NMLS Test Prep Flashcards
1
Q
What does TILA stand for?
A
Truth In Lending Act
2
Q
3/7/3 Rule
A
Initial disclosures to be provided within 3 days of applying; earliest to close the loan is the 7th business day after disclosures are provided; 3 business day waiting period before consummation if re-disclosures are required.
3
Q
What Act requires disclosure of the APR
A
TILA
4
Q
What is the Right to Rescind?
A
The borrower has the ability to cancel 3 days after close on a refinance transaction of a primary residence.
5
Q
What does advertising require under TILA?
A
Disclosure of certain terms (APR) when an ad contains Trigger Terms.
6
Q
What are “Trigger Terms” under TILA?
A
Down payment, term, payment, any refinance charge.
7
Q
How long is the Right to Rescind if rescission rights are violated?
A
3 Years
8
Q
What is required within 3 business days of application?
A
The Loan Estimate - (replaced the Good Faith Estimate and Truth in Lending disclosure form). The CHARM booklet for ARMs.
9
Q
What is the Loan Estimate or LE?
A
An initial disclosure to inform and help applicants obtain an early understanding of the features, costs, and risks associated with the loan.
10
Q
What is the CHARM booklet?
A
Consumer Handbook on Adjustable Rate Mortgages
11
Q
When is the CHARM booklet required?
A
Within 3 business days of the application on all Adjustable Rate Mortgages.
12
Q
What is the Closing Disclosure or CD?
A
A disclosure used to help borrowers understand the final costs and terms of the transaction.
13
Q
What is the of purpose TILA?
A
To promote informed use of consumer credit by requiring disclosures about it’s terms and cost. Helps consumers compare costs when shopping for a mortgage loan.
14
Q
What is Regulation Z?
A
The federal regulation that implements TILA.
15
Q
Who handles rule making and enforcement power under TILA?
A
CFPB (Consumer Financial Protection Bureau)
16
Q
What is the Transfer of Ownership Disclosure? When is it required?
A
Disclosure required when entities purchase or acquire mortgage loans. It is required within 30 days after the acquisition.
17
Q
What is the definition of business days when calculating the Right of Rescission?
A
Includes any day except Sundays and federal holidays.
18
Q
Who does the Right to Rescind apply to?
A
Anyone appearing on title to the property, not just the borrowers.
19
Q
When a loan is rescinded, how long does the lender have to refund any monies collected?
A
20 calendar days
20
Q
What section of HOEPA falls under TILA?
A
Section 32 - Additional disclosures and limitations on loan terms apply to certain loans with high interest rates and/or high loan fees.
21
Q
What does HPML stand for?
A
Higher-Priced Mortgage Loans or Section 35 loans.
22
Q
What is a Higher-Priced Mortgage Loan?
A
A loan that exceeds the Average Prime Offer Rate (APOR).
23
Q
What does TRID stand for?
A
TILA-RESPA Integrated Disclosure
24
Q
What types of loans does TRID not apply to?
A
HELOCS, reverse mortgages, mobile homes not secured by real estate.
25
How long must records of Loan Estimates (LEs) be kept?
3 years after the loan has been cosummated.
26
What fees can be collected prior to the Intent To Proceed?
Credit Report
27
What 6 pieces of information are considered to complete an application?
Property address, Name, Estimated Value of the Property, Income, Loan Amount, Social Security Number.
28
What is considered a business day as it relates to the deadline for delivering the initial Loan Estimate?
Any day on which the creditor is open to the public for conducting regular business activity.
29
What day on the 3 day clock is it when you receive the application?
Day zero. The 3 day period begins the day after the application has been triggered.
30
What is the Annual Percentage Rate (APR)?
The total cost of credit over the life of the loan.
31
What is the Total Interest Percentage (TIP)?
The total amount of interest the borrower will pay over the life of the loan. Only accurate when the borrower makes the minimum monthly payment for the life of the loan.
