Understanding Qualified Mortgages and Ability to Repay Standards, Exams of Business Economics

Download Understanding Qualified Mortgages and Ability to Repay Standards and more Exams Business Economics in PDF only on Docsity! NMLS- SAFE Test Review Questions with Answers 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 subsidizes 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 relationship..." The initial privacy notice should also be accompanied by the opt-out notice. HMDA requires loan originators to... - ANSWER-Request information on an applicant's race, ethnicity, and sex. The applicant may decline to ANSWER, in which case the loan originator must make a best guess based on visual observation. This information is necessary to meet the reporting requirements of HMDA. A permissible purpose is required... - ANSWER-When obtaining a credit report. Under FCRA, lenders and mortgage professionals must provide the consumer reporting Agency with a certification of permissible purpose in order to pull credit. Loan Qualification is considered a permissible purpose. The Gramm-Leach-Bliley Act does not protect... - ANSWER-Publicly- available information. This includes information that can be found in government real estate records, information available from the phonebook, and information included on a public, unrestricted website. 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-At least three business days prior to consummation Exceptions to ECOA prohibited inquiries... - ANSWER-Although ECOA prohibits inquiries about protected personal characteristics, mortgage professionals are permitted to ask about race, ethnicity, and sex for the purposes of compliance with government monitoring programs (such as HMDA). Inquiries about protected characteristics may also be used to determine eligibility for special-purpose credit, such as assistance programs through non-profits. The purpose of the Homeowners Protection Act is to... - ANSWER- Facilitate the cancellation of private mortgage insurance (PMI). Borrowers can request cancellation when their loan reaches 80% loan- to-value (20% equity), but the law requires automatic termination of PMI at 78% LTV (22% equity). Advertising trigger terms for closed-end loans under TILA include... - ANSWER-Amount or percentage of any down payment, Number of payments or period of repayment, Amount of any payment, Amount of any finance charge Use of trigger terms in advertisements requires disclosure of: - ANSWER-Amount and percentage of the down payment, Terms of repayment, such as inclusion of a balloon payment, Annual percentage rate The TRID Rule does not apply to... - ANSWER-HELOCs, Reverse mortgages, Mortgages secured by a mobile home or dwelling not attached to real property Fee splitting is illegal when... - ANSWER-One or both settlement service providers fail to Perform enough work to earn the fee. "Low monthly payments" is an example of... - ANSWER-An advertising trigger term under Regulation Z. TILA/Regulation Z requires additional information to be provided in an advertisement that contains trigger terms. Most commonly, APR must be provided if the advertisement includes the note rate. Regulation B... - ANSWER-Is the regulation that issues the rules for 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 identifies 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 What are the penalties for violations of ECOA? - ANSWER-Violators of ECOA can face civil penalties of $5,000 per day. A pattern of misconduct can result in civil penalties of $25,000. Punitive damages can result in fines of up to $10,000 in individual actions or the lesser of $500,000 or 1% of the violator's net worth. The purpose of FCRA is... - ANSWER-The Fair Credit Reporting Act (FCRA) is aimed at ensuring the accuracy, fairness, and privacy of consumers' personal information that is assembled and used by consumer reporting agencies. An Opt-Out Notice is due... - ANSWER-At the same time as the Initial Privacy Notice - i.e., when a customer relationship is established. The Gramm-Leach- Bliley Act requires financial institutions (including mortgage brokers) to provide an Opt- Out Notice with a Method for customers to opt out of the sharing of their personal information. Phone numbers remain on the Do-Not-Call Registry.... - ANSWER- Indefinitely. Amendments to the Telemarketing Sales Act in 2007 permit consumers to place their telephone numbers on the Registry indefinitely. Responsibility for delivering the Closing Disclosure belongs to the... - ANSWER- Creditor. A revised Closing Disclosure may be provided... - ANSWER-At or before Consummation. After loan servicing is transferred... - ANSWER-The new servicer cannot assess late Fees for a period of 60 days. What is the finance charge? - ANSWER-The finance charge is the cost of credit expressed as a dollar amount. Finance charges include interest and other fees paid in conjunction with the loan transaction, such as broker fees and points. It must be disclosed to a consumer within three business days of loan application, along with the APR, and must not be understated by more than $100 Who has the right to rescind a loan transaction? - ANSWER-Anyone