Module 2

Question 1

A potential borrower’s ability to repay, based on their current financial situation

Answer 1

Capacity

Question 2

A calculation that allows lenders to compare the monthly housing expense that a loan applicant will assume with a new mortgage to his/her income.

Answer 2

Front End Ratio or Housing Ratio

Question 3

Formula for Front End / Housing Ratio

Answer 3

Monthly Housing Expense (PITI - Principal, Interest, Taxes, Expenses) / Monthly Gross Income

Question 4

Historical conforming loan limit on Front End Ratio

Answer 4

28%

Question 5

Historical limit for Front End Ratio on FHA loans

Answer 5

31%

Question 6

Calculation that compares the total monthly obligations to gross monthly income (includes all recurring payments)

Answer 6

Bank End Ratio or Total Debt Ratio

Question 7

Historical conforming loan limit on Back End Ratio for manually underwritten loans

Answer 7

36%

Question 8

Back End Ratio requirement by GSEs

Answer 8

45% with compensating factors

50% recommendation

Question 9

Limit for Back End Ratio on FHA loans

Answer 9

43%

Question 10

Limit for Back End Ratio on VA loans

Answer 10

41%

Question 11

LTV ratio which lenders use when an applicant requests a second mortgage.

Answer 11

Combined LTV

Question 12

The LTV ratio determined when the borrower has a first mortgage and a home equity line of credit with the balance not fully drawn, which produces a lower CLTV

Answer 12

High LTV

Question 13

The most common and comprehensive appraisal form. It is generally used on all single family homes and may also be used for row homes and townhouses if the property is situated on a fee simple lot.

Answer 13

Uniform Residential Appraisal Report (Form 1004)

Question 14

Appraisal form used to update appraisals and report certifications of completion

Answer 14

1004d

Question 15

Appraisal form used for single-family properties which are intended as investment properties

Answer 15

1007

Question 16

Appraisal form used for two- to four-unit properties which are intended as investment properties

Answer 16

1025

Question 17

Appraisal form

Answer 17

1073

Question 18

Occasionally permitted instead of a full appraisal for certain refinances. The waiver would be granted for a borrower who is refinancing his or her property within a specified time after a previous loan transaction.

Answer 18

Property Inspection Waiver

Question 19

Three approaches to appraising a home

Answer 19

Sales Comparison (most common)
Cost (construction)
Income (investment properties)

Question 20

In the Sales Comparison appraisal approach, an appraiser must analyze a minimum of ___ comparable sales that were settled or closed within the last ___ months and must comment on sales greater than ___ months ago.

Answer 20

Three sales; 12 months; 6 months

Question 21

When is a 2nd appraisal required on a HPML?

Answer 21

1. The seller acquired the home 90 or fewer days prior to the consumer’s agreement to purchase it, and the price at which the consumer has agreed to purchase the home is 10% more than the price paid by the seller
2. The seller acquired the home 91 to 180 days prior to the consumer’s agreement to purchase it, and the price at which the consumer has agreed to purchase the home is 20% more than the price paid by the seller

Question 22

Can lenders charge a fee to lock-in an interest rate?

Answer 22

Yes

Question 23

What is the time period by which a lender will be required to honor a lock-in agreement?

Answer 23

7 - 120 days, but most are effective 30-60 days

Question 24

Agreement in which a lender may allows the loan applicant to lock in an interest rate without locking in the points or to allow the borrower to lock in the rate / discount points at the most advantageous time.

Answer 24

Float Agreement

Question 25

How much of the rental income is used when calculating income and the ability to repay during underwriting?

Answer 25

75%

Question 26

Fannie Mae guidelines state that when used for down payment or closing costs, if the value of the liquidated asset is at least XX% more than the amount of funds needed, documentation of the borrower’s receipt of funds realized from the sale or liquidation is not required.

Answer 26

20%

Question 27

Two fundamental differences of title insurance from other types of insurance:

Answer 27

1. Protects against past events (instead of future) | 2. Requires a one-time premium (instead of ongoing)

Question 28

Document that gives a detailed report of the chain of title on a specific piece of property

Answer 28

Title Abstract

Question 29

Document that outlines the terms for establishing title insurance coverage

Answer 29

Title Commitment

Question 30

Document that is an interim title insurance policy used for some transactions, offering temporary coverage; these are short-term policies (two years in duration, on average) and usually used for property flips or similar situations in which the buyer plans to resell before the interim coverage would expire

Answer 30

Title Binder

Question 31

When might the term "Title Binder" refer to the Title Abstract rather than the true sense of the term?

Answer 31

When Title Abstract and Title Commitment are combined into a single document.

Question 32

Real Property vs. Personal Property

Answer 32

Real property is permanently affixed to the land; Personal property can be moved

Question 33

These liens take priority over all other liens

Answer 33

Real Estate Taxes and Special Assessments

Question 34

In these states, a deed of trust is executed, and the borrower (grantor) conveys legal title to the trustee while retaining equitable title. The trustee holds title to the property until the loan is repaid, and the lender owns a beneficial interest in the property via a deed of trust until the debt is paid.

Answer 34

Title Theory States

Question 35

In these states, the borrower retains both legal and equitable title. The mortgage serves as a lien against the property. In the case of default, the lender will be required to institute a foreclosure proceeding in order to obtain legal title to the property.

Answer 35

Lien Theory States

Question 36

In these states, the borrower holds title to property but expressly agrees that the lender can take back title when the borrower defaults.

Answer 36

Intermediary Theory States

Question 37

These states require judicial foreclosure proceedings

Answer 37

Lient Theory States

Question 38

The states do not require judicial foreclosure proceedings

Answer 38

Title Theory States

Question 39

Deed used in the context of an individual buying real property from a seller, the deed they will receive is formally called a

Answer 39

Warranty Deed

Question 40

When property is transferred without money changing hands (for example, a parent gives their child the deed to their home, or one spouse in a divorcing couple removes their name from the record on the home), this is a

Answer 40

Quitclaim Deed

Question 41

May be required when a borrower is seeking a 2nd Mortgage or a HELOC to ensure the lender’s priority of lien

Answer 41

Subordination Agreement

Question 42

What may a subordinate lender require from the primary lien to maintain their primary lien status?

Answer 42

Signed Subordination Agreement and a Processing Fee