32
When is the Home Loan Toolkit required?
3 days after application ONLY on purchase transactions.
33
How long must a Closing Disclosure be kept by the creditor?
5 years
34
How long must a Loan Estimate be kept by the creditor?
3 years
35
What is considered a business day as it relates to the delivery of the Closing Disclosure?
All days except Sundays and federal holidays.
36
What is URLA?
Uniform Residential Loan Application - aka the 1003
37
What does the URLA or 1003 do?
Presents a complete and accurate financial picture of the borrower as of the date of the application.
38
What are the two types of AUS?
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Desktop Underwriter (DU) - Fanny Mae
Loan Product Advisor (LPA) - Freddy Mac
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39
What is mortgage fraud?
Intentionally concealing, adjusting, or withholding any material facts that may affect the application.
40
What counts as neglegance?
Unintentional Misrepresentation
41
What is Material Knowledge?
If knowledge of that fact would lead a lender to consider a different course of action on the application.
42
Who obtains a complete and accurate 1003 from the borrower?
The Loan Originator
43
Who should understand the goals of the borrower?
The Loan Originator
44
What is the Loan Estimate?
A required disclosure of the known or anticipated fees, charges, or settlement costs that the applicant is likely to incur at the time of settlement (closing) of the loan.
45
Mortgage Loan Servicing Disclosure
A required disclosure that provides notice of the lender's intent to transfer or retain servicing of the loan.
46
What is loan servicing?
The process of collecting the principle, interest, and escrow account payments on a loan.
47
What is the Home Loan Toolkit?
A required disclosure that must be provided to all borrowers on Purchase Transactions ONLY. It sets forth general information regarding the loan process from application to closing with concentration on fees and charges.
48
What is the Adjustable-Rate Mortgage Disclosure?
A required disclosure detailing how the interest rate will be calculated, when the loan will adjust, and a historical reference of index values on the index the loan's rate will be tied to.
49
What is the CHARM Booklet?
Specific to ARMs - consumer handbook on Adjustable Rate Mortgages. Issued by the Federal Reserve.
50
When must a creditor issue a new disclosure?
If the APR is understated by more than 1/8% for a regular loan or by more than 1/4% for an irregular loan after the initial disclosure is issued, the creditor must issue a new disclosure with the accurate APR and wait an additional 3 days before consummating the loan.
51
What initial disclosures are required by RESPA?
Servicing Disclosure and Affiliated Business Arrangement Disclosure (when applicable)
52
What initial disclosures are required by TILA?
Loan Estimate, Home Loan Toolkit, Homeownership Counseling Disclosure, CHARM Booklet, and ARM Disclosure
53
What is the earliest a loan can close?
The 7th business day after the Loan Estimate has been provided to the borrower. The Closing Disclosure can be provided during this waiting period.
54
RESPA Disclosures Business Day is considered?
Any day the creditor is open for business, may not include Saturdays, Sundays, and Holidays.
55
Revised LEs (Change of Circumstance), CD, and most other TILA requirements business day is considered?
Any day of the week except Sundays and Federal Holidays.
56
Loan Processors should be able to?
Immediately scrub application, quickly complete data entry into lender's system, prepare and deliver initial disclosures within required time frame (3 days), submit info to AUS, and submit the file to an underwriter.
57
When is cash acceptable for down payment and/or closing costs?
When it is seasoned in a bank account for a minimum period of time. Typically for 60 days.
58
What must be provided from the sale of current residence to prove assets?
The Closing Disclosure (CD) from the transaction.
59
What is a requirement of gift funds?
Repayment of funds cannot be part of the gift.
60
Sale of assets for cash requires?
Proof of ownership of asset sold, market value of asset, and to provide the Bill of Sale and Proof of Payment.
61
What are allowable borrowed funds?
Funds that are secured by an asset of the borrower, such as a 401k.
62
Cash on hand/Unverified Cash
Cannot be used as a source of a down payment or for closing costs.
