Non-Traditional Loan Products
The Costs of Funds Index (COFI) may be used on all the following type loans except: Fixed Rate Mortgages Fed COFI related ARM loans 11th district related ARM loans 2/28 sub-prime loans
Fixed Rate Mortgages
The key difference between a Home Improvement Loan and a HELOC is: Home Equity Loan is a lump sum, HELOC is open ended Home Equity Loan is a first mortgage, HELOC is a second Home Equity Loans are variable rate, HELOCs are fixed Home Equity Loans are lite-doc, HELOCs are full-doc
Home Equity Loan is a lump sum, HELOC is open ended
In an adjustable rate mortgage, what part of the loan adjusts? Index Margin Term APR
Index
What is a margin? It is the lender's percentage of adjustment, which is added to the index to compute the adjusted rate It is a margin calling the loan due and payable The difference between the start rate and note rate The difference between the T-Bill rate and the APR
It is the lender's percentage of adjustment, which is added to the index to compute the adjusted rate
Which of the following is not a closed-end loan? a Home Equity Loan a Home Equity Line of Credit a 30 year fixed rate conventional a 5/1 Arm
a Home Equity Line of Credit
Which type of non-traditional loan product can adjust monthly, offers the borrower a choice of multiple payments and can result in negative amortization? a Home Equity Line of Credit with a payment cap a Payment Option Adjustable Rate Mortgage an Interest Only Option ARM with a payment cap an Alternative Documentation Loan product
a Payment Option Adjustable Rate Mortgage
A HECM is all of the following, except: a RAM for seniors only a reverse mortgage a Home Equity Conversion Mortgage a home improvement loan
a home improvement loan
In a 2/28 Adjustable Rate Mortgage (ARM) the Libor Index is trading at 4.5%, the qualifying margin is 6.5% and the introductory rate is 7.5%. What is the Fully Indexed Rate on this loan? 12% 11% 14% 7.50%
11%
The maximum origination fee allowable on a HECM loan is: 1% 2% 3% 4%
2%
In a 5/1 conventional ARM loan what do the 5 and the 1 represent? 5 is the start rate and 1 is the adjustment rate 5 is the number of adjustments, 1 is the adjustment cap 5 is the fixed period, 1 is the adjustment period thereafter 5 is the adjustment period, 1 is the adjustment cap
5 is the fixed period, 1 is the adjustment period thereafter
How old must a consumer be to obtain a HECM mortgage? Over 18 years of age 62 years old 65 years old 70 years old
62 years old
If the ARM loan has a margin of 5%, the index is 3%, the lifetime cap is 7% and the start rate is 6%, what is the "fully indexed rate" on this loan? 6% 10% 8% 12%
8%
A loan in which the borrower receives a line of credit secured by their residence, is able to make one or more draws against that line, may be used as part of a purchase transaction, and the interest rate is open ended, is called: An Adjustable Rate Mortgage A Construction Loan A HELOC A HECM
A HELOC
The one loan that does not require any income, credit or even loan repayment is? Home Equity Line of Credit (HELOC) No Income, No Asset Loan (NINA) A Home Equity Conversion Mortgage (HECM) A Payment Option ARM (POA)
A Home Equity Conversion Mortgage (HECM)
Loans made to high credit score borrowers with reduced documentation are called: Sub-prime ALT-A Conforming Non-conforming
ALT-A
A loan that has a fixed rate for a predetermined time and then adjusts according to current interest rates. Balloon FHA VA ARM
ARM
A HELOC is a: Home Equality Law of Closing Complicated loan only available to government employees Form that must be completed by the borrower with in 3 days of application An open-ended line of credit secured by a lien on a home
An open-ended line of credit secured by a lien on a home
The booklet, "What You Should Know About Home Equity Lines of Credit" is required to be given when? Before application Before closing At closing At the time of the application or within three days of a HELOC being discussed
At the time of the application or within three days of a HELOC being discussed
A discounted mortgage that has a Call provision is: ARM HELOC Balloon Reverse
Balloon
A loan that is amortized over 30 years, but matures much sooner. ARM FHA VA Balloon
Balloon
All Adjustable Rate Mortgages (ARMs) are tied to a specific index. What does LIBOR represent? Lifetime Interest Before Origination Rate London Interstate Bank Offered Rate London InterBank Offered Rate London Interpol Bank Offered Rate
London InterBank Offered Rate
All of the following caps are associated with Adjustable Rate Mortgages except? Adjustment Caps Payment Caps Rate Caps Lifetime Caps
Rate Caps
Most ARM loans come with caps which place limits on when and how much the loan can adjust, such as: interim caps and monthly caps adjustment caps and lifetime caps lifetime caps and margin caps payment caps and indexed caps
adjustment caps and lifetime caps
