Understanding Mortgage Loans and Regulations, Exams of Law

Download Understanding Mortgage Loans and Regulations and more Exams Law in PDF only on Docsity! NMLS Test Outline Questions with Answers 2024 RESPA disclosures? due dates? ✔ 3 days after application: Home loan tool kit Loan estimate List of HUD counselors Mortgage Servicing Disclosure Statement Know before you owe booklet Special Info Booklet 3 days before consummation: Initial Closing Disclosure AfBA disclosure At consummation: Final Closing Disclosure Initial Escrow Statement (45 days after closing) After closing: Annual Escrow Statement Servicing Transfer Statement (sent 15 days before transfer) RESPA covers which loan types? exempt loan types? ✔ FHA,VA,conventional, USDA,purchase loans, REFI, HELOC all cash sales RESPA 4 sections ✔ Section 6: Mortgage Servicing Disclosure Statement: mortgage servicers are required to correct errors and work with home buyers if payments aren't being made. Section 8: No kickbacks/referral fees Section 9: Seller cannot require borrower use a specific title insurance company Section 10: limits amounts a lender can require a borrower to put into escrow account to 1/12 disbursement and 2 reserves. Requires annual escrow analysis. RESPA properties types? exempt? ✔ owner occupied 1-4 unit residential property Agricultural 25+ acres Businesses Commercial Temporary Financing Vacant Land Assumes existing 1st lien The Loan Estimate combines which old disclosures? ✔ GFE and Initial TIL Statement How long are Loan Estimate terms available? ✔ 10 business days What if the changed circumstance causes third party charges subject to a cumulative 10% tolerance to increase? ✔ creditor must send a revised Loan Estimate and refund excess money within 60 days Are there any restrictions on how many days before consummation a revised Loan Estimate may be provided? ✔ - receives revised LE at least 4 business days before consummation - cannot provide revised LE after providing closing disclosure What is a "changed circumstance"? ✔ Event beyond the control Inaccurate info used in Loan Estimate New info that creditor didn't know when providing Loan Estimate Mailbox Rule ✔ creditor needs to place Loan Estimate in mail 3 days after application and 7 days before consummation The Closing Disclosure combines which old disclosures? ✔ HUD-1 and Final TIL Statement Who is responsible for providing the closing disclosure to the: borrower? when? seller? when? ✔ creditor to borrower settlement/title agent to seller Name some valid change in circumstances that require you to revise the Closing Disclosures? ✔ changes before consummation that require 3 day waiting period - change in APR - change loan product - add prepayment penalty 3 day Right of Rescission applies to which transactions? how many copies does the borrower need? how many days does the creditor have to refund monies? ✔ - Home Equity loans - HELOC - REFI - Home Improvement loans - secured by principal residence 2 copies 20 calendar days MDIA things to remember ✔ Mortgage Disclosure Improvement Act - 3/7/3 Rule - Initial disclosures must be sent 3 days after application - Earliest consummation: 7 days after disclosures delivered - Revised disclosures must be received 3 days before consummation Which items are required to appear on the TIL Statement? ✔ APR amount financed (loan amount) finance charges APR definition includes: generally not included? ✔ relationship between total cost of borrowing and actual amount borrowed loan costs (lender/broker fees) interest rate mortgage insurance - appraisal fee, hazard insurance, property taxes, credit report, title insurance Qualified Mortgage definition year started? things to remember? characteristics? ✔ creates new categories of mortgages and imposes underwriting standards. 2014 ATR requirements, safe harbor Max DTI = 43% Max points/fees = 3% Max term = 30 years ARMs underwritten to max interest rate first 5 years NO negative amortization, prepayment penalties, interest only loans, NINA loans, No doc loans, teaser rates Safe harbor under which law? ✔ protect lenders against lawsuits by borrowers who claim they received credit without verifying they had met ATR requirements. Qualified Mortgage Rules Ability to Repay info: ✔ 1. current income/assets 2. current employment status 3. credit history 4. current monthly mortgage payment 5. other monthly mortgages payments 6. monthly payments for mortgage expenses 7. other debts 8. max DTI = 43% HOEPA restrictions ✔ Prohibits: 1. negative amortization 2. prepayment penalties after 2 years 3. balloon payment 4. increasing interest rate after default 5. REFI high cost loan into another high cost loan within 1 year unless in consumer's best interest 6. financing points and fees 7. modification fees 8. due on demand features 9. Late fees >4% 10. payment schedule with more than 2 periodic payments 11. selling in secondary market without high cost mortgage notice HOEPA triggers ✔ 1. APR > APOR 6.5% 1st lien >$50,000 8.5% 1st lien <$50,000 8.5% 2nd lien 2. Points and Fees >5% loan amount for loans > $20,000 >8% loan amount or >$1,000 for loans <$20,000 3. Charge Prepayment Penalties >36 months after consummation >2% prepaid amount Which type of properties are subject to HOEPA? Exempt? Which type of transactions are subject to HOEPA? ? ✔ Properties - principal dwelling - 1st and 2nd lien - manufactured housing and personal property if principal dwelling - Exempt: non-onwer occupied, 2nd home Transactions - Purchase money mortgages - REFI close end home equity loan - Home Equity Loan closed end - HELOC - bridge loans - Home improvement - Temporary loans Exempt: - New construction loans - Reverse Mortgage Reverse Mortgage Purchase Mortgage HELOC business loans Which law prohibits making a loan to a customer without verifying the customer's ability to repay the loan? ✔ HOEPA Section 35 stands for? triggers? things to remember? ✔ Higher Priced Loan APR > APOR Which transactions are subject to TRID? exempt? ✔ home equity loan closed end secured by real property HELOC reverse mortgages chattel dwelling - not attached to real property (mobile home) Which type of loans are subject to TILA but not RESPA under TRID? ✔ construction only vacant land agriculture 25+ acres Credit extended for taxes/estate planning TRID delivery method and timing: Loan Application Revised Loan Application Loan Estimate Revised LE Closing Disclosure Revised CD ✔ LA - mail,email, over phone, in person. No timing LE- hand deliver or put in mail 3 days after application and 7 days before consummation Revised LE - hand deliver or put in mail 3 days after changed circumstance and 4 days before consummation. CD - mail,email (electronic signatures of global and national commerce), in person. Consumer receives 3 days before consummation Revised CD - mail, email, in person. Consumer receives 30 days after consummation. Bona Fide personal financial emergency ✔ emergency that requires the credit transaction before the end of the waiting period. All Business day definitions ✔ Loan Estimate - any day a creditor is open Revised Loan Estimate 3 business days - any day a creditor is open Revised Loan Estimate 4 business days - any day except Sunday and legal holidays Closing Disclosure - any day except Sunday and legal holidays What is the general accuracy requirement for the Loan Estimate disclosures? ✔ As long as actual costs are less than Loan Estimate, it is made in good faith. What if the creditor estimates a charge for a service that is not actually performed? ✔ the estimate for the charge should be removed What if a consumer pays more for a particular charge for a third-party service or recording fee than estimated, but the total charges paid are still within 10% of the estimate? ✔ it's ok as long as sum of all charges is 10% or less What if the creditor does not provide an estimate of a particular charge that is later charged? ✔ it's ok as long as sum of all charges is 10% or less When are revisions or corrections permitted for Loan Estimates? ✔ Event affects eligibility for loan or value of collateral consumer gives intent to proceed > 10 days after LE interest rate is NOT locked consumer requests change in terms increase settlement charges expired loan estimate new construction loan delays settlement > 60 days The rule requires creditors to provide the Closing Disclosure three business days before consummation. Is "consummation" the same thing as closing or settlement? ✔ No, Consummation is when the consumer becomes contractually obligated to the creditor on the loan. Who is responsible for providing the Closing Disclosure to a _________in a purchase transaction? ✔ settlement agent seller Name some valid change in circumstances that require you to revise the Closing Disclosures? ✔ changes before consummation w/ 3 day waiting period - change in APR - change loan product - add prepayment penalty changes before consummation w/o waiting period - consumer requests revised CD - at consummation - any other changes changes after consummation - event causes inaccurate info for consumer or seller - 30 days after consummation - non numerical clerical errors - 60 days after consummation - creditors refund money to cure tolerance violations - 60 days after consummation Are there exceptions to the disclosure requirements for loans secured by a timeshare transactions? ✔ yes - earliest consummation is 3 days after application - only requires closing disclosure at consummation (not Loan Estimate) Can creditors provide estimates of costs and terms to consumers before the Loan Estimate is provided? ✔ yes, but the estimate must state, "Your actual rate, payment and costs could be higher. Get an official Loan Estimate before choosing the loan." What is the special info booklet? When must creditors deliver the special information booklet? ✔ helps consumers understand settlement costs 3 day after application