Unit 13

Down payments still apply to veterans who have one or more existing VA loans or have defaulted on a prior VA loan. VA borrowers are subject to the loan limits and will be required to make a down payment of ____% of the difference between the purchase price and the loan limit.

25%

Because there are 52 weeks in the year, the borrower makes ____ biweekly payments. Therefore, the borrower makes the equivalent of an extra month's payment each year (26 half-size payments equal 13 full-month payments instead of 12). This saves the borrower considerable interest, and the loan is paid off sooner.

26

The lender, not the VA, sets the interest rate, discount points, and closing costs. The maximum loan term is ___ _____; __. The interest rate on VA loans varies based on _______ _________ and is negotiated between the borrower and the lender.

30 years; market conditions

A prospective borrower has a projected PITI of $1,000, an MIP of $260, a monthly car payment of $290, and a student loan payment of $175 per month. The borrower's gross monthly income is $4,200. What is the borrower's HER?

30%; Total housing expenses divided by gross monthly income = Housing Expense Ratio

Which set of qualifying ratios applies to FHA mortgage loans?

31% HER; 43% TOR

Which qualifying ratio applies to conventional mortgage loans?

36% TOR; The recommended maximum qualifying ratios for a conventional mortgage are 28% HER and 36% TOR.

Private mortgage insurance (PMI) is required for conventional loans that finance more than ___% of the purchase price. In other words, if the borrower makes a down payment of less than 20% of the purchase price, PMI is required.

80%

total yearly cost of credit.

Annual percentage rate (APR)

Congress gave the Consumer Financial Protection Bureau (CFPB) the authority to supervise and enforce compliance with _____. If a transaction provides for the deferral of the payment of a debt, it is a form of credit covered by Regulation B.

ECOA

Which individual must be state licensed as a mortgage loan originator?

Employee who works as a loan originator for a mortgage brokerage company that is not federally regulated

A reverse mortgage loan insured by the federal government is called a package mortgage. T/F

FALSE, IT'S AN HECM. Home Equity Conversion Mortgage

The interest rate on FHA mortgages is not set by the ____ or HUD. The interest rate is allowed to fluctuate with the market and is negotiable between the lender and the borrower.

FHA

______ requirements currently allow up to 31% for the housing expense ratio (HER) and up to 43% for the total obligations ratio (TOR).

FHA

Nonconventional loans include _______________________________.

FHA-insured loans

In times of rising interest rates, including a payment cap in an adjustable-rate mortgage reduces the amount of interest the borrower will pay over the life of the loan. T/F

False, If interest rates rise sharply, but the payments do not because of a payment cap, the unpaid interest is added to the loan balance.

The Equal Credit Opportunity Act applies to residential borrowers only. T/F

False, The Equal Credit Opportunity Act applies to all consumer and commercial credit, without regard to the nature or type of the credit or the creditor.

VA guidelines recommend a total housing expense ratio (HER) not exceeding 28%. T/F

False, The VA does not use a housing expense ratio. FHA requirements allow up to 31% for the housing expense ratio.

The monthly payment shown on an amortization table consists of principal, interest, taxes, and insurance (PITI). T/F

False, There are two components of the monthly mortgage payment: principal and interest, referred to as PI. Because property taxes and hazard insurance are not part of the loan repayment, they are not included in the amortization table.

An FHA borrower has monthly PITI of $2,276 MIP of $160, a car payment of $479, a revolving credit card minimum monthly payment of $165 per month, and a student loan of $200 per month. The borrower's gross monthly income is $8,000. The borrower's housing expense ratio (HER) is 32%. T/F

False, it is 30.5%

Ginnie Mae purchases existing conventional mortgage loans. T/F

False. Ginnie exists to solely guarantee the security of federally insured loans and federally guaranteed loans. Ginnie, unlike Fannie and Freddie, does not purchase mortgage loans from lenders.

Private mortgage insurance is required for conventional mortgages with a loan-to-value ratio (LTV) greater than 20%. T/F

False. Greater than 80%

The one-time mortgage insurance fee charged on FHA mortgage loans that is paid at closing is called the mortgage insurance premium (MIP). T/F

False. The one-time mortgage insurance fee paid at closing is called the up-front mortgage insurance premium (UFMIP). Moreover, the MIP is the fee paid by FHA borrowers to obtain a loan (up-front and annual).

