reverse Mortgage:
Initial Funds Disbursement to a Borrower:
Mortgage INSURANCE is charged by HUD on ______ approved mortgage loans. Mortgagee Letter 2017-12, effective for all HECM loans originated on or after October 2, **2017** sets the mortgage insurance fees as follows:
• _______% Up-front mortgage insurance fee of the MAXIMUM Claim AMOUNT, PLUS
• _______% of the OUTSTANDING mortgage principal BALANCE .
A. ALL
B. Two percent (2.0%)
C. One-half of one percent (0.50%)
73
HUD Guidelines for Non-Traditional / Non- Conforming Loans and Financing:
FHA Reverse Mortgage:
Initial Funds Disbursement to a Borrower:
Tax and hazard insurance defaults by mortgagors require a heightened need for a financial assessment of a potential mortgagor's financial capacity and willingness to comply with mortgage provisions.
Mortgagees must complete a financial assessment of each prospective mortgagor _____. The purpose of the financial assessment is to evaluate the mortgagor's willingness and capacity to meet his financial obligations and his ability to comply with the mortgage requirements. The financial assessment is also used to determine whether, and under what conditions, the prospective mortgagor meets FHA eligibility criteria.
If a borrower does _____ meet the credit history and cash flow/residual income requirements of the new guidelines, he will be required to allow the lender/ servicer to impound from the tenure payments or the _____ an amount equal to the actual cost of property insurance and hazard insurance.
A. Prior to Loan Approval and Loan Closing
B. NOT
C. Line Of Credit
74
HUD Guidelines for Non-Traditional / Non- Conforming Loans and Financing:
FHA Reverse Mortgage:
Initial Funds Disbursement to a Borrower:
Effective with case numbers assigned on or after March 2, 2015, a Life Expectancy Set-Aside for the payment of property taxes, including special assessments levied by municipalities or state law, hazard insurance premiums, and applicable flood insurance premiums, is required for certain HECMs based on the financial assessment results.
The Fully-Funded Life Expectancy Set-Aside is available for _____ adjustable and fixed-interest-rate HECMs when required by the mortgagee based on the results of the financial assessment or if the mortgagee does _____ require a Life Expectancy Set-Aside and the mortgagor elects to have one.
A. BOTH
B. NOT
75
HUD Guidelines for Non-Traditional / Non- Conforming Loans and Financing:
FHA Reverse Mortgage:
Initial Funds Disbursement to a Borrower:
Effective with case numbers assigned on or after March 2, 2015, a Life Expectancy Set-Aside for the payment of property taxes, including special assessments levied by municipalities or state law, hazard insurance premiums, and applicable flood insurance premiums, is required for certain HECMs based on the financial assessment results.
The Partially-Funded Life Expectancy Set-Aside is _______ available for an adjustable interest rate HECM when required by the mortgagee based on the results of the financial assessment. (Mortgagee Letter 2014-21)
A. ONLY
76
Non-Traditional / Non- Conforming Loans and Financing:
FHA Reverse Mortgage:
Eligibility Guidelines:
With a traditional mortgage, the income of the borrower is critical in determining the terms of the loan, the amount that can be borrowed, etc. A reverse mortgage does not have a DTI ratio requirement like most other mortgage loans; however, lenders must complete an analysis of applicants' _____ and ______ to ensure they have the ability to continue to live in the home and pay charges specific to maintaining the property, including the payment of taxes and insurance.
A. Credit and Residual Income
77
Non-Traditional / Non- Conforming Loans and Financing:
FHA Reverse Mortgage:
Age Eligibility Guidelines:
To qualify for a reverse mortgage, _____ persons who have an ownership interest in the security property must be at least ___ years of age. If one of the owners does not satisfy this age requirement, one way to secure a reverse mortgage loan on the property is for the younger owner to relinquish all ownership interests in the property. This strategy, while solving the age requirement issue, could create other issues related to ownership and survivorship and so should be taken with caution.
There is a second method used to secure a reverse mortgage when one spouse does not meet the minimum age requirement that has been implemented by HUD.
A. ALL
B. 62
78
Non-Traditional / Non- Conforming Loans and Financing:
FHA Reverse Mortgage:
Successors Interest to the Property of a Deceased Borrower:
Amid extensive controversy and lawsuits Bennett v. Donovan was heard by the U.S. District Court for the District of Columbia), HUD has reversed itself, somewhat. Since HECMs became available with mortgage insurance ____ by HUD in 1989, HUD has enforced the guideline that required a home be _____ and the reverse mortgage be paid if the borrowers) were not able to occupy the secured home for _____ continuous months. Spouses who did NOT meet the criteria for qualifying for a HECM or chose NOT to be on the loan were required to comply with the terms of the note signed by the borrower, including the _____ that the property be sold to satisfy the outstanding reverse mortgage balance. Many times, _______ for a new mortgage to purchase the property often proved difficult for these surviving spouses and they were unable to remain in the home.
A. Provided
B. Sold
C. 12
D. Provision
E. Qualifying
79
Non-Traditional / Non- Conforming Loans and Financing:
FHA Reverse Mortgage:
Successors Interest to the Property of a Deceased Borrower:
Mortgagee Letter 2014-07 outlined a new interpretation of the guideline and implemented a provision to allow non-borrowing spouses to remain in the secured home after the death of the obligors to the reverse mortgage if HUD's requirements were met.
• If the mortgage was issued before August 4, 2014, the original rules continue to apply, and the loan must be paid in full when a borrowing spouse ____ or permanently vacates the home for 12 months or more.
A. Dies
B. Vacates
80
Non-Traditional / Non- Conforming Loans and Financing:
FHA Reverse Mortgage:
Successors Interest to the Property of a Deceased Borrower:
Mortgagee Letter 2014-07 outlined a new interpretation of the guideline and implemented a provision to allow non-borrowing spouses to remain in the secured home after the death of the obligors to the reverse mortgage if HUD's requirements were met.