Balloon Mortgages are loans that carry a discounted interest rate in exchange for a shorter maturity term. These loans normally: amortize for 15 years and balloon in a shorter period of time amortize for 20 years and are called due and payable in full in the 30th year amortize for 30 years but mature, or are called due, or balloon, in a shorter period of time adjust annually, carry a pre-payment penalty and balloon in 7 years
amortize for 30 years but mature, or are called due, or balloon, in a shorter period of time
A Hybrid ARM is: a piggyback: fixed on 1st mortgage with a variable rate 2nd a home equity line of credit that is fixed after the draw period an ARM with an initial fixed period that then adjusts thereafter a fixed rate mortgage where the escrow amounts can change
an ARM with an initial fixed period that then adjusts thereafter
Alternative-A, known as ALT-A, are loans designed: to circumvent the sub-prime restrictions to compete with Fannie Mae investors for "A" quality borrowers that offer documentation alternatives for non-married couples with alternative lifestyles
for "A" quality borrowers that offer documentation alternatives
Advantages of an Interest Only or Payment Option ARM loans include all of the following, except: lower monthly housing payments better control over cash flow when earning inconsistent streams of income saved monthly payments can go toward other investments interest can be deferred and put on the end of the loan
interest can be deferred and put on the end of the loan
Payment Caps are designed to: limit the rate adjustment to ease payment shock limit the amount the payment can adjust to cap the payment in the fixed period but not offer adjustment ensure the affordability of the mortgage note
limit the amount the payment can adjust to
In an ARM loan transaction, the note rate or what can be referred to as the computed rate, is figured by adding the: margin to the cap index to the principal adjustment cap to the index margin to the index
margin to the index
Which is not a characteristic of a Payment Option ARM? the borrower can choose to pay interest only an ARM loan that allows the consumer to choose from several payment options the minimum payment can result in negative amortization may not be paid as a fully amortized loan
may not be paid as a fully amortized loan
When applying for a Reverse Mortgage the borrower must meet all the following conditions except? meet the qualifying debt ratio minimums attend reverse mortgage counseling before applying be a minimum of 62 years of age live in the home as a primary residence
meet the qualifying debt ratio minimums
What is a margin? the difference between the index and the note rate the spread between the start rate and the contract rate the difference between the index and the start rate the cost of the loan subtracted from the retail rate
the difference between the index and the note rate
In any ARM loan, what determines the interest rate? the interim adjustment cap the margin the index plus the margin the index
the index plus the margin
A 5-year balloon means: the loan adjusts every 5 years the loan is fixed for 5 years then adjusts annually the loan payment is fixed for 5 years and the loan is then due in full the loan is amortized over 60 months
the loan payment is fixed for 5 years and the loan is then due in full
The difference between an ARM and a balloon is best described as? the lender discounts the rate because the borrower assumes some defined risk the note will become due before the full amortization period is realized a balloon loan payment is typically based upon a 30 year amortization a balloon is by definition a nontraditional product
the note will become due before the full amortization period is realized
The adjustment period on an ARM loan is: the period of time between adjustments the period of time between the first and last adjustment the period of time before the first and after the last adjustments the time it takes a borrower to become accustomed to the monthly payment amount
the period of time between adjustments
Every ARM has an adjustment period, also know as the adjustment interval, and is: the period of time, spelled out in the ARM contract, between rate adjustments subject to periodic adjustments as determined by the contract's margin the interval of time between the first adjustment and the last allowable adjustment. the time between the closing and the first payment
the period of time, spelled out in the ARM contract, between rate adjustments
In an ARM loan, the margin is fixed, never changes, and is the: yield or spread, charged by the creditor that, when added to the index, makes up the note rate yield spread premium earned by the broker and split with the loan originator maximum cap the loan can adjust up to the APOR plus 1.5%
yield or spread, charged by the creditor that, when added to the index, makes up the note rate