Understanding Mortgage Loan Origination and Regulation, Exams of Nursing

Download Understanding Mortgage Loan Origination and Regulation and more Exams Nursing in PDF only on Docsity! NMLS/ SAFE Test Review 2023/2024 Solved 100% Correct When ordering an appraisal, it is illegal to... - ANSWER-Request that the appraiser return a minimum or specific value. Mortgage professionals are permitted to communicate their own or the borrower's opinion when ordering an appraisal; however, requesting a specific or minimum value is considered improper influence of an appraiser and is a serious ethical and legal violation. Borrower credit is... - ANSWER-An amount paid by the lender to borrower for locking an interest rate at a rate higher than the par rate. The borrower credit is used to help the borrower subsidize closing costs in exchange for taking the higher rate. MAP Rule implementing regulations... - ANSWER-Regulation N Equity stripping is... - ANSWER-The unethical practice of basing a loan approval on only the appraised value of the property. The practice does not consider repayment ability. Some states have passed regulations aimed at prohibiting the practice. Three conditions that an affiliated business must meet to satisfy referral requirements... - ANSWER-Disclosure of the relationship, No required use of the referred entity, Limitations on the "things of value" resulting from the arrangement Regulation Z prohibits advertising... - ANSWER-An attractive interest rate or loan term that is not actually available. TILA and Regulation Z include a number of prohibitions and requirements against deceptive advertising practices. The Safeguards Rule and Disposal Rule are concerned with... - ANSWER-Preserving the confidentiality of personal financial information. The FTC's Disposal Rule and the Gramm-Leach- Bliley Act Safeguards Rule outline the manner in which financial information must be protected while being maintained by an entity and during the process of record disposal. "Fiduciary duty" means... - ANSWER-One person (agent) is acting in the best interests of another. It requires loyalty, good faith, and an obligation of the agent to consider the interests of the other person before their own. An air loan is... - ANSWER-A fraudulent transaction where a fictitious borrower obtains a mortgage and secures it with fictitious property. Air loans may also include fictitious employers, appraisers, and credit agencies in order to obtain verifications necessary to process the loan application. Equity-based lending occurs when... - ANSWER-A lending decision is based on the equity available in the borrower's home rather than creditworthiness and ability to repay. Yield spread premiums are now known as... - ANSWER-Borrower credits. What are the penalties for violation of RESPA/Section 8? - ANSWER-Section 8 of RESPA prohibits referral fees and other forms of kickbacks/fee splitting. Penalties include fines of up to $10,000 and up to one year in prison. Disclosures due within three business days of loan application... - ANSWER-Loan Estimate, Your Home Loan Toolkit: A Step-by-Step Guide, CHARM Booklet, Variablerate program disclosures, Home equity plan disclosures, Notice of Right to Receive an Appraisal Report What can result in a $1,000,000 fine and 30 years in prison? - ANSWER-Acts of mortgage fraud. Definition of the term "creditor" - ANSWER-The Equal Credit Opportunity Act (ECOA), the Fair Credit Reporting Act (FCRA), and the Fair and Accurate Credit Transactions Act (FACTA) all use the same definition of creditor. A creditor is any person who regularly extends, renews, or continues credit. Loan originators, lenders, and other mortgage professionals are included in this definition. Transactions reported under HMDA... - ANSWER-Purchases, Refinances, Home improvement loans, Pre-qualifications must also be reported, along with their disposition When a borrower's LTV reaches 80%... - ANSWER-He/she is permitted to request cancellation of PMI. The Homeowners Protection Act sets the requirements for cancellation of PMI. It is at the lender's discretion to permit cancellation - the borrower must be current on payments. The PATRIOT Act requires... - ANSWER-Financial institutions to verify the identity of a person applying for a loan, maintain a record of the information used for verification, and determine whether a potential borrower appears on known terrorist lists. Nonpublic personal information is... - ANSWER-Information derived from a credit report or provided with respect to loan application. Examples might include loan balances, account numbers, unlisted phone numbers, etc. Nonpublic personal information is protected by the provisions of the Gramm-Leach-Bliley Act. Where is borrower credit disclosed? - ANSWER-Borrower credit - an amount paid to a mortgage loan originator by a lender for locking a loan in at an interest rate above the par rate - must be disclosed on the Loan Estimate and Closing Disclosure. Updated versions of the forms are intended to make disclosure of borrower credit clearer to borrowers. What purpose does escrow analysis serve? - ANSWER-An aggregate escrow analysis (Annual Escrow Statement) is provided to borrowers annually, pursuant to Section 10 of RESPA. Its purpose is to prevent escrow overages. According to Section 10, the cushion of funds maintained in the escrow account cannot exceed one sixth (two months) of the annual cost of taxes and insurance. Regulation X... - ANSWER-Is the regulation that issues the rules for the Real Estate Settlement Procedures Act. Who issues and enforces regulations for TILA? - ANSWER-The CFPB When must APR be initially disclosed? - ANSWER-APR must be initially disclosed within three business days of application. Following initial disclosure of APR, when can the transaction proceed to closing? - ANSWER-The transaction can proceed to closing after seven business days have elapsed from issuance of the initial Loan Estimate. Protected characteristics under ECOA include... - ANSWER-Race, Color, Religion, National origin, Sex, Marital status, Age, Receipt of income from a public assistance program, Exercise of rights under the Consumer Credit Protection Act, including the Truth-in-Lending Act Purpose of HMDA... - ANSWER-The Home Mortgage Disclosure Act is a reporting law that helps the federal government identify discriminatory lending practices. It also ensures that depository institutions are meeting the needs of their communities. HMDA requires mortgage professionals to report information about loan transactions and demographics (race, sex, etc.) of applicants. When multiple parties have rescission rights... - ANSWER-Any one of them may exercise the right to terminate the transaction. Under TILA/Regulation Z, an individual has rescission rights when he/she has an ownership interest in the property. The individual does not necessarily have to be a party to the loan transaction. A revised Loan Estimate is required... - ANSWER-If a floating rate is locked. The definition of a business day that applies to deadlines for providing the Loan Estimate is... - ANSWER-Any day on which the creditor's offices are open to the public for carrying out substantially all business functions. What is the Servicing Transfer Statement? - ANSWER-Required under Section 6 of RESPA, the Servicing Transfer Statement advises a borrower when their loan has been transferred to another servicer. It must be provided 15 days prior to the servicing transfer. The new servicer must also provide notice within 15 days after the transfer and may not assess late fees for a period of 60 days following the transfer. A revised Loan Estimate is due... - ANSWER-Within three business days of receiving information prompting the change and at least four business days prior to consummation. TILA covers loans when... - ANSWER-The borrower's dwelling secures the mortgage debt, The homeowner uses the proceeds of the loan for personal, family, or household purposes Prohibitions under ECOA include... - ANSWER-Inquiries about protected characteristics, Discouraging applicants from applying for a loan , Refusing to consider public assistance, alimony/child support, or pension/retirement benefits as income, Assumptions, inquiries, or credit decisions based on childbearing or child-rearing plans What is PMI? - ANSWER-Private mortgage insurance is required by conventional lenders when a borrower makes a down payment of less than 20% (or has less than 20% equity). It is governed by the Homeowners Protection Act and must be discontinued when the loan reaches 78% loan- to-value (22% equity), assuming the borrower has met the terms of the agreement to that point. Borrower identity verification is required under... - ANSWER-The USA PATRIOT Act. The Act requires financial institutions to verify the identity of persons involved in financial transactions, as a counter-terrorism measure. Regulation Z... - ANSWER-Is the regulation that issues the rules for the Truth-in- Lending Act. What is the Notice of Right to Cancel? - ANSWER-It is a disclosure providing notice of the right to rescind certain lending transactions. It is due at closing for refinances and other types of home equity loans, such as HELOCs. Two copies must be provided to each person with ownership interest in the property. When is the Mortgage Servicing Disclosure provided? - ANSWER-It is included on the Loan Estimate, which is due within three business days following application. If the loan application is for a reverse mortgage, open end mortgage or for a temporary loan, the disclosure is due within 3 business days following a loan application. Requirements for "Your Home Loan Toolkit: A Step-by-Step Guide" include: - ANSWEROnly one copy is required for multiple borrowers, The booklet can be reproduced in any form, The booklet can be translated into other languages, The booklet can be stamped with a ECOA's purpose is... - ANSWER-To promote the availability of credit to all creditworthy applicants, regardless of their race, color, religion, national origin, sex, marital status, or age. It also prohibits discrimination against credit applicants based on receipt of public assistance or participation in credit counseling programs (exercise of rights under the Consumer Credit Protection Act). Government charges include... - ANSWER-Charges to record the mortgage, Transfer tax, Other charges established by the state or municipality What are "things of value"? - ANSWER-Under RESPA, "things of value" are any payment, advance, loan, or service, including: money, discounts, commissions, salaries, stock, opportunities to participate in a money-making program, special banking terms, tickets to theatre or sporting events, services at special rates, and trips at another's expense. Things of value are illegal when they are provided in exchange for referrals. Payment of referral fees is... - ANSWER-A violation of RESPA/Regulation X. Referral fees are considered unearned fees under RESPA. Any "thing of value" (money, gifts, discounts, etc.) given in exchange for a business referral is illegal under Section 8 of RESPA. The Notice of Right to Rescind is required... - ANSWER-For refinances and other home equity loans, such as HELOCs. The loan must be secured by the borrower's principal residence. The right to rescind the loan generally must be exercised within three business days of closing. What is the Notice of Adverse Action? - ANSWER-Under ECOA, loan applicants must be advised of the status of their application within 30 days of application. If their application is turned down, they must receive a Notice of Adverse Action advising them of the reason for denial as well as a number of other rights. Historically, what was YSP? - ANSWER-Yield spread premiums were fees paid by a lender