• Reverse mortgage loans issued after August 4, 2014 must contain a statement that extends the _____ date of the due and payable status that occurs because of the death of the last surviving mortgagor if a mortgagor was married at the time of closing. To retain occupancy of the home, the non-borrowing spouse must be identified at the time of _____ and must be married to the mortgagor at the time of their death.
A. Deferral
B. Closing
81
Non-Traditional / Non- Conforming Loans and Financing:
FHA Reverse Mortgage:
Successors Interest to the Property of a Deceased Borrower:
To defer the due and payable status of the HECM to the non-borrowing spouse after the borrowing spouse has died the alive spouse must:
1. Still be married and a spouse of a HECM mortgagor at the time of closing and have ____ the spouse of the mortgagor for the duration of the HECM mortgagor's lifetime.
2. Have properly disclosed to the mortgagee at the _____ and is specifically named as a non-borrowing spouse in the HECM documents.
3. Have occupied and ______ to occupy the property securing the HECM as the principal residence of the non-borrowing spouse.
A. Remained
B. Origination
C. Continue
82
Non-Traditional / Non- Conforming Loans and Financing:
FHA Reverse Mortgage:
Successors Interest to the Property of a Deceased Borrower:
If a surviving non-borrowing spouse fails to comply with the provisions of the _______:
• The HECM will become immediately due and payable. The mortgagee is not required to obtain _____ from HUD at the end of the deferral period to call a loan due and payable.
• The lender may ____ require immediate payment in full until the end of the deferral period.
• The mortgagor continues to maintain the ability to sell the property for at least the ____ of the sale price or appraised value. The estate always maintains the right to _____ of the property if legally entitled to.
A. Deferral of the Due and Payable Clause
B. Approval
C. NOT
D. Lesser
E. Dispose
83
Non-Traditional / Non- Conforming Loans and Financing:
FHA Reverse Mortgage:
Successors Interest to the Property of a Deceased Borrower:
While the loan may be in deferral, the HECM is not ____. Because the loan is not assumable, NO proceeds may be disbursed to the non-borrowing spouse. If a Set-Aside for Repairs was part of the provisions of the HECM loan, those escrowed funds _____ be disbursed per the terms and conditions of the loan.
If the HECM mortgagor predeceases the identified non-borrowing spouse and that spouse desires to continue to occupy the home, he must continue to satisfy the following conditions:
1. Establish legal ownership to the secured property within _____ days of the death of the mortgagor
2. Ensure all other conditions contained in the loan documents ______ to be satisfied (payment of property taxes, maintaining property insurance, etc.)
3. Ensure that the HECM does not become eligible to be called ______ and ______ for any other reason.
A. Assumable
B. CAN
C. 90 Days
D. Continue
E. Due and Payable
84
Non-Traditional / Non- Conforming Loans and Financing:
FHA Reverse Mortgage:
Successors Interest to the Property of a Deceased Borrower:
Mortgagee Letter 2014-07 further defines the terms of the
HECM that must continue to be met by the mortgagor's estate or the non-borrowing spouse, including the following:
1. The note will continue to accrue _____ per the terms of the mortgage and loan agreement.
2. The monthly ____ must continue to be paid to HUD by the mortgagee.
3. The mortgagee may continue to collect ____ fees per the terms of the mortgage agreement.
4. The only future disbursements under the agreement may be for ______ that was a part of the original mortgage documents.
A. Interest
B. Mortgage Insurance Premium (MIP)
C. Servicing
D. Repair Set-Aside
85
Non-Traditional / Non- Conforming Loans and Financing:
FHA Reverse Mortgage:
Successors Interest to the Property of a Deceased Borrower:
To qualify for the ____ period after the death of the mortgagor, at the time of application:
• The mortgagor and the non-borrowing spouse must have stated whether they are legally married and confirm the information at loan _____.
• The MLO must obtain and verify the name and age of any non-borrowing spouse. Non-borrowing spouses do NOT have to be ____ years of age or older for a qualified mortgagor to obtain a HECM loan.
A. Deferral
B. Closing
C. 62
86
Non-Traditional / Non- Conforming Loans and Financing:
FHA Reverse Mortgage:
Successors Interest to the Property of a Deceased Borrower:
Lenders are not required to verify the _____ during the loan process, however:
• Both parties must sign a ____ at loan closing verifying the truth and accuracy of the information provided in the application with respect to the mortgagor's marital status.
• Mortgagors who hold themselves out to be married with a non-borrowing spouse must submit a certification _____ to the mortgagee.
A. Marital Status of the Mortgagor and Non-Borrowing Spouse
B. Certification
B. Annually
87
Non-Traditional / Non- Conforming Loans and Financing:
FHA Reverse Mortgage:
Successors Interest to the Property of a Deceased Borrower:
After the death of the last surviving mortgagor, the mortgagee must obtain the ______ certification within _____ days of receiving notice of the last surviving mortgagor's death and then every year thereafter.
A. 30 Days
B. Non-Borrowing Spouse
88
Non-Traditional / Non- Conforming Loans and Financing:
FHA Reverse Mortgage:
Successors Interest to the Property of a Deceased Borrower:
In the event of a divorce between the parties during the term of the reverse mortgage, a mortgagee should obtain a copy of the _____. If the parties are divorced at the time of the mortgagor's death, the protections of the _____ period are NO longer available to the non-borrowing spouse.
A. Divorce Decree
B. Deferral
89
Non-Traditional / Non- Conforming Loans and Financing:
FHA Reverse Mortgage:
Successors Interest to the Property of a Deceased Borrower:
A married couple seeking a HECM, with one spouse choosing _____ to be a borrower on the loan, should follow these guidelines to remain in the home after the principal borrower is NO longer residing in the home:
1. Inform the lender that the couple is legally married, make sure the lender _____ the marriage, and file the required forms with HUD annually
2. Remain _____ to guard your interest in the home
3. Review the loan documents to make sure the non-borrowing spouse is _____ in the mortgage papers
4. Pay the _____ taxes and hazard insurance when due to preserve the deferral period for the surviving spouse
5. Continue to _____ the home as a primary residence
6. When the borrowing spouse ceases to be an owner occupant, file the appropriate paperwork to establish legal ownership within ____ days of their departure
Borrowers should always be advised to seek legal advice on such issues.
