General Mortgage Knowledge Flashcards
(229 cards)
1
Q
What does FNMA stand for?
A
The Federal National Mortgage Association also known as Fannie Mae
2
Q
What is FNMA?
A
Fannie Mae is the largest institutional buyer of conventional mortgages in the secondary mortgage market
3
Q
What is the Secondary Market?
A
The secondary market includes private investors or government agencies that buy or sell real estate mortgages
4
Q
The Federal Home Loan Mortgage Corporation (Freddie Mac) is chartered by who to buy what?
A
The Federal Government to buy mortgages originated to by Savings Associations
5
Q
The Government National Mortgage Association (Ginnie Mae) is owned by whom?
A
The Government National Mortgage Association (Ginnie Mae) is a wholly owned government corporation within the United States Department of Housing and Urban Development (HUD).
6
Q
Ginnie Mae _________ buy or sell loans or issue mortgage backed securities (MBS)
A
Does not
7
Q
What does Ginnie Mae guarantee?
A
It guarantees investors the timely payment of principal and interest on MBS backed by federally insured or guaranteed loans — mainly loans insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veteran Affairs (DVA).
8
Q
What is Fannie Mae’s automated underwriting system?
A
Desktop Underwriter
9
Q
What is Freddie Mac’s automated underwriting system?
A
Freddie Mac’s Loan Product Advisor (formerly Loan Prospector)
10
Q
What is the 2020 conforming limit?
A
$970,800 for 2022 high cost areas and $647,200 for standard areas
11
Q
How many years of history does Fannie Mae require be reviewed for all credit and public record information?
A
7 years
12
Q
What is the minimum down payment for first time home buyers on a conventional mortgage?
A
3% down payment
13
Q
What is the general down payment for a conventional mortgage?
A
minimum 5% down
14
Q
Are conventional mortgages insured or guaranteed by the government?
A
No
15
Q
What is required of conventional mortgage loans with less than a 20% down payment?
A
Private Mortgage Insurance
16
Q
What is Private Mortgage Insurance?
A
PMI is a policy that allows lenders to recover part of loss in the event of borrower default or loss in collateral value.
17
Q
Most conventional loans have what type of clause?
A
a Due on Sale clause which means they are not assumable
18
Q
What is the late fee for a conventional mortage?
A
5% of the P& I amount only
19
Q
What is the late fee for Government Loans (FHA, DVA, USDA)?
A
4% late fee of the P&I amount only
20
Q
For conventional loans the 5% of the down payment amount must come from where?
A
The borrower’s own funds.
21
Q
FHA insured loans requires what amount for a down payment?
A
3.5% down payment (can be gift)
22
Q
What loans do not require a down payment?
A
DVA and USDA
23
Q
What is a jumbo loan?
A
A jumbo loan exceeds Fannie/Freddie Maximum loan amount (aka non-conforming loan).
24
Q
What is the P&I?
A
Principle and Interest Payment
25
What are the late fees a percentage of and how much usually?
Usually 4% or 5% of the debt service, not the PITI
26
Escrow impounds are usually collected by whom?
The lender
27
What do escrow impounds include?
They include the monthly amount for property taxes, hazard insurance and flood insurance, if required
28
Fannie Mae requires the non-qualifying spouse to sign what and why?
To sign the mortgage or any other documentation required to evidence that the spouse is relinquishing all rights to the property.
29
What is the maximum term for Fannie Mae?
The maximum term is 30 years.
30
What does Fannie Mae purchase?
Fannie Mae is the largest institutional investor in the secondary mortgage market. It purchases FHA, DVA, and conventional loans from commercial banks.
31
What forms of payment does Fannie Mae require to pay the closing costs?
guaranteed funds such as a cashier's check, personal checks are not acceptable
32
Fannie Mae emphasizes the borrower's continuity of stable income vs. what?
stability of employment
33
What is the borrow required to have under Fannie Mae?
Social Security Number or Individual Taxpayer Identification Number
34
Under Fannie Mae, who is responsible for the quality of the appraisal?
the Lender
35
Fannie Mae requires the lender to obtain what from each borrower on the loan application?
written credit report for each borrower on the loan application who has an individual credit record.
36
Fannie Mae will not accept a co-borrower's income for qualifying purposes, unless what?
the co-borrower also signs the mortgage note
37
Fannie Mae does not purchase most of what type of mortgage?