to a mortgage loan originator for originating a loan at a rate higher than the par rate. It was intended to provide a resource for originators to subsidize borrower closing costs. Now referred to as borrower credit, these fees are applied to the costs of closing, to benefit the borrower. What must occur within 20 days of rescission? - ANSWER-The lender must return any money or property paid by the borrower in connection with the loan. This might include broker fees, application fees, and third-party settlement fees. Page Five of the Closing Disclosure shows the... - ANSWER-Total of payments, Finance charge, Amount financed, APR, Total interest percentage, Other disclosures (appraisal, contract details, liability after foreclosure, refinance, tax deductions), Questions? box, Contact information, Confirm receipt box (signature of borrower[s]) Accepting a referral fee can lead to... - ANSWER-Fines of up to $10,000 and one year in prison. Accepting a fee in exchange for a referral is a violation of RESPA/Regulation X. The purpose of TILA is... - ANSWER-The Truth-in-Lending Act is a consumer protection law aimed at providing consumers with disclosure of the cost and terms of credit. It also ensures that advertisements are truthful and allows borrowers to rescind (cancel) certain types of transactions. The purpose of Do-Not-Call provisions... - ANSWER-The Do-Not-Call Implementation Act was passed under the Telemarketing Consumer Fraud and Abuse Prevention Act/Telemarketing Sales Rule. It is a consumer protection law that permits consumers to restrict unwanted sales calls to their homes. What is "Your Home Loan Toolkit: A Step-by-Step Guide"? - ANSWER-"Your Home Loan Toolkit: A Step-by-Step Guide" provides information on the settlement process, explains consumer rights under RESPA, and warns against the use of false information on the loan application. It applies to purchase transactions only and is due within three business days of application. The purpose of the Red Flags Rule is... - ANSWER-The Red Flags Rule was created by the Federal Trade Commission under FACTA. The purpose is to address identity theft by focusing on methods of detecting a security breach. Page Three of the Closing Disclosure shows the... - ANSWER-"Calculating Cash to Close" table, Summaries of transactions What are the penalties for violation of the GLB Act? - ANSWER-The Gramm-LeachBliley Act does not include any specific penalties, but authorizes regulating agencies to bring enforcement actions and impose penalties. The FTC can bring action against mortgage brokers under the Federal Trade Commission Act. This Act provides for penalties of up to $10,000. Page Two of the Loan Estimate includes the... - ANSWER-Loan Costs table, Other Costs table, Calculating Cash to Close table, Adjustable Payment table, Adjustable Interest Rate table Who regulates RESPA? - ANSWER-The CFPB What disclosure is due at the time of making a referral? - ANSWER-The Affiliated Business Arrangement Disclosure. Required by RESPA, it advises loan applicants that an affiliated business arrangement exists and lets them know that they are not required to use the referred entity. The Red Flags Rule requires... - ANSWER-Creditors to create a policy to identify and mitigate the risks of identity theft. The Red Flags Rule was created by the FTC pursuant to FACTA. What are the penalties for violations of TILA? - ANSWER-TILA does not address penalty amounts for open-end mortgage loans. For closed-end loans secured by a dwelling, the civil penalty is at least $400 and up to $4,000. The criminal penalty includes a fine of up to $5,000, imprisonment for up to one year, or both. RESPA applies to... - ANSWER-Federally-regulated mortgage loans. This includes first and second liens and is such a broad definition that RESPA applies to virtually all residential mortgages secured by real property. What fees are never included in finance charges? - ANSWER-Title insurance and title examination fees, doc prep fees, notary fees, seller's points, and appraisal/credit report fees (if they are charged to all applicants as part of loan application). A HECM is... - ANSWER-A reverse mortgage. The Home Equity Conversion Mortgage is specifically a government reverse mortgage program. What is a mortgage? - ANSWER-A legal document that connects a promissory note with the collateral used to secure the note. In the case of a mortgage, the collateral is the subject property. A loan with a balloon payment provision... - ANSWER-Is made up of a series of smaller periodic payments with a larger lump sum due at maturity. Many of these loans include a refinance provision so that the borrower can avoid the larger payment and start a new amortization schedule on the remaining loan amount. A deed is... - ANSWER-A legal instrument that conveys title to real property. An amortization schedule... - ANSWER-Is a table providing the periodic payments needed to pay off a loan by the end of its term. The payments include principal and interest. Fannie Mae's purpose is to... - ANSWER-Provide sources of funds for lenders. This is accomplished in the secondary market through securitization. The Federal Housing Administration... - ANSWER-Insures loans. FHA loans are insured by the federal government against borrower default. What is foreclosure? - ANSWER-The sale of a property after a borrower has defaulted on payments to the lender. The exact procedure for handling foreclosure varies from state to state. Option ARMs can result in... - ANSWER-Negative amortization. This occurs when the borrower makes payments at an introductory rate which are not sufficient to pay the interest on the loan. The unpaid amount is added to the loan balance resulting in negative amortization. Mortgage-backed securities are products of... - ANSWER-The secondary market. Mortgage- backed securities are an investment vehicle used to generate revenue based on an underlying pool of loans. This revenue provides renewable access to funds for lenders. Negative amortization occurs when... - ANSWER-A loan program permits a borrower to pay less than the required amount of interest on the loan. The unpaid interest is added to the loan balance and eventually results in a balance greater than the original loan amount. A funding fee is required on... - ANSWER-VA loans. The VA program requires a funding fee for participation in the program. The amount is used to support the guaranty against borrower default. USDA loans charge a similar fee, called a guarantee fee. The note rate is... - ANSWER-The stated interest rate on a mortgage or loan agreement. Conventional conforming loans are... - ANSWER-Made by Fannie Mae and Freddie Mac. Unlike FHA or VA loans, they are not insured or guaranteed by a government agency. A second mortgage is also known as a... - ANSWER-Subordinate lien. Subordinate liens sit in second (or third, etc.) place behind a first or primary lien. In the event of foreclosure, subordinate liens are satisfied only after the first lien is satisfied. Qualified mortgages may not have terms exceeding... - ANSWER-30 years To make a balloon payment qualified mortgage, a creditor must: - ANSWER-Be serving a rural or underserved area, Hold the loan in its portfolio for at least three years or sell the loan to another small creditor Seller concessions for conforming loans with an LTV under 90% are... - ANSWERLimited to 6% between 90% - 75.1%. At 75% or less concessions are up to 9%. Limitations for seller concessions are established by Fannie Mae and Freddie Mac for conforming loans. Limits are based on the down payment or loan-to-value (LTV) ratio. Nontraditional ARMs are risky when they include: - ANSWER-No rate caps, A low introductory rate that expires after a short period, Limited documentation for loan approval, Prepayment penalties In a bi-weekly mortgage program, the borrower... - ANSWER-Effectively makes an extra mortgage payment every year. By making payments every two weeks (26 payments), the borrower technically pays 13 months of mortgage payments in a calendar year. "Margin" is defined as... - ANSWER-The amount above the index that an interest rate can adjust for an ARM. The margin is set by the lender and is the amount above the index that the interest rate can adjust. Index plus margin is the formula used to determine a new interest rate on an adjustable-rate mortgage. The debt-to-income ratio... - ANSWER-Is analyzed to determine the size of the borrower's existing debt load. It is a primary factor in the lender's analysis of the borrower's ability to repay a loan. Jumbo loans are used to... - ANSWER-Finance properties in amounts that exceed conforming guidelines. Jumbo loans are loans that exceed Fannie Mae/Freddie Mac loan limits; however, there are GSE-eligible loans available. Index and margin are used to... - ANSWER-Determine the interest rate change on an ARM. The index is the basis for future rate changes. The margin is set by the lender and is the amount above the index that the interest rate can adjust at the time of the rate change. The conforming loan limit for one-family properties in most areas of the country is... - ANSWER-$548,250. This amount is set annually by the Federal Housing Finance Agency - the agency which oversees Fannie Mae and Freddie Mac. High-cost areas are... - ANSWER-Areas of the country with higher conforming loan limits. High- cost areas exist all over the country, with the exception of the Midwest. Income documentation for salaried borrowers includes... - ANSWER-Paystubs for the most recent 30-day period and W-2s for the most recent two-year period. MIP is required for FHA loans.... - ANSWER-With an LTV of less than or equal to 90%, for the first 11 years of the loan term or until the end of the loan term, whichever comes first. With an Fannie Mae and Freddie Mac underwriting requirements. Nontraditional mortgage products are defined as... - ANSWER-Any mortgage product other than a 30-year fixed-rate mortgage loan. FHA's adjustable-rate program is... - ANSWER-Called 251. It is based on the 203(b) program and offers a number of adjustment options ranging from one to ten year(s). In a fixed-rate mortgage... - ANSWER-The interest rate is set at the time of settlement and does not change during the life of the loan. Monthly payments would only change if the loan servicer finds a shortage or surplus in the escrow amount (i.e., taxes and insurance premiums). In an adjustable-rate mortgage... - ANSWER-The interest rate may change one or more times over the life of the loan. ARMs are often initially made at lower interest rates than fixed rate mortgages. An initial rate cap is... - ANSWER-A limit on the amount that the interest rate can increase during the first adjustment period for an ARM. A periodic rate cap is... - ANSWER-A limit on the amount that an interest rate can change during any adjustment period for an ARM, with exception of the initial adjustment, assuming an initial cap is in place on that particular product. A lifetime rate cap is... - ANSWER-The limit on the amount by which an interest rate can change over the life of an ARM. It is also known as a rate ceiling. The adjustment frequency establishes... - ANSWER-How often an interest rate adjustment can occur on an ARM. The frequency can be annually, every few years, or even monthly. Discount points are paid... - ANSWER-To the lender at closing to reduce the note rate of the loan. Securitization is used to... - ANSWER-Pool similar types of loans to create mortgagebacked securities for sale on the secondary mortgage market. These securities are used to create a renewable source of funds for lenders. The index for an ARM must be disclosed... - ANSWER-On the early ARM disclosure provided at application and on the promissory note when the loan goes to