General Mortgage Knowledge and Nontraditional Products Flashcards
(86 cards)
1
Q
What is a qualified mortgage?
A
A closed end loan that meets the following prerequisites:
- periodic payments are sufficient to pay the principal and interest due and doesn’t result in negative amortization
- the loan doesn’t allow the borrower to defer repayment of the principal (interest only)
- loan doesn’t include a balloon feature
- term doesn’t exceed 30 yrs
- points and fees don’t exceed 3% of the total loan amt
- borrowers DTI doesn’t exceed 43%
2
Q
What is the cap on the points and fees threshold?
A
- 3% of the total loan amt for a loan amt greater than or equal to $110,260
- $3,308 for a loan amt greater than or equal to $66,156 but less then $110,260
- 5% of the total loan amt for a loan amt greater than or equal to $22,052 but less than $66,156
- $1,103 for a loan amt greater than or equal to $13,783, but less than $22,052
- 8% of the total loan amt for a loan amt less than $13,783
3
Q
What requirements must be met for a balloon payment to be considered a qualified mortgage?
A
- no negative amortization
- a loan term not exceeding 30 yrs
- compliance with the 3% points and fees cap
- verification of the consumer’s reasonably expected income or assets
- determinization of the consumers’ DTI (43% does not apply)
4
Q
What is a non-qualified mortgage?
A
- DTI exceeds 43%
- nonprime borrowers due to lower credit scores, irregular employment history, or other factors
- self-employed or seasonally employed borrowers
- those who need nontraditional mortgages such as interest-only and balloon mtgs
5
Q
What is a conforming loan?
A
Mortgages that meet loan limits and other standards that loans must meet to qualify for purchase by FNMA and Freddie Mac.
6
Q
What is a non-conforming loan?
A
Mortgages that do not meet loan limits and other standards necessary to meet FMNA and Freddie Mac. Ex: Jumbo mtg
7
Q
What are the limits on SPCC?
A
- 3% of the sales price for borrowers putting less than 10% down
- 6% of the sales price for borrowers putting 10% to 24.9% down
- 9% of the sales price for borrowers putting 25%
8
Q
Freddie Mac uses which type of automated underwriting system?
A
Loan Product Advisor
9
Q
A lender’s credit overlays may require an applicant to meet higher standards for which?
A
- credit scores
- minimum down payments
- debt ratios
- Assets
10
Q
What are subprime loans?
A
Higher interest loans made to borrowers with blemished credit or other qualification issues that do not conform with Fannie Mae or Freddie Mac underwriting requirements.
11
Q
What are nontraditional mortgages?
A
any mortgage product other than a 30 yr fixed rate mortgage.
12
Q
What is an FHA loan?
A
A loan insured by the Federal Housing Administration.
13
Q
What is the primary function of FHA loans?
A
Ensuring that eligible low-income families, first-time homebuyers, and other borrowers who cannot qualify for a CONV loan have opportunities to obtain a mortgage.
14
Q
In order to be eligible for FHA insurance, a mortgage must be lesser of what?
A
115% of the median house price in an area OR
150% of the national conforming loan limit of $548,250
15
Q
FHA loans use what type of automated underwriting system?
A
FHA TOTAL Scorecard (TOTAL)
16
Q
How is FHA lending financed?
A
It’s funded entirely by insurance payments made by FHA borrowers. Funds are held in the Mutual Mortgage Insurance Fund (MMIF).
17
Q
Borrowers cannot secure an FHA without paying which?
A
1) upfront mortgage insurance premiums (1.75% of the base loan amount)
2) annual mortgage insurance premiums (calculated as a percentage of the average outstanding loan balance)
18
Q
How are annual mortgage insurance premiums calculated?
A
1) LTV
2) length of loan term
3) base amount of the loan
19
Q
At what point can annual mortgage insurance be cancelled on an FHA loan?
A
MIP is limited to 11 years when the original LTV ratio for the loan is less than or equal to 90%.
MIP payments are due for the full mortgage term when the LTV ratio is greater than 90%.
20
Q
What’s the minimum FICO score for FHA?
A
580 to be able to qualify for 3.5% down payment.
Borrowers with credit scores from 500 to 579 must put at least 10% down.