Which statement is FALSE? A) Fannie Mae deals directly with homebuyers. B) Fannie Mae provides master commitments for large real estate projects. C) Loans that meet Fannie Mae guidelines are called conforming loans. D) Fannie Mae created the first secondary market for mortgage loans.

Fannie Mae deals directly with homebuyers.

Today, the _______ duties include (1) conducting the nation's monetary policy, (2) supervising and regulating banking institutions and protecting the credit rights of consumers, and (3) maintaining the stability of the financial system.

Fed's

The only reverse mortgage insured by the federal government is called a Home Equity Conversion Mortgage (______) and is only available through an FHA-approved lender.

HECM

The borrower (homeowner) may access the equity in the residence with a home equity loan or a home equity line of credit (_________). The LTV of both mortgages combined is typically limited to 80% of the property's value.

HELOC

A guideline used by lenders to evaluate a borrower's ability to make mortgage payments. It is calculated by dividing the borrower's expected monthly housing expenses (PITI) by the borrower's monthly gross income. The housing expenses include principal, interest, property taxes, and hazard insurance (PITI) plus the private mortgage insurance premium (PMI), if applicable.

Housing Expense Ratio (HER)

the variable component that is added to the margin to calculate the interest rate in an adjustable-rate mortgage.

Index

The Uniform Residential Loan Application is used to qualify loan applicants applying for a loan to finance a single-family residential property. T/F

Lenders use the Uniform Residential Loan Application (URLA) form to qualify applicants (borrowers) applying for a one-to-four-family residential property. true

The _______________ clearly presents the information considered most important to consumers: the interest rate, monthly payment, total closing costs, and cash required to close.

Loan Estimate

______ process mortgage loan applications and negotiate the sale of existing mortgage loans to noninstitutional investors for compensation.

MLOs

_______ _______ refers to the actions undertaken by the Fed to influence the availability and cost of money and credit to promote national economic goals. The Fed is charged with the responsibility for setting monetary policy.

Monetary policy

A straw buyer is someone who applies for a residential mortgage but who doesn't intend to actually own the property. T/F

TRUE

ECOA CAN NOT DSCRIMINATE FOR CHILD-BEARING OR PLANS OF PREGNANCY, TRUE OR FALSE

TRUE

Real estate licensees should recognize potential red flags, such as a sale contract that states "owner of record" in the place where the seller's name is indicated. T/F

TRUE

The Board is responsible for the development and administration of regulations that implement major federal laws governing consumer credit, such as the Truth in Lending Act and the Equal Credit Opportunity Act. T/F

TRUE

The ECOA also requires creditors to provide applicants with free copies of appraisals or other written valuations developed because of a credit application secured by a first lien (for example, a first mortgage) on a dwelling. Creditors must notify applicants in writing that copies of appraisals will be provided to them. T/F

TRUE

Under a purchase money mortgage (PMM), legal title passes to the buyer and the seller retains a vendor's lien right as security for the debt. T/F

TRUE

In a partially amortized mortgage, the payments do NOT fully amortize the loan. T/F

TRUE, UNPAID BALANCE IS PAID AS A BALLOON PAYMENT. AS EACH PAYMENT OVERTIME PURPOSELY LEAVES AN UNPAID BALANCE.

Monetary policy refers to the actions taken by the Federal Reserve to influence the availability and cost of credit. T/F

TRUE. Monetary policy refers to the actions undertaken by the Fed to influence the availability and cost of money and credit to promote national economic goals.

Which statement is TRUE regarding VA mortgage loans?

The VA funding fee may be added to the loan amount and financed over the life of the loan.

When applying for a conventional mortgage loan, the appraiser determines whether the structure meets certain required minimum standards. T/F

The lender orders a property appraisal of the property that will be pledged as collateral for the loan. The appraiser estimates the property's value. In the case of FHA and VA, the appraiser also determines if the overall condition of the structure meets the required minimum FHA and VA standards.