closing. The risk of a balloon mortgage can be minimized if... - ANSWER-The loan agreement contains a conditional refinance provision. This gives the borrower the option to convert the loan to a regular fixed-rate loan at its maturity date. A home equity loan is an example of... - ANSWER-Closed-end credit. A cash-out refinance is an example of a home equity loan. Borrowers owning more than 25% of a business must... - ANSWER-Provide up to two years of tax returns for income qualification. A HELOC is an example of... - ANSWER-Open-end credit. In a HELOC, a borrower pays off the principal and can then continue to make withdrawals. This is similar to a credit card. An 80-10-10 loan is an example of... - ANSWER-A piggyback loan. In a piggyback loan scenario, a borrower takes a simultaneous second mortgage. In an 80-10-10 loan, the first lien is 80% LTV, the second is 10% LTV and the borrower makes a 10% down payment. A construction loan is... - ANSWER-An interim loan used to pay for the construction of a home. They are short-term financing and often handled as interest-only transactions. A construction loan can be considered a type of "bridge loan." Borrowers who obtain interest-only loans... - ANSWER-Pay only the monthly interest due on the loan, which keeps monthly payments low. However, at the end of the term, the borrower still owes the principal amount of the loan. Conforming loans meet... - ANSWER-Loan limits and underwriting standards established by Fannie Mae and Freddie Mac. A promissory note includes... - ANSWER-Identification of the borrower and the lender, The borrower's promise to repay the loan, Amount of the loan, Interest rate charged on the unpaid principal, Period of the term for repayment of the loan, Reference to the real estate used to secure the loan, Provisions for the imposition of late charges for overdue payments, Signature(s) of borrower(s) Social Security income can be... - ANSWER-Grossed up by as much as 25% for income qualification purposes. Other non-taxed income, such as disability and public assistance, may be grossed up as well. Closing costs include... - ANSWER-Origination fees, Property taxes, Title insurance, Escrow costs, Appraisal fees, Taxes, Fees owed to state and local government The debt-to-income ratio is... - ANSWER-The relationship between a borrower's monthly debt obligations and his/her gross monthly income. It is expressed as a percentage. "Equity" is defined as... - ANSWER-The difference between the fair market value of a property and the current balances of any liens against the property. Strategies for paying off a fixed-rate loan more quickly include... - ANSWERPrepayment and bi- weekly payments. Prepayment allocates more funds to the loan principal as time goes by. A bi- weekly plan amounts to an additional mortgage payment every year. Borrowers cannot secure an FHA loan without paying... - ANSWER-UFMIP (upfront mortgage insurance premiums) and annual MIPs (annual mortgage insurance premiums) Ability to Repay Rule requires ARM qualification based on... - ANSWER-The fullyindexed rate. This requirement applies to all ARM transactions except for open-end home equity loans. Balloon payments are prohibited for... - ANSWER-Qualified mortgages, unless the loan is a balloon payment qualified mortgage from a small creditor. Balloon payments are also generally prohibited for loans covered by HOEPA. Qualified Mortgage Rule creates... - ANSWER-Presumption of compliance with abilityto-repay standards and a safe harbor from liability for loan originators making qualified mortgages. QM Rule creates a conclusive presumption of compliance for... - ANSWER-Prime mortgages, not subprime or higher-priced mortgage loans. QM Rule creates a rebuttable presumption of compliance for... - ANSWER-Higher- priced mortgage loans. The size of a borrower's debt burden determines... - ANSWER-The ability to meet the financial demands of loan repayment. Existing debt and its ratio to a borrower's income - also known as the debt-to-income ratio - is a primary factor in a lender's analysis of a borrower's ability to repay a loan. FHA loans use a back-end ratio of... - ANSWER-43%. The back-end ratio (or total debt ratio) is a comparison of all monthly debts (including housing) to the applicant's monthly income. The Adjustable-Rate Mortgage Disclosure... - ANSWER-States that a loan has payment or loan terms that can change. When a borrower obtains an ARM which is secured by their principal dwelling and has a term of more than one year, creditors must provide the special disclosures for variable-/adjustable-rate mortgages. "Your Home Loan Toolkit: A Step-by-Step Guide" is used... - ANSWER-For new home purchases. It explains the settlement process and the borrower's rights under RESPA. VA loans generally use a back-end ratio of... - ANSWER-41%. The back-end ratio (or total debt ratio) is a comparison of all monthly debts (including housing) to the applicant's monthly income. VA programs only use the back-end ratio - they do not consider the front-end ratio. The underwriter is responsible for... - ANSWER-Determining loan approval based on lender guidelines and borrower qualifications. The underwriter is responsible for making sure a loan applicant and subject property meet the requirements for a specific loan program. The 1004 is also known as the... - ANSWER-Uniform Residential Appraisal Report (URAR). It is the standard form appraisers use to document the findings from an appraisal. The purpose of the application interview is to... - ANSWER-Capture information from the applicant in order to complete the loan application. It may take place in person, over the phone, or online. CLTV is... - ANSWER-A loan-to-value ratio used when dealing with second liens. CLTV is calculated by combining the cost of all mortgages on a home and comparing the combined cost to the value of the home securing the loans. Section 1 of the 1003 is called... - ANSWER-"Borrower Information." It is used to collect basic identifying information about the potential borrower and the type of credit they are seeking. After completing a loan application... - ANSWER-The applicant will be asked to provide supporting documentation. The documentation supports information disclosed on the application and may include employment verification, tax and income documents, etc. A VOE is... - ANSWER-A verification of employment. It is one form of loan application documentation used for applicants who are not self-employed. Overtime and bonus pay... - ANSWER-Must be consistently received for a period of two years in order to be used for income qualification. The employer must verify that the additional income is likely to continue. "Loan suitability" means... - ANSWER-Loan programs are diligently matched to the current financial circumstances of each customer. Some states have passed laws making loan suitability a regulated standard. The cost approach to appraisal... - ANSWER-Considers the replacement value of the property. It is often used for new properties and analyzes what it would cost to build a substitute residence, plus the value of the land. Refinance transactions must have a... - ANSWER-Tangible net benefit. Assets include... - ANSWER-Cash reserves, Gift funds, Stocks and bonds, IRA/401K Accounts, Other real estate, Cash surrender value of life insurance, Value of automobiles Many underwriting decisions are made by... - ANSWER-Automated underwriting systems (AUSs). Fannie Mae's system is called Desktop Underwriter, and Freddie Mac's system is known as Loan Product Advisor. FHA and VA also have their own proprietary systems. A borrower's front-end ratio... - ANSWER-Only considers the housing debt. Debt ratios look at the percentage of debt to monthly income. The front-end or housing ratio only takes the mortgage payment (or rental payment) into consideration. The "market approach" to appraisal is also known as the... - ANSWER-Sales comparison approach. The underwriter uses the appraisal to... - ANSWER-Determine the value of the property. The appraisal is also used to establish any deficiencies that affect the marketability of the property. Borrower income is... - ANSWER-An important consideration for most loan programs. In the past, nontraditional programs did not always verify income. However, today, lenders take a close look at a borrower's ability to repay a loan. Income documentation for salaried loan applicants typically includes... - ANSWER- Paystubs for the last 30-day period and W-2s for the last two-year period. An example of a voluntary lien is... - ANSWER-A mortgage. A homeowner voluntarily allows the lien to be placed on the property in order to secure a loan from the lender. Liabilities include... - ANSWER-Promissory notes payable to financial institutions and other creditors/lenders, Credit accounts with outstanding balances, Unpaid income taxes and interest, Child support and alimony, Previous bankruptcies Non-taxable income may be grossed up by as much as... - ANSWER-25%. This type of income typically includes Social Security, public assistance, and disability. Loan applicants must still provide comprehensive documentation for these types of income. FHA loans require a minimum borrower investment of... - ANSWER-3.5%. This amount is based on the sales price or appraised value of the property and can be the borrower's own funds, gift funds, or a grant. What percentage of rental income may be used for qualification? - ANSWER-75%. Investment properties generating rental income are just one type of special income that cannot be used at 100% for qualification purposes. IRS 4506-C is used to... - ANSWER-Obtain a transcript of a loan applicant's tax returns. Conventional/conforming loans use a front-end ratio of... - ANSWER-28%. The frontend ratio (or housing ratio) is the comparison of housing debt to the applicant's monthly income. Section 6 of the 1003 is called... - ANSWER-"Acknowledgments and Agreements." In this section, the consumer is informed of the legal obligations they take on by signing the application, and they are prompted to give their signature. Primarily, this prompts the consumer to affirm that the information they provided was truthful and to acknowledge their understanding that lying on the application can have criminal consequences. FHA loans use a front-end ratio of... - ANSWER-31%. The front-end ratio (or housing ratio) is the comparison of housing debt to the applicant's monthly income. Section 7 of the 1003 is called... - ANSWER-"Military Service of Borrower." This section contains questions about the applicant's military service, if they are serving or have served. Some loan products (e.g., VA loans) are meant for and only available to servicemembers, and the URLA can be used to apply for these loans. If this section is not applicable to the applicant, it is not required. Section 8 of the 1003 is called... - ANSWER-"Demographic Information." Here, consumers are prompted to self-identify demographic data. This data is collected for reporting purposes in compliance with HMDA, to ensure fair lending practices. Consumers may choose not to self- identify, in which case the loan originator must use broad categories to attempt identification based on visual observation and surname only, and must indicate that they did this. LTV is calculated by... - ANSWER-Dividing the amount of the mortgage by the appraised value or purchase price of the home, whichever is less. Loan-to-value ratio determines the loan program an applicant may qualify for. A lock-in agreement is used to... - ANSWER-Contractually hold the interest rate and points for a loan. They are usually made in writing and the lender is bound to honor the rate at closing. Section 9 of the 1003 is called... - ANSWER-"Loan Originator Information." Here, the