Section 1: Origination and Underwriting

Does retail origination result in more or less income? Why?

Retail origination results in more income due to servicing value

Describe TILA (Reg Z)

TILA - Regulation Z - Right of Rescission Part of the Truth In Lending Act (TILA) of 1968, Reg Z requires mortgage issuers, credit card companies and other lenders to provide written disclosure of important credit terms such as interest rate and APR. Reg Z gives borrowers of rate / term and cash out refinance transactions as well as HELOC (home equity lines of credit) transactions of owner occupied properties three business days to cancel their transaction.

What is an USDA/RHS Loan?

USDA/RHS - are offered and guaranteed by the Rural Housing Service (RHS) within the USDA. The loan program protects mortgage lenders who make these loans on residential properties located in rural areas by offering them a guarantee should the borrower default. LTVs can be up to 100% and repayment terms can exceed 30 years. Borrowers must meet income guidelines (the ceiling is usually 115% of the median income for the area in which the property is located) in order to qualify for RHS programs.

What requirements does the lender have when a borrower executes his or her right of rescission?

A right of rescission is a right under American federal law set forth by the Truth in Lending Act (TILA) that gives a borrower the right to cancel a home equity loan or line of credit with a new lender, or to cancel a refinance transaction done with another lender other than the current mortgagee within three days of closing. The right is provided on a no-questions-asked basis, and the lender must give up its claim to the property and refund all fees within 20 days of exercising of the right of rescission.

What value does an Automated Underwriting Systems (AUS) provide?

AUS are designed to help lenders perform an assessment of the credit risk of the borrowers and determine the salability of a mortgage loan. They will let you know if a loan would qualify for sale into a particular program: If the loan does not meet the program guidelines it will provide a refer/eligible which would indicate a manual underwrite. Typically, this is due to low credit score, a previous bankruptcy or foreclosure, high DTI ratio. If there are good compensating factors to offset the bad it is possible to get an approval.

According to federal law, which of the following transactions is subject to the three-day right of rescission? a. Primary residence rate/term refinance b. Primary residence cash out refinance. c. Second home rate/term refinance d. Second home cash out refinance e. Investment property rate/term refinance f. Investment property cash out refinance What federal law governs right of rescission?

According to federal law, the three-day right of rescission is limited to refinance and home equity loans on primary residence only. For this question, that would include answer (a) and (b), assuming that the primary resident rate/term (a) is completed with another lender other than the current mortgagee The Truth in Lending Act (TILA) governs the right of rescission Investment Properties and second homes are not subject to this three day right of rescission.

Provide the Advantages and Disadvantages of Wholesale Origination

Advantages: o Ability to generate large volumes of loans quickly o Ability to achieve a geographic diversity in the servicing portfolio o Ability to reduce overall loan origination costs Disadvantages: o Greater risk of losses due to fraud o Price competition due to extremely competitive market o Potential higher prepayment risk resulting from broker churning o No direct interaction with consumer so fallout tends to be higher

What are the advantages and disadvantages of Brokered

Advantages: o Deal with multiple lenders o Low overhead o Ease of entry into market o Lower origination costs Disadvantages: o Highly dependent on third party funding o Typically, limited liquidity and capital and can run into financial problems during prolonged recessionary periods

Provide the Advantages and Disadvantages of Correspondent

Advantages: o Lower cost to originate Disadvantages: o Lower income potential due to purchaser usually requires correspondent to sell mortgages servicing release

What are the four (4) "C"s of Underwriting?*****My notes say Credit, Capital, Capacity, and Collateral ***** Can we have someone weigh in on which is right?

i. Character/Credit - Can also be looked at as their Credit Reputation. What is their credit score? Do they have any Foreclosures, BK, Liens, Judgements, lates, collections, charge offs, how many other accts? (type, age, usage), new credit requests in the last 12 months? ii. Collateral- LTV (Down Payment), Type of property, Property use. iii. Capacity- Debt ratios, Salary vs Self-employed, cash reserves, number of borrowers, loan type (ARM vs Fixed), Purchase vs Refi vs Cash out. iv. Compensating Factors/Capital- Does a borrower have certain characteristics that would make up for areas they may not be strong in. One example is a borrower with a high DTI because they are self-employed may have high cash reserves and then put down more money for a lower LTV.