A. NOT
B. Confirms
C. Married
D. Named
E. Property
F. Occupy
G. 90 Days
90
Non-Traditional / Non- Conforming Loans and Financing:
FHA Reverse Mortgage:
Mortgage Eligible Properties:
Although the specific type of reverse mortgage may impose different standards, in general, single-family, one-unit dwellings are considered eligible properties for a reverse mortgage. Depending on the program, condominiums, planned unit developments (PUDs), and manufactured homes may be acceptable. Mobile home and cooperative units are NOT generally ______, although HUD may approve some types of mobile homes.
A. Eligible
91
Non-Traditional / Non- Conforming Loans and Financing:
FHA Reverse Mortgage:
Mortgage Insurance Eligiblity:
Note that, as with a traditional mortgage, the lender will require that the borrower maintains a ______ policy that is sufficient to cover the replacement value of the collateral property. This protects the lender's interest in the event of damage that causes a loss of value, such as a fire, tornado, etc. The lender may also require a separate _____ insurance policy.
Since borrowers obtaining a reverse mortgage may have had the same insurance policy in place for years, they are urged to _______ the policy to ensure that the insurance in place provides adequate coverage.
A. Homeowner's Insurance
B. Flood
C. Review
92
Non-Traditional / Non- Conforming Loans and Financing:
FHA Reverse Mortgage:
Mortgage Ownership Eligibility:
To be eligible for a reverse mortgage, the home must be the principal residence and any debt on the home should be paid ____. A borrower is not necessarily prevented from getting a reverse mortgage if there is debt on the home since funds from the reverse mortgage may be used to pay off any remaining debt on the home, but the reverse mortgage created must be a _____ lien.
A. Off
B. FIRST
93
Non-Traditional / Non- Conforming Loans and Financing:
FHA Reverse Mortgage:
Meeting with a Counselor for Mortgage Ownership Eligibility:
HECM programs impose an additional condition on prospective borrowers by requiring them to participate in a consumer _____ session given by an approved counselor ____ they can apply for the loan. The counselor will explain the _____ of the loan and the financial implications as well as provide guidance and advice in selecting a program and/or a lender.
A. Counseling
B. Before
C. Costs
94
Non-Traditional / Non- Conforming Loans and Financing:
FHA Reverse Mortgage:
Meeting with a Counselor for Mortgage Ownership Eligibility:
A lender _____ submit an application for an FHA-insured reverse mortgage until the applicant provides _____ that the required counseling session has occurred.
This unbiased, independent counselor can help guide the borrower through what can be a confusing process and many difficult decisions. Moreover, at the end of the session, the counselor must provide any required ______ of counseling. A counselor may even point the homeowner to other programs or assistance that might be a better solution than a reverse mortgage.
A. CANNOT
B. Proof
C. Certification
95
Non-Traditional / Non- Conforming Loans and Financing:
FHA Reverse Mortgage:
Meeting with a Counselor for Mortgage Ownership Eligibility:
In the event of a non-borrowing spouse, counselors are required to:
• Discuss the implications of marital status in states that recognize common ____ marriage.
• Inform prospective borrowers and non-borrowing spouses about the requirement that a non-borrowing spouse obtains _____ of the property or other legal right to remain upon the death of the last surviving mortgagor.
• Explain that failure to obtain ownership or other legal right to remain in the property will result in the HECM becoming due and payable and NO ______ will be issued.
A. Law
B. Ownership
C. Deferral
96
Non-Traditional / Non- Conforming Loans and Financing:
FHA Reverse Mortgage:
Amount of Money Available with a Reverse Mortgage:
Many factors determine how much money a homeowner can receive with a reverse mortgage.
• A required ______ will determine the value of the home, which determines the maximum claim amount, subject to the established lending limits.
The more the home is worth, the more _____ that can be borrowed with the reverse mortgage.
A. Appraisal
B. Cash
97
Non-Traditional / Non- Conforming Loans and Financing:
FHA Reverse Mortgage:
Amount of Money Available with a Reverse Mortgage:
• Other factors that could impact the amount of money available include the amount of ___ that has been built up, the payment options, the interest. The specific program selected has much to do with determining the impact of these factors. For example, since the FHA's HECM is the major reverse mortgage product, the ______ of the home is critical, as that will determine the FHA's lending limits. HUD sets a nationwide maximum amount for reverse mortgages annually when forward mortgage limits are defined. The nationwide maximum loan amount for a reverse mortgage for 2022 is $________.
A. Equity
B. Location
C. $970,800
98
Non-Traditional / Non- Conforming Loans and Financing:
FHA Reverse Mortgage:
Age Eligibility:
Another important factor that figures into the determination of the amount of money available is the age of the homeowner. Typically, an _____ homeowner would have a higher dollar amount available with a reverse mortgage than a younger homeowner since an older person has a shorter life expectancy and, therefore, the loan would be for a _____ term.
In the event of a non-borrowing spouse who has made full disclosure and is part of the closing, the _____ age of the borrower or the non-borrowing spouse will be considered for establishing the maximum claim amount.
A. Older
B. Shorter
C. Lesser
99
Non-Traditional / Non- Conforming Loans and Financing:
FHA Reverse Mortgage:
Payment Options:
The homeowner who takes out a reverse mortgage generally gets to decide how to receive the money. The payment options include:
• ______: for as long as the homeowner remains in the bome; also called
"______”
• A ______ payment upfront
• A ____ monthly payment for a certain term during the lifetime of the borrower
• A _____ that allows the homeowner to have access to funds on an "_____" basis
A homeowner may also choose to receive some ______ of these options. However, the payment option that a homeowner chooses could affect the amount of cash he may be eligible to receive from the loan.