loan originator gives the name of their employer, its address, and its NMLS unique identifier and state license ID. The loan originator must also add their own individual name, unique identifier, state license ID, and signature, as well as the date. Past credit performance is considered an indicator of... - ANSWER-A borrower's attitude toward credit obligations and a prediction of his/her future actions. Creditors/lenders assume that if an individual has met his/her obligations in the past, he/she will continue to do so in the future. To evaluate income consistency, underwriters review... - ANSWER-W-2s and 1040s. Substantial income increases and decreases must be addressed. To ensure that a property meets lender guidelines... - ANSWER-The underwriter will review:, The appraisal report, The preliminary title report, Any inspections requested by the borrower or required by the lender A lender is concerned with property marketability... - ANSWER-In case the borrower defaults and the lender is required to foreclose. When underwriters review derogatory credit information... - ANSWER-They are looking for an explanation of the derogatory credit. Without an explanation or documentation that makes sense, the derogatory information can be used as the basis for loan denial. Underwriting for qualified mortgages must consider... - ANSWER-Current and reasonably- expected income or assets, Employment, Credit history, Current debt obligations, Mortgage- related obligations, Payments on any simultaneous loans Lenders rely on property appraisals to... - ANSWER-Ensure that the value of the property is adequate to serve as security - or collateral - for the loan. For this reason, a licensed appraiser must conduct the appraisal. The income approach to appraisal is used... - ANSWER-For investment properties. It would generally not be used for a single-family home being used as a borrower's primary residence. Homeowner's title insurance... - ANSWER-Provides protection for the borrower for potential title liabilities. These include mechanic's liens, unreleased mortgages, and other third-party rights. Obtaining this type of policy is voluntary on the part of the homeowner. A lender's title policy... - ANSWER-Protects the lender from title defects or undisclosed liens that should have been cleared up prior to closing. Lenders typically make this type of policy mandatory; the borrower is required to cover the cost of obtaining it. Real property is defined as... - ANSWER-Land and anything that is permanently affixed to it. Personal property includes items that can be moved. Liens are... - ANSWER-Monetary claims that provide a creditor with the right to foreclose. A mortgage is an example of a lien. Involuntary liens may include... - ANSWER-Tax liens, Mechanic's liens, Judgments, Attachments Lien priority is defined as... - ANSWER-The chronological order in which liens are filed against a property. The order establishes the priority of the liens in the event the property is foreclosed. Lenders want first priority for the mortgage on a property. Private mortgage insurance is used to... - ANSWER-Provide security to the lender in the event of default. PMI also allows the borrower to make a smaller down payment. Upfront MIP is collected on... - ANSWER-All FHA loans. Fee simple is... - ANSWER-The desired form of holding ownership to property because it has the fewest restrictions. Almost all residential mortgage loan transactions involve an estate held in fee simple. An estate held in fee simple means that... - ANSWER-The owner is entitled to the entire property and has "unconditional power of disposition" during his/her lifetime, and the property will descend to his/her heirs upon death. Service release premiums are... - ANSWER-Fees lenders can earn when selling loans in the secondary market. They are often cited in the controversy over yield spread premiums earned by mortgage loan originators before the establishment of borrower credit requirements. Mark-ups are the practice of... - ANSWER-Unilaterally increasing the charges of another settlement service provider and retaining the difference. HUD considers mark-ups a form of illegal fee-splitting and a violation of RESPA. A straw buyer is... - ANSWER-A person who accepts a fee for the use of his/her Social Security Number and other personal information on a mortgage application. Straw buyers are often unaware that they are liable for fraud and for making false statements to the government. The Gramm-Leach-Bliley Act requires... - ANSWER-Financial institutions to provide customers with a privacy notice as well as an opt-out notice. This is aimed at protecting their nonpublic personal information. Adverse action occurs when... - ANSWER-A creditor makes an unfavorable decision. An example would be a lender rejecting a loan application. ECOA requires notice of adverse action within 30 days of application Legal and ethical ways of providing disclosures include... - ANSWER-In person, via U.S. mail, or via facsimile. Email and secure document handling are also becoming acceptable means. Providing the information verbally or via a public posting are not acceptable methods for most disclosures. With regard to fraud, loan originators are required to... - ANSWER-Be on the lookout for and report anything that could indicate fraudulent behavior. Inflated appraisals occur when... - ANSWER-An appraiser places a much higher value on a property than can be justified. This practice has been commonly used in conjunction with other forms of mortgage fraud. A straw seller is... - ANSWER-An individual who accepts a fee to falsely claim ownership to a property. Straw sellers are sometimes used in conjunction with straw buyers in elaborate mortgage fraud schemes. An advertisement saying "Refinance today and wipe debt clean!"... - ANSWER-Violates the Federal Reserve's Staff Commentary on Regulation Z revisions. This example is considered a misleading claim of debt elimination. Goals of the Fair Housing Act include... - ANSWER-Providing fair housing throughout the United States, Prohibiting discrimination in the sale and renting of housing, Prohibiting discrimination in mortgage lending transactions The most common type of fraud involving borrowers is... - ANSWER-Falsified applications. Generally, they are trying to obtain a loan they do not qualify for, but for the most part do intend to repay the loan. Income qualification should always use... - ANSWER-Factual data. Loan programs such as stated income loans (also called liar's loans) led to an increase in loan applicant fraud. This has been blamed for increased foreclosures. A sign of fraud on a sales contract is... - ANSWER-The purchase price being higher than the list price. This could be a sign that a legitimate buyer is not involved in the transaction. Identity theft is the practice of... - ANSWER-Using another person's name, Social Security Number, and other personal information to secure credit or make purchases. It often figures into elaborate mortgage fraud schemes. The LO Compensation Rule prohibits... - ANSWER-Compensation based on transaction terms, Dual compensation, Steering The MAP Rule prohibits... - ANSWER-Any material misrepresentation, express or implied, in any commercial communication regarding any term of a mortgage credit product. HOEPA prepayment penalty threshold... - ANSWER-If a loan features a prepayment penalty in force for more than 36 months or exceeding 2% of the amount prepaid, the loan is subject to HOEPA and the penalty is prohibited. HOEPA applies to... - ANSWER-Closed-end loans, open-end loans, and purchase money mortgages secured by the borrower's principal dwelling. Reverse redlining is... - ANSWER-The practice of targeting neighborhoods that are primarily occupied by members of vulnerable and/or protected classes and offering expensive, risky loan products. Ginnie Mae is... - ANSWER-Government-owned, not stockholder-owned, Primarily intended to guarantee securities backed by FHA, VA, RHS loans (does not buy loans), Not involved in guaranteeing or dealing with conventional mortgages A mortgage broker serves as the... - ANSWER-Agent for the borrower and owes them fiduciary duties, including loyalty, good faith, and an obligation to put the borrower's interests ahead of the broker's. Implementing regulations for the S.A.F.E. Act... - ANSWER-Regulations G and H Purposes of the S.A.F.E. Act include... - ANSWER-Increase uniformity, Reduce regulatory burden, Enhance consumer protection, Reduce fraud Effective supervision by a state regulator includes... - ANSWER-Participating in the NMLS, Writing rules and regulations or adopting procedures, Conducting background checks, Setting and accepting licensing fees, Setting or resetting renewal or reporting dates, Approving or denying loan originator applications and renewals, Implementing laws for amending or surrendering licenses, Bringing enforcement actions State supervisory authority includes... - ANSWER-Establishing a process to verify licensure, Examining books, papers, records, or other data, Summoning persons to appear and produce records, Administering oaths and affirmations, Examining, taking, and preserving testimony, Reporting violations of law Additional state supervisory authority... - ANSWER-Providing procedures for challenging information, Requiring loans to be included in reports of condition, Entering cease and desist orders, Suspending, terminating, and refusing renewal of licenses, Ordering the removal and ban of individuals from employment, Imposing civil penalties "Assisting a consumer in obtaining a loan" includes... - ANSWER-Advising on loan terms, Preparing loan packages, Collecting information on behalf of the consumer "Assisting a consumer in obtaining a loan" does not include... - ANSWER-Individuals engaged solely as loan processors/underwriters performing clerical tasks, Persons or entities only performing real estate brokerage activities, unless compensated by a mortgage professional, Persons or entities solely involved in extensions of credit relating to timeshare plans Definition of "real estate brokerage activity" ... - ANSWER-Acting as a real estate agent/broker for a buyer, seller, lessor, or lessee of real property, Bringing together parties interested in the sale, purchase, lease, rental, or exchange of real property, Negotiating any portion of a contract relating to the sale, purchase, leaser, rental, or exchange of real property, Engaging in any activity for which a person engaged in the activity is required to be licensed as a real estate agent/broker Definition of "loan processor" or "underwriter" ... - ANSWER-Individual who performs clerical or support duties at the direction of and subject to the supervision of a licensed loan originator. Definition of "clerical or support duties" ... - ANSWER-The receipt, collection, distribution, and analysis of information used for the processing and underwriting of a loan, Communicating with a consumer to obtain information necessary for the processing and underwriting of a loan Loan processors/underwriters may not... - ANSWER-Offer or negotiate loan rates or terms, Counsel consumers about loan rates or terms, Represent to the public that they can perform the activities of a loan originator "Origination of a residential mortgage loan" involves... - ANSWER-All residential mortgage loan-related activities from the taking of a loan application through the completion of all loan closing documents and funding of the loan. A "registered loan originator" is an individual who... - ANSWER-Meets the definition of a loan originator, Is an employee of a depository institution or an institution regulated by the Farm Credit Administration, Is registered with, and maintains a unique identifier through, the