with an ownership Interest in the property. Civil action under ECOA... - ANSWER-Must be taken by consumers within five years of A violation. An exception exists in that if an Attorney General initiates action, the Aggrieved consumer may take action within one year of the initiation of proceedings. The purpose of FACTA is... - ANSWER-The Fair and Accurate Credit Transactions Act (FACTA) was passed as an amendment to the FCRA. It includes provisions to address identity theft, facilitate consumers' access to the information retained by CRAs, and improve the accuracy of consumer reports. The disclosure due at least seven business days prior to closing is the... - ANSWER- Loan Estimate Changes in the Closing Disclosure that require a new three-day waiting period include... - ANSWER-A change in the APR, A change in the loan product, Addition of a prepayment penalty Fees charged for preparation of a Closing Disclosure... - ANSWER-Are prohibited 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-Leach Bliley 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 Appraisal and credit report fees are not included if they are part of application fees which are charged to all applicants. What happens when a loan is rescinded? - ANSWER-Each party to the transaction is restored to their previous position. The transaction is canceled and funds and property must be returned. The three-year right to rescind exists for... - ANSWER-Borrowers who did not receive a Notice of the right to rescind or accurate disclosures as required by law. HOEPA high-cost home loan thresholds... - ANSWER-APR threshold, Points and fees threshold, Prepayment penalty threshold Interest is defined as... - ANSWER-Money that a lender earns from a loan. The rate of interest depends on the market rates for the type of loan and the qualifications of the borrower. Seller concessions for conforming loans with an LTV of greater than 90% are... - ANSWER-Limited to 3%. Limitations for seller financing - or 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. "PFC" stands for... - ANSWER-Prepaid finance charge. Prepaid finance charges are items paid at closing, such as discount points, prepaid interest, etc. FHA loans are beneficial because... - ANSWER-They are insured by the federal government. This provides security for the lender in the event that the borrower defaults on payments. A deed of trust is... - ANSWER-A document used in place of a mortgage to secure the Payment of a promissory note. This method is used in many states. "COFI" stands for... - ANSWER-The Cost of Funds Index. COFI is a common index Used to determine rate adjustments on adjustable- rate programs. Option ARMs offer payment choices such as... - ANSWER-Principal and interest, Interest-only, Minimum payment of the loan amount, These flexible payment options made option ARMs popular products, but were often misunderstood by borrowers, leading to negative amortization. "APR" means... - ANSWER-Annual percentage rate. This is the cost of credit expressed As a percentage. The Truth-in-Lending Act requires disclosure of this amount to loan Applicants. A nonconforming loan... - ANSWER-Is one that exceeds Fannie Mae and Freddie Mac's Loan limits or underwriting standards. A conveyance clause... - ANSWER-Is the method used to transfer title for a property Following full payment of a loan. Conveyance is typically used with a deed of trust. MIP is mandatory when a loan is... - ANSWER-An FHA loan. FHA loans require both Upfront MIP (UFMIP), calculated at a rate of 1.75%, and annual MIP. A reverse mortgage is... - ANSWER-A type of loan program that provides the borrower with funds based on equity. They do not have to repay the loan as long as they live in the home. Reverse mortgages are 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... - ANSWER Limited 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 changes 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. ANSWER-3.5%. FHA loans Also require upfront and annual MIP. FHA's primary fixed-rate program is... - ANSWER-Called 203(b). It is used to purchase Or refinance one- to four-unit family dwellings. What is a note? - ANSWER-A legal document that obligates a borrower to repay a loan. It specifies the terms by which the repayment will occur. It may also be called a Promissory note. The Department of Veterans Affairs... - ANSWER-Guarantees loans. VA loans provide a Guaranty to lenders for a certain percentage of the loan amount. FHA 2-1 buy-downs require borrowers to... - ANSWER-Qualify at the note rate. However, funds placed in an escrow account will allow them to pay a discounted monthly payment based on a lower interest rate for two years - 2% in the first year and 1% the second year. To qualify for a VA loan, a veteran must obtain a... - ANSWER- Certificate of Eligibility. Eligibility is based on length of service. COEs are not issued to veterans who are Dishonorably discharged. The amount of the VA funding fee depends on... - ANSWER-The type of loan and whether the veteran's eligibility has been used before. Disabled veterans are generally exempt from paying the funding fee. Origination fees on VA loans are... - ANSWER-Limited to 