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Flashcards in Finance II Deck (37)
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1
Q

FHA and VA loans differ from conventional loans in what important way?

A

FHA and VA do not loan funds directly. FHA insures loans and VA guarantees loans, but the loans themselves are made by approved, qualified lenders.

2
Q

What kind of insurance does FHA require borrowers to pay?

A

As of 2006, the borrower must pay two insurance premiums. The first is the “upfront” Mortgage Insurance Premium (MIP) which is a percentage of the loan amount. The borrower can pay this one-time premium at closing or the charge could be financed with the loan. The second premium, called Mutual Mortgage Insurance (MMI) is a monthly premium that is paid with the monthly principal, interest, taxes and insurance payment. MMI premiums may be dropped when the remaining loan balance is 80 percent loan-to-value ratio or less.

3
Q

What is a Certificate of Reasonable Value and what is it used for?

A

A Certificate of Reasonable Value (CRV) shows the value of a property in relation to its sales price. It is issued by an approved VA appraiser when a veteran is seeking a DVA loan.

4
Q

How much money can a veteran get through the Texas Veterans Home Improvement Program?

A

Veterans may get up to $25,000 for a 20-year loan or up to $10,000 for a 10-year loan.

5
Q

What is the role of the secondary mortgage market?

A

The secondary mortgage market consists of holding warehouse agencies that purchase a number of mortgage loans and assemble them into one or more packages of loans for resale to investors.

6
Q

Who are the three major players in the secondary mortgage market?

A

Ginnie Mae
Fannie Mae
Freddie Mac

7
Q

How is Freddie Mac different from Ginnie Mae and Fannie Mae?

A

Ginnie Mae and Fannie Mae were created to deal primarily with the purchase of FHA and VA loans. Freddie Mac deals with conventional loans.

8
Q

Why was Farmer Mac created?

A

To establish a secondary market for agricultural real estate and rural housing mortgage loans and to increase the availability of long-term credit at steady interest rates to American farmers, ranchers and rural homeowners

9
Q

What is the basic purpose of Truth in Lending- Regulation Z?

A

Give buyers information about the true cost of obtaining credit, so that borrowers can compare the costs of various lenders.

10
Q

What is the right to rescind and what is not covered by this rule?

A

The borrower has a right to cancel the transaction by notifying the lender within three days. This does not apply to residential first mortgage loans.

11
Q

What does ECOA prohibit?

A

Discrimination against applicants on the basis of race, color, religion, national origin, sex, marital status, age or dependency on public assistance

12
Q

Why was the Community Reinvestment Act passed?

A

To prevent redlining

13
Q

Define the term predatory lender.

A

A predatory lender is one that literally preys on the customers who may fall into the below “A paper” lending categories, particularly those who do not speak English, are poorly educated or are elderly.

14
Q

Why is a balloon loan a particularly bad idea for a low-income borrower?

A

The major problem with a balloon payment loan is that the borrower has to come up with a large sum of money at the end of the term. In some cases the lender requires an even higher interest rate to give an extension. If the borrower doesn’t have the income to meet the higher payment, he or she will be in trouble and possibly face foreclosure.

15
Q

What is loan flipping?

A

Encouraging a borrower to refinance a loan so that the lender can charge high points and fees for the new loan.

16
Q

What is the penalty for knowingly making a false statement to obtain a loan?

A

Imprisonment for a term of 2 years to 99 years and fine not to exceed $10,000

17
Q

Conventional Loans

A

most common loan type available and most homes are financed through uninsured or insured conventional loans

18
Q

The Federal Housing Administration (FHA)

A

provides low-down payment, fixed rate 10 to 30 year loans or one-year adjustable loans via lending institutions

19
Q

The Department of Veterans Affairs (DVA)

A

provides loans to veterans in which the VA agrees to guarantee the top portion of the loan. The amount is calculated as 25% of the home loan amount up to $104,250.

20
Q

Rural Housing Service (RHS)

A

has numerous programs available to aid low- to moderate-income rural residents to purchase, construct, repair or relocate a dwelling and related facilities. Qualified homebuyers can get loans with minimal closing costs and no down payment.

21
Q

Texas Veterans Land Board (VLB)

A

provides another alternative in the form of special assistance programs for home and land purchases to assist Texas veterans in purchasing a home with a low interest rate loan with little or no money down. Veterans may get up to $417,000 for the home purchase.