NMLS An "employee" is an individual whose... - ANSWER-Manner and means of performance of work are subject to the right of control of a person, Compensation for federal income tax purposes is reported on a W-2 form issued by the controlling person A "federal banking agency" includes the... - ANSWER-Board of Governors of the Federal Reserve System, Comptroller of the Currency, National Credit Union Administration, Federal Deposit Insurance Corporation A "state-licensed loan originator" is any individual who is... - ANSWER-A loan originator, Not an employee of a depository institution, a subsidiary owned and controlled by a depository institution and regulated by a federal banking agency, or an institution regulated by the Farm Credit Administration, Licensed by a state or by the CFPB and maintains a unique identifier A "unique identifier" is a number that... - ANSWER-Permanently identifies a loan originator, Is assigned by the NMLS to track and identify loan originators A unique identifier must be shown on all... - ANSWER-Residential mortgage loan application forms, Solicitations or advertisements, including business cards and websites, Other documents established by rule or order of the licensing agency Business of a mortgage loan originator includes... - ANSWER-Taking a residential mortgage loan application , Offering or negotiating the terms of a residential mortgage loan for compensation or gain, Representing to the public that he/she can or will perform these activities "Taking a residential mortgage loan application" means... - ANSWER-Receiving an application for the purpose of facilitating a decision whether to extend an offer of residential mortgage loan terms to a borrower. "Offering or negotiating loan terms" includes... - ANSWER-Presenting for consideration particular loan terms , Communicating with a borrower or prospective borrower to reach a mutual understanding of loan terms, Recommending, referring, or steering a borrower or prospective borrower to a particular lender or loan terms, Receiving payment of any thing of value in connection with these activities An "independent contractor" cannot... - ANSWER-Engage in residential mortgage loan activities as a loan processor/underwriter unless a state-licensed loan originator Loan originator exemptions... - ANSWER-Loan processor/underwriter, Registered loan originator employee of a bank/credit union, Only real estate brokerage activities, Only extensions of credit related to timeshare plans, For an immediate family member, For a dwelling that served as the individual's residence, Licensed attorney negotiating on behalf of a client, Employee of a government agency or housing finance agency, Employee of a nonprofit organization "Immediate family member" includes... - ANSWER-Spouse, Child, Sibling, Parent, Grandparent and grandchild, Stepparent, stepchild, and stepsibling, Adoptive relationship "Housing finance agency" is any authority... - ANSWER-Chartered by a state to help meet affordable housing needs of residents, Supervised by the state government, Subject to audit and review by the state, Whose activities make it eligible to be a member of the National Council of State Housing Agencies (NCSHA) For a bona fide nonprofit, state must... - ANSWER-Periodically examine its books and activities, Revoke its status if it doesn't continue to meet criteria Background checks include... - ANSWER-Fingerprints, Personal history and experience Minimum pre-licensing education requirement... - ANSWER-20 hours 20 hours of pre-licensing education must include... - ANSWER-Three hours of federal law and regulation, Three hours of ethics, Two hours of nontraditional mortgage products Written test measures knowledge of... - ANSWER-Ethics, Federal and state law and regulation relating to mortgage origination, Fraud, consumer protection, nontraditional mortgages, and fair lending Passing exam score... - ANSWER-75% If an applicant fails initial test attempt... - ANSWER-He/she may retake twice with at The maximum civil penalty for each violation of the S.A.F.E. Act... - ANSWER-$25,000 Each failure to comply is a... - ANSWER-Separate and distinct violation Regulation H establishes a procedure for... - ANSWER-The CFPB to follow if it determines that a state has not adopted laws satisfying the S.A.F.E. Act's licensing requirements Any time a state enacts legislation, it must... - ANSWER-Notify the CFPB If requested by the CFPB, a state must submit... - ANSWER-Evidence of compliance with the S.A.F.E. Act, Citations to relevant state laws and regulations , Information on the regulator's supervisory processes, Data on the regulator's investigations and enforcement actions Advertisements must be in compliance with... - ANSWER-The Truth-in-Lending Act - Regulation Z Consumer credit advertisement requirements... - ANSWER-May not be false or misleading, Disclosures must be clear and conspicuous, May only state specific terms if they are actually available, Bait-and-switch promotions are not permitted, Must disclose other credit terms if trigger term used Trigger terms include... - ANSWER-The amount or percentage of a down payment, The number of payments or period of repayment, The amount of any payment, The amount of any finance charge Disclosures required for an ad containing a trigger term include... - ANSWER-The amount or percentage of the down payment, The terms of repayment , The annual percentage rate Ad that states a simple annual rate of interest must include... - ANSWER-Each applicable simple annual rate of interest, The period of time during which each rate will apply, The APR Ad that states a payment amount must include... - ANSWER-The amount of each applicable payment over the term of the loan, The period of time during which each payment will apply, The fact that the payments don't include amounts for taxes and insurance premiums and that the actual payment will be greater (for credit secured by a first lien on a dwelling) Ad cannot use the word "fixed" to refer to... - ANSWER-A variable-rate transaction, A transaction in which the payment will increase, A transaction including both a variable rate and a non-variable rate Ad for credit secured by a dwelling cannot... - ANSWER-State that a product is endorsed or sponsored by a government entity, Use the name of the consumer's creditor if the ad is not sent on behalf of the creditor, Make a misleading claim that the product offered will eliminate debt or forgive obligations, Use the term "counselor" to refer to a for-profit broker or lender, Provide certain info about trigger terms or disclosures in a foreign language and other info in English For inquiries on the cost of credit, the lender must... - ANSWER-State the APR The Loan Estimate must be provided... - ANSWER-No later than three business days after receiving a completed application, No later than seven business days prior to consummation The Closing Disclosure must be provided... - ANSWER-No later than three business days prior to consummation The APR represents the relationship of... - ANSWER-The total finance charge to the total amount financed, as a yearly rate Disclosed APR may not vary by more than... - ANSWER-One eighth of 1% in a regular transaction, One quarter of 1% in an irregular transaction The finance charge is... - ANSWER-The cost of consumer credit as a dollar amount The finance charge is the total of... - ANSWER-Prepaid finance charges, Charges paid over the term of the loan Finance charges may include... - ANSWER-Interest, Points, loan fees, assumption fees, finder's fee, and similar charges paid by the consumer, Mortgage broker fees, Premiums for insurance protecting the lender against the consumer's default, Fees charged by a third party, Fees charged by a third party that conducts the loan closing, Premiums for credit life, accident, health, or loss-of-income insurance, Premiums for property or liability insurance Finance charges do not include... - ANSWER-Points paid by the seller, Security interest charges, if itemized and disclosed, Bona fide and reasonable fees A prepaid finance charge is... - ANSWER-Any finance charge paid separately before or at consummation, or withheld from the proceeds of the loan at any time Prepaid finance charges include... - ANSWER-Loan origination, discount, and commitment fees, Any prepaid PMI, FHA UFMIP, VA funding fee, or USDA guaranty fee, Underwriting, processing, tax service, and courier fees, if paid to the creditor, Buy-down funds, Prepaid interest The amount financed is... - ANSWER-The actual amount of credit the borrower will receive from the creditor The total of payments is usually... - ANSWER-The total of the finance charge and the amount financed For an ARM, the interest rate will change based on... - ANSWER-An index to which the rate is tied and the margin added to cover the creditor's expenses and profit Disclosures required for an ARM... - ANSWER-CHARM booklet, A loan program disclosure AARMR - ANSWER-American Association of Residential Mortgage Regulators AML - ANSWER-Anti-money laundering APR - ANSWER-Annual percentage rate ARM - ANSWER-Adjustable-rate mortgage BSA - ANSWER-Bank Secrecy Act CC&R - ANSWER-Covenants, Conditions, and Restrictions MLS - ANSWER-Multiple Listing Service MTA - ANSWER-Monthly Treasury Average NMLS - ANSWER-Nationwide Multistate Licensing System NPI - ANSWER-Nonpublic Personal Information PITI - ANSWER-Principal, Interest, Taxes, and Insurance PMI - ANSWER-Private Mortgage Insurance PUD - ANSWER-Planned Unit Development QM - ANSWER-Qualified Mortgage QRM - ANSWER-Qualified Residential Mortgage RESPA - ANSWER-Real Estate Settlement Procedures Act S.A.F.E. - ANSWER-Secure and Fair Enforcement [Act] SAR - ANSWER-Suspicious Activity Report SRP - ANSWER-Service Release Premium TILA - ANSWER-Truth-in-Lending Act UFMIP - ANSWER-Upfront Mortgage Insurance Premium USC - ANSWER-U.S. Code USDA - ANSWER-United States Department of Agriculture UST - ANSWER-Uniform State Test VA - ANSWER-[Department of] Veterans Affairs YSP - ANSWER-Yield Spread Premium 203(b) - ANSWER-FHA loan program to finance one- to four-unit family homes; requires upfront mortgage insurance and annual mortgage insurance premium, paid monthly, to protect the lender against borrower default; known for requiring a low down payment, flexible qualifying guidelines, limited fees, and a cap on maximum loan amount. 