1%. There are limitations on Certain types of charges and closing costs cannot be financed in purchase transactions. VA underwriters use a debt ratio of... - ANSWER-41%. The VA only looks at the total Debt ratio. However, underwriters do look at the veteran's residual income for Qualification purposes. What are discount points? - ANSWER-Discount points are used to adjust the price of a Loan. One discount point is equal to 1% of the loan amount. The VA loan guaranty is based on a veteran's... - ANSWER-Entitlement. VA guarantees a loan amount four times greater than the eligibility listed on the veteran's Certificate of Eligibility . USDA loans are made for a term of... - ANSWER-30 years, offered in a fixed rate only. They do not require a down payment, but lenders must use debt ratios to ensure the borrower can repay the loan. Alt-A loans are... - ANSWER-Used for consumers who do not represent the credit risk of subprime borrowers but who do not meet the underwriting requirements for conforming Prime rate loans. Subprime loans are... - ANSWER-Loans with higher interest rates made to borrowers With blemished credit or other qualification issues. The loans do not conform with Fannie Mae and Freddie Mac underwriting requirements. Nontraditional mortgage products are defined as... - ANSWER-Any 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... - ANSWER Prepayment 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) ANSWER-25% of the loan amount, for a loan greater than $144,000 The 1003 is also known as... - ANSWER-The Uniform Residential Loan Application (URLA). 1003 is Fannie Mae's form number. Freddie Mac refers to the same form as Form 65. A borrower must obtain flood insurance... - ANSWER-If the appraiser notes that the property is located in a flood zone. Zones A and V require mandatory flood insurance. Providing demographic information on the 1003 is... - ANSWER- Voluntary for loan applicants. If they decline to provide the demographic information requested on the 1003, loan originators should make a best guess based on visual observation and note that they have done so. Back-end DTI is concerned with... - ANSWER-A borrower's ability to meet monthly Housing and other fixed debt expenses based on monthly income. Credit reports include... - ANSWER-Information available in public records and data Reported by creditors (including derogatory information, such as late payments). Credit scoring was designed by... - ANSWER-Fair, Isaac and Company - now the Fair Isaac Corporation (FICO). Credit scores are often known as FICO scores. How is annual MIP determined? - ANSWER-Based on loan amount, loan term, and loan-to-value. The mortgage insurance premium required on all FHA loans is collected as an upfront premium (UFMIP) and on a monthly basis (annual MIP divided into 12 equal parts). The sales comparison approach is... - ANSWER-An appraisal method which compares The subject property to recently-sold comparable properties in close proximity. It is also Called the "market approach." LTV is... - ANSWER-The ratio of the principal loan balance to the appraised value of the Property. Loan-to-value is used in borrower qualification to assess risk. Credit report red flags may include... - ANSWER-Recently opened accounts, Misspellings and errors, uncharacteristic use or sudden increase in use of credit, large number of recent inquiries, Credit history that does not match what the originator knows about the applicant The total debt ratio is also called... - ANSWER-The back-end ratio. The back-end ratio looks at the percentage of a borrower's housing debt plus other consumer debts Compared to his/her monthly gross income. Conventional/conforming loans generally use a back-end ratio of... - ANSWER-36%. The back-end ratio (or total debt ratio) is a comparison of all monthly debts (including Housing) to the applicant's monthly income. While 36% is generally the standard used, GSE guidelines allow flexibility up to 45%. A "point" equals... - ANSWER-1% of the loan amount. Discount points are often used to Buy down the interest rate on a loan. 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. Income calculation for bi-weekly pay... - ANSWER-{bi-weekly salary} × 26 = {annual income}, {annual income} ÷ 12 = {monthly income} Self-employed and commissioned income is... - ANSWER-Usually averaged over a two- Year period. Self-employed income would come from the tax return; commissioned Income may be taken from W-2s or tax returns. Bankruptcies stay on a credit report for up to... - ANSWER-Ten years. This is longer Than standard credit account information, which is purged after seven years? Self-employment/commission income requires caution when... - ANSWER-Evaluating the capacity of the borrowers' ability to repay a loan. This is because these forms of income are often less stable than traditional salaried employees Section 2 of the 1003 is called... - ANSWER-"Financial Information - Assets and Liabilities." It is used to capture information about the potential borrower's financial circumstances, including their assets, accounts, and existing debts. Information on consumer credit is... - ANSWER-Gathered and sold by consumer