A. Fixed Monthly Payments
B. Tenure
C. Lump Sum
D. Fixed
E. Line of Credit
F. As-Needed
G. Combination
100
Non-Traditional / Non- Conforming Loans and Financing:
FHA Reverse Mortgage:
Mortgage Tax Implications:
For the most part, the funds paid out with a reverse mortgage are NOT considered _____ by the IRS, so they are not taxed. Unlike a typical mortgage, the interest the lender charges on the reverse mortgage can be deducted only at the conclusion of the loan when the loan principal and the interest are repaid. There are exceptions.
Although the funds paid out from a reverse mortgage are generally tax-free, homeowners should get advice from a qualified reverse mortgage counselor and/or attorney to determine whether the income received could in any way affect their eligibility for any needs-based public _______ benefits such as Medicaid or Supplemental Social Security.
A. Income
B. Assistance
101
Non-Traditional / Non- Conforming Loans and Financing:
FHA Reverse Mortgage:
Mortgage Repayment:
Assuming the borrower upholds the terms of the contract, a typical reverse mortgage becomes due when the last surviving borrower:
• Dies.
• Sells the home.
• Ceases to live in the home for ____ consecutive months.
At that point, the homeowner, or the homeowner's heirs, must ____ the total loan amount, which includes the money that was ____ out as well as any interest, insurance, closing costs, or other fees as stipulated in the terms of the loan.
Of course, it is often the case that the proceeds from the ____ of the home are used to repay the reverse mortgage. Any remaining equity belongs to the ______ (in the event of death) or the ______ (if they sold the home or moved).
A. 12
B. Repay
C. Paid
D. Sale
E. Estate
F. Homeowner
102
Non-Traditional / Non- Conforming Loans and Financing:
FHA Reverse Mortgage:
Non-Recourse Loans:
Generally, a lender _____ force a borrower out of her home during the life of the loan, nor can the lender simply sell the home when a reverse mortgage comes due. Usually, the lender will allow up to ____ months for payment in the event of death. If the home is not sold or is not deeded to the lender, a formal foreclosure process may be started in the county where the home is located, depending on the ______ of the note.
A. CANNOT
B. 12
C. Terms
103
Non-Traditional / Non- Conforming Loans and Financing:
FHA Reverse Mortgage:
Accelerating Repayment:
As with any mortgage situation, there are some circumstances that might cause the lender to require immediate ______;
for example:
• The homeowner fails to make necessary repairs to the property.
• The property is condemned.
• The homeowner does not pay the mandatory property taxes.
• The homeowner ceases to pay the appropriate homeowner's insurance premiums.
• A government entity claims eminent domain over the property.
• The borrower ceases to live in the property, or it is discovered the property is no longer the borrower's principal residence.
A. Repayment
104
Non-Traditional / Non- Conforming Loans and Financing:
FHA Reverse Mortgage:
Non-Recourse Loans:
A reverse mortgage is considered a "______" loan, so even in the rare instance that the amount of money distributed over the life of the reverse mortgage exceeds the value of the home, the borrower or the borrower's heirs cannot owe more than fair market sale price of the home, minus reasonable sales expenses. The lender has _____ claims on any other assets that may be held by the borrower or the borrower's heirs.
A. Non-Recourse
B. NO
105
Non-Traditional / Non- Conforming Loans and Financing:
Seller Financing:
The continuing implementation of the Dodd-Frank Act rules on owner-occupied housing has been expanded to include _____ financing. With the broad interpretation of the term "mortgage originator," there is an exemption for property owners who provide ______ in connection with the sale of a dwelling. This exemption does NOT require the seller (also the financer) to be a licensed MLO, even though negotiation of mortgage rates and terms are involved in the ______\ negotiations.
[For information, see 12 CFR Subpart E, $1026.36, (a)
(4) Seller financers; three properties. and (a)(5) Seller financers; one property.]
A. Owner
B. Financing
C. Sale
106
Non-Traditional / Non- Conforming Loans and Financing:
Seller Financing:
Seller financing is when a seller extends credit to a buyer to finance the purchase of the property. This can be instead of, or in addition to, the buyer obtaining a loan from a third party, such as an ______ lender.
A seller may help with financing for several reasons; for example, the buyer:
• May be unable to afford the ____ necessary for the required down payment for a conventional mortgage.
• May want to take advantage of the low interest rate on the seller's _______ mortgage.
• Is not able to qualify for a _____ from a lender for various reasons.
A. Institutional
B. Cash
C. Existing
D. Loan
107
Non-Traditional / Non- Conforming Loans and Financing:
Seller Financing:
Purchase Money Mortgage:
The term _________ may be used to describe a mortgage given by the buyer to the seller for the purchase of real estate. This is also referred to as a seller-held mortgage. The central advantage of this arrangement is that sellers are not bound by institutional policies regarding loan ratios, interest rates, or qualifying standards.
A. Purchase Money Mortgage
108
Non-Traditional / Non- Conforming Loans and Financing:
Seller Financing:
Seller Financing Assumption:
The _______ of a loan means one party agrees to take over payments of another party's debt, with terms of the note staying unchanged. FHA and VA loans ______ assumptions (with a credit check of buyers); some ________ mortgages also allow assumptions because they don't have an enforceable ________ clause (borrowers should always consult the original lender or a lawyer.) The property remains security for the loan, but the buyer becomes primarily liable for repayment.
In the event of foreclosure, the lender may still have ______ against the original party (seller) if the debt isn't fully satisfied. To be relieved of liability, the seller must get a _____, which is a document in which a legal right is given up, from the lender. Here, the lender accepts the buyer as the new mortgagor and ______ the seller from all mortgage obligations.
A. Assumption
B. Permit
C. Conventional
D. Alienation
E. Recourse
F. Release
G. Releases
109
Non-Traditional / Non- Conforming Loans and Financing:
Seller Financing:
Seller-Sponsored Wraparound Financing:
In _______ , the seller retains an ______ loan on the property while giving the buyer a second loan. This new total loan is treated as one obligation by the buyer, who makes one payment to the seller for the entire (combined) debt. The seller, in turn, pays the original mortgage lender and keeps the ______.