63
What rate will an underwriter use to calculate monthly payment of a revolving account when monthly payment is not shown on the credit report?
5% of the unpaid balance.
64
When may an installment loan be excluded from the qualifying ratio?
When 10 or fewer payments remain.
65
Auto leases are always included in the qualifying ratios regardless of the balance remaining, true or false?
True, they are always included in the qualifying ratio, regardless of the balance remaining on the lease.
66
When do you use 1% of the unpaid balance of a student loan for qualifying ratios?
When a payment letter cannot be obtained.
67
What is contingent liability?
When the borrower has co-signed for another person's installment debt.
68
Does contingent liability have to be considered in DTI ratio?
No. IF payments have been made on time for previous 12 months and the lender can document that payments were made from the primary obligor's funds.
69
What are the two main things lenders look for in income (and employment)?
Stability and Consistency
70
How long must income be verifiable?
Over the previous two years.
71
Income with an expiration date (such as child support, alimony, etc.) must be:
Likely to continue for at least 3 years after the loan closes.
72
What is Grossing Up?
When lenders calculate how much tax a borrower would pay if the non-taxed income were taxable. They add the amount to the gross amount of income received.
73
What are the Grossing Up benchmark figures?
125% for non conforming loans and 115% for government loans.
74
When would a lender obtain lease agreements?
When rental property income cannot be calculated on taxes.
75
What must be subtracted from monthly rental income calculated with lease agreements?
25% vacancy/maintenance factor and the property's PITI (if there is a mortgage)
76
When can unemployment compensation be considered?
For seasonal applicants where unemployment is part of their natural annual cycle. You must average employment and unemployment income based on two years of taxes.
77
Can unemployment compensation always be used to qualify for a mortgage?
NO! In general, unemployment income cannot be used.
78
When should you obtain 2 years of taxes?
When a borrower is self employed.
79
When will borrowers have a Schedule K-1?
When they are shareholders in an s-corp, or members of a partnership.
80
What taxes are needed for a Sole Proprietorship?
Personal tax returns. Schedule C of the 1040
81
Where can partnership income be found in taxes?
IRS form 1065
82
What tax forms should be reviewed to calculate income for an s-corp?
IRS form 1120-S
83
What tax forms should be reviewed to calculate income for an c-corp?
IRS form 1120
84
What ties personal and business taxes together?
Schedule K-1
85
What is the credit report used for?
To verify info provided on the application.
86
What is derogatory credit?
When applicants have not paid obligations on time and creditors have reported late payments, or filed judgements or liens against them.
87
How long must an applicant wait after a foreclosure to qualify for a mortgage?
7 years, or 3 years for a foreclosure that was the result of extenuating circumstances.
88
How long must an applicant wait after a pre-foreclosure event (such as a short sale) to qualify for a mortgage?
4 years, or 2 years with extenuating circumstances.
89
What is a liquidation bankruptcy?
Chapter 7
90
What type of bankruptcy typically has a 5 year repayment plan and is sometimes referred to as a wager earner plan?
Chapter 13
91
How long after a Chapter 7 Bankruptcy must an applicant wait to qualify for a mortgage?
4 years from discharge.
92
How long after a Chapter 13 Bankruptcy must an applicant wait to qualify for a mortgage?
2 years from discharge or 4 years from dismissal.
93
How many years of seasoning does FHA allow for a Chapter 7 Bankruptcy?
2 years.
94
What are credit scores based on?
Statistical analysis of risk due to use of credit, number of open credit accounts, number of inquiries, derogatory credit, and other factors.
95
What provides underwriters with an initial assessment of risk?
The credit report.
96
What credit score is used to obtain a mortgage?
The mid-score of your 3 credit scores.
97
Who's credit is used when there is a co-borrower?
The lowest of the middle scores between the two applicants.
98
What happens if you only have 2 credit scores?
The lowest of the two will be used.