A prudent sales associate who sees potential red flags should immediately present such concerns to the employing broker for guidance on how to deal with the issue before going any further. T/F

True

An amortized mortgage is characterized by a constant (level) monthly payment. T/F

True

An example of package mortgage: buyer uses a package mortgage, when purchasing a restaurant complete with cooking equipment and other personal property that serve as a part of the collateral for the debt. T/F

True

Because VA loans do not have a due-on-sale clause, they are assumable (even by nonveterans). VA mortgage loans do not contain a prepayment penalty clause. Therefore, veterans may prepay all or a portion of the mortgage loan ahead of schedule penalty. T/F

True

Borrowers must receive the Closing Disclosure at least three business days before the loan closing. T/F

True

Fannie Mae purchases primarily conventional conforming loans from large commercial banks. T/F

True

Mortgage brokers do not make loans. Instead, mortgage brokers arrange loans for prospective borrowers with various mortgage lenders. Mortgage brokers do not service loans. T/F

True

Negative amortization results from a mortgage payment that does NOT pay all of the interest due for the period. T/F

True

No commissions, brokerage fees, or buyer-broker fees may be charged to the veteran buyer. T/F

True

The VA borrower's total obligations ratio cannot exceed 41%. T/F

True

The VA charges a funding fee for VA mortgage loans. T/F

True

The VA does have the power to make direct loans to veterans in areas where VA loans are not available. T/F

True

The calculated interest rate is the lender's margin added to the index. T/F

True

The first four calculations (total of payments, finance charge, amount financed, and annual percentage rate) are required by the TILA's Truth in Lending disclosure. TRID added a fifth calculation called total interest percentage (TIP). The five calculations and the explanation of each calculation is presented in Closing Disclosure Loan Calculation. T/F

True

The total obligations ratio (TOR) may not exceed 36% for conventional mortgage loans. T/F

True

When a VA loan is paid off, the veteran's maximum entitlement is reinstated. T/F

True

The TRID rule prohibits lenders from charging loan applicants an application fee before receiving the Loan Estimate and indicating a desire to proceed with the loan. T/F

True, The only fee that a lender may charge a loan applicant before issuing the Loan Estimate is a fee to obtain the borrower's credit report.

An FHA borrower has the following monthly expenses: PITI of $1,225, MIP of $175, car payment of $400, homeowners association fee of $60, college loan of $350, and a revolving credit card of $125. This borrower's total monthly housing expense for calculating the borrower's housing expense ratio is $1,460. T/F

True, it is $1460

A conventional loan is one that is NOT insured or guaranteed by a government agency. T/F

True.

The law requiring lenders to furnish borrowers with the APR disclosure is the

Truth in Lending Act (TILA); The Truth in Lending Act is implemented by the Federal Reserve's Regulation Z and requires lenders to disclose the annual percentage rate (APR) and all costs associated with credit. The law gives borrowers three business days to cancel most consumer loan contracts, except loans to purchase or construct a home.

Which type of loan has NO established loan limit?

VA Loan

The principal activity of mortgage lenders is to originate and service loans for residential and income properties. They primarily make _____ and _____ loans.

VA and FHA

Real estate licensees should rely on a ____ _______ to determine an applicant's eligibility for a VA loan.

VA lender

Qualifications for Program: Only veterans, unremarried surviving spouses of veterans, and active military personnel may apply for a _____ ___________.

VA loan

A partially amortized mortgage has a final payment required to completely pay off the loan called

a balloon payment

A financing technique in which the lender can raise or lower the interest rate according to a set index.

adjustable rate mortgage (ARM)

Sometimes, several businesses that offer settlement (closing) services are owned or controlled by a common corporate parent. These businesses are called ___________.

affiliates

a loan characterized by payment of a debt by regular installment payments.

amortized mortgage

The ________________ is paid monthly (annual premium divided by 12) as part of the monthly mortgage payment

annual MIP

RESPA limits the amount that lenders can require borrowers to place in escrow for property taxes and hazard insurance. The lender must perform an ______ ______ _________ _______. An excess of $50 or more must be returned to the borrower.

annual escrow account analysis

A __________________ scheme is a deceptive plan where a mortgage lender offers a borrower an attractive loan with low closing costs or interest rates, or a no-fee loan estimate and then switches their offer and presents the buyer with a different set of terms and conditions when it is time to close.