203(k) - ANSWER-FHA loan program that enables homebuyers to finance both the purchase of a house and the cost of its repair and/or upgrade through a single mortgage loan. ARM - ANSWER-Adjustable-rate mortgage; a mortgage loan subject to changes in its interest rate based on an index designated at consummation. Rate changes, at intervals determined by the loan terms, result in an increase or decrease in the monthly payment amount; changes in the rate and/or payment amount may be capped. Abstract of Title - ANSWER-Document recording the ownership of property throughout time. Acceleration - ANSWER-The right of the lender to demand payment on the outstanding balance of a loan prior to maturity. Acceptance - ANSWER-The written approval of the buyer's offer by the seller. Additional Principal Payment - ANSWER-Money paid to the lender in addition to the established payment amount and credited directly against the loan principal to shorten the length of the loan. Adjustable-Rate Mortgage (ARM) - ANSWER-A mortgage loan that does not have a fixed interest rate; during the term of the loan the interest rate will change based on the index rate; also referred to as an adjustable mortgage loan (AML) or variable-rate mortgage (VRM). Adjustment Date - ANSWER-The date that the interest rate is changed for an ARM. Adjustment Index - ANSWER-The published market index used to calculate the interest rate of an ARM at the time of origination or adjustment. Adjustment Interval or Period - ANSWER-The time between the interest rate changes; usually every one, three or five years. Affidavit - ANSWER-A signed, sworn statement made by the buyer or seller regarding the truth of information provided. Amenity - ANSWER-A feature of the home or property that serves as a benefit to the buyer but that is not necessary to its use (e.g., location, woods, water, a swimming pool or garden). American Society of Home Inspectors - ANSWER-A professional association of independent home inspectors. Amortization - ANSWER-The repayment of loan principal over time; payments may be principal and interest, or interest-only; monthly payment amount based on a schedule that pays off loan over entire term. Annual Mortgagor Statement - ANSWER-Yearly statement to borrower detailing the outstanding principal and amounts paid for taxes and interest. Annual Percentage Rate (APR) - ANSWER-A measure of the cost of credit, expressed as a yearly rate; includes interest as well as other charges; provides good basis for comparing the cost of loans; APR is a higher rate than the loan's nominal rate. Application - ANSWER-The first step in the official loan approval process; used to record important information about the potential borrower necessary to the underwriting process. Application Fee - ANSWER-A fee charged by lenders to process a loan application. Appraisal - ANSWER-A professional estimate of a property's fair market value based on one of three approaches: the sales comparison approach, income approach, and cost approach; generally required by a lender before loan approval to ensure loan amount does not exceed value of the property. Appraisal Fee - ANSWER-Fee charged by an appraiser to estimate the market value of a property. building. Budget - ANSWER-A detailed record of all income earned and spent during a specific period of time. Buy-Down - ANSWER-An amount paid to the lender to secure a lower interest rate. It may be permanent or temporary; a temporary buy-down is usually paid for by a person other than the borrower and is used to lower payments for a set period of time. Cap - ANSWER-On an ARM, a limit on how much a monthly payment or interest rate can increase or decrease at each adjustment period or over the life of the mortgage; payment caps may result in negative amortization. Capacity - ANSWER-The ability to make mortgage payments on time, dependent on income, past and present employment, and probability of continued employment. Capital Gain - ANSWER-The profit received based on the difference between the original purchase price and the total sale price. Capital Improvements - ANSWER-Property improvements that either will enhance the property value or increase the useful life of the property. Capital or Cash Reserves - ANSWER-An individual's savings, investments, or assets. Cash-Out Refinance - ANSWER-The refinance of a mortgage at a higher principal amount so that the borrower receives cash out over and above the payoff of the existing mortgage; usually occurs when the property has appreciated in value. Cash Reserves - ANSWER-A cash amount sometimes required of the buyer by the lender to be held in reserve in addition to the down payment and closing costs. Property insurance... - ANSWER-Covers any damage to a home and/or the real and personal property. Certificate of Title - ANSWER-A document provided by a qualified source (e.g., a title company) that shows ownership of a specific property; before the title is transferred, it should be clear and free of all liens or other claims. Chapter 7 Bankruptcy - ANSWER-A bankruptcy requiring that assets be liquidated in exchange for the cancellation of debt. Chapter 13 Bankruptcy - ANSWER-A bankruptcy that establishes a payment plan between the borrower and the creditor and is monitored by the court; in terms of real property, the homeowner can keep the property, but must make payments on the property according to the court's terms. Charge-Off - ANSWER-The portion of principal and interest due on a loan that is written off when deemed to be uncollectible. Clear Title - ANSWER-A property title that has no defects; properties with clear titles are marketable for sale. Closing - ANSWER-The final step in property purchase; funds are transferred; closing documents are signed; title is transferred from the seller to the buyer; closing occurs at a meeting between the buyer, seller, settlement agent, and other agents; also known as settlement. Closing Costs - ANSWER-Fees related to a mortgage loan not included in the price of the property; typical closing costs include origination fees, discount points, appraisal fees, survey, title insurance, legal fees, real estate professional fees, prepayment of taxes and insurance, and real estate transfer taxes. Closing Disclosure - ANSWER-Truth-in-lending disclosure required under Regulation Z; provides the final terms and conditions for a mortgage loan; must be provided to borrower no less than three business days prior to loan consummation; replaces the HUD-1 Settlement Statement. Cloud On Title - ANSWER-Any condition which affects the clear title to real property. Co-Borrower - ANSWER-An additional person who is responsible for loan repayment and is listed on the title. Co-Signed Account - ANSWER-An account with a primary borrower and an additional person guaranteeing payment; both people responsible for the amount borrowed. Co-Signer - ANSWER-A person that signs a credit application with another person, agreeing to be equally responsible for the repayment of the loan. Collateral - ANSWER-Security in the form of money or property pledged for the payment of a loan (e.g., real property as collateral for payment of a mortgage loan). Collection Account - ANSWER-An unpaid debt referred to a collection agency; this is reported to credit bureaus and will show on the borrower's credit report. Commission - ANSWER-An amount paid to a real estate professional as a fee for negotiating the transaction; usually a percentage of the property sales price; amount determined by the real estate professional and the seller and can be as much as 6% of the sales price. Common Stock - ANSWER-A security that provides voting rights in a corporation and pays a dividend after preferred stock holders have been paid; most common stock held within a company. Comparative Market Analysis - ANSWER-An estimate of property value, usually performed by real estate licensees, based on a comparison of similar properties sold within the last year. Compensating Factors - ANSWER-Factors that show the ability to repay a loan based on less-traditional criteria, such as employment, rent, and utility payment history. Condominium - ANSWER-A form of ownership in which individuals purchase and own a unit of housing in a multi-unit complex; owners shares financial responsibility for common areas. Conforming loan - ANSWER-A loan that does not exceed Fannie Mae's and Freddie Mac's loan limits. Consideration - ANSWER-An item of value given in exchange for a promise or act. Construction Loan - ANSWER-A short-term loan used to finance the cost of building a new home; lender pays builder based on milestones reached during the building process. Contingency - ANSWER-A clause in a purchase contract outlining conditions that must be fulfilled before the contract is executed; both buyer and seller may include interchangeably with the term "borrower." The debt-to-income ratio is... - ANSWER-A comparison or ratio of gross income to housing and non-housing expenses; for FHA loans, mortgage payment should be no more than 31% of monthly gross income and mortgage payments combined with nonhousing debts should not exceed 43% of income. Debt Security - ANSWER-A debt instrument issued by an entity and sold to an investor. Deductible - ANSWER-The insured's (i.e., the homeowner) share of the cost to cover a portion of a damage or loss; sometimes called out-of-pocket expenses; typically, the higher the deductible, the lower the policy cost. Deed - ANSWER-A document evidencing ownership of property; recorded on public record with the property description and the owner's signature; also known as the title. Deed-in-Lieu of Foreclosure - ANSWER-To avoid foreclosure, a deed is given to the lender to fulfill the obligation to repay the debt; borrower may not remain in the property; helps avoid the costs, time, and effort associated with foreclosure. Default - ANSWER-Inability to make timely monthly mortgage payments or otherwise comply with mortgage terms; loan considered in default when payment has not been paid after 60 to 90 days; upon default, lender can begin foreclosure proceedings based on provisions of loan contract. Delinquency - ANSWER-Failure of a borrower to make timely mortgage payments under a loan agreement; in general, a late fee may be assessed after 15 days. Department of Veterans Affairs - ANSWER-Federal agency which guarantees loans made to veterans; loan guarantee protects lenders against loss that may result from a borrower default. Deposit - ANSWER-Money put down by a potential buyer to show intent to purchase; becomes part of the down payment if the offer is accepted; is returned if the offer is rejected or forfeited if the buyer pulls out of the deal; during the contingency period, money may be returned to buyer if contingencies not met; also known as earnest money. Depreciation - ANSWER-A decrease in the value or price of a property due to changes in market conditions, wear and tear on the property, or other factors. Derivative - ANSWER-A contract between two or more parties in which the security is dependent on the price of another investment. Disclosures - ANSWER-The release of relevant information about a property that may influence the final sale, especially if it represents defects or problems; "full disclosure" usually refers to the responsibility of the seller to voluntarily provide all known information about the property; some disclosures required by law (e.g., lead-based paint disclosure for pre-1978 housing). Disclosures (as relates to mortgage loans) - ANSWER-Information which must be provided to a potential buyer as required by law (e.g., Loan Estimate and Closing Disclosure; CHARM Booklet; loan servicing disclosures). Discount Point - ANSWER-An amount which equals 1% of the total loan amount and is paid to reduce the interest rate on a loan; usually paid at closing. Down Payment - ANSWER-The portion of a home's purchase price that is paid in cash and is not part of the mortgage loan; the amount is the difference between sale price and actual mortgage loan amount; for conventional loans, mortgage insurance is required when the down payment is less than 20%. Document Recording - ANSWER-Specified documents filed and made part of the public record; upon closing, deed filed shows new owner and lender. Due-on-Sale Clause - ANSWER-A loan provision allowing the lender to demand full repayment of the loan if the property is sold. Duration - ANSWER-The number of years it will take to receive the present value of all future payments on a security to include both principal and interest. Earnest Money (Deposit) - ANSWER-Money put down by a potential buyer to show intent to purchase; becomes part of the down payment if the offer is accepted; returned if the offer is rejected or forfeited if the buyer pulls out of the deal. During the contingency period, money may be returned to the buyer if contingencies are not met; also known as a deposit. Earnings Per Share - ANSWER-A corporation's profit that is divided among each share of common stock; determined by dividing net earnings by the number of outstanding common stocks; method of reporting profitability. Easement - ANSWER-The right given to a person to access or use the