21
Q
What’s the max SPCC for an FHA loan?
A
6% of the sales price.
22
Q
For an FHA cash-out refi, how long does the borrower have to reside in a property as their primary residence?
A
12 months with on time payment – max LTV is 80%
23
Q
What is a home equity conversion mortgage?
A
it’s FHA’s version of a reverse mortgage. Available to homeowners 62 or older who have a low mortgage balance or no mtg on their home.
24
Q
What are the benefits of an FHA streamline refinance?
A
No complete underwriting process, no income verification and in some cases, no credit report. No appraisal.
25
What is the role of the VA in terms of the loan?
To establish requirements for VA loans and guarantee them. They do not make loans to veterans. The guarantee that the government offers with VA loans is a promise to repay lenders a portion of the loan balance if the veteran's loan goes into foreclosure.
26
What are the key features of a VA loan?
- 100% financing
- no prepayment penalties
- more lenient UW than CONV loans
- limited closing costs
- SPCC allowed
- VA assistance if difficult for a borrower to make payments
27
What is the basic entitlement for VA Loans?
$36,000 -- those who are seeking to purchase a home in a high-cost area may qualify for a "bonus entitlement" that is an additional $68,250. Lenders will generally loan up to 4x a veteran's available entitlement without requiring a down payment, provided the veteran is qualified and the appraisal corresponds to the loan amt.
28
VA loan guarantee depends on the size of the loan and whether the veteran previously used their entitlement.. What are other examples of guarantees covered?
- 50% of the loan, if the loan is not more than $45,000
- $22,500, if the loan is more than $45,000 but no more than $56,250
- The lesser of $36,000 or 40% of the loan, if the loan is more than $56,250
- for veteran's who have their full entitlement available, the max amt of guaranty available for a loan greater than $144,000 is 25% of the loan amt (regardless of the confirming loan limit) -- for those who used a portion of their entitlement previously, the max guaranty is the lesser of the 25% of the loan amt or max guaranty.
29
What are the different amounts of funding fees for VA loans?
- 2.3% for first-time users who are not making a down payment
- 1.65% for first-time and subsequent users who are making down payment between 5% and less than 10%
- 1.4% for first time users making down payment of 10% or more
- 3.6% for subsequent users making no down payment
- 1.4% for subsequent users who are making a down payment of 10% or greater
30
What is the total max DTI for VA loans?
41%. There are exceptions to the rule with compensated factors such as residual income, excellent credit, conservative use of credit, long term employment.
31
Who funds RHS Direct Loans?
U.S. Government
32
Who funds RHS Guaranteed Loans?
Private lenders, but they are guaranteed by RHS in the event the borrower's loan goes into foreclosure.
33
What specific characteristic defines a RHS/USDA loan?
Currently is it based on factors such as an area's location inside or outside of a metropolitan statistical area, its rural character, and a "serious lack of mortgage credit for low-moderate-income households as determined by the Secretary of Agriculture.
34
What are the income limitations for RHS direct and guaranteed loans?
Direct - cannot exceed the low income limit for their rural area
Guaranteed - income levels cannot exceed 115% of the median income for their rural area
35
What are the term terms for RHS direct and guaranteed loans?
Direct - 33 or 38 yrs
| Guaranteed - 30 years (can be shorter)
36
Is there mortgage insurance on RHS Loans?
For direct loans, borrowers are not required to secure or pay for MI. Lenders pay an upfront, nonrefundable guarantee fee of 1% of the loan amt. Most lenders pass this fee down to the borrower and can be financed into the loan. Borrowers are also responsible for paying an annual fee of 0.35% of the outstanding principal balance of the loan.
37
What is the most significant benefit of a RHS loan?
100% financing.
38
How does the State Guidance define "nontraditional mortgages"?
Those that allow borrowers to exchange lower payments during an initial period for higher payments during a later amortization period.
39
What are some risk management practices?
- establishing appropriate limits on risk layering
- setting growth and volume limits by loan type
- monitoring compliance with UW standards
- overseeing the practice of 3rd parties (Ex: mtg brokers)
- considering how to respond if the secondary market decreases its purchase of nontraditional loans
- anticipating the need to repurchase nontraditional loans if the sold loan losses exceed expectations
40
How does federal and state describe credit risk for subprime borrowers?