A. Seller-Sponsored Wraparound Financing
B. Existing
C. Excess
110
Non-Traditional / Non- Conforming Loans and Financing:
Seller Financing:
Seller Financing Rules:
Seller financing regulations address the loans created by a seller providing financing to a buyer. Two different guidelines were implemented for seller ______, separated by the number of sold and seller-financed properties during the preceding ____ months.
NOTE: Required Per The Mortgage Reform and Anti-Predatory Lending Act Title XIV
A. Carrybacks
B. 12
111
Non-Traditional / Non- Conforming Loans and Financing:
Seller Financing:
Guidelines for Three-or-Less
Seller-Financed Properties in Preceding 12 Months:
A seller who provides financing for the sale of _____ or fewer properties in any _____-month period to purchasers of these properties, each of which is owned by the seller and serves as security for the financing, must meet both guidelines:
1. The ____ has NOT constructed, or acted as a contractor for the construction of, a residence on the property in the ordinary course of business.
2. The seller financing must meet the following requirements:
• The financing is ____ amortizing.
• The financing is determined that, in good faith, the consumer has a reasonable ability to ____.
• The financing has a fixed rate or an adjustable rate that is adjustable after ____ or more years, subject to reasonable annual and lifetime limitations on interest rate increases.
If the financing agreement has an adjustable rate, the rate is determined by the addition of a margin to an index rate and is subject to reasonable rate adjustment limitations. The index the adjustable rate is based on is a widely available index, such as indices for U.S. Treasury securities or ______.
Any deviation from these guidelines gives the buyer a ____-year right of _____ to rescind the sale and demand all the funds paid to be returned.
A. 3
B. 12
C. Seller
D. Fully
E. Repay
F. 5 [5/1 Hybrid ARM]
G. LIBOR
H. 3
I. Rescission
112
Non-Traditional / Non- Conforming Loans and Financing:
Seller Financing:
Alienation Clause:
It is imperative that anyone considering any form of seller financing confirm whether any existing mortgage has an ______ clause. This clause, sometimes called a _______ clause, gives the lender the right to exercise certain rights upon transfer of the property. Most alienation clauses are worded so that the borrower's transfer of any ownership interest in the property securing the loan without the lender's knowledge or consent would be a default under the mortgage. So, for example, the clause would be triggered by the transfer of title or even by transfer of a significant interest in the property, such as with a long-term lease.
A. Alienation
B. Due-on-Sale
113
Non-Traditional / Non- Conforming Loans and Financing:
Seller Financing:
Guidelines for Three-or-Less
Seller-Financed Properties in Preceding 12 Months:
A seller who provides financing for the sale of _____ property in any _____ -month period is subject to the following criteria:
1. The natural person, estate, or trust provides seller financing for the sale of only one property in any ____-month period to purchasers of such property, which is owned by the natural person, estate, or trust and serves as security for the financing.
2. The natural person, estate, or trust has NOT constructed, or acted as a contractor for the construction of, a residence on the property in the ordinary course of business of the person.
3. The natural person, estate, or trust provides seller financing that meets the following requirements:
• The financing has a repayment schedule that does NOT result in _______ amortization.
• The financing has a fixed rate or an adjustable rate that is adjustable after _____ or more years, subject to reasonable annual and lifetime limitations on interest rate increases.
If the financing agreement has an adjustable rate, the rate is determined by the addition of a margin to an index rate and is subject to reasonable rate adjustment limitations. The index the adjustable rate is based on is a widely available index, such as indices for U.S. Treasury securities or LIBOR. Any deviation from these guidelines gives the buyer a ____-year right of _____ to rescind the sale and demand all the funds paid to be returned.
A. 1
B. 12
C. 12
D. Negative
E. Five [5/1 Hybrid ARM]
F. Three
G. Rescission
114
Non-Traditional / Non- Conforming Loans and Financing:
Seller Financing:
Guidelines for Three-or-Less
Seller-Financed Properties in Preceding 12 Months:
Any seller financing that exceeds the _____ financed properties per year guideline will require the seller to use an _____ to qualify the buyer of the financed property.
NOTE: This section applies to closed-end consumer credit transactions secured by a consumer's principal dwelling.
A. Three
B. MLO
115
Non-Traditional / Non- Conforming Loans and Financing:
Seller Financing:
Land Contracts:
_______ are another instrument used to finance the purchase of real estate. A land contract is a real estate _____ agreement where the buyer makes payments to the seller in exchange for the right to occupy and use the property, but ____ deed or title is transferred until all, or a specified portion, of the payments have been made. Land contracts--also called _____ and other names--are different from mortgages or trust deeds where the debtor takes possession of the property while the _____ holds a mortgage or trust deed as a security lien against the property.
Under a land contract, the ______ (______) actually holds title to the property as security, not just a mortgage lien.
The buyer/debtor (______) has the right to possess and enjoy the land but is not the legal owner. The seller retains legal title to the subject property while the buyer is only an owner in fact, having possession and equitable title but ____ actual title and ____ deed.
Non-Traditional Land Contracts:
Land contracts usually require the vendor to give the vendee a statement, at least once a year or as requested, showing the amount of payments that have been credited to principal and interest and the balance due under the contract.
For the vendor, the advantage of a land contract is the right to hold title as security. This lack of ownership is, conversely, the main disadvantage for a vendee, since it makes it difficult to later obtain financing based on the equity built up or for improvements, as banks are reluctant to lend to a person without actual legal title to the property.
A. Land Contracts
B. Installment
C. NO
D. Land Installment Contracts / Installment Sales Contracts / Land Sales Contracts
E. Creditor
F. Seller
G. Vendor
H. Vendee
I. NO
J. NO
116
Non-Traditional / Non- Conforming Loans and Financing:
Seller Financing:
Other Forms of Creative Financing:
_______ is when a seller leases property to someone for a specific term, with an option to buy the property at a predetermined price during the lease term.