99
What is the credit score used in the underwriting analysis referred to?
The representative credit score or the underwriting score.
100
For loans being sold to Fannie Mae or Freddy Mac, the borrowers housing expense generally...
Cannot exceed 28% of gross monthly income.
101
The housing ratio may also be referred to as...
The front-end ratio or top ratio.
102
What are compensating factors that can shift the standard housing ratio?
When the applicant has positive characteristics that might help to offset some negative information. For example a high credit score might be a compensating factor for a high DTI ratio.
103
Housing Ratio DTI Calculation =
PITI on Primary Residence / Gross Monthly Income
104
What is the benchmark for the Total Debt To Income Ratio?
36% of gross monthly income, without compensating factors.
105
What is another name for the Total Debt to Income Ratio?
The back end, bottom ratio, or the total expenses ratio.
106
What is included in the back end DTI ratio?
PITI plus all other monthly debts (including revolving debts, installment debts, alimony and/or child support)
107
Total back end DTI Expense =
All Recurring Monthly Debt / Gross Monthly Income
108
How do you calculat4e loan-to-value (LTV)?
LTV=Loan Amount / Property Value
109
When calculating LTV do you use the purchase price or the appraised value of the subject property?
The lower of the 2 values.
110
What if there is more than one lien on the property when it comes to calculating LTV?
You must calculate the Combined Loan to Value (CLTV) or Total Loan to Value (TLTV).
CLTV/TLTV = (Loan Amount 1 + Loan Amount 2) / Property Value
111
How do you calculate a HELOC Combined Loan to Value (HCLTV)?
HCLTV/HTLTV=(Loan Amount 1 + HELOC High Limit) / Property Value
112
When is a property considered owner occupied?
The borrower must move in within 60 days of closing to avoid being in violation of the terms of the note/mortgage.
113
What is a Qualified Mortgage (QM)?
A loan where the lender is presumed to have complied with Dodd-Frank's ability-to-repay requirements.
114
What are the requirements for a QM?
No negative amortization, no balloon payments, income and financial resources must be verified and documented, ARMs must be underwritten at the maximum rate the loan can adjust to, 30 year max loan term, maximum back end DTI of 43%, and maximum of 3% of the loan amount in points and fees.
115
QM loans receive safe-habor status and are deemed to comply with the ability-to-repay rules, thereby reducing...
Threat of legal action and defense to foreclosure.
116
What is tangible net benefit?
Borrowers must be receiving some sort of positive outcome by refinancing, and facts about the new loan make it in the interest of the applicant to proceed.
117
What is loan flipping?
Refinancing a loan with no tangible net benefit.
118
What is equity stripping?
The applicants equity is taken away by a mortgage lender. In all cases equity stripping is viewed as predatory lending and should be avoided.
119
What is the purpose of an appraisal?
To document that the property has sufficient value to support the mortgage debt.
120
What appraisal approach is the one most often used in mortgage lending?
The sales comparison approach or market data approach where value is determined by looking at the recent sale price of similar properties.
121
What is the cost approach for appraisals?
The appraiser estimates the value of the property by calculating the cost of rebuilding the property in it's current condition on the same site.
122
What is the income approach for appraisals?
For income producing properties. The value is determined by dividing the income from the property by a cap rate percentage. Assuming that an investor will demand a certain annual rate of return on the overall purchase price investment.
123
How is it determined what the appraisal approach will be?
The appraiser will go with the approach that is most consistent with the intended use of the property, in mortgage lending, it generally the sales comparison approach.
124
What is the purpose of Appraisal Management Companies (AMCs)?
They serve as the middleman between mortgage lenders/brokers and appraisers to avoid manipulative practices in attempts to influence appraisal reports.
125
What is violated when trying to influence the appraisers opinion of value on a given property?
TILA and AIR
126
What is AIR?
Appraisal Independence Requirements
127
The Uniform Residential Appraisal Report (URAR) is also known as?