List 3 highlights of AIR (Appraiser Independence Requirements)?

1. Appraiser must be state licensed/certified 2. Prohibits mortgage lenders and/or third parties from influencing the appraiser 3. Borrower must be given a free copy of the appraisal at least 3 days prior to closing 4. Sets restriction on selection, retention and compensation of appraiser

What are the six (6) pieces of information that is required for a mortgage application (required disclosure LE)?

1. Borrower Name 2. SSN 3. Property Address 4. Borrower Income 5. Loan Amount 6. Property Value

What are the 3 methods to estimate value? Please briefly explain each

1. Cost Approach - Is used when there is a unique property. It is calculated by determining the value of the land, the cost of the structure with new materials and subtracting the depreciated cost of the property in its current condition. 2. Sales Approach - Is based on the sales price of comparable properties in size, features and location. 3. Income Approach - Is used for income producing rental properties and value is determined by gross rents, vacancy factors and operating costs.

Your borrower is averse to paying Mortgage Insurance (MI) on their loan. As the originator list two (2) options which may be available to you.

1. Offer Lender paid MI - MI is built into the rate but is not shown as a separate line item on the CD. 2. Review current available programs which allow for no MI such as 80 / 20 or specific programs which do not require Mortgage Insurance. Additional Feedback. Borrower may be averse to paying a monthly MI premium but may also consider paying the entire MI premium as a single payment at closing.

List Three appraisal evaluation approaches and why they are used?

1. Sales (Market) Comparison approach comparisons of subject property against recent sales in the area 2. Cost approach the cost to replace the improvement in the event of a disaster on the property 3. Income approach is a real estate appraisal method that allows investors to estimate the value of a property by taking the net operating income of the rent collected and dividing it by the capitalization rate

List some Underwriting Compensating Factors

1. The borrower has successfully demonstrated the ability to pay housing expenses equal to or greater than the proposed monthly housing expense for the new mortgage over the past 12-24 months. 2. The borrower makes a large down payment. 3. The borrower has substantial documented cash reserves (at least three months' worth) after closing. 4. Previous credit history shows that the borrower has the ability to devote a greater portion of income to housing expenses. 5. The borrower receives documented compensation or income not reflected in effective income, but directly affecting the ability to pay the mortgage, including food stamps and similar public benefits. 6. There is only a minimal increase in the borrower's housing expense. (No Payment Shock) 7. Job Stability

What do Appraisal Management Companies (AMC) do?

A U.S. independent entity through which mortgage lenders order residential real estate valuation services for properties on which they are considering extending loans to homebuyers. AMCs fulfill an administrative function in the appraisal process, including selecting an appraiser and delivering the appraisal report to the lender. Individual appraisers who work for AMCs provide the actual property valuation services. AMC were created to avoid a conflict of interest for the lender who may benefit from influencing the appraiser.

What is Anit-Money Laundering?

Anti-Money Laundering: Anti-money laundering refers to a set of laws, regulations, and procedures intended to prevent criminals from disguising illegally obtained funds as legitimate income. In February 2012, the Financial Crimes Enforcement Network (FinCEN) finalized rules that require non-bank residential mortgage lenders and originators (collectively, RMLOs) to establish anti-money laundering (AML) programs and to file suspicious activity reports (SARs).

What is a Government Loan?

Government - are mortgage loans offered by the VA, FHA, and RHS. These loans offer government insurance or a government guarantee that protects the mortgage lender against loss due to borrower default. Additionally, some state-run government loans are available in many states.

MI: Singles vs. Monthly vs. Hybrid

Borrower paid single premium is paid up front in a lump sum at full at closing and is generally financed into the mortgage. It removes monthly obligation for MI but is also non-refundable. Lender paid single premium is paid up front in a lump sum typically in full at closing. It also is not refundable. Monthly MI is paid monthly. BPMI is by far the most common MI used. Rarely would a lender use monthly. Hybrid (or split premium) MI allows for a mix of payment upfront and monthly. The upfront portion is non-refundable, but the monthly portion can be cancelled or terminated (e.g. 80% LTV)

When evaluating the factors used in making a decision on a loan, an underwriter needs to take into account the various risks associated with the transaction. What are those risks?