bait-and-switch

A single large final payment (called a balloon payment) becomes due on the loan maturity date. In Florida, a partially amortized mortgage must be clearly identified as such on the face of the mortgage, with the amount of the final ______ _______ disclosed.

balloon payment

a single, large payment made at maturity of a partially amortized mortgage to pay off the debt in full.

balloon payment

A _________ ___________ loan is amortized the same way as fully amortized mortgage loans, except the borrower makes a payment every two weeks. The amount paid is equal to one-half the normal monthly payment.

biweekly mortgage

a mortgage loan amortized the same way as other loans with monthly payments, except that the borrower makes a payment every two weeks.

biweekly mortgage

The Federal Reserve System, also known as the Federal Reserve or just the Fed, is the _______ ______ of the United States.

central bank

a form that must be provided to the borrower at least three business days before closing; replaced the Settlement Statement (HUD-1).

closing disclosure

a standardized conventional loan written on uniform documents that meets the purchase requirements of Fannie Mae and Freddie Mac.

conforming loan

a real estate loan that is neither FHA-insured nor VA-guaranteed.

conventional loan

checking accounts; payable on demand by holder.

demand deposit

a disengagement process when depositors withdraw money from savings for direct investment in stocks, money market funds, and other securities.

disintermediation

When investors bypass thrift institutions for direct investment elsewhere, the process is called

disintermediation.

VA does not require a _______ _____________.

down payment

FHA mortgage loans do not have a ___________________ clause in the mortgage.

due-on-sale

A veteran begins the loan process by applying to the VA for a certificate of _____________. The certificate of eligibility states the amount of entitlement available to the veteran borrower.

eligibility

that portion of a VA-guaranteed loan that protects the lender if the borrower defaults.

entitlement

Recall the elements for ________: (1) a misstatement of facts or failure to disclose facts; (2) the individual who made the misstatement or omitted the true facts knows the facts to be untrue; (3) the lender relied on the facts and extended financing; and (4) the lender was damaged as a result.

fraud

The veteran borrower pays a ______ __________ to the VA. The VA loan funding fee is on a sliding scale, with the lowest fees charged to first-time VA borrowers and higher fees for those VA borrowers who have previously used the VA loan program.

funding fee

Fannie Mae and Freddie Mac are not government agencies. They are known as ___________ __________ ___________ (GSEs).

government sponsored enterprises

a mortgage secured by a personal residence. It provides a line of credit available for draws when needed by the homeowner. It is sometimes used as a home improvement loan.

home equity loan

FHA does not warrant the condition of the property. The FHA encourages buyers to have a ______ _____________ conducted.

home inspection

In an adjustable-rate mortgage, the calculated interest rate is the

index + margin

The size of reverse mortgage loans is determined by the borrower's age, the ___________ ________, and the home's value.

interest rate

the process whereby financial middlemen consolidate many small savings accounts belonging to individual depositors and invest those funds in large, diversified projects.

intermediation

In a PMM: The seller conveys ______ ______ to the buyer at closing, and the seller retains a vendor's lien right as security for the debt.

legal title

a method for amortizing a mortgage whereby the borrower pays the same amount each month.

level-payment plan

limits the total amount the interest rate may increase over the life of an adjustable-rate mortgage loan.

lifetime cap

a disclosure form with good-faith estimates of credit costs and transactions terms that must the given to the borrower no later than the third business day after receiving the loan application.

loan estimate

The VA borrower pays a _____ ________ ______ to the lender. The VA allows a 1% origination fee to be charged to veteran borrowers.

loan origination fee

The fixed component that is added to the index to calculate the interest rate in an adjustable rate mortgage.

margin

Monetary policy refers to the actions undertaken by the Fed to influence the availability and cost of ________ and credit to promote national economic goals.

money

a crime in which the intent is to materially misrepresent or omit information on a mortgage loan application to obtain a loan or to obtain a larger loan than would have not been obtained had the lender or borrower known the truth.

mortgage fraud

VA home loans do not charge a ___________ _____________ ____________.

mortgage insurance premium (MIP)

fee paid by FHA borrowers to obtain a loan (up-front and annual).

mortgage insurance premium (MIP)

a business entity that originates, sells, and then services mortgage loans. Mortgage lenders are not depository institutions. They originate loans and then package the loans together and sell the entire package.