reporting agencies. The credit report (or consumer report) is the method for obtaining credit information. Credit scores are developed... - ANSWER-Using a statistically-validated system. This is Required by consumer protection laws such as ECOA and FCRA. Account information on a credit report is... - ANSWER-Generally reported for a period of Seven years. There are some exceptions for information that may be reported for a Longer period. Section 3 of the 1003 is called... - ANSWER-"Financial Information - Real Estate." It is used to capture information about any properties that the applicant currently owns, if any, and what they owe on them. For potential borrowers who do not currently own any real estate, this section would not apply. Child support and alimony... - ANSWER-May be used for income qualification if they are court-ordered. The loan applicant must be able to show a stable history of receiving the Payments . Section 4 of the 1003 is called... - ANSWER-"Loan and Property Information." It is used to find out more about the purpose of the loan that the applicant is seeking and the property that will secure it. Section 4b also collects information about other loans secured by the same property (for example, a piggyback loan to finance a down payment). Credit accounts on a consumer report usually provide... - ANSWER-The company name, Date the account was opened, Date any information for the account was reported, Months reviewed/date of last activity, Credit limit ("high credit"), Balance and past due amounts, Timeliness of payments The "Big Three" CRAs are... - ANSWER-Equifax, Experian, and Transunion. Not all Creditors report to all three agencies. Nontraditional credit includes... - ANSWER-Payments for items such as rent and utilities. First-time homebuyers or consumers with little credit history may sometimes use nontraditional credit to establish creditworthiness. 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. lender has a right to possession of the property in the event of default. Legal title is returned to the borrower upon repayment and satisfaction of the debt. In lien theory states... - ANSWER-The borrower retains legal and equitable title to the property. The mortgage is a lien against the property. In the event of default, the lender must institute a foreclosure proceeding to obtain legal title. "Table funding" is... - ANSWER-A process in which a broker originates and closes a loan in his/her own name, then transfers the loan to a lender at closing. The lender provides funds for disbursement. Dry settlement occurs when... - ANSWER-Parties meet to execute documents, but funds are not disbursed and property is not conveyed until certain specified conditions are met. Wet settlement occurs when... - ANSWER-Parties meet to execute documents and funds are subsequently disbursed. Lenders involved in purchase transactions are required to ensure that the closing agent has adequate funds to close. Loan applicants that make a false statement on the 1003... - ANSWER- May face a five- year jail term Liquid assets include... - ANSWER-Deposit or "earnest money" held in escrow, Cash, Checking/savings accounts, with account numbers, Stocks and bonds, Cash value of life insurance policies Non-liquid assets include... - ANSWER-Real estate, Retirement accounts, Net worth of businesses, Automobiles Re-disclosure of APR is required... - ANSWER-At least three business days before closing, any time the APR varies by more than one eighth of 1% (0.125%). Notice of Right to Receive Appraisal Report is due... - ANSWER-No later than three business days after receiving an application for credit secured by a first lien on a dwelling . Property flipping occurs when... - ANSWER-A property is bought and resold within a very short period of time. The resale usually involves the use of an inflated appraisal of the property's value. The HPML Rule works to curb property flipping by creating second appraisal requirements for certain transactions. 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 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. Ginny 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 During period of control of records, owner of records may... - ANSWER-Access them in order to conduct regular business affairs Regarding examinations, regulatory agencies may also... - ANSWER- Retain attorneys, accountants, or other professionals to assist with examination, Enter into agreements with other government officials to reduce regulatory burden, Use, hire, contract, or employ analytical systems, methods, or software, Accept or rely on reports from other government officials or audit reports by independent CPA Information provided to NMLS may be... - ANSWER-Shared with other state and federal officials involved with mortgage industry oversight without the loss of privilege and confidentiality protections provided by law Information provided to NMLS is not subject to... - ANSWER-Disclosure under federal or state law allowing for disclosure to the public of information held by a government officer or agency, Subpoena, discovery, or admission into evidence in civil action or administrative process Information