Capacity-this is the borrower's ability to repay the debt with current income minus current liabilities. Character/Credit-this is the borrower's willingness to honor credit obligations. An underwriter can get a good sense of how the borrower pays obligations by looking at the pay history for their liabilities on a credit report. Collateral-this is the property that will be securing the debt. By close analysis of the appraisal the underwriter can determine if the property is acceptable or unacceptable. The underwriter will look at the comparable sales, the structural soundness of the property as described by the appraiser, and the nature of the neighborhood surrounding the property.

What is CRA?

Community Reinvestment Act. In enacting the CRA, the Congress required each appropriate Federal financial supervisory agency to assess an institution's record of helping to meet the credit needs of the local communities in which the institution is chartered, consistent with the safe and sound operation of the institution, and to take this record into account in the agency's evaluation of an application for a deposit facility by the institution.

What are some compensating factors an underwriter could use to offset a potentially adverse underwriting decision?

Compensating Factors To name a few: low LTV, high FICO, high residual income, low DTI, little or no payment shock, larger down payments provided from savings accounts, long employment history, large amount of cash reserves, good credit and repayment history, additional sources of income not used for qualifying, large reserves or investment accounts, etc. Compensating factors assist the underwriter in making a holistic decision regarding the borrower's propensity to pay this mortgage throughout its term.

What is a Conforming loan?

Conforming - meet requirements for purchase by the Government Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac, which publish underwriting guidelines. The Federal Housing Finance Agency (FHFA) publishes the conforming loan limits annually for all conventional mortgages. The standard conforming loan limit for 2020 is $510,400. For high cost area conforming limits, refer to FHFA conforming loan limits.

What is a Conventional loan?

Conventional - are mortgage loans that are not insured or guaranteed by the federal government or its agencies, such as FHA, VA, and RHS. Conventional loans are segmented into conforming and nonconforming.

What is the different between Conventional MI and FHA (MIP)?

Conventional loans utilize Private Mortgage Insurance (PMI). The cost you pay for PMI varies depending on the size of the down payment and loan, but typically runs about 0.5 percent to 1 percent of the loan. It can be paid upfront (single), monthly, or in a hybrid combination (split). PMI is cancelable at certain milestones (e.g. 80% LTV). FHA Loans have a mortgage insurance premium (MIP) that is either paid upfront or annually. It is non-refundable and is for the life of the loan.

Explain Correspondent Origination

Correspondent Origination refers to mortgage lender that generally originates, processes, underwrites, and close loans using its own funds with the intention to sell to another mortgage lender. Compared to the retail channel, correspondent lending costs less but results in less income because usually sells the mortgage servicing released.

Does correspondent lending cost more or less than other channels? Do they generate more or less income? Why?

Correspondent lending cost less. It results in less income because they usually sell the mortgage servicing released.

List different types of Appraisals

Drive-by appraisals, also called summary appraisals, are exterior inspections of homes by licensed real estate appraisers. These types of appraisals typically are used for documenting comparable listings or sales used in residential real estate appraisals required by mortgage lenders. Field review appraisal includes a visual inspection of the property in question from the street. The neighborhood or area where the property is located is also visually inspected, as well as the comparable sales used. Investment Property - appraisers will compare other investment properties in the same area along with the amount of rent the investment property would expect to receive. Condominium - For appraisals of one-unit properties in condo projects based on interior and exterior property inspections. Appraisals reported on Form 1073 must be completed in accordance with the UAD Specification. Full Residential - form 1004 which includes full inspection of interior and exterior along with appraisal evaluation approach - Sales Comparison Approach is utilized most often. AVM - Automated Valuation Model utilized to look at mathematical models to include public record and MLS data. Property Inspection Waivers - Example: Fannie Mae accepts the value estimate submitted by the lender as the market value, may be used in a refinance with low LTV and high assets.

What is a FHA Loan?

FHA - are mortgage loans insured by the FHA against foreclosure loss. FHA supports itself by charging borrowers a mortgage insurance premium, which is paid in both upfront and monthly installments, or financed in the maximum mortgage amount depending on the loan program, terms, and conditions. FHA loans are designed for low and moderate housing markets, and they generally benefit first time borrowers, borrowers with cash liquidity restrictions, or borrowers who do not meet criteria of the conforming market.

What is Full Eagle and what are the requirements for obtaining?