Which disclosures does TILA-RESPA require? ✔ Loan Estimate Closing Disclosure Special Info Booklet Escrow Closing Notice Servicing Transfer Notice Partial Payment Notice What transactions are subject to the Escrow Closing Notice requirement? When must the Escrow Closing Notice be provided? ✔ home equity loan (closed end) secured by 1st lien real property 3 days before cancellation if requested by consumer. Otherwise 30 days before cancellation. If you are required to provide ____________________, you must also provide the partial payment policy ✔ mortgage transfer notice Can the consumer be charged an appraisal review fee? ✔ Only if the review fee is disclosed on the Loan Estimate When are Home Owner Association (HOA) dues disclosed? ✔ only after the fee is known EBR ✔ established business relationship - LO has 18 months to contact them even if on the National Do Not Call list. Dodd Frank Act responsibilities? why created? what year? things to know? ✔ 5 responsibilities: 1. created CFPB to give consumers accurate info to shop for mortgages. 2. Established QM, verify borrowers have ATR 3. Prohibits unfair lending practices and established penalties for irresponsible lending. 4. Expands protection for Section 32 loans. 5. Housing Counseling - created as a response to the worst financial crisis since the Great Depression in 2010 - Title X: Consumer Protection Act - Title XIV: Mortgage Reform and Anti Predatory Lending Act BSA/AML ✔ Bank Secrecy Act / Anti-Money Laundering Law - requires financial institutions to report cash transactions > $10,000 GLBA definition? aka? things to know? ✔ Gramm Leach Bliley Act: - Safeguards Rule - create and maintain safeguards to protect confidentiality of customer records. - Pretexting - prevents others from pretending to be you by asking security questions. - Financial Privacy - requires financial institutions provide consumer with Consumer Privacy Policy 1) annually as long as the relationship continues or 2) before disclosing info to nonaffiliated 3rd parties. - Opt-Out opportunity - no specific time period Financial Services Modernization Act of 1999 - Consumer VS Customer: consumer - has purchased your products customer - has continued financial relationship MAP definition Reg? ✔ Mortgage Acts and Practices and Advertising - prohibits certain material representations in any commercial communication about any term of a mortgage credit product, including: - interest rate charged - APR - Interest - Fees - Taxes/Insurance - prepayment penalties Reg. N US Patriot Act ✔ In response to 9/11. All mortgage transactions are required to include NADS: Name Address DOB SSN HPA definition year started? ✔ Homeowners Protection Act - requires lenders to provide disclosures for PMI. 1998 CFPB responsibilities? created by? things to know? ✔ - promote financial stability through accountability and transparency. - oversee financial laws that protect consumers who deposit money, use credit cards, and obtain loans - oversee banks, credit unions, non banks - ensures consumers understand risk and companies follow rules. - created by Dodd Frank Act and Consumer Protection Act. - monitors all laws except Fair Housing Act Fair Housing Act aka? regulated by? things to know? ✔ prohibits discrimination(blockbusting, steering, redlining) in sale or lease based on: race color national origin religion sex disability familial status Title 8 of the Civil Rights Act of 1968 Department of Housing and Urban Development Equal Housing Lender - Verbal Equal Housing Opportunity - Written What is allowed per RESPA in terms of commission splitting? ✔ referring a service provider as long as the work done is proportionate to the fee earned Conventional Loan-Conforming characteristics? ✔ - not insured or guaranteed by government. - 28/36 Desktop Underwriter or Loan Prospector or manually underwritten - minimum = 5% down /conventional conforming = 3% down - late fee: 5% p&i after 15 days - PMI required if LTV > 80% - meets Fannie Mae/Freddie Mac guidelines. - Fannie Mae/Freddie Mac securitize conventional loans - can be sold on the secondary market - underwriting done through Desktop Underwriter or Loan Prospector or manually underwritten - 2-4 month reserves - common types: 30 fixed, 15 fixed, ARM - <$417,000 First time home buyers must participate in an acceptable borrower's education program. Name one program? ✔ Freddie Mac's CreditSmart Conforming Loan limit? nonconforming loan limit? aka? ✔ conforming <$417,000 nonconforming >$417,000 jumbo loans Conventional Conforming requires ____ percent down? from where? ✔ 3% downpayment from gift funds, grants, 2nd mortgages FHA Loans characteristics ✔ - insured by approved lenders - 31/43 manually underwritten - FICO >580 = 3.5% down / FICO <580 = 10% down No prepayment penalties GPM ✔ graduated payment mortgage - starts with smaller payments, increasing to full amortization GEM ✔ Growth Equity Mortgage - starts with smaller payments, increasing annually until full amortization. Types of Notes ✔ 1. Fully Amortizing Installment Note - regular principal and interest payments. 