Balloon Mortgages
38
At the time of the loan application the lender normally requires the applicant to sign a form authorizing the lender to obtain verifications of bank balances (_______________) and payroll information (______________________).
Fannie Mae 1006, Verification of Deposit, Fannie Mae 1005, Verification of Employment
39
What is the Fannie Mae 1006?
Verification of Deposit
40
What is the Fannie Mae form 1005?
Verification of Employment
41
What is the Fannie Mae 1008?
Transmittal Summary
42
What is the 1008 Transmittal Summary consist of?
It is a form that summarizes the applicant's data and will usually be the top sheet in the loan package when it is sent to the underwriter
43
Fannie Mae will purchase mortgages secured by what?
Residential properties in urban, suburban, or rural areas
44
Fannie Mae was created as a government agency in 1938 and later become a public company listed on the ___________________.
New York Stock Exchange
45
What is the purpose of Fannie Mae?
to buy mortgages and notes from the primary lenders so that money remains in circulation
46
Fannie may does NOT purchase what mortgages?
On agricultural-type properties such as farms, orchards, ranches, or underdeveloped land or land development-type properites
47
Fannie may will NOT purchase a mortgage that has a what?
unacceptable title imepdiment
48
Fannie Mae will purchase first mortgages that are secured by residential properties for use by ___ to ____ families. The occupancy may be that of a _________________, _____________, or ________________.
1 to 4, principal residence, a second home or investment property.
49
Fannie Mae will purchase a conventional mortgage on a manufactured home. The manufactured home must be a ______________________________.
one-family dwelling that is legally classified as real property.
50
When the mortgage that is being delivered to Fannie Mae is secured by the borrower's principal residence, Fannie Mae has ___ limitations on the number of mortgages that the borrower can currently be financing. But, if the mortgage is secured by a second home or an investment property, the borrower may not be financing more than ____ properties.
no; ten
51
How many credit scores does Fannie Mae recommend the lender obtain for every borrower?
two
52
If there are two scores for the borrower, which score is used? Which score is used if there are three scores?
the lowest if there are two, the middle if there are three
53
IF there is more than one individual applying for the same mortgage, how should the lender determine the "representative" credit score?
If more than one individual is applying for the same mortgage, the lender should determine the single applicable credit score for each individual borrower and then select the lowest applicable score from the group as the "representative" credit score for the mortgage
54
How are Alt-A loans characterized?
Alt-A loans are characterized by reduced documentation, high ratios or limited assets.
55
What are Subprime Loans?
Subprime loans are the riskiest and are associated with poor credit scores.
56
What is amortization?
Amortization is the process of fully paying off a loan in regular payments over a specified period. The portion of each monthly payment that goes to reduce the outstanding principal balance gradually increases with each payment throughout the life of the loan, and the portion used to pay interest gradually decreases each month. Payments applied to principal and interest.
57
What is POSITIVE Amortization?
Positive amortization occurs when the monthly mortgage payment decreases the loan balance, by applying a portion of each payment to the principal.
58
What is NEGATIVE Amortization?
Negative amortization occurs in a mortgage repayment plan in which the borrower makes payments that amount to less than the interest due. Unpaid interest is added to the outstanding loan balance, causing the outstanding loan balance to increase instead
of decrease. Monthly payment is not sufficient to cover the accrued interest from previous month.
59
What is a "Senior Mortgage"?
It is the first mortgage and it has a superior lien position
60
What is a "Junior Mortgage"?
Junior Mortgages are the subsequent mortgages that have a lower or more subordinate lien position than the senior mortgage.
61
How many junior mortgages can one have and what are the terms?
There is an unlimited possible number of junior mortgages and no restrictions on terms.
62
What is a fixed rate mortgage?
A Fixed-Rate Mortgage is one example of a fully amortized loan. During the first few years of the loan, most of the monthly P&I is going toward paying the interest. Payments during the last few years are almost entirely principal repayment.
63
What is a Balloon Mortgage?
A Balloon Mortgage is partially amortized. Monthly payments are usually calculated as if it was a 30-year term, but the balance of the loan will come due before that time and must be paid in one lump sum; 5, 7 and 10-year terms are popular.
64
What is a 360/180 loan?
A 360/180 loan is a balloon amortized over 30 years with a lump sum payment due after 15 years.
65
What is Adjustable-Rate Mortgage (ARM)?
An Adjustable-Rate Mortgage (ARM) consists of two parts: an index which fluctuates and a margin which is fixed. Index + Margin = Fully Indexed Rate.