- 2 or more 30 day delinquencies within the prior 12 mths
- 1 or more 60 day delinquencies within the prior 24 months
- foreclosure, repo, or charge off within the prior 24 mths
- bankruptcy within the previous 5 years
- credi scores that represent a high risk of default
- DTI ratio 50% or higher
41
What are the loan terms for CONV loans?
range from 10 to 30 years
42
What are the loan terms for FHA Loans?
15 and 30 years (even some 20 and 25 yrs)
43
What are the loan terms for USDA/RHS Loans?
Direct is 33 or 38 yrs. Guaranteed is 30 years.
44
Prepayment penalties are prohibited for which types of loans?
- closed end loans that are not fixed rate qualified mtgs
- ARMs
- high cost mtg loans regulated under HOEPA
- higher priced mtg loans
45
Prepayment penalties are only allowed for which type of mortgages?
Qualified mortgages that have a fixed rate for the full term of the loan (not higher-priced mortgage loans)
46
Who provides the index for an ARM interest rate?
Treasury Bill Index, the 11th District Cost of Funds Indexes (COFI) or the Secured Overnight Financing Rate (SOFR)
47
What is the margin and does it change?
No, it doesn't change. It's a number, expressed in percentage points and selected by the lender. It represents the lender's operating costs and profit margin. They range from 2.5% to 3%.
48
What is the initial rate cap?
A limit on the amt that the interest rate can increase or decrease at the first adjustment date for an ARM.
49
What is the periodic rate cap?
A limit on the amt that the interest rate can change up or down on any adjustment date.
50
What is the lifetime rate cap?
A limit on the amt that the interest rate can change over the life of an ARM, functioning as a ceiling rate.
51
What is a payment cap?
A limit on the amt that the payment can change on any adjustment date from the current or previous payment amount on an ARM. Payment caps don't limit the amt the interest rate may adjust, but rather place a limitation on the amount the required minimum payment may change per adjustment period.
52
What is the CHARM booklet?
Consumer Handbook on Adjustable Rate Mortgages. it has info on rate adjustments, how they are calculated and the risk of ARMs.
53
When are rate change disclosures required to be provided to a borrower?
no less than 60 days and no more than 120 days prior to the effective date of a rate change.
54
What is a hybrid ARM?
A mtg loan with a rate that does not adjust during the first 3 to 5 years of the loan's term. After the initial rate period expires, the loan adjusts based on the index and margin specified in the lending agreement. They are referred to by their initial fixed period and adjustment period.
55
Why are interest-only and payment-option ARMs not commonly available?
They offer payments that do not reduce the loan balance that lead to an increasing principal balance (negative amortization).
56
What types of caps do FHA ARMs offer?
- 1 and 3 year arms allow for annual caps of 1% and lifetime caps of 5%.
- 5 yr ARMs allow for annual caps of 1% and lifetime caps of 5% or annual caps of 2% and lifetime caps of 6%
- 7 and 10 yr ARMs allow for caps of 2% and 6%
57
What types of caps do VA ARMS offer?
- traditional ARMs guaranteed by the VA typically limit annual adjustment to 1% and include a cap of 5% on the max interest rate increase over the life of the loan.
- VA guarantees a hybrid mtg product that sets a fixed interest rate for the first 3 yrs to 5 yrs and then adjusts annually
58
What is a high-cost mortgage?
A mortgage loan (other than a reverse mortgage) that is secured by a principal residence and meets one of the following thresholds.
- APR
- points and fees
- prepayment penalty
59
What are the APR thresholds?
- 6.5% above average prime rate offered (1st lien)
| - 8.5% above average prime rate offered (subordinate lien)
60
What are the points and fees thresholds?
- Loans of $22,052 or more: 5% of the total loan amt
| - Loans of less than $22,052: the lesser of 8% of the total loan amt or $1,103
61
What are the types of loans exempt from HOEPA?
- reverse mtgs
- bridge loans
- loans originated by a housing finance agency and for which the agency is the creditor
- loans originated by the USDA
62
Balloon payments are not allowed in high-cost mortgages. What are the 2 excecptions?