The plan is comprised of two elements--a lease and an option. A lease is a contract where one party pays the other rent in exchange for possession of real estate. An option is a contract giving one party the right to do something within a designated time period without obligation to do so.
_________ is when a seller leases property to someone for a specific term, with the tenant agreeing to buy the property at a set price during or following the lease term. The plan is comprised of two elements: A lease and a purchase contract.
_________ is value in one property being traded for value in another property. This is also called ________. To make a tax-deferred equity exchange of real estate, the properties must be like-kind property (real estate for real estate) and the properties must be held for use in a trade or business, or held by the party as an investment.
When property is exchanged as part of an equity exchange, the seller _____ paying taxes until a _______ gain (profit) is realized from the transaction; usually, this means when the property is sold in the future.
If the transaction does qualify for tax-free exchange treatment, any gain that is purely a result of the exchange is _____.
NOTE: Professional tax advice and legal counsel should always be consulted for any deal involving equity exchanges or tax deferral.
A. Lease/Option
B. Lease/Purchase
C. Equity Exchanges
D. Tax-Deferred Exchange / Tax-Free Exchange / Like-Kind Exchange / Section 1031 Exchange
E. Defer
F. Capital
G. Deferred
117
Non-Traditional / Non- Conforming Loans and Financing:
Homebuyer Assistance
Programs:
These programs can include ____ payment assistance programs (sometimes referred to collectively as DAP programs), subsidized mortgage interest rates, help with closing costs, or a combination.
A. Down
118
Non-Traditional / Non- Conforming Loans and Financing:
Homebuyer Assistance
Programs:
Money for these programs is usually limited and administered on a first-come, first-serve basis. Various bond issues or levies may replenish the funding for these programs, but it is hard to predict when money will become available. Some non-profit organizations also provide grants, gifts, or otherwise arrange money for down payment assistance.
Interest rate subsidies may also be obtained from a variety of sources. Bond money is available from time to time, whereby the state issues bonds and uses the funds to subsidize the interest rate paid on mortgages by low-income families. _______ requirements may be the same as for FHA loans, but the interest rate is lower than an FHA loan because of the ____. Some such programs may even offer both down payment assistance and interest rate subsidies through various agencies.
A. Underwriting
B. Subsidy
119
Non-Traditional / Non- Conforming Loans and Financing:
Homebuyer Assistance
Programs:
These programs may be offered by government or nonprofit organizations to promote homeownership or by lenders as part of their obligation under the ________ Act.
These programs may be offered by cities, counties, or states and the money may be targeted to specific neighborhoods. Often a portion or all the required down payment is paid on behalf of the buyer.
A. Community Reinvestment Act
120
Summary: _______ mortgage products are defined by the SAFE Act as anything other than 30-year fixed rate loans. The Interagency Guidance on Nontraditional Mortgage Product Risks defines nontraditional mortgage products as mortgage products that allow borrowers to defer principal and, sometimes, interest.
Non-Traditional
121
Summary: Buydowns are additional money (discount points) paid to the lender at the start of a loan to lower the interest rate and payments. _____ are paid to the lender to make up the difference between the market interest rate and the rate a borrower gets in the note. A _______ buydown (for the life of a loan) has a reduced rate stated in the note. A ______ buydown (early in a loan) can be level payment or graduated payment. With buydowns, the lowest rate a buyer can qualify for is ____% below market rate. The FHA requires buyers to qualify at the note rate, not the buydown rate.
Fannie Mae, Freddie Mac, and the FHA limit points and other IPCs that can be paid.
A. Discount Points
B. Permanent
C. Temporary
D. 2%
122
Summary: ARMs have interest rates that may adjust up or down, according to the terms of the note. Borrowers select an ____ (statistical report reflecting the cost of money), lenders add a _____ (spread), and this is the fully indexed rate paid on the loan. Caps keep loan payments from growing out of control.
______ options allow buyers to convert to a fixed rate. MLOs must provide the ______ booklet to borrowers in addition to other mandated disclosures, including the APR. For ARMs, the APR is a ______ interest rate that reflects a lower rate for a certain number of years and a higher rate for later years. Lenders CANNOT disclose only ____ low rates.
A. Index
B. Margin
C. Conversion
D. CHARM
E. Composite
F. Initial
123
Summary: A construction mortgage is a temporary loan used to finance the construction of improvements and buildings on the land. Three common disbursement plans are the:
A.
B.
C.
A. Fixed Disbursement Plan / Voucher System / Warrant System
124
Summary:
Proceeds from a reverse mortgage may be disbursed to eligible borrowers aged 62 or older as a ______ payment, a lump sum of _____, or a ______, based on the equity in their homes.
Among the events that trigger loan repayment is when the borrower dies, moves out of the house for 12 consecutive months, or sells the house.
A. Monthly
B. Cash
C. Line of Credit
125
Summary: A ______ is a reverse mortgage insured by the FHA.
A reverse mortgage borrower may initially only draw a lump sum which is the greater of ____% of the principal limit; or ____% of the principal limit plus mandatory obligations and payoffs, as determined by many factors, including appraised value, the age of borrowers, type of payment received, etc.
A. HECM
B. 60%
C. 10%
126
Summary: Up-front mortgage insurance for HECMs is _____% of the maximum claim amount (MCA). The annual MIP is now _____% of outstanding balance.
A. 2%
B. 0.5%
127
Summary: A reverse mortgage borrower must pay for the ______ charges (such as the property taxes, property insurance, and HOA fees). A senior borrower must meet the requirements of the ______. If he fails to meet the guidelines, the mortgagee is required to "______" funds for property charges.
A. Property
B. HECM Financial Assessment and Property Charge Guide
C. Set Aside
128
Summary: A ______ requires a borrower analysis to determine if property taxes and insurance should be required in an ______ account. Mortgage insurance is determined by the ______ of the maximum claim amount taken by the borrower at the initial disbursement at _______.