2. Installment Note - intervals of principal and/or interest payments. might have balloon. 3. Partially Amortizing Installment Note/Installment Note with Balloon - periodic principal and interest payments with balloon at end. 4. Straight note/interest only - interest only payments during term with balloon at end. 5. Negative amortization - monthly payment < accrued interest from previous month Bi-weekly Mortgage ✔ 26 annual payments. Blanket Mortgage aka? ✔ covers more than 1 parcel of land. Usually has partial release clause. aka Cross Collateralization Loan Bridge Mortgage ✔ occurs between end of old mortgage and beggining of new mortgage. Take out loan ✔ refinance used to pay off a construction loan. Used to "take the borrower out" of the construction loan Reverse Mortgage things to know? Loan amount calculation? eligibility? property types? ✔ - no repayment until: last borrower dies, sells, doesn't live in home for 12 consecutive months - no income requirements - equity decreases, debt increases - title of home under borrower's name Loan amount calculation - age of youngest borrower - current interest rate - lesser of appraised value or max lending limit Eligibilty - 62+ years - 1st lien - all borrowers must attend mandatory counseling Property Types - 1-4 unit primary residence - condominiums - PUD (Planned Unit Development) For a reverse mortgage, how do you order an appraisal? ✔ get you counseling certificate HECM definition? factors determining loan amount? costs? ✔ Home Equity Conversion Mortgage - reverse mortgage backed by FHA - age of youngest borrower - current interest rate - lesser appraised value or FHA insurance limit of $625,500 - MIP - initial = 0.50% and annual = 1.25% - 3rd Party Fees - appraisal, title insurance, inspections, mortgage taxes, credit checks - Origination Fee - greater of $2,500 or 2% of first $200,000 home's value + 1% amount over $200,000. Max fee is $6,000. - Servicing Fees - lenders will send you property taxes, hazard insurance. Tenure payment option ✔ reverse mortgage where you receive equal monthly payments as long as you live in the home HELOC definition? characteristics? ✔ Home Equity Line of Credit - works like a credit card because the balance fluctuates as borrower accesses funds. - 2nd mortgage - predetermined max loan amount - minimum payment = interest only Home Equity Loan (open end vs closed end?) ✔ open end - like a credit card where your balance fluctuates. close end - 1 time lump sum that is repaid over a set amount of time with a fixed interest rate. Construction Loan aka? ✔ a temporary loan to finance building the property. Once complete, an appraiser verifies value of property and a take out loan converts it into permanent financing. The construction loan typically must be repaid within 30-90 days. aka Interim Loan Temporary Construction Loan types? ✔ 1. Voucher System - borrower pays his own expenses and submits receipts to lender for reimbursement 2. Warrant System - supplier sends invoice to lender and lender pays them directly. 3. Obligatory Advances - lender advances borrower fixed amount during each phase of construction When does a loan originator's obligation end in a construction loan? ✔ when the loan is fully funded Equity Participation Mortgage ✔ allows the lender to lower a loan's principal balance and increase interest rate; therefore increasing lender's pay Package Mortgage ✔ mortgage that includes personal property Wraparound Mortgage ✔ buyer takes over existing mortgage of seller buyer pays seller a downpayment title isn't recorded/transferred until some or all mortgage is paid for. Loan Origination Process (Beginning to end) ✔ 1. Loan Origination - obtain lead - complete customer pre-qualification sheet - if receive 6 items for application, send disclosures within 3 days. - setup meeting with borrower 2. Prepare for Meeting - create customer file folder - prepare preliminary 1003 and disclosures to be sent - research loan docs needed 3. Meet Customer - complete 1003 and all disclosures - review with customer all docs needed MU4 meets minimum net worth or surety bond requirment Not convicted or nolo contendere - past 7 years never had license revoked, felony involving fraud. NMLSR purposes? created by? license expires? license renewal period? license is valid for how long? how long does the NMLS have to let you know if you license is approved? ✔ Nationwide Mortgage Licensing System and Registry 1. Streamline licensing process of license applications (CANNOT approve) 2. Supervisory database and provide consumer with free MLO licensing database 3. improve flow of info between regulators 4. provides tracking MLOs 5. consumer protection and anti fraud 6. Training and examination in subprime mortgages 7. Solve consumer complaints - created by CSBS & AARMR - each year