mortgage lender

one who finds a lender for a potential borrower, and vice versa.

mortgage loan originator (MLO)

a financing arrangement whereby monthly mortgage payments are less than required to pay both interest and principal. The unpaid amount is added to the loan balance.

negative amortization

a residential mortgage loan that exceeds the loan amount acceptable for sale to Fannie Mae.

nonconforming loan

Recall that _____________________________ loans are backed by the federal government.

nonconventional

a mortgage loan that is insured or guaranteed by the federal government (FHA or VA).

nonconventional loan

a loan covering both real and personal property.

package mortgage

The VA guarantees a portion of the loan referred to as a ____________ _______________. The partial guarantee covers the top portion of the loan.

partial guarantee

With a _____ _______ ______ (also called a balloon mortgage), the monthly payments are calculated for a 20-year or 30-year loan term; however, the payments are paid for a shorter period of time, such as five years. By amortizing the loan over 20 or 30 years, the fixed, monthly payments are smaller than if the loan were amortized over a five-year term.

partially amortized mortgage

the buyer makes regular payments smaller than what is required to completely pay off the loan (payments do not fully amortize the loan) resulting in a larger balloon payment to pay off the remaining amount due.

partially amortized mortgage

limits the amount the monthly payments of an adjustable-rate loan can increase during any adjustment.

payment cap

limits the amount the interest rate of an adjustable-rate loan may increase at any one time (usually a year).

periodic cap

By law, FHA loans cannot charge _______________ ______________; the loan may be paid off early without penalty.

prepayment penalties

a source for the purchase of a mortgage loan by a borrower.

primary mortgage market

the party employing the services of a real estate broker; amount of money borrowed in a mortgage loan, excluding interest and other charges.

principal

needed to insure all of the mortgage representing more than 80% of appraised value or purchase price.

private mortgage insurance (PMI)

A _______ ________ _______ is a mortgage in which payments are made to the seller (seller financing) rather than to a lending institution. It is typically used in lieu of a portion of a buyer's down payment when the buyer assumes an existing mortgage.

purchase money mortgage (PMM)

any new mortgage taken as part of the purchase price of real property by the seller.

purchase money mortgage (PMM)

It is a crime for someone to pay or receive an illegal __________ fee. The penalty can be a fine, imprisonment, or both.

referral

a form of mortgage that enables elderly homeowners to borrow against the equity in their homes so they can receive monthly payments needed to help meet living expenses.

reverse mortgage

Ginnie's purpose is to provide liquidity for low- to moderate-income homebuyers. Ginnie is the only ___________ participant backed by the full faith and credit guarantee of the federal government.

secondary

Standardized mortgage loan documents, appraisal forms, closing disclosures, and promissory notes make it possible for ____________ market participants to better evaluate the mortgage loan packages being sold.

secondary

A commercial bank sold a group of 2,000 mortgages directly to Fannie Mae. This is an example of

secondary market activity

a source for the purchase and sale of existing mortgages.

secondary mortgage market

a booklet containing consumer information regarding closing costs the borrower may incur at closing. RESPA requires lenders to give the booklet to loan applicants.

special information booklet

a below-market interest rate usually offered for the first year on some adjustable-rate mortgages.

teaser rate

Florida law stipulates that committing mortgage fraud is a ______ _______ _______. The mortgage fraud increases to a second-degree felony when the stated value in the loan documents exceeds $100,000.

third-degree felony

Lenders are required to provide borrowers with a written Closing Disclosure at least ______ business days before closing the loan.

three

The total obligations ratio (TOR) is a measure of a borrower's total monthly installment debt divided by monthly gross income.

total obligations ratio (TOR)

the Truth in Lending Act requires creditors to disclose certain information if certain credit terms, called triggering terms, are included in the advertisement. Triggering terms include the amount or percentage of down payment, number of payments, period (term) of repayment, amount of any payment, and the amount of any finance charges.

triggering terms

The percentage of the UFMIP is based on the _____ (new or refinance) and ______ (15 year or 30 year) of the mortgage. The UFMIP is paid at closing and can be financed into the mortgage amount.

type; term

a one-time mortgage insurance premium on FHA mortgage loans that is paid at closing.

up-front mortgage insurance premium (UFMIP)