A. HECM
B. Escrow
C. Percentage
D. Closing
129
Summary: If a borrower is married at the time of the HECM application and the spouse will ____ be on the reverse loan, she is known as a non-borrowing spouse. HUD allows this spouse to remain in the home after the borrower can no longer occupy the home as a primary residence if the non-borrowing spouse adheres to certain requirements. While the non-borrowing spouse continues to live in the home; interest continues to accrue, monthly MIP is required to be paid to HUD by the servicer, and any future disbursements _____ to be paid.
A. NOT
B. Cease
130
Summary: ______ have more risk than what is allowed by the conventional market. Borrower risk factors determine the interest rate and terms. ______ loans are riskier than ____ loans but less risky than ______ loans.
A. Subprime Loans / B-C Loans /Low-Doc / SISA / NINA
B. A-Minus
C. Prime
D. Subprime
131
Summary: _______ is when the seller extends credit to a buyer to finance the purchase of property. A seller can extend all or partial ______. This can help a buyer who doesn't have enough cash to buy a property, who can't qualify for a conventional loan, or who wants or needs a lower-than-market interest rate.
The seller gets the benefit of a home that's easier to sell and often a better price by offering terms. A ______or seller-held mortgage is given by a buyer to a seller to secure part or all the money borrowed to purchase the property.
______ property with NO liens is best for this transaction; encumbered property with liens needs assumption or wraparound. ______ has the buyer take responsibility for the mortgage, but the seller must get a release from the lender. A _______ mortgage has the seller retain the existing mortgage (the buyer makes one larger payment; the seller pays the lender and keeps the difference).
A. Seller Financing
B. Credit
C. Purchase Money Mortgage
D. Unencumbered
E. Assumption
F. Seller-Wraparound
132
Summary: The CFPB regulates seller financing of owner-occupied homes within _______ months. A seller may provide financing for one home every ______ months without verifying the borrower's ability to repay the loan.
A. 12
B. 12
133
Summary: A ______ is a real estate installment agreement. The buyer makes payments to the seller for the right to occupy the land, but NO title is transferred until all, or part of, the payments are made. The buyer has an _________ title under a land contract. States differ in how they treat land contracts.
A. Land Contract
B. Equitable
134
Summary: Problems for the buyer include difficulty in borrowing against equity with a land contract and protecting equity if the land contract is NOT recorded. A lender may consent to the deal using an ______ letter.
A. Estoppel
135
Summary: A has the seller lease to a tenant who has the right (but no obligation) to buy the property at a set price within a certain time. An option can be used for profit, speculation, investment, comparison, or to give the optionor time to acquire cash, to qualify, or credit rent toward the purchase price.
A _______ combines a lease with a purchase contract. An equity exchange is property traded for value in other property. Properties must be exchanged (or delayed exchange), like kind, and held for trade, business, or investment. Capital gains tax is deferred.
A. Lease/Option
B. Lease/Purchase
136
Summary: _______ assistance programs can be down payment assistance programs (DAP), subsidized mortgage interest rates, help with closing costs, or a combination. Programs can be offered by government or non-profit groups, or by lenders.
A. Homebuyer
137
Vocabulary:
A mortgage that permits the lender to periodically adiust the interest rate to reflect fluctuations in the cost of money.
A. Adjustable-Rate Mortgage
(ARM)
138
Vocabulary:
A loan that holds borrowers with good credit to different documentation standards than traditional loans.
With this type of loan, it is possible that a borrower with excellent credit and a large down payment will not be required to furnish as much documentation as a borrower with average scores and an average down payment. Also called ______.
A. Alt-A Loan
B. Alternative Documentation Mortgage Loan
139
Vocabulary:
An action in which one party agrees to take over the payments of another party's debt, with the terms of the note unchanged.
A. Assumption
140
Vocabulary:
1031 exchanges allow investors to defer capital gains tax on the proceeds from the sale of their investment properties. If you’re completing a ______, you must reinvest all your profits into your replacement property for it to be completely tax-free. If you don’t reinvest the entire amount, the amount left over is immediately taxable. This leftover amount is called _______. You can also provoke this by receiving cash, acquiring any non-like-kind property, or assuming a lower mortgage on the replacement property than the mortgage of the relinquished property without contributing additional cash.
A. Boot
B. 1031 exchange
141
Vocabulary:
A loan that meets the criteria necessary to be sold in the secondary market.
A. Conforming Loan
142
Vocabulary:
A loan usually made by a bank or institutional lender that is not insured or quaranteed by a government entity or agency (e.g ______).
A. Conventional Loan
B. FHA / VA
143
Vocabulary:
An ARM option that gives a borrower the right to convert from an adjustable-rate loan to a fixed-rate loan.
A. Conversion Option
144
Vocabulary:
A regional average of interest expenses incurred by financial institutions, which, in turn, is used as a base for calculating variable rate loans.
A. Cost of Funds Index (COFI)
145
Vocabulary:
A condition in which the value in one property is traded for the value in another property. Also called Tax-______ Exchange, Tax-Free ______ , _______ Exchange, or Section _____ (from the section number of IRS law).
A. Equity Exchange
B. DEFERRED
C. EXCHANGE
D. LIKE-KIND
E. Section 1031
146
Vocabulary:
A loan secured by a mortgage on one's principal residence; generally requires a balloon payment.
A. Home Equity Loan
147
Vocabulary:
An open-end home equity loan in which borrowers are granted a specific credit limit from which to draw and repay principal only as it is used.
A. Home Equity Line of Credit
(HELOC)
148
Vocabulary:
Under the Dodd-Frank Act, HOEPA protections are triggered where a loan's APR exceeds the average prime offer rate by ____ percentage points for most first-lien mortgages and _____ percentage points for subordinate lien mortgages; where a loan's points and fees EXCEED _____ percent of the total transaction amount, or a higher threshold for loans below $______; or where the creditor may charge a prepayment penalty more than ____ months after loan consummation or account opening, or penalties exceed more than two percent of the amount prepaid.