The 1004
128
What is the standard form used to appraise condominiums?
Form 1073
129
What is the 1004MC?
A market conditions addendum to the appraisal on all loans sold to Fannie and Freddy.
130
Why is a title search performed?
To determine any encumbrances or liens affecting the property by carefully researching every known recorded document related to the current and prior ownership of the subject property.
131
What is a subordinate lien?
Any mortgage lien that has priority lower than that of the first lien, also referred to as a junior lien.
132
What is force-placed insurance?
When required insurance is cancelled or not obtained by the borrower, the lender can insure the property and force the borrower to pay for it.
133
When is Private Mortgage Insurance (PMI) required?
If the LTV exceeds 80%. PMI protects the lender against losses that result from default by the borrower.
134
What is the PMI monthly premium calculation?
Monthly Premium = (Loan Amount x Factor) / 12
135
What is the origination charge for VA loans?
1% of the loan amount
136
What is an origination fee?
The fee retained by the creditor and/or loan origination company for the work involved in the evaluation, preparation, and submission of a proposed mortgage loan.
137
What is 1 discount point equivalent to?
1% of the total loan amount.
138
What is the purpose of a discount point?
They are paid to achieve a lower interest rate.
139
What are closing costs?
Also referred to as settlement costs, closing costs are all of the costs related to closing except the prepaid or escrow items.
140
What is an acceleration clause?
It permits the lender to require the entire loan to be paid by the borrower upon the first instance of default.
141
Why aren't funds disbursed to the borrower at closing in a refinance transaction?
The lender requires that the TILA 3 day right of rescission period expire prior to disbursing/funding.
142
What are escrows used for?
Used by the lender to pay the property tax bill and hazard insurance premiums.
143
What regulation is RESPA?
Regulation X
144
What is the maximum penalty for a TILA violation?
$5,000/day foor a single violation, $25,000/day for reckless violations, $1,000,000/day for knowingly violating TRID rules.
145
What are the benchmark DTI ratios for conforming (Fanny and Freddy) loans?
28% / 36%
146
What are the benchmark DTI ratios for FHA loans?
31% / 43%
147
What are the benchmark DTI ratios for VA loans?
None / 41% (And residual income test)
148
What are the benchmark DTI ratios for USDA Loans?
29% / 41%
149
What regulation is RESPA?
Regulation X
150
What does RESPA stand for?
Real Estate Settlement Procedures Act
151
What is prohibited under Section 8 of RESPA?
Kickbacks, fee splitting, and unearned fees.
152
Who enforces RESPA?
The Consumer Financial Protection Bureau (CFPB)
153
A violation of RESPA may result in...
Fines up to $10,000 and/or imprisonment for up to one year.
154
What is Section 10 of RESPA?
Regulation of Escrow Accounts
155
What is Section 9 of RESPA?
The "Required Use" Provision barring mandatory use of a Title Company.
156
Equal Credit Opportunity Act (ECOA), Regulation B
Prohibits discrimination in the granting of all types of credit. Enforced by the CFPB.
157
What are seller concessions?
Closing costs the seller agrees to pay.
158
Table Funding
Any loan funded by a wholesale lender for a mortgage broker. Brokers cannot underwrite or fund loans.
159
Yield Spread Premium (YSP)
Money paid from the wholesaler to the borrower. This practice was made illegal by Dodd-Frank and TILA.
160
What regulation is FCRA?
Regulation V
161
Which law did the Fact Act amend?
Fair Credit Reporting Act (FCRA)
162
Which agency regulates Red Flags?
Federal Trade Commission (FTC)
163
What is the regulation for Gramm-Leach-Bliley?
Regulation P
164
What is the main emphasis of Gramm-Leach-Bliley?
Privacy of consumer's personal information.
165
What does NPPI stand for?
Non-public personal information.
166
What is required under Safe-Guard Rules?
Files are to be locked up when not in use. Locks must be used on computers.