property of another for a specific purpose; may affect property values and sometimes included in the deed. Energy Efficient Mortgage - ANSWER-A federal government program that provides benefits to homebuyers that purchase energy-efficient homes; FHA EEM allows for financing of energy efficiency features to a new or existing home as part of the home purchase. Eminent Domain - ANSWER-A process under which the government may take possession and ownership of private property for public use; owner receives payment for property's fair market value. Encroachments - ANSWER-A structure that extends over the legal property line onto another individual's property; will be noted after survey done before property transfer; person encroaching may be asked to remove structure. Encumbrance - ANSWER-Anything that affects title to a property (e.g., a loan, lease, easement, or restriction). Equal Credit Opportunity Act - ANSWER-A federal law prohibiting discrimination in lending based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs. Equity - ANSWER-An owner's financial interest in a property; calculated by subtracting the amount owed on the mortgage loan(s)from the fair market value of the property. Escape Clause - ANSWER-A provision in a purchase contract that allows either party to cancel some or all of the contract if the other does not respond to changes to the sale within a set Provides lenders with funds for new homebuyers; also known as a Government-sponsored enterprise (GSE). Front-End Ratio - ANSWER-A percentage comparing a borrower's total monthly housing expenses (i.e., mortgage principal and interest, insurance, and real estate taxes) to his or her monthly gross income. Government-sponsored enterprise - ANSWER-A collection of financial services corporations formed by the United States Congress to reduce interest rates for farmers and homeowners. Ginnie Mae - ANSWER-Government National Mortgage Association; a government- owned corporation overseen by the U.S. Department of Housing and Urban Development; pools FHA-insured and VA-guaranteed loans to back securities for private investment; provides funding for lenders to make loans to eligible borrowers. Good Faith Estimate - ANSWER-An estimate of the costs of a mortgage loan; replaced by the Loan Estimate for most mortgage transactions. Graduated Payment Mortgage - ANSWER-A mortgage under which the monthly payments start low and slowly get larger over a period of years before finally reaching a fixed level for the remaining term of the loan. Grantee - ANSWER-The person to whom an interest in real property is conveyed. Grantor - ANSWER-The person conveying an interest in real property. Gross Income - ANSWER-Earned income before deductions; deductions may include taxes, alimony, child support, assessments, and retirement benefits. Guaranty Fee - ANSWER-Payment to Fannie Mae from a lender for providing guarantee of the payment of principal and interest on MBSs. HECM - ANSWER-An FHA reverse mortgage in which a senior homeowner, age 62 and older, can convert the equity in his or her home into a monthly stream of income and/or a line of credit to be repaid when certain conditions occur. Hazard Insurance - ANSWER-Protection against loss (e.g., theft, fire, wind) to real and/or personal property over a period of time; secured by payment of a regularlyscheduled premium; also known as homeowner's insurance. HELP - ANSWER-Homebuyer Education Learning Program; FHA educational program that provides homeownership counseling; covers topics like budgeting, finding a home, getting a loan, and home maintenance; completion may entitle the homebuyer to reduced FHA mortgage insurance premium (reduction from 2.25% to 1.75% of the home purchase price). Home Equity Line of Credit - ANSWER-Mortgage loan allowing a borrower to obtain cash against the equity of his or her home, up to a predetermined amount; usually a second mortgage; also known as a HELOC. Home Equity Loan - ANSWER-A loan backed by the borrower's equity in his or her home. Home Inspection - ANSWER-An examination of the structure and mechanical systems of a home to determine quality, soundness, and safety; makes the potential homebuyer aware of any repairs that may be needed; fee generally paid by buyer. Home Warranty - ANSWER-Offers protection for mechanical systems and attached appliances against unexpected repairs not covered by homeowner's insurance; coverage extends over a specific time period; does not cover the home's structure. Homeowner's Insurance - ANSWER-Protection against loss (e.g., theft, fire, wind) to real and/or personal property over a period of time; secured by payment of a regularlyscheduled premium; also provides protection against claims of negligence or inappropriate action that result in someone's injury or property damage. Most lenders require homeowner's insurance be maintained; premiums may be paid from escrow account funded by borrower payment; flood insurance is generally not included and must be purchased separately; also known as hazard insurance. Homeownership Education Class - ANSWER-Class that stresses the need to develop a strong credit history; offers information about how to get a mortgage approved, qualify for a loan, choose an affordable home, financing and closing processes, and how to avoid problems that cause people to lose their homes. Homestead Credit - ANSWER-Property tax credit program, offered by some states, that provides reductions in property taxes to eligible households. Housing Counseling Agency - ANSWER-Provides counseling and assistance to individuals on a variety of issues, including loan default, fair housing, and home buying. HUD - ANSWER-U.S. Department of Housing and Urban Development; established in 1965; addresses housing needs, improving and developing American communities, and enforces fair housing laws. HUD-1 Settlement Statement - ANSWER-Under the TILA-RESPA Integrated Disclosure Rule, replaced by the Closing Disclosure for most mortgage loan transactions. Itemizes all closing costs. HVAC - ANSWER-A home's heating and cooling system. Indemnification - ANSWER-The provision in an agreement requiring a party to the agreement to bear the monetary cost of any loss caused to the other party; the promise of one party to cover the loss to another, incurred as a result of the act(s) of the indemnifier. Index Rate - ANSWER-A measure of interest rates based on an index, which is a published rate or yield; rate on an ARM based on the index rate plus the margin. Inflation - ANSWER-Occurs when the number of dollars in circulation exceeds the amount of goods and services available for purchase; results in a decrease in the value of a dollar. Inflation Coverage - ANSWER-Endorsement to a homeowner's policy that automatically adjusts the amount of insurance to compensate for inflationary rises in the home's value; does not adjust for increases in the home's value due to improvements. Inquiry - ANSWER-A credit report request; each credit application is an inquiry; large borrower no more than three days after submission of a loan application and no less than seven days prior to loan consummation; takes the place of the Good Faith Estimate. Loan Fraud - ANSWER-A material misstatement, misrepresentation, or omission that the person knows will be relied upon by the lender or borrower in a mortgage loan transaction; may be fraud for property (e.g., asset fraud, concealment of liabilities) or fraud for profit (occupancy fraud, identity theft, documentation fraud); may result in civil liability or criminal penalties. Loan Officer - ANSWER-A representative of a creditor who is responsible for soliciting homebuyers, qualifying and processing loans; may also be called a loan representative, account executive, or loan rep. Loan Origination Fee - ANSWER-A charge by a mortgage broker or lender to cover the administrative costs of making the mortgage; paid at the closing; varies with the lender and type of loan. Loan Servicer - ANSWER-A company that collects monthly mortgage payments from borrowers and maintains escrow accounts from which it pays property taxes and insurance premiums on borrowers' behalf; also monitors nonperforming loans, contacts delinquent borrowers, and notifies insurers and investors of potential problems; may be the lender or a separate company contracted to handle loan servicing activities. Loan-to-Value Ratio - ANSWER-The relationship of the loan amount to the lower of the appraised value or purchase price of a property, as a percentage; the lower the down payment, the higher the LTV. Lock-In - ANSWER-A lender's commitment to offer a specific interest rate for a specific period of time; evidenced by a lock-in agreement and payment of lock-in fee. Lock-In Period - ANSWER-The period of time that a lender will guarantee a specific interest rate to a borrower. Loss Mitigation - ANSWER-A process of helping a borrower in danger of defaulting avoid foreclosure. Margin - ANSWER-The number of percentage points the lender adds to the index rate to calculate the ARM interest rate; sometimes call the spread; the margin does not change during the term of the loan. Maturity - ANSWER-The date when the principal balance of a loan becomes due and payable. Median Price - ANSWER-The exact middle price in a given market. Exactly half of homes in the area fall below the median price, and the other half are above it. Merged Credit Report - ANSWER-Raw data pulled from two or more of the major credit- reporting firms. Mitigation - ANSWER-In terms of the mortgage industry, loss mitigation occurs when the lender works with a delinquent borrower to modify the terms of the mortgage loan. Modification - ANSWER-An agreement between the lender and borrower to modify the terms of a mortgage; not a loan refinance. Mortgage - ANSWER-A lien on real property that secures the borrower's promise to repay a loan; mortgage gives the lender the right to collect payment on the loan and to foreclose if loan obligations are not met. Mortgage Acceleration Clause - ANSWER-The clause in a mortgage allowing a lender to demand repayment of a loan in a lump sum prior to the maturity date; may be triggered if the home is sold, title to the property is changed, the loan is refinanced, or the borrower defaults. Mortgage-Backed Security - ANSWER-A security that represents an undivided interest in a group of mortgages; principal and interest payments from the individual mortgage loans are grouped and paid out to MBS holders. Mortgage Banker - ANSWER-A company that originates loans and resells them to secondary mortgage lenders like Fannie Mae or Freddie Mac; may also be known as a mortgage lender. Mortgage Broker - ANSWER-A firm or individual that originates and processes loans for a number of lenders. Mortgage Life and Disability Insurance - ANSWER-Term life insurance that will pay off a mortgage in the event of the death of the borrower or make monthly payments in the case of disability; the amount of coverage decreases as the principal balance declines. Mortgage Insurance - ANSWER-A policy that protects lenders against loss when a borrower defaults on a mortgage loan; required primarily for borrowers with a down payment of less than 20% of the home's purchase price; cost usually added to the monthly payment; under Homeowners Protection Act, insurance maintained until the outstanding loan balance is less than 80% of the value of the house at time of purchase, mortgage paid down to 78% of original amount or at midpoint of loan term. Mortgage Insurance Premium - ANSWER-Monthly payment, usually part of the mortgage payment, paid by a borrower for mortgage insurance. Mortgage Interest Deduction - ANSWER-The interest cost of a mortgage; generally tax- deductible; reduces the taxable income of borrower. Mortgage