66
What is the "index" in an ARM?
The index is a known, fluctuating, published economic indicator outside of the control of the lender.
67
What are two common indices?
U.S. Treasury Securities rate and the Secured Overnight Financing Rate (SOFR)
68
What is the Margin of an ARM?
The margin is a fixed percentage rate (typically 2% to 3%) that is added to the specified index at each adjustment period to determine the fully indexed rate. It reflects the lender's profit and overhead. Added to the index to find the current interest rate charged; sometimes called spread.
69
How is the Margin expressed?
The margin is expressed in basis points where 100 points = 1%.
70
What is the adjustment period in an ARM?
The adjustment period specifies the initial term before the first interest rate adjustment. After this first period, the loan typically adjusts every year.
71
What are "rate caps" in an ARM?
Rate caps limit how much the interest rate can change at each adjustment and over the life of the mortgage. A 2/3/6 has a max first adjustment of 2%, subsequent max adjustments of 3% and a lifetime max adjustment of 6%.
72
What is a "Bi-Weekly" Mortgage?
A Bi-Weekly Mortgage is one in which the borrower must make a mortgage payment every two weeks. This allows the borrower to build up equity faster and pay less interest over the life of the loan.
73
What is a "Term Mortgage"?
A Term Mortgage is a non-amortizing interest-only loan. The balance is due at the end of the term in a balloon payment.
74
What does it mean to have a "Net Tangible Benefit"?
Net Tangible Benefit – refinance loans must “make sense” for the consumer. They must provide some “benefit’. The cost (or commission earned) for the loan cannot outweigh the “benefit” that the borrower will receive.
75
What is a "Reverse Mortgage"?
A Reverse Mortgage is a negatively amortizing loan for homeowners of primary residences who are 62 years or older and have a large percentage of their current mortgage paid off. They are non-recourse loans, and the lenders cannot file a deficiency judgment against the heirs. The heirs are not personally liable for the note.
76
Are payments due from the borrow on a reverse mortgage?
No
77
What is the nationwide maximum loan amount for a reverse mortgage?
$970,800
78
What does a reverse mortgage allow the qualified borrow to do and how old must they be?
A reverse mortgage allows qualified borrowers (62 and older) to convert equity in home without selling or making payments.
79
What is FHA's reverse mortgage called?
Home Equity Conversion Mortgage (HECM)
80
A reverse mortgage requires which to disclosures?
GFE and TIL (not the LE and CD)
81
In a reverse mortgage what happens to the balance of the loan?
In a reverse mortgage, the Balance of loan rises as equity shrinks (rising debt, falling equity).
82
How do borrowers in a reverse mortgage receive their funds?
Most borrowers in a reverse mortgage, receive their funds via the tenure method (Getting a monthly check instead of paying a monthly check.
83
What are the income verifications for a reverse mortgage?
No income requirements in a reverse mortgage, however, the borrower must be able to pay continuing obligations related to property (property tax, insurance, upkeep).
84
What is the amount the applicant may borrow base on with a reverse mortgage?
The amount the applicant may borrow is based on the age of the youngest borrower, the value of the property and the expected interest on the loan.
85
What is required of the homeowner to ensure that they understand how the program works?
The homeowner is required to meet with a counselor.
86
If not in breach, when is a reverse mortgage due?
when the last surviving borrower dies, sells the home, or ceases to live in home for 12 consecutive months
87
A traditional mortgage is defined as having a _____ year Fixed.
30
88
What are Conforming Loans?
Conforming loans meet Fannie Mae / Freddie Mac standards – can be sold on the secondary market
89
What are non-conforming loans?
Non-conforming Loans Do Not Meet Fannie Mae / Freddie Mac standards and CANNOT be sold to secondary market (Fannie/Freddie). Non-confirming loans include, among other things: Jumbo loans, Alt-A loans, Sub-prime mortgages.
90
What is a package mortgage?
A Package Mortgage can be either amortizing or non-amortizing, and the lien includes personal property as well as real property.
91
What is a Graduated Payment Mortgage (GPM)?
A Graduated Payment Mortgage (GPM) is a mortgage in which the payment starts low and increases over time. This is a specialized payment structure that allows the borrower to make a smaller payment in the early years of the mortgage, with payments increasing yearly, until they are sufficient to fully amortize the loan. The lower payments in the beginning usually cause negative amortization.
92
What is a Variable Balance Mortgage (VBM)?