not protected by confidentiality... - ANSWER- Employment history, Disciplinary and enforcement actions NMLS stands for... - ANSWER-Nationwide Multistate Licensing System Definition of "state" ... - ANSWER-Any state of the United States, the District of Columbia, any territory of the United States, Puerto Rico, Guam, American Samoa, the Trust Territory of the Pacific Islands, the Virgin Islands, and the Northern Mariana Islands Definition of "individual" ... - ANSWER-A natural person Definition of "person" ... - ANSWER-A natural person, corporation, company, limited liability company, partnership, or association "Loan originator" includes individuals who for compensation... - ANSWER-Take a residential mortgage loan application, or Offer or negotiate the terms of a residential mortgage loan Definition of "application" ... - ANSWER-Request for an offer of residential mortgage loan terms and the information about the borrower that is necessary in a decision on whether to make such an offer. Definition of "residential mortgage loan" ... - ANSWER-Any loan primarily for personal, family, or household use that is secured by a mortgage, deed of trust, or other security interest on a dwelling or residential real estate upon which is constructed or intended to be constructed a dwelling A "dwelling" is a residential structure that... - ANSWER- Contains one to four units, whether or not the structure is attached to real property Definition of "residential real estate" ... - ANSWER-Any real property located in a state upon which is constructed or intended to be constructed a dwelling. "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 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 anything 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 Lack of financial responsibility includes... - ANSWER-Current outstanding judgments, Current outstanding tax liens, Foreclosures or pattern of seriously delinquent accounts in past three years Minimum continuing education requirement... - ANSWER-Eight hours Eight hours of continuing education must include... - ANSWER-Three hours of federal law and regulation, Two hours of ethics, Two hours of nontraditional mortgage products Regarding continuing education, loan originator may... - ANSWER- Only receive credit for a course in the year which the course was taken, Not take the same approved course in the same or successive years Instructor may receive CE credit at the rate of... - ANSWER-Two hours for every one hour taught License renewal requirements... - ANSWER-Continue to meet minimum standards for initial licensure, Satisfy annual continuing education requirement, Pay required fees Failure to satisfy renewal requirements will result in... - ANSWER-An expired license Reports of condition are also referred to as... - ANSWER-Mortgage Call Reports Registration system required for originators employed by... - ANSWER- Depository institutions, Subsidiaries controlled by depository institutions, Institutions regulated by the Farm Credit Administration The S.A.F.E. Act addresses compliance by establishing... - ANSWER- Requirements for individuals to obtain a license before engaging in loan origination activities, Authority for the CFPB to determine whether a state licensing program for loan originators meets the standards established in the S.A.F.E. Act Prohibited practices for loan originators... - ANSWER-Defraud or mislead borrowers or lenders, Engage in unfair or deceptive practices, Obtain property by fraud or misrepresentation, Enter into a contract providing for fees earned through "best efforts", Enter into a contract for specific loan terms that are not actually available, Conduct business without a valid license, Fail to make required disclosures More prohibited practices for loan originators... - ANSWER-Fail to comply with state or federal laws, Make false or deceptive statements or representations, Knowingly make omission of material fact, Make payment, threat, or promise for the purpose of influencing a person's independent judgment, Collect or charge prohibited fees, Require excessive property insurance coverage, Fail to truthfully account for funds To enforce the S.A.F.E. Act, regulatory agency may... - ANSWER-Deny, suspend, revoke, condition, or decline to renew a license, Order a restitution, Impose fines, Issue orders or directives 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 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 disclosur e GPM - ANSWER-Graduated Payment Mortgage GSE - ANSWER-Government-Sponsored Enterprise HECM - ANSWER-Home Equity Conversion Mortgage HELOC - ANSWER-Home Equity Line of Credit HLTV or TLTV - ANSWER-High Loan-to-Value [Ratio]/ Total Loan-to- Value [Ratio] HMDA - ANSWER-Home Mortgage Disclosure Act HOEPA - ANSWER-Home Ownership and Equity Protection Act HVAC - ANSWER-Heating, Ventilation, and Air Conditioning HUD - ANSWER-Department of Housing and Urban Development LIBOR - ANSWER-London Inter-Bank Offer Rate LTV - ANSWER-Loan-to-Value [Ratio] MARS - ANSWER-Mortgage Assistance Relief Services MSA - ANSWER-Metropolitan Statistical Area MIP - ANSWER-Mortgage Insurance Premium 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.