Modification - ANSWER-Loss mitigation option that allows a borrower to modify and/or extend the term of the mortgage loan and thus reduce the monthly payments. Mortgage Note - ANSWER-Legal document obligating a borrower to repay a loan at a stated interest rate during a specified period; secured by a mortgage that is recorded in the public records along with the deed. Mortgage Payments - ANSWER-Periodic payments required under a mortgage loan. Mortgage Qualifying Ratio - ANSWER-Used to calculate the maximum amount of a loan an individual may be granted; typical mortgage qualifying ratio is 28: 36. Mortgage Score - ANSWER-Score based on information about the borrower that is obtained from the loan application and credit report and property value information; comprehensive analysis of the borrower's ability to repay a mortgage loan and manage credit. Partial Claim - ANSWER-Loss mitigation option offered by the FHA that allows a borrower to defer repayment of an interest-free subordinate loan from HUD until first mortgage paid; subordinate mortgage reduces unpaid principal by up to 30%, bringing mortgage payments to affordable level. Partial Payment - ANSWER-A payment that is less than the total amount; loan servicer must advise borrower if it accepts partial payments and, if so, what its partial payment policy is. Payment Cap - ANSWER-Limit on how much an ARM's payment may increase, regardless of how much the interest rate increases. Payment Change Date - ANSWER-The date when a new monthly payment amount takes effect on an ARM or GPM; generally, occurs in the month immediately after the rate adjustment date. Payment Due Date - ANSWER-The date each month (or payment period) when payments are due on a loan; most mortgage loans provide for a grace period prior to assessing a late fee or additional. Perils - ANSWER-Under a homeowner's insurance policy, an event that can damage the property; perils may be caused by accidents, nature, or people. Personal Property - ANSWER-Any property that is not real property or attached to real property (e.g., furniture is personal property; an attached light fixture would be considered part of the real property). Planned Unit Development - ANSWER-A development that is planned and constructed as one entity; owners own interests in or portions of the common property (e.g., club house, pool) managed by the owner's or neighborhood association; membership in the association and payment of annual dues usually required. Points - ANSWER-A point is equal to 1% of the principal amount of the mortgage; points usually are collected at closing and may be paid by the borrower or the home seller or may be split between them. Power of Attorney - ANSWER-A legal document that authorizes one person to act on behalf of another; can grant complete authority or be limited to certain acts and/or certain periods of time. Preapproval - ANSWER-Lender's commitment to grant credit for a fixed loan amount based on a completed loan application, credit reports, debt, savings and review by an underwriter; commitment remains as long as the borrower still meets the qualification requirements at time of purchase; does not guarantee a loan until the property has passed inspections underwriting guidelines. Predatory Lending - ANSWER-Abusive lending practices (e.g., granting a mortgage loan to someone without regard to ability to repay or based on the collateral's foreclosure value, repeated refinancing of a loan, charging high interest and fees each time). Predictive Variables - ANSWER-The variables that are part of the formula comprising elements of a credit-scoring model; used to predict a borrower's future credit performance. Preferred Stock - ANSWER-Stock that takes priority over common stock with regard to dividends and liquidation rights; preferred stockholders typically have no voting rights. Preforeclosure Sale - ANSWER-A procedure in which the borrower is allowed to sell a property for less than what is owed on it to avoid a foreclosure; fully satisfies the borrower's debt; also known as a short sale. Premium - ANSWER-An amount paid on a regular schedule by a policyholder to maintain insurance coverage. Prepayment - ANSWER-Any amount paid to reduce the principal balance of a loan before the due date; can occur with the sale of the property, paying down or paying off the loan ahead of schedule or with a foreclosure; full payment occurs before the loan has fully amortized. Prepayment Penalty - ANSWER-A fee charged to a borrower who pays off a loan before it is due; prohibited for high-cost loans under HOEPA, and for any mortgage loans other than fixed-rate qualified mortgages that are not higher-priced mortgages. Prequalification - ANSWER-A determination of the maximum amount an individual is eligible to borrow; not a guarantee of a loan. Price Range - ANSWER-The high and low amount a buyer is willing to pay for a home. Prime Rate - ANSWER-The interest rate that banks charge to preferred customers; publicized in the business media; may be used as the basis for ARM rates or home equity lines of credit; also affects interest rates being offered on fixed mortgages but does not affect the interest on a fixed-rate mortgage already taken. Principal - ANSWER-The amount of money borrowed to buy a house or other item; does not include the interest owing on the borrowed money; the original loan amount minus the total repayments of principal made. Principal, Interest, Taxes, and Insurance - ANSWER-The four elements of a monthly mortgage payment; payments of principal and interest pay down the loan; portion that covers taxes and insurance (if applicable) goes into an escrow account to be held until taxes or premiums are due. Private Mortgage Insurance - ANSWER-Mortgage insurance programs for qualified borrowers with down payments of less than 20% of a purchase price; offered through private insurance carriers. Promissory Note - ANSWER-A written promise to repay a specified amount over a specified period of time. Property (Fixture and Non-Fixture) - ANSWER-The land (real property) within legallydescribed boundaries, including all permanent structures and fixtures; ownership confers the legal right to use the property as allowed within the law and within the restrictions of zoning or easements; fixtures are items permanently attached to the structure (e.g., carpeting or a ceiling fan). Property Tax - ANSWER-Tax charged by local government and used to fund municipal services such as schools, police, or street maintenance; amount usually based on a Reverse Mortgage - ANSWER-Mortgage transaction in which a senior homeowner, age 62 and older, can convert the equity in his or her home into a monthly stream of income and/or a line of credit to be repaid when certain conditions occur; (e.g., the borrower no longer occupy the home or passes away). Right of First Refusal - ANSWER-A contract provision that requires the owner of a property to give one party an opportunity to purchase or lease a property before it is offered for sale or lease to others. Risk-Based Capital - ANSWER-Capital needed to offset losses during a ten-year period with adverse circumstances. Risk-Based Pricing - ANSWER-Fee structure used by creditors based on risks of granting credit to a borrower with a poor credit history. Risk Scoring - ANSWER-Automated way to analyze a credit report versus a manual review; takes into account late payments, outstanding debt, credit experience, and number of inquiries in an unbiased manner. Sale Leaseback - ANSWER-Situation under which a seller deeds property to a buyer for a payment and the buyer simultaneously leases the property back to the seller. Second Mortgage - ANSWER-An additional mortgage on property; in case of a default, after foreclosure sale, first mortgage must be paid before second; second loans more risky and usually carry a higher interest rate; also called subordinate mortgage or junior mortgage. Secondary Mortgage Market - ANSWER-Market where mortgage loans and servicing rights are bought and sold; investor purchase of residential mortgages originated by lenders provides lenders with capital for additional lending. Secured Loan - ANSWER-A loan backed by collateral (e.g., real property, personal property). Security - ANSWER-Property pledged as collateral for a loan. Seller Take-Back - ANSWER-Agreement under which owner of a property provides second mortgage financing. Serious Delinquency - ANSWER-A mortgage that is 90 days or more past due. Servicer - ANSWER-An entity that collects mortgage payments from borrowers and manages borrowers' escrow accounts. Servicing - ANSWER-The collection of mortgage payments from borrowers, maintenance of borrower escrow accounts, loan mitigation activities, and related responsibilities of a loan servicer. Setback - ANSWER-The distance between a property line and the area where building can be located; used to ensure adequate space between buildings and from roads for many purposes (e.g., drainage and utility placement). Settlement - ANSWER-Another name for closing. Settlement Statement - ANSWER-An itemized statement of services and charges relating to the closing of a mortgage loan; under TILA-RESPA Integrated Disclosure Rule, replaced with the Closing Disclosure for most transactions, which must be provided to borrower no less than three days prior to consummation. Special Forbearance - ANSWER-Loss mitigation option under which lender agrees to a revised repayment plan that may include a temporary reduction or suspension of monthly loan payments. Subprime Loan - ANSWER-A loan made to a credit-impaired borrower; industry term used to describe loans with less stringent lending and underwriting terms; due to the higher risk, subprime loans have higher interest and higher fees. Subordinate Mortgage - ANSWER-A second-lien loan; may be called a junior loan. Survey - ANSWER-A property diagram that indicates legal boundaries, easements, encroachments, rights of way, improvement locations to a specific property; conducted by licensed surveyors; normally required by the lender to confirm that property boundaries and features (e.g., buildings) and easements are correctly described in the property's legal description. Sweat Equity - ANSWER-The crediting of labor to build or improve a property as part of the down payment. Third-Party Origination - ANSWER-A process by which a lender uses another party to completely or partially originate, process, underwrite, close, fund, or package the mortgages it plans to deliver to the secondary mortgage market. Terms - ANSWER-The period of time and the interest rate agreed upon by the lender and the borrower to repay a loan. Title - ANSWER-A legal document establishing the right of ownership; recorded to make it part of the public record; also known as a deed. Title 1 - ANSWER-An FHA-insured loan that allows a borrower to make renovations or repairs to their home; available for up to $25,000; not based on home equity; loans of less than $7,500 do not require a property lien. Title Company - ANSWER-A company that specializes in examining and insuring titles to real estate. Title Defect - ANSWER-An outstanding claim on a property that limits the ability to sell the property; also known as a cloud on the title. Title Insurance - ANSWER-Insurance that protects the insured against any claims that arise from defects to a property's title; available for both the lender and homebuyer; policy that protects buyer known as an owner's policy or homeowner's policy; policy that protects lender known as lender's policy, loan policy, or mortgagee's policy. Title Search - ANSWER-A check of public records to trace conveyances and encumbrances relating to a specific property and to ensure that no one except the current owner has a valid claim to the property.