- loans that use a payment schedule adjusted according to the consumer's seasonal or irregular employment
- loans with terms for 12 months or less, if the loan is a bridge loan related to the purchase or construction of a home that will be the borrower's primary residence.
63
What is a high-priced mortgaged loan?
Closed-end loans that are secured by a borrower's principal dwelling and exceed the average prime offer rate for a comparable transaction by:
FOR 1ST LIENS: 1.5% points, when the principal amt does not exceed the conforming loan limit of $548,250 or up to $822,375 in high-cost areas OR 2.5% points when the principal amt exceeds the conforming loan limit
FOR SUBORDINATE LIENS: 3.5% points or more
64
How long must an escrow account be established for a higher-priced mortgage loan?
5 years
65
Define balloon mortgages.
Requires a borrower to make one large payment at the end of the loan term, which is typically 5 to 7 years. Borrowers usually make payment by refinancing. A conditional refinance provision allows for the option to convert the loan to a fixed-rate loan term at it's maturity. However, financing is not guaranteed.
66
Balloon mtgs are viable options for which types of borrowers?
- consumers earning increased wages in the future
- planning to move or sell their home within a few years, allowing avoidance of the increased payment
- planning to refi their mtg loan in the near future
67
What is a single purpose reverse mtg?
low-cost loans offered to low income borrowers by state/local agencies or non-profits. Borrowers can only use them for the purpose specified by the lender (payment for home improvements or payment of property taxes)
68
What is a home equity conversion mortgage (HECM)?
regulated and insured by HUD. Allow borrowers to receive fixed monthly payments, a line of credit, or a combo of payments and a credit line. Available to borrowers who owe little or no money on their home. Must go through counseling.
69
What is a proprietary mortgage?
private loans. Expensive but often allow homeowners to borrow more than they can borrow with a HECM.
70
What are fixed interest rates on HECMs?
calculation of interest when lender disperses loan funds as a lump sum and interest accrues until the end of the loan term. Higher rates up exceeding 15%.
71
What are adjustable rates on HECMs?
numerous options for withdrawing cash. no interest is charged until funds are used. As interest is charged, it's added to the loan balance. There are interest rate caps and floors to protect borrowers from rising interest rates and lenders from falling rates.
72
What is a principal limit?
The amount of equity that is available through a HECM.
73
What's the limit for initial disbursement from a HECM?
60% of the principal limit
74
What's the general LTV on a HELOC?
85%
75
What is a construction to permanent loan?
Consumers borrower initially to pay for construction. Once construction is complete, the balance of the loan is converted to a permanent mortgage. ONE CLOSING.
76
What is a stand-alone construction loan?
obtain a loan to pay for construction. After construction is complete, the borrower obtains a separate mortgage loan to pay off the construction debt.
77
Define amortization.
periodic payments on a loan requiring payment of enough principal and interest to ensure complete repayment of the loan by the end of the loan term.
78
What is a finance charge?
The cost of credit, expressed as a dollar amount. It's the total of all fees and charges paid to a lender or broker or for their benefit required to bring a loan to settlement.
79
What is a seller carry-back?
a purchase transaction, often involving an assumable mortgage, in which the party selling the property provides all or part of the financing.
80
What are service release premiums (SRPs)?
fees which lenders or services may receive for selling or transferring their right to service a mortgage loan.
81
What is the APR (annual percentage rate)?
a uniform measurement of the cost of the loan, including interest and financed costs of closing, expressed as a yearly percentage rate.
82
What is premium pricing?
a credit from the lender for the interest rate that is chosen on a mortgage loan. May be used to pay closing costs or prepaids.
83
What is a promissory note?
the borrower's promise to repay the loan.
84
What is a 2-1 buy-down?
a type of loan product in which the monthly payments are reduced for a period of time because someone has prepaid the interest for one or two yeas. The lender charges a fee, based on a percentage of the loan amount, to "make up" for the reduced payments.
85
Define reconveyance
a clause in a mortgage that conveys title to a borrower once the loan is paid in full. This concept also applies to reconveyance contracts where homeowners have the option to repurchase their home pursuant to foreclosure assistance.
86
What is the definition of subprime?
below the qualifications set for prime borrowers. Loans for borrowers who have poor credit, unstable income history or high debt ratios.