FHA Direct Endorsed Lender The requirements for Full Eagle Eligibility are: o The business must be a corporation, partnership or chartered institution o Must have the required business licenses o Must have state approval for their legal name o Net worth of 1 MM plus 1% of total volume over 25MM o Must have liquid assets equal to 20% of net worth

Describe the Fair Credit Reporting Act (FCRA)

Fair Credit Reporting Act o Passed in 1970, the FRCA requires that consumer reporting agencies use fair, confidential and accurate reporting methods. It also imposes requirements on the users of credit information to demonstrate permissible purpose for the info before it is provided to them. o The Fair Credit Reporting Act requires creditors to report accurate information and respond to consumer disputes within a timely manner. o 30 days to resolve a consumer's dispute over the accuracy of an item being reported by the Agency on that consumer's credit report. o Consumers have a right to a free copy of their credit report within 15 days of request.

Based on the following information, calculate the borrower's front and back ratio. Please show your calculations. a. Total annual income: $108,000 b. Monthly debt: $1,400 c. Interest rate: 5% d. Proposed P&I: $1,074 e. Annual T&I (taxes and insurance) $2,500

Front ratio: $1,074 P&I +($2,500 annual tax/12 = $208.33) = $1,282.33 divided by monthly income of $9,000 = 14.25% Back ratio: ($1,282 + monthly debt of $1,400) divided by monthly income of $9,000 = $29.8%

You are interviewing for a loan originator position for a mortgage company and have been asked to provide a market analysis for your new territory. Discuss at least two (2) factors you will include in your analysis and why these factors are important to the company.

Geographic area - you must define your territory, and ensure it is that is manageable. Neighborhood - be familiar with general make up of each neighborhood (construction type, the number of homes, the current values of homes in the area, and similar information for the surrounding areas). Population - know the demographics: the age of population, their income levels, and their education levels. Competition - an originator must know his/her competition and what that person offers.

List Red Flags

High-level Red Flags 1. Social Security number discrepancies within the loan file 2. Address discrepancies within the loan file 3. Verification's addressed to a specific party's attention 4. Verification's completed on the same day they were ordered 5. Verification's completed on weekend or holiday 6. Documentation that includes deletions, correction fluid, or other alterations 7. Numbers on the documentation that appear to be "squeezed" due to alteration 8. Different handwriting or type styles within a document 9. Excessive number of automated underwriting system submissions

What is a Home Equity Conversion Mortgage (HECM)?

Home equity conversion mortgage (HECM) - is insured by FHA and are a form of credit extension secured by first mortgages on single family residences and are available to borrowers 62 years of age and older. Borrower receive loan proceeds (typically 30% to 40% of the property's value) in the form of a lump sum or line of credit or in regular monthly advances. The advances may either be for a specified number of months (term loans) or be paid as long as the borrower lives in the home. If there is only one borrower and one mortgagor, a reverse mortgage loan matures when the borrower either dies or moves. If there are two borrowers, the loan matures when the survivor dies or moves. At that time, lenders are repaid out of the proceeds from the sale of the home, and the lender's recovery from the borrower or the estate is limited to the proceeds from the sale of the home.

Gramm-Leach Bliley Act - Privacy

It addresses the treatment of nonpublic personal information (NPI) about consumers/customers by specifically: o Requiring notice to consumers about a company's privacy policies and practices; o Describing the conditions under which a company may disclose NPI about consumers to non-affiliated third parties; and o Providing a method for consumers to prevent the company from disclosing information to most non-affiliated third parties by "opting out" of that disclosure

Describe LO compensation structure

LO Pay structure: i. LO's cannot be compensated based on any terms of the loan (rate, term, product, fee income, etc). LO's may not steer borrowers to products that will result in higher compensation for the LO. ii. LO's can be paid on overall volume, a fixed dollar amount or rate per loan set forth in advance (ex. $100 per loan, or 1% of loan amount, etc) iii. Dodd Frank significantly changed LO comp rules. iv. debate around LO's being paid overtime.

When/how is Borrower Paid MI (BPMI) dropped

Monthly borrower paid MI can be requested to be dropped by the Borrower at 80% LTV. Servicers are obligated to cancel MI at 78% LTV. This can be programmed into Servicing Platforms as a safeguard. LTV is calculated using the initial purchase price/appraised value. Alternatively, using current value is an option with the Borrower taking on the expense of an appraisal and the appraised value being underwritten and accepted by the Servicer.