Variable Balance Mortgage (VBM) - A loan with an adjustable interest rate, but with payments that never change; instead, as the rate increases or decreases, the balance decreases slower of faster as payments are made.
93
What is a Wraparound Mortgage?
A Wraparound Mortgage is usually a type of seller financing in which the seller finances enough money to cover the existing loan balance as well as any additional funds needed by the borrower.
94
What is a Seller-wraparound Mortgage?
A seller-wraparound mortgage has the seller retain the existing mortgage (the buyer makes one larger payment; the seller pays the lender and keeps the difference).
95
What is Seller Financing?
Seller financing is when the seller extends credit to the buyer to finance the purchase of property.
96
What is a Purchase Money Mortgage or Seller-held Mortgage?
A purchase money mortgage or seller-held mortgage is given by the buyer to a seller to secure part or all of the money borrowed to purchase the property. A seller may take part of the purchase price as a mortgage to help the sale. Sometimes referred to as “seller-carry-back” loans.
97
What is a Growing Equity Mortgage?
this is a fixed rate mortgage set up like a 30-year conventional mortgage loan with payments that increase regularly. It has a fixed interest rate and increasing payments so that the loan balance is paid off more quickly.
98
What is a Home Equity Line of Credit?
A Home Equity Line of Credit is a form of revolving credit in which the home serves as collateral. The amount of the available credit line usually depends on the borrower's equity in the home (appraised value — loan balance = borrower's equity).
99
What is an index?
Index- Statistical report used as reliable indicator of cost of money. Examples: COFI, COSI, SOFR, PRIME
100
What is a rate adjustment period?
Rate adjustment period- Interval at which interest rate changes.
101
What is an interest rate cap?
Interest rate caps- Limits the number of % points interest rate can rise or fall.
102
What is a rate cap?
A rate cap is a limitation on the amount that an interest rate may increase or decrease at the adjustment date or over the life of the loan. These are referred to as “adjustment caps”.
103
What are the three types of CAPS on more ARM Loans?
There are three types of rate CAPS on most ARM loans: The initial CAP applies to only the first-rate adjustment, the periodic CAP applies to all subsequent adjustment periods, and the life CAP sets the maximum number of percentage points that the rate can increase for the life of the loan.
104
What is a teaser rate in an ARM?
Introductory rate that is lower than the fully indexed rate at the time of closing is called a teaser rate.
105
What is the "floor" or an ARM?
The floor is the lowest interest rate to which an ARM may adjust.
106
What is payment shock and what is used to prevent it?
Payment shock is when a borrower’s rate/payment “increases” in a large amount – all at once. Most ARMs use CAPS to prevent payment shock.
107
What is a Convertible ARMs?
Gives borrower the right to convert from an ARM to a fixed rate loan.
108
What is a Purchase Money Mortgage?
A Purchase Money Mortgage occurs when a borrower obtains a mortgage from the seller to purchase a home.
109
What is a Hybrid Mortgage?
Hybrid mortgage- combination of fixed and adjustable rates and/or interest only. For example, 5/25 fixed for five years and adjust for the 25 years until the loan is paid off.
110
What is a Balloon Mortgage?
Balloon –Also known as a partially amortized loan–Has periodic payments that do not fully amortize the loan by the end of the loan term –The final payment is larger than the others and is known as a balloon payment.
111
How old can credit documents be on the date the note is signed?
Credit documents must be no more than 120 days old on the date the note is signed. This includes new construction.
112
Who developed FICO scores?
Fair Isaac Corporation
113
What does it mean to be a first time homebuyer?
A first-time home buyer is someone who is purchasing an owner-occupied primary residence and who has not had an ownership interest in an owner-occupied property for the past three years.
114
A borrow shall be a natural person and not a what?
Corporation
115
Is there a maximum age limit for a borrower?
no
116
What does it mean to be a guarantor or a co-signer?
A guarantor or co-signer is a credit applicant who does not have an ownership interest in the security property, but who signs the mortgage note and thus has a joint liability for the note with the borrower who is the owner of the note.
117
What is a 5/1 ARM?
A 5/1 ARM has a fixed interest rate for 5 years and adjusts annually after that.
118
What is a construction mortgage?
Construction mortgage - a temporary loan used to finance the construction of improvements and buildings on land
119
What are the three common disbursement plans in a construction mortgage?
