Chapter 5

What is a Certificate of Reasonable Value and what is it used for?

A Certificate of Reasonable Value (CRV) shows the value of a property in relation to its sales price. It is issued by an approved VA appraiser when a veteran is seeking a DVA loan.

Define the term predatory lender.

A predatory lender is one that literally preys on the customers who may fall into the below "A paper" lending categories, particularly those who do not speak English, are poorly educated or are elderly.

What kind of insurance does FHA require borrowers to pay?

As of 2006, the borrower must pay two insurance premiums. The first is the "upfront" Mortgage Insurance Premium (MIP) which is a percentage of the loan amount. The borrower can pay this one-time premium at closing or the charge could be financed with the loan. The second premium, called Mutual Mortgage Insurance (MMI) is a monthly premium that is paid with the monthly principal, interest, taxes and insurance payment. MMI premiums may be dropped when the remaining loan balance is 80 percent loan-to-value ratio or less.

What does ECOA prohibit?

Discrimination against applicants on the basis of race, color, religion, national origin, sex, marital status, age or dependency on public assistance

What is loan flipping?

Encouraging a borrower to refinance a loan so that the lender can charge high points and fees for the new loan.

Farmer Mac

Federal Agricultural Mortgage Corporation (FAMC), was created by Congress in 1988 to establish a secondary market for agricultural real estate and rural housing mortgage loans and to increase the availability of long-term credit at steady interest rates to American farmers, ranchers and rural homeowners. deals with agricultural loans in the same way that Fannie Mae and Freddie Mac deal with conventional and government loans. is a private corporation and is not in conservatorship.

Who are the three major players in the secondary mortgage market?

Ginnie Mae Fannie Mae Freddie Mac

Important players in the secondary mortgage market are:

Ginnie Mae - Government National Mortgage Association (GNMA) - a government agency Fannie Mae - Federal National Mortgage Association (FNMA) - a former government agency that became a private corporation in 1968 Freddie Mac - Federal Home Loan Mortgage Corporation (FHLMC) - a quasi-government agency

How is Freddie Mac different from Ginnie Mae and Fannie Mae?

Ginnie Mae and Fannie Mae were created to deal primarily with the purchase of FHA and VA loans. Freddie Mac deals with conventional loans.

What is the basic purpose of Truth in Lending- Regulation Z?

Give buyers information about the true cost of obtaining credit, so that borrowers can compare the costs of various lenders.

What is the penalty for knowingly making a false statement to obtain a loan?

Imprisonment for a term of 2 years to 99 years and fine not to exceed $10,000

Freddie Mac

In 1971, the Federal Home Loan Mortgage Corporation, introduced the first security backed by conventional loans. buys conventional loans from savings banks, commercial banks and mortgage companies, assembles the loans into a pool of mortgages and issues a security backed by the mortgages. This security is called a Participating Certificate or Guaranteed Mortgage Certificate. mission is to provide stability, affordability and opportunity to the housing market. is dedicated to putting homeownership within reach for minority populations. In addition,strives to make rental housing more affordable through its Program Plus, Standard Lease-Up and Premier Lease-Up mortgage programs for multifamily housing.

VA mortgage loan

In an effort to make it possible for veterans returning from World War II to purchase a home, the Veterans Administration (VA), now the Department of Veteran's Affairs (DVA), offered the opportunity for veterans to purchase a home with no money down

secondary mortgage market

Loans originated in the primary mortgage market can be bought, sold or traded here. Primary lenders sell their notes to generate more money to make more loans.

What is the right to rescind and what is not covered by this rule?

The borrower has a right to cancel the transaction by notifying the lender within three days. This does not apply to residential first mortgage loans.

Why is a balloon loan a particularly bad idea for a low-income borrower?

The major problem with a balloon payment loan is that the borrower has to come up with a large sum of money at the end of the term. In some cases the lender requires an even higher interest rate to give an extension. If the borrower doesn't have the income to meet the higher payment, he or she will be in trouble and possibly face foreclosure.

What is the role of the secondary mortgage market?

The secondary mortgage market consists of holding warehouse agencies that purchase a number of mortgage loans and assemble them into one or more packages of loans for resale to investors.

Home Improvement Program (VHIP)

This program was introduced to provide below-market interest rate loans to qualified Texas veterans for home repairs and improvements to their existing homes. Veterans may get up to $25,000 for a 20-year loan or up to $10,000 for a 10-year loan

Truth in Lending Act

Title I of the Consumer Credit Protection Act, is implemented by Regulation Z. This law requires lenders to disclose to buyers the true cost of obtaining credit, so that borrowers can compare the costs of various lenders.

Why was Farmer Mac created?

To establish a secondary market for agricultural real estate and rural housing mortgage loans and to increase the availability of long-term credit at steady interest rates to American farmers, ranchers and rural homeowners

Why was the Community Reinvestment Act passed?

To prevent redlining

How much money can a veteran get through the Texas Veterans Home Improvement Program?