What is the NMLS?

Nationwide Mortgage Licensing System & Registry (NMLS) is the system of record for non-depository, financial services licensing, Compliance and registration in specific states. Official system of record for each company, branch and individual that maintains a permanent NMLS ID. The goal of NMLS is to employ the benefits of local, state-based financial services regulation on a nationwide platform that provides for improved coordination and information sharing among regulators, increased efficiencies for industry, and enhanced consumer protection

What is a non-conforming loan?

Non-conforming - Does not meet requirements for purchase by Fannie Mae and Freddie Mac. Examples include jumbo loans that exceed agency maximum loan limits or most subprime loans.

What is QRM?

QRM - Qualified Residential Mortgage is a risk retention rule requiring securitizers to retain no less than 5% of the credit risk when they create, sell or transfer asset back securities to third parties except for securities consisting of 100% QRM loans.

What is Payment Shock?

Payment Shock - It is the amount your monthly obligation will go up from your existing mortgage/rent to your new payment. This is really more relevant to manual UW as AUS does not have specific guidelines around payment shock.

Elements of a QC Plan

Quality Control Plan o Documented Plan o Managed through audit performed by either a department separate from the mortgage origination channel or a third party company that specializes in mortgage QC o At a minimum, 10% of total loan production through a random and discretionary selection process audited for QC adherence o Span everything from files that were withdrawn/denied to files that were originated o The plan must include a "watch list" of higher risk loan types, players, channels, or service providers for additional oversight o Results shared with Sr. Management

Describe RESPA (Reg. X)

RESPA - Regulation X Part of the Real Estate Settlement Procedures Act of 1974 that requires lenders, mortgage brokers or servicers of home loans to provide borrowers with pertinent and timely disclosures regarding the nature and costs of the loan process.Reg X prohibits specific practices like kickbacks and places limitations on escrow accounts.

Explain Brokered

Refers to a channel where a company solicits and may originate and process mortgage applications with the intent to forward the application to a mortgage lender for them to underwrite and fund. Brokers do not fund the loans at closing, which the actual mortgage lender behind the loan will usually provide table funding.

Explain Retail Origination

Retail Origination refers to a lender that directly originates to a consumer. Staff works out of branches, call centers, or internet capabilities. The lender originates, processes, underwrites, and closes loans. Compared to correspondent lending, retail production costs more, but results in more income due to the mortgage servicing value.

As servicers, we need to profitably manage relationships with several groups of stakeholders. Who are the stakeholders?

Stakeholders: mortgagors, regulators, investors, management, employees & shareholders. o Often, what is good for one hurts the other (e.g. salary increases may hurt shareholder returns). And what may appears to be a good tactical move in the short run may very well prove to be a bad strategic move (e.g. liar loans). o Mortgage Banking is very competitive business. As Such, the trade-offs that need to be made on a daily basis should always consider strategic, long-term implications of such a move. Raising origination fees with no discernible value added might very well raise the quarter's revenue. It may also result in significant longer-term loss of market share. o Developing and maintain the company's brand equity (i.e. what do we stand for) allows for all decisions to be made within this strategic framework. This should allow for a balance between the demands of mortgagors, investors, employees, and shareholders. Naturally, this all needs to be done to be done within the confines of our ever changing regulations.

What is TRID?

TRID is an acronym that some people use to refer to the TILA RESPA Integrated Disclosure rule. This rule is also known as the Know Before You Owe mortgage disclosure rule and is part of the Know Before You Owe mortgage initiative. The purpose of these changes is to improve the mortgage loan settlement process for consumers. TRID requires lenders to deliver the LE (Loan Estimate) to the consumer three days after loan application is made and it requires lenders to provide a CD (Closing Disclosure) to the borrower three days prior to closing

Ability to Repay (ATR)

The ATR (Ability to Repay) rule requires lenders to make a reasonable, good-faith determination that a borrower has the ability to repay a mortgage loan. Lenders must consider, at a minimum, eight specific underwriting standards when making an ATR determination: 1. income/asset verification, 2. employment verification, 3. DTI calculation, 4. Credit history 5. Liability/Debit verification: alimony, and child-support obligations 6. Monthly mortgage payment for this loan 7. Monthly payment on any simultaneous loans secured by the same property 8. Monthly payments for property taxes and insurance that you require the consumer to buy, and certain other costs related to the property such as homeowner's association fees or ground rent

What is the impact of MI on ATR?