22
Q

Texas Department of Housing and Community Affairs (TDHCA)

A

offers mortgage loan funds and down payment assistance to eligible first-time homebuyers. Eligible homebuyers are offered mortgage loans at more competitive, fixed, low interest annual percentage rates with down payment and closing cost assistance of 5% of the mortgage loan for first time homebuyers.

23
Q

Secondary Mortgage Market

A

Ginnie Mae, Fannie Mae, Freddie Mac, etc.

consists of holding warehouse agencies that purchase a number of mortgage loans and assemble them into one or more packages of loans for resale to investors.

24
Q

Ginnie Mae – Government National Mortgage Association (GNMA)

A

a corporation within the Department of Housing and Urban Development to create and operate a mortgage-backed security program for the Federal Housing Administration and Veterans Administration mortgages

25
Q

Fannie Mae – Federal National Mortgage Association (FNMA)

A

a shareholder-owned company that works to make sure mortgage money is available for people across the country. It does not lend money directly to home buyers, rather it works with lenders to make sure the lenders don’t run out of mortgage funds.

26
Q

Freddie Mac – Federal Home Loan Mortgage Corporation (FHLMC)

A

mortgage-backed security for conventional loans. Freddie Mac buys conventional loans from savings banks, commercial banks and mortgage companies, assembles the loans into a pool of mortgages and issues a security backed by the mortgages called a Participating Certificate or Guaranteed Mortgage Certificate. This provides stability, affordability and opportunity in the housing market.

27
Q

Farmer Mac – Federal Agricultural Mortgage Corporation (FAMC)

A

was created to establish a secondary market for agricultural real estate and rural housing mortgage loans to increase the availability of long-term credit at steady interest rates to American farmers, ranchers and rural homeowners. They deal with agricultural loans the same way Fannie Mae and Freddie Mac deal with conventional and government loans.

28
Q

The Truth in Lending Act

A

place to help buyers make comparisons between loan fees and other charges. The law requires lenders to disclose to buyers the true cost of obtaining credit so that borrowers can compare the costs of various lenders.

29
Q

The Equal Credit Opportunity Act (ECOA)

A

prohibits lenders from discriminating against applicants on the basis of: race, color, religion, national origin, sex, marital status, age, dependency on public assistance. ECOA expects a lender to base lending decisions on an individual’s income, net worth, job stability and credit rating.

30
Q

The Community Reinvestment Act

A

was passed by Congress in 1977 to prevent redlining and to encourage banks and thrifts to help meet the credit needs of all segments of their communities, including low- and moderate-income neighborhoods. It expands and clarifies the expectation that banks will serve the convenience and needs of their local communities.

31
Q

Home Mortgage Disclosure Act

A

equires that lenders report statistical information each year to insure that lenders are not restricting loans to certain individuals or neighborhoods to exclude them from obtaining a mortgage (called “redlining”).

End of Page

32
Q

Fair Credit Reporting Act, or Title VI of the Consumer Credit Protection Act

A

requires that lenders, keep all credit information confidential, obtain authorization from a consumer in order to seek the customer’s credit information, reveal the sources of the credit information to the consumer

33
Q

Paper/Borrower type

A

“A” paper. A less qualified borrower, perhaps one with credit problems, may have to take a loan at a higher rate of interest, referred to as “B” paper. More serious credit problems might lead to “C” paper and there is even a category of “D” paper for those with overwhelming credit problems. Borrowers who fall into the “below A” categories are referred to as sub-prime borrowers.

34
Q

Predatory Lender

A

literally “preys” on the customers who may fall into the “B,” “C” or “D” lending categories, particularly those who do not speak English, are poorly educated or are elderly. Predatory lending practices involve:

Basing an unaffordable loan on the applicant’s assets rather than his or her ability to repay the loan.
Encouraging a borrower to refinance a loan so that the lender can charge high points and fees for the new loan.
Using fraud or deception to hide the true obligations of the loan from the borrower.

35
Q

sub-prime loans

A

When lenders provide loans to unqualified homebuyers – those who have poor credit and whose ability to repay the loan is risky because of their income

36
Q

Loan Flipping

A

generally refers to repeated refinancing of a mortgage loan within a short period of time with little or no tangible net benefit to the borrower.

37
Q

Loan Fraud

A

crime in which the intent is to materially misrepresent or omit information on a mortgage loan application to obtain a loan or to obtain a larger loan than would have been obtained had the lender or borrower known the truth.