Veterans may get up to $25,000 for a 20-year loan or up to $10,000 for a 10-year loan.

sub-prime loans

When lenders provide loans to unqualified homebuyers - those who have poor credit and whose ability to repay the loan is risky because of their income, those lenders are giving _______.

PITI + MIP

a monthly premium that is paid with the monthly principal, interest, taxes and insurance payment. the second of two insurance premiums

Fannie Mae

a shareholder-owned company that works to make sure mortgage money is available for people across the country. does not lend money directly to home buyers. They work with lenders to make sure the lenders don't run out of mortgage funds. is actively traded on the New York Stock Exchange and other exchanges and is part of the Standard & Poor's 500 Composite Stock Price Index. operates under a congressional charter directing them to channel their efforts into increasing the availability and affordability of homeownership for low-, moderate-, and middle-income Americans. receives no government funding or backing.

Regulation Z

applies to all loans that are secured by a residence. It does not apply to: Commercial loans Agricultural loans over $25,000 The provisions cover: Disclosure of costs Right to rescind the transaction Advertising offers Noncompliance penalties

FHA provides low-down-payment FHA mortgage loans

are high loan-to-value ratio loans, so FHA insures the loans in order to make them available to higher risk individuals. FHA does not build homes or loan money directly. They insure loans made by approved lending institutions, including qualified mortgage companies, savings and loan associations and commercial banks. FHA-insured loans protect lenders against any loss they would suffer from a borrower's default. can be either fixed-rate 10 to 30-year loans or one-year-adjustable loans. The maximum loan term is 30 years or 75 percent of the remaining economic life of the property, whichever is less. Down payments are low. However, the borrower must have cash for a down payment and closing costs. These items cannot be added to the sales price and become part of the loan repayment. The maximum loan fee is 1 percent of the loan amount and is typically paid by the buyer.

par

full face value

My First Texas Home

is a Taxable Mortgage Program (TMP Program 79) offering mortgage loans at more competitive, fixed, low interest annual percentage rates with down payment and closing cost assistance of 5% of the mortgage loan for first time homebuyers. Homebuyers who have not owned a home within the past three years, who meet program income guidelines, and who do not exceed the program's purchase price limits are eligible to apply for a loan under this.

mortgage fraud

is 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 been obtained had the lender or borrower known the truth.

Mortgage Insurance Premium (MIP)

is a percentage of the loan amount. The borrower can pay this one-time premium at closing or the charge could be financed with the loan. This premium could be paid by some other party, such as the seller. The first of two insurance premiums

VLB Veterans Housing Assistance Program

was created to assist Texas veterans in purchasing a home with a low-interest rate loan with little or no money down. The veteran may get up to $417,000 for the home purchase. may be used to purchase a home that meets these requirements: Must be the veteran's primary residence. Must be located in Texas. Must be a single family attached or detached home, town home, condominium or planned unit development. Duplexes or other multi-family units must have been constructed at least five years prior to the closing date of the loan. Manufactured / modular homes may be eligible. All new construction homes must meet the Environmental Protection Agency's (EPA) guidelines for ENERGY STAR® qualified homes, and must be ENERGY STAR® labeled and certified.

Ginnie Mae

wholly-owned corporation within the Department of Housing and Urban Development (HUD). Its basic mission when it was established in 1968 was to create and operate a mortgage-backed security program for the Federal Housing Administration and Veterans Administration mortgages.

FHA and VA loans differ from conventional loans in what important way?

FHA and VA do not loan funds directly. FHA insures loans and VA guarantees loans, but the loans themselves are made by approved, qualified lenders.

predatory lending practices

one that literally "preys" on the customers who may fall into the "B," "C" or "D" lending categories, particularly those who do not speak English, are poorly educated or are elderly. This can leave victims homeless and defeated, stripped of self-respect and hope, their credit ruined.

Equal Credit Opportunity Act (ECOA)

rohibits lenders from discriminating against applicants on the basis of Race Color Religion National origin Sex Marital status Age Dependency on public assistance

Certificate of Eligibility

showing the amount of entitlement available. The entitlement is the maximum number of dollars that DVA will pay if the lender suffers a loss. The following veterans are eligible, based on time spent in the service. Active-duty veterans discharged during WWII or later, without the status of "dishonorable" Active-duty veterans with at least 90 consecutive days of service during major conflict Peacetime veterans and active duty personnel with at least 180 days of consecutive service Enlisted veterans whose service began after 1980 or officers whose service began after 1981 and who have served at least 2 years National Guard and Selected Reserve members who have served for 6 years (Note: Eligibility for members of the Selected Reserve expired on September 30, 2007.)

VLB Veterans Land Loan Program

the only one of its kind in the country, giving Texas veterans the opportunity to borrow money to purchase land at below-market interest rates while only requiring minimum 5 percent down payment. Veterans may secure a loan of up to $150,000 for a 30-year fixed rate mortgage on a tract of land that is one acre or more.