The three (3) common disbursement plans in a construction mortgage are the fixed disbursement plan, the voucher system and warrant system
120
What happens to construction funds after the loan is approved and funded?
construction funds are placed in an account and released to the borrower / builder as “draws” or obligatory advances.
121
What happens to the construction mortgage after construction is completed?
Permanent Financing (Take Out Loan) - construction is complete, loan is replaced by a permanent amortizing loan.
122
What is a foreclosure?
A foreclosure is the enforcement of a lien. A proceeding to extinguish all rights, title and interest of the owner of a property in order to sell the property and satisfy any liens against it.
123
What is a forebearance?
Forbearance is the choice by the lender not to take action even though the borrower is in default of the loan.
124
What is a list pendens?
A list pendens is a notice filed by the lender when it initiates a foreclosure lawsuit.
125
What does the equitable right of redemption allow?
The equitable right of redemption allows the mortgagor in default to pay the entire balance due and keep the property from being foreclosed
126
What does a deficiency judgement allow the lender to do?
A deficiency judgment allows the lender to claim other assets from the borrower when the proceeds of the foreclosure sale are insufficient to satisfy the mortgage lien.
127
What does the mortgage ACCELERATION CLAUSE allow the lender to do?
The mortgage acceleration clause allows the lender to call the entire loan balance due if the borrower is in default
128
What is the ALIENATION CLAUSE?
The mortgage alienation clause is a provision in a mortgage enabling a lender to demand full repayment if the borrower transfers the loan
129
What is the mortgage ESCALATION CLAUSE?
The mortgage escalation clause allows the lender to increase the interest rate of the loan under certain conditions.
130
What is a DUE ON SALE clause?
The mortgage due-on-sale clause requires that the loan balance is paid off when the title is transferred.
131
What is the mortgage PREPAYMENT PENALTY CLAUSE?
The mortgage prepayment penalty clause requires the borrower to pay a fee if the loan is paid off early.
132
Conforming loans typically do not provide for prepayment penalties. However, if the loan does contain a prepayment penalty where must it be disclosed>
it must be disclosed in the note (or on an attachment to the note) and must be clearly disclosed on the Loan Estimate and Closing
Disclosure.
133
Under federal law, prepayment penalties are now restricted solely to ____________ mortgages and may not be charged after the first ____ years of the loan term.
fixed-rate qualified; three
134
What is a mortgage RECONVEYANCE DEED?
The mortgage reconveyance deed a method used to transfer title for a property following full repayment of a loan.
135
What is a mortgage DEFEASANCE CLAUSE?
The mortgage defeasance clause requires the lender to send a Satisfaction of Mortgage notice to the borrower within sixty days of paying off the loan.
136
What is the mortgage EXCULPATORY CLAUSE?
The mortgage exculpatory clause prevents the lender from requesting a deficiency judgment against the borrower when the proceeds of the foreclosure are insufficient to pay off the mortgage lien.
137
What is the mortgage PREPAYMENT PRIVILEGE CLAUSE?
The mortgage prepayment privilege clause allows the borrower to pay all or part of the loan before it is due without penalty
138
What is the mortgage OPEN END CLAUSE?
The mortgage open-end clause permits future additional advances from the same loan
139
What is a blanket mortgage?
A blanket mortgage covers multi tracts of land.
140
What is a mortgage SUBORDINATION CLAUSE?
A mortgage subordination clause permits a senior mortgage to assume a junior lien position
141
What is a PARTIAL RELEASE CLAUSE?
A partial release clause in a blanket mortgage allows the developer's lien to be released as the parcel is sold.
142
What are the four elements of a valid contract?
A valid contract has four elements: competent parties, mutual agreement, legal object and consideration
143
What is an ATTORNEY-IN-FACT?
An attorney-in-fact is an individual with power of attorney who is able to sign the contract if one of the parties is not able or competent to sign. Also known as Court Appointed Guardian.
144
What are stipulations to utilizing a Power of Attorney (POA)?
Utilizing a Power of Attorney (POA) – a POA must be approved by the lender in advance and the lender may limit the person who can be a power of attorney to only immediate family member, such as a spouse or parent/child. Please note that a POA may never be a party to the transaction, such as the real estate agent or the MLO. If no POA is assigned – NO ONE can sign on behalf of the borrower.
145
Who is the ASSIGNOR?
The assignor is the party transferring contractual rights to another.
146
Who is the ASSIGNEE?
The assignee is the party receiving the contractual rights.
147
An ASSIGNOR can keep the ______________ (selling a loan with servicing retained).
