Financing 2 - Primary and Secondary Markets

Question 1

Mortgage banker

Answer 1

Lends their own money to a loan. They are the “lender”.

Question 2

Mortgage broker

Answer 2

Brings lenders and borrowers together. Do not use their own funds to lend money.

Question 3

Prequalification vs preapproval

Answer 3

Prequalification simply estimates the maximum amount the borrower is likely to qualify for.

Preapproval is a solid written commitment from the lender to hold a mortgage up to a given amount.

Question 4

Gross Monthly Income

Answer 4

Income before taxes

Question 5

GMI

Answer 5

Gross Monthly Income

Question 6

Qualifying ratio

Answer 6

Borrower cannot take out a loan IF:
-Their PITI payment is more than a specified % of their GMI (front end ratio) OR
-If their PITI payment + long-term debts is more than a higher specified amount of their GMI (back end ratio).

Question 7

FHA loan

Answer 7

A loan that is insured by the federal government.

Question 8

VA loan

Answer 8

A loan that is partially guaranteed by the federal government.

Question 9

What does the Federal Reserve System do?

Answer 9

-Helps to maintain sound credit conditions
-Helps counteract inflationary and deflationary trends
-Creates a favorable economic climate

Question 10

FNMA

Answer 10

Federal National Mortgage Association (Fannie Mae)

Question 11

GNMA

Answer 11

Government National Mortgage Association (Ginnie Mae)

Question 12

FHLMC

Answer 12

Federal Home Loan Mortgage Corporation (Freddie Mac)

Question 13

What are the three major warehousing agencies?

Answer 13

FNMA, GNMA, FHLMC

Question 14

What do warehousing agencies do?

Answer 14

They purchase a large number of mortgage loans and package them for resale to investors.

Question 15

Purchase-money mortgage

Answer 15

Mortgage placed when a property is bought. In contrast to refinancing.

Question 16

Reverse mortgage

Answer 16

Regular monthly payments are made TO the borrower based on the equity in the property. Must be 62 years old to qualify.

Question 17

Home equity loan

Answer 17

A type of secondary mortgage where the borrower borrows from their equity in the home.

Question 18

Home equity line of credit (HELOC)

Question 19

Interim financing

Answer 19

-Bridge loan or swing loan.
-Often used to finance down payment on a new property until existing property sells.
-Usually interest only

Question 20

Shared equity mortgage

Answer 20

Buyer gets help with down payment, concessionary interest rate or assistance with monthly payments in exchange for the lender receiving a share of the property. Lender receives an agreed upon % of the money when property is sold.

Question 21

Package mortgage

Answer 21

Includes both real and personal property. Appraiser appraises personal property as well.

Question 22

Blanket mortgage

Answer 22

Covers more than one parcel or lot. Often used to finance subdivision developments. Lender has to be willing to release individual lots as they are sold.

Question 23

Wraparound mortgage

Answer 23

Method of financing when an existing mortgage is to be retained.

Question 24

Open-end mortgage

Answer 24

Allows a borrower to obtain additional funds to improve their property. Lender is not obligated to advance additional funds. Most often used in commercial financing.

Question 25

Construction loans

Answer 25

"Building loan agreement." Interest only. Used in short-term financing to finance the construction of improvements of the property. Payments are made from time to time ("draws") to the general contractor for that part of the construction work that has been completed. Tend to get refinanced into a permanent loan (take-out financing) with lower interest rate once project is complete.

Question 26

Sale-leaseback

Answer 26

The seller stays in the property and pays "rent" to the buyer.

Question 27

Truth in Lending Act (TILA)

Answer 27

Consumer disclosure bill. Requires credit institutions to inform consumers of the true cost of obtaining credit. "Know before you owe." DOES NOT APPLY to cash, business or commercial transactions.

Question 28

What does TRID require?

Answer 28

Requires delivery or mailing of early disclosures about the proposed loan within three business days of completed mortgage application. Only applies to residential.

Question 29

What is needed for a loan application to be complete?

Answer 29

(ALIENS) -Address of the property -Loan amount requested -Income -Estimated property value -Name of borrower(s) -Social security number(s)

Question 30

APR

Answer 30

Annual percentage rate

Question 31

Annual percentage rate

Answer 31

Includes interest rates, finance charges and other fees. It is the true cost of the loan.

Question 32

What are triggering terms in advertising?

Answer 32

-Amount or percentage of down payment (unless none is required) -Number of payments or period of repayment -Amount of any payment -Amount of any finance charge

Question 33

If any triggering terms are used in advertising, what also needs to be disclosed?

Answer 33

-Amount or percentage of down payment -Number of payments or term of loan -The words "annual percentage rate" so identified, and whether that rate is to be increased after consummation

Question 34

Predatory lending

Answer 34

When lenders use unfair or deceptive lending practices.

Question 35

ECOA

Answer 35

Equal Credit Opportunity Act

Question 36

What does Equal Credit Opportunity Act do?

Answer 36

Prohibits lenders from discriminating against applicants based on any of the federal discrimination classes, as well as age.

Question 37

What is TRID?

Answer 37

TILA-RESPA Integrated Disclosure. Effective October 3, 2015

Question 38

What does TRID NOT apply to?

Answer 38

-HELOCs -Mobile homes -Reverse mortgages -Cash transactions -Loans for commercial purposes

Question 39

What is an LE?

Answer 39

Loan Estimate

Question 40

Land contract

Answer 40

Buyer makes payments to the seller instead of a bank/lender. Buyer does not get the deed until they've paid an agreed upon amount.

Question 41

Housing ratio vs total debt ratio

Answer 41

Housing ratio - Front end - monthly PITI Total debt ratio - Back end - monthly PITI+LTD

Question 42

When must the loan estimate (LE) be provided to applicant?

Answer 42

Within 3 days of completed application.