The ATR Rule establishes minimum standards (eight specific factors) for lenders to use for underwriting when determining whether consumers have the ability to repay the mortgage. One such factor being the loan must have total points and fees not in excess of 3% of the total loan amount. Non-refundable MI premiums that are paid at or prior to closing are included in calculating 3% fee requirements.

What is BSA?

The Bank Secrecy Act (BSA), is legislation passed by the United States Congress in 1970 that requires U.S. financial institutions to collaborate with the U.S. government in cases of suspected money laundering and fraud, banks must ○ Establish effective BSA compliance programs ○ Establish effective customer due diligence systems and monitoring programs ○ Screen against Office of Foreign Assets Control (OFAC) and other government lists ○ Establish an effective suspicious activity monitoring and reporting process ○ Develop risk-based anti-money laundering programs

What is ECOA?

The Equal Credit Opportunity Act (ECOA) was established in 1974 and prohibits discrimination based on age, race, sex, marital status, national origin, religion or color in the production of mortgage loans. The regulation also provides requirements to notify applicants of actions taken on their application; to collect certain government monitoring information; and to provide applicants with copies of appraisals on dwelling secured loans.

What does the Fair Housing Act provide for?

The Fair Housing Act protects people from discrimination when they are renting or buying a home, getting a mortgage, seeking housing assistance, or engaging in other housing-related activities. Additional protections apply to federally-assisted housing. The seven classes protected under the Federal Fair Housing Act are: Color, Disability, Familial Status, National Origin, Race, Religion or Sex.

What is HMDA? (reg C)

The Home Mortgage Disclosure Act (HMDA) is a United States federal law that requires certain financial institutions to provide mortgage data to the public. Congress enacted HMDA in 1975. The intent was to combat a discriminatory lending practice of excluding certain neighborhoods from home lending. The most recent application of HMDA is to identify discriminatory lending. Rec C implements HMDA

Describe HOEPA

The Home Ownership and Equity Protection Act (HOEPA) was enacted in 1994 as an amendment to the Truth in Lending Act (TILA) to address abusive practices in refinances and closed-end home equity loans with high interest rates or high fees. Also provides advertising requirements and bans certain deceptive or misleading practices. Added requirement for consumers to receive homeownership counseling before obtaining a high cost mortgage

Describe the SAFE Transitional Licensing Act

The SAFE Transitional Licensing Act provides for a transitional authority period for bank MLOs moving to a non-bank lender, or MLOs already working for a non-bank lender seeking licensure in another state. Bipartisan legislation has been introduced in both the House (H.R. 2984) and the Senate (S. 1753), which would provide at least 120 days to transition from one state to another or from a federally-insured depository to a state-regulated non-depository.

Describe the SAFE Act

The Secure And Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act) mandates a nationwide licensing and registration system for residential mortgage loan originators. The SAFE Act prohibits individuals from engaging in the business of a residential mortgage loan origination unless they have passed a federal background check, a credit check and successfully completed and pass a particular set of coursework.

What are the some of the programs for First Time Home Buyers, Low to Moderate Home Buyers?

The most widely used programs require a low down payment. o Home Ready Fannie Mae o Home Possible Freddie o FHA o VA o USDA ... are the most common.

What are some of the characteristics of a QM Loan?

The qualified mortgage rule, is designed to create safer loans by prohibiting or limiting certain high-risk products and features. QM - Qualified mortgage, no negative amortization, no balloon payment, no term > 30 years; 3% max fees, 2% bona-fide points; underwriting with max rate for the first 5 years, full document qualifying, max 43% DTI

You are processing a loan and within the file is a Certificate of Eligibility. a. What type of loan product requires this? b. What are two (2) borrower qualifications unique to this product?

This is a VA loan. The two differences are: 1. VA loans do not use a front-end ratio, but instead use residual income to qualify the borrower. Residual income is calculated as net effective income (gross income less taxes, social security, and defined reductions) less monthly shelter expense. VA