on 12/31 - 11/1 - 12/31 - 5 years - 60 days Fraud for property VS Fraud for profit ✔ fraud for property - committed by borrower who misrepresents info on loan application to qualify fraud for profit - committed by anyone to make a profit through flipping, straw buyers, air loans, etc. Predatory Lending factors? types? ✔ - high fees - misrepresent loan terms - frequent refinancing 1. Bait and Switch - advertise product and switch consumer to buy diff product 2. Switch After Sale - Accepting deposit for a product, then switching to higher priced product 3. Bona Fide Offer - failure to show advertised product Mortgage Fraud definition types? ✔ any misrepresentation or concealment to obtain a mortgage loan Types - Saddle 1. Silent second - buyer obtains 2nd mortgage to pay down payment without telling lender 2. Air loan - non-existent loan 3. Deed Scam - forged seller's signature on deed. Thief mortgages property, cashes out, and walks away 4. Double Sold Loans - borrower signs multiple applications and LO sends to multiple lenders 5. Loan Flipping - refinancing without benefit to borrower 6. Equity Skimming - investor rescues borrower facing foreclosure and takes title. Investor refinances a loan knowing borrower cannot repay. Prelicensing Education hours? Continued Education hours? CE things to know? ✔ Pre - 20 hours - Federal law 3 hours - ethics 3 hours - nontraditional mortgage products 2 hours - elective 12 hours Continued Education - 8 hours - Federal Law 3 hours - Ethics 2 hours - Nontraditional mortgage products 2 hours - Elective 1 hour CE things to know - only receive credit in the year the course was taken. - Cannot take same course in the same or successive year SAFE Act definition? created by? year? aka? things to know? ✔ Secure and Fair Enforcement Act - requires states to implement NMLS standards. - created by HERA (Housing & Economic Recovery Act) in 2008 - aka Title V - defines nontraditional mortgage product - prohibits predatory lending under CFPB - requires unique NMLS identifier number - requires prelicense & continued education State Regulatory Authority responsibilities ✔ License - approve or deny license applications - deny, suspend, revoke licenses - create state licenses rules NMLS - report violations to NMLS - report MCR (mortgage call reports) to NMLS each quarter MLO - examine or investigate MLOs in a 1) systematic manner based on risk factors or 2) on a periodic schedule under SAFE - ensure MLOs are registered with NMLS - access to MLO books and records - establish procedures for enforcement/disciplinary actions FICO definition ✔ Fair Isaac Corporation - considers credit inquiry for 12 months Quitclaim deed ✔ required doc for a person to get rid of all interest and rights in a property that is jointly owned and nonmarried. Appraiser misconduct file a report with ? What provides guidelines for the development of appraisal reports? Who regulates the development? ✔ - state licensing authorities - USPAP - Uniform Standards of Professional Appraisal Practice - The Appraisal Foundation CSBS and AARMR did what? ✔ Conference of State Bank Supervisors and American Association of Residential Mortgage Regulators created the NMLS MARS definition Reg? things to know? ✔ Mortgage Assistance Relief Services - preventing/postponing foreclosure or arranging a loan modification Reg. O - mortgage servicers have 36 days to contact a borrower about avoiding foreclosure - no collecting fees until homeowner receive an offer from a lender or servicer - prohibits telling consumers to stop communicating with lenders Federal Banking Agency ✔ 3 = initial interest rate is 3 years 1 = adjusts each year Adjustment period ✔ time period between when initial interest rate ends and adjustable rate begins discounted start rate equation ✔ index + margin - initial interest rate 3/6 interest rate caps ✔ 1st adjustment = initial interest rate + 3% Periodic adjustments = interest rate + 3% Max lifetime rate = initial interest rate + 6% 3/2/6 interest rate caps ✔ 1st adjustment = initial interest rate + 3% periodic adjustment = interest rate + 2% max lifetime rate = initial interest rate + 6% 3/1 ARM with 3/6 caps lifetime cap 1st adjustment ✔ lifetime cap = 3% initial interest rate + 6% lifetime = 9% 1st adjustment = 3% initial interest rate + 3% 1st adjust = 6% Carryover points equation ✔ fully indexed interest rate - current interest rate conventional ARM ✔ - 1 year fixed rate, adjusts annually Hybrid ARM ✔ - initial interest rate, then adjusts annually 3/1, 5/1, 7/1, 10/1 - have caps and initial interest discounts Interest only ARM ✔ - initial interest has no principal, then p&i are reamortized at fully indexed rate Payment option ARM ✔ consumer chooses monthly payment: - fully amortized - interest only - less than interest FHA and VA ARMS ✔ - 1 & 3 year ARMs have initial/periodic caps 1% and lifetime caps of 5% - 5, 7, 10 year ARMS have initial/periodic caps 2% and lifetime caps of 6%