Servicing rights
148
The ASSIGNOR can sell the ______________ along with the mortgage and note to the assignee.
Servicing Rights
149
Who is the GRANTOR?
The owner of the property.
150
is the GRANTEE?
The party receiving the title transfer.
151
What is a deed?
A deed is a written instrument used to convey title or transfer ownership.
152
What may be placed in the deed and control the use of the property?
Deed Restrictions
153
Deed restrictions must "___________________" and not be ______________.
Run with the land; discriminatory
154
What does it mean when a Deed in Lieu of Forclosure happens?
A Deed in Lieu of Foreclosure occurs when the mortgagor voluntarily conveys the deed to the lender in exchange for satisfaction of the debt. Debtors still lose property, but by conveying it voluntarily before final court action, they avoid foreclosure on credit record. Lender not obligated to accept.
155
What is title insurance?
Title insurance protects the homeowner (mortgagor) and the lender (mortgagee) against defects that occurred in the past: undisclosed liens, heirs, fraudulent documents, etc.
156
When is a title commitment binder issued
After a search of the public records
157
Who pays for the title policies?
Either the seller or buyer (or both).
158
What is Simultaneous issue?
Issuing both the homeowner's and the lender's title policy at the same time.
159
A __________ survey is required and is certified to lenders, title insurers and buyers
property
160
What is an easement?
An easement is a right of way that gives someone other than the property owner the right to be on the land for a specific purpose.
161
What limits the future use of a property?
A deed restriction or restrictive covenant
162
What are the four types of legal descriptions for properties?
the Monument Method, the Government Land Survey Method, Lot and Block Method, and the Metes and Bounds Method.
163
What type of legal description for properties is the most common?
Lot and Block Method
164
What type of legal description for properties is the most accurate?
Metes and Bounds Method
165
In the Metes and Bounds Method the surveyor must start and end his measurements from where?
at the Point of Beginning (POB).
166
The hazard insurance premium must be paid how far in advance and must be effective when?
a year in advance; day of closing
167
What is a Flood Certification Fee?
A Flood Certification Fee is charged to the borrower at closing to cover the costs of determining whether or not the property is in a flood zone.
168
Who maintains the flood maps?
FEMA
169
Who sends the estoppel letter and who does it get sent to?
Closing agent sends an estoppel letter to the seller's lender requesting the payoff amount.
170
What is sweat equity?
Sweat equity - work done by the borrower which has value. The work must be listed on the appraisal to be eligible.
171
Is sweat equity an acceptable source of funds?
No
172
Are the proceeds from the sale of a currently owned home are a common and acceptable source for the down payment and closing costs on a new house?
The proceeds from the sale of a currently owned home are a common and acceptable source for the down payment and closing costs on a new house. A photocopy of the Closing Disclosure should be submitted to the lender.
172
What must be submitted to the lender if proceeds from the sale of a currently owned home are being used for the down payment and closing costs on a new home?
A photocopy of the Closing Disclosure.
173
What is "direct investor funding"
Direct investor funding occurs when the lender deals directly with the borrower without any middlemen.
174
What is "table funding"?
Table funding is a process that allows a broker to originate and close a loan under his or her name. After closing, the mortgage and note are immediately assigned to that investor.
175
What is "warehouse funding"?
Warehouse funding occurs when a lender obtains funds for closing from a line of credit extended by a commercial bank
176
What does the "payment" usually consist of?
The payment usually consists of principal, interest and escrow funds for property tax and hazard insurance. The payment may also include the monthly private mortgage insurance, if applicable.
177
What must the servicer do to the escrow account each year? What is this process called?
The servicer must analyze the escrow account each year and estimate the funds needed for the upcoming year (annual escrow analysis).
178
Do the terms of the loan change when the servicer changes?
The terms of the loan do not change when the servicer changes.
179
A lender who loans the money directly to a borrow is participating in what market?
The lender who loans the money directly to a borrower is participating in the primary
mortgage market.
180
A mortgage and note may be sold to an investor in what market?
A mortgage and note may be sold to an investor in the secondary mortgage market.
181
What is an Assignment of Mortgage?
When a lender sells a mortgage loan to another lender this is called an assignment of mortgage.
182
What is insurance?
Insurance - contract that compensates for loss from designated hazard.
183
What is Homeowners Hazard Insurance?
Homeowners Hazard Insurance - covers loss/damage from fire or other disaster. Policy sufficient to replace home or reimburse mortgage amount. Lenders can place insurance if borrower does not comply. Usually require first year premium prior to closing.
184
How much of the Homeowners Insurance must buyers pay prior to closing?
Homeowner’s insurance requires buyers to pay the first year’s insurance in full prior to closing
185
What is Flood Insurance? Who must get it and for how long?
Flood Insurance - homeowner’s hazard insurance doesn’t cover flood damage. Homes in federally designated special flood hazard area require flood insurance for the life of loan.
186
Who does Flood Insurance need to be purchased from?
Flood Insurance must be purchased from the National Flood Insurance Program (NFIP).
187
Explain "Special Flood Hazard Area (SFHA)" and how it is defined.
In evaluating flood insurance terms, the risk of flood potential are identified by Special Flood Hazard Area (SFHA). A SFHA is defined as the area that will be inundated by the flood event having a 1-percent chance of being equaled or exceeded in any giving year. The 1-percent annual chance flood is also referred to as the base flood or 100-year flood.
188
What are the high risk flood zones?
High-risk flood zones – Zones A and V (insurance is mandatory)
189
What are the moderate flood zones?
Moderate flood zones– properties in Zones B or X (insurance is optional)
190
What are the low risk flood zones?
Low-risk flood zones – Zones C or X (not required)
191
What is "force placed insurance"?
Force Placed Insurance - homeowner fails to keep home insured. Lender has right to buy and charge insurance to cover lender’s interest in home. Typically, expensive. Covers lender, not homeowner or contents of home.
192
What is hypothecation?
Hypothecation - pledge property as collateral for loan while maintaining possession. When you purchase a house or car, you hypothecate it. You use it as collateral but keep possession of it.
193
What are loss mitigation options for the borrower?
Loss mitigation options include refinancing, loan modification, short sale and deed-in lieu.
194
What is the difference between REAL ESTATE and REAL PROPERTY?
Real estate is the land, structures on the land, air rights and mineral rights.
Real property is the associated bundle of rights with real estate.
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What lien has priority over all other liens?
Real Estate Tax liens have priority over all other liens and must be paid off first in the case of foreclosure.
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What does it mean to have a "Fee Simple" personal property interest?
Fee simple is the highest type of personal property interest in the law. A buyer owns the land as well as the improvements on the land.
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What are the three types of concurrent real estate ownership?
There are three types of concurrent real estate ownership: tenancy in common, joint tenancy, and tenancy by the entirety.
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What does it mean to have Tenancy in Common?
Tenants in common are two or more parties buying the same or unequal percentage of the property, buying at the same or different times, and the individual's share, can be sold or willed.
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What does it mean to be Joint Tenants?
Joint tenants are two or more parties buying at the same time, buying equal shares and the shares can't be willed. The right of survivorship dictates that the remaining coowners receive the deceased's interest in the property.
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What is novation?
Novation is an assumption in which the original borrower is released from all liability
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What is "Subject to the Mortgage" mean?
Subject to the mortgage is a transfer of title in which there is no new note, and the original buyer retains all the liability.
202
Freehold estates can be held __________ by the owner.
indefinitely
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What are two types of freehold estates?
Fee simple and life estate
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With a life estate title what happens to it upon the death of the life estate holder?
A life estate title reverts to the original grantor or a remainder upon the death of the life estate holder.
205
Where do IRS tax liens fall on the lien position?
IRS tax liens have a lower lien position (recorded later) than property taxes, senior mortgages, and junior mortgages because no lender would loan money to someone with an outstanding IRS lien.
206
What is Steering?
Steering – occurs when a loan originator directs a borrower to a given loan or loan product to increase compensation when the loan is “not in the consumer’s interest”.
207
What is a HELOC?
A HELOC is a revolving mortgage loan that allows the borrower to take advances at his/her discretion up to an approved limit that represents a percentage of the borrower’s equity in a property.
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What is a Fixed Home Equity Loan?
A Fixed Home Equity Loan may also allow the borrower to take advances at his/her discretion an approved limit but is repaid based on a set amortization schedule. Unlike a HELOC, the borrower is NOT permitted to re-borrow any portion of the loan once it has been repaid to the lender.
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What is a fully amortizing loan?
Fully amortizing loan - total payments over life of loan pay off entire balance of principal and interest due at the end of the term (self-liquidating).
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What is a bridge financing sometimes used for?
Bridge Financing – a bridge loan is sometimes used when the buyers wish to finalize the purchase of a new home before their current home is sold. It’s a short-term cashout loan made on the equity in the applicant’s current property to allow them to close on the purchase of a new transaction.
211
What is the redemption period for?
Redemption period – the borrower may pay off the loan in full to avoid a foreclosure sale of the property.
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What is the equitable right of redemption?
Equitable right of redemption – states that have redemption periods that expire prior to or at the time of a judicial sale have the equitable right of redemption
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What is the Statutory right of redemption?
Statutory right of redemption – states that allow the redemption period to exist even after the judicial sale has occurred. This is called statutory right of redemption.
214
What are Reduced Documentation/ No Documentation Loans?
Reduced Documentation/No Documentation Loans: Reduced documentation loans – also known as “low doc” or “no doc” loans – are one type that has become virtually unavailable in the marketplace. Low doc and no doc loans were initially used for self employed individuals and other borrowers with income, debt, and assets, which were difficult to verify through standard underwriting documentation.
215
What are No Ratio Loans?
No Ratio: Conforming loans require an underwriting analysis of a borrower’s debt ratios – ratio of housing debt-to-income and ratio of total debt-to-income. In this type of nontraditional loan, the borrower’s debt ratios were not considered.
216
What are No Income, No Assets Loans (NINA)?
No Income, No Assets (NINA): In a NINA loan program, no income or assets information was provided by the borrower, nor verified by the lender. Although income was not verified, the lender verified that the borrower was employed.
217
What are Stated Income, Stated Assets (SISA)?
Stated Income, Stated Assets (SISA): In a SISA loan program, the borrower provided information about his/her income and assets. However, no documentation was provided, and the lender performed no verification of the information. Although income was not verified, the lender verified that the borrower was employed.
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What are No Income, Verified Assets (NIVA?
No Income, Verified Assets (NIVA): No income information was considered; however, assets were verified. Although income was not verified, the lender verified that the borrower was employed.
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What is Stated Income, Verified Assets (SIVA)?
Stated Income, Verified Assets (SIVA): The borrower provided information on his/her income; however, no documentation was required, or verification on the actual income figures was performed. Assets, employment and other requirements were verified by the lender.
220
What is a no doc loan?
No Doc: In a no doc loan, the only documentation used was the credit report and appraisal. These loan programs relied on the value of the home and the borrower’s credit history.
221
What does capacity refer to?
Capacity refers to the borrower’s ability to repay the loan based upon sufficient income. The underwriter relies on the loan processor to verify the income information set forth by the borrower in the loan application. The borrower’s capacity to repay a loan is determined, in part, by calculating and evaluating a debt to-income ratio.
222
What does capital refer to?
Capital refers to the borrower’s ability to make a down payment, pay for closing costs and fund any escrows or reserves required at closing. In some cases, a lender will require that a borrower have enough reserves (liquid assets left over after closing) to pay a certain number of mortgage payments.
223
How is credit evaluated?
Credit is evaluated by looking at the credit report. While the borrower’s FICO credit score is very important, there are other items that can affect the evaluation of the applicant’s creditworthiness.
224
What does collateral refer to?
Collateral refers to the property being mortgaged as security for the loan. The value of that property is established by a property appraisal performed by a licensed appraiser.
225
What does Character refer to?
Character refers to the borrower’s willingness to repay the debt, as distinguished from the borrower’s ability to repay the debt. Credit history can help to provide an indication of a borrower’s willingness to repay, and evaluation of extenuating circumstances (as mentioned above) factors in as a measure of character, especially in loans that are manually underwritten.
226
What is risk layering?
Risk layering – is the practice of approving loans with multiple layers of risk, which may significantly increase the risks to both the lending institution and the borrower. Subprime borrowers are understood to be “at risk” borrowers because of past credit problems, layering on additional risk on the same loan would include such things as; reduced documentation, a simultaneous high LTV second mortgage, and not including escrows for taxes and insurance.
227
What are easements?
An easement is a formal right granted to another party allowing them to traverse or access a given property. Utility companies are often granted easements to access a property to maintain their infrastructure, such as electrical wires or cell phone towers. When recorded on the title of a property, an easement will remain permanently and will survive any transfer of title of that property.
228
What are enroachments?
An encroachment is a structure or portion of a structure that extends over the boundary line of a property onto another parcel. For example, fences that are built to separate properties without the aid of a surveyor often are not built on the property line and end up encroaching on a neighbor’s property.