A. Home Equity Loan
B. 6.5%
C. 8.5%
D. five
E. $20,000
F. 36 Months
149
Vocabulary:
Mortgage with a combination of fixed and adjustable rate features.
A. Hybrid ARM
150
Vocabulary:
A real estate installment agreement in which the buyer makes payments to the seller in exchange for the right to occupy and use the property, but no deed or title is transferred until all, or a specified portion of, the payments have been made.
A. Land Contract
151
Vocabulary:
A contract where one party pays the other rent in
exchange for possession of real estate.
A. Lease
152
Vocabulary:
A contract in which a seller leases property to someone for a specific term with an option to buy the property at a predetermined price during the lease term.
A. Lease/Option
153
Vocabulary:
A contract in which a seller leases property to someone for a specific term with the tenant agreeing to buy the property at a set price during or following the lease term.
A. Lease/Purchase
154
Vocabulary:
Defined by the SAFE Act as any mortgage product other than a 30-year fixed-rate fully amortizing mortgage; or defined by the Interagency Guidance on Nontraditional Mortgage Product Risk as a mortgage that allows a borrower to defer principal and, sometimes, interest (i.e., interest-only or negative amortization).
A. Nontraditional Mortgage
Product
155
Vocabulary:
A vehicle for a borrower who has substantial equity in a property to convert that accumulated equity--at a cost--to cash and additional debt without selling the property and without making payments to the lender. With a typical reverse mortgage, the balance of the loan rises as the borrower receives money from the lender and incurs interest to the outstanding loan balance. The most popular reverse mortgage program is the HECM. Also called ________ or _________.
A. Reverse Mortgage
B. Reverse Equity Mortgage
C. Reverse Annuity Mortgage
156
Chapter 6:
Chapter Quiz:
1. Which statement is true about interest rate buydowns on FHA loans?
A. A borrower may qualify at the buydown rate.
B. A borrower must qualify at the note rate.
C. The FHA does not allow builder-paid buydowns.
D. The FHA does not allow seller-paid buydowns.
B. A borrower must qualify at the note rate. - The
FHA will only allow a borrower who utilizes a temporary buydown to qualify at the higher note rate and payment, not the temporary rate and payment.
157
Chapter 6:
Chapter Quiz:
2. What is the adjustable number used to compute the interest rate on an ARM?
A. cap
B. index
C. margin
D. prepayment
B. index - The index is the component of an ARM that is designed to adjust at pre-determined intervals to allow the lender to keep pace with the cost of money and the economy.
158
Chapter 6:
Chapter Quiz:
3. With an ARM, the index is added to the _ to determine the
A. APR/cost of funds
B. home value/amount borrowed
C. margin/interest rate charged
D. qualifying ratio/maximum monthly mortgage payment
C. margin//fully indexed interest rate - The formula for determining the adjustable rate for an ARM is: Index (actual variable cost of money)
+ Margin (fixed spread or lender profit) = Fully
Indexed Interest Rate.
159
Chapter 6:
Chapter Quiz:
4. Negative amortization occurs when
A. a borrower suffers payment shock.
B. each mortgage payment is adjusted more frequently than a typical interest rate allows.
C. a loan decreases in value.
D. the payment made does not cover the interest due for that period.
D. the payment made does not cover the interest due for that period. - Negative amortization occurs when the monthly principal and interest payment is not a large enough amount to pay the interest due for the previous month. Payments that do not cover the interest charge lead to negative amortization.
160
Chapter 6:
Chapter Quiz:
5. Subprime loans are different from conforming loans because they
A. allow for lower interest rates.
B. allow for more risk.
C. are only offered by banks.
D. are sold in the secondary market.
B. allow for more risk. - Subprime, or below prime, mortgages allow for more risk factors than are allowed for conforming loans sold on the secondary market.
161
Chapter 6:
Chapter Quiz:
6. Which scenario BEST describes a land contract?
A. A buyer makes payments to the seller in exchange for the right to occupy, use, and enjoy the property, but no deed or title transfers until a specified portion of payments have been made.
B. A buyer takes over primary liability for the loan of a seller, usually implying no change in loan terms.
C. A seller keeps the existing loan and continues to pay on it while giving the buyer another loan.
D. A seller leases the property with the provision that part of the rent payments be applied to the sale price if the tenant decides to purchase before the lease expires.
A. A buyer makes payments to the seller in exchange for the right to occupy, use, and enjoy the property, but no deed or title transfers until a specified portion of payments have been made. - A contract between a vendor (seller) and vendee (buyer) where payments are made by the buyer to the seller in exchange for the right to occupy and enjoy a property is known as a land
contract.
162
Chapter 6:
Chapter Quiz:
7. The type of mortgage where a borrower receives a monthly check rather than making scheduled payments to a lender is known as a:
A. budget mortgage.
B. forward mortgage loan.
C. fully amortizing loan.
D. reverse mortgage.
D. reverse mortgage. - A reverse mortgage provides a borrower with either a monthly check, a line of credit, or a lump sum payment with no monthly payments required of the borrower.
163
Chapter 6:
Chapter Quiz:
8. Increased risk factors for subprime loans include all of the following features EXCEPT:
A. excessive loan fees.
B. high-interest rates.
C. higher FICO® scores required.
D. low down payment requirements.
C. higher FICO® scores required. - Subprime loans possess one or more of the following risky features: high interest rates, high debt-to-income ratios, low down payment requirements, little or no verification of ability to repay the mortgage debt, excessive loan fees, lower FICO® scores allowed, hybrid loan features.
164
What are the 5 most IMPORTANT components of a borrowers credit score?
> in order of importance
• New Credit
• Length Of Credit History
• Amounts Owed
• Credit Mix
• Payment History
1. Payment HISTORY (35%)
2. Amounts OWED (35%)
3. LENGTH Of Credit History (15%)
4. New Credit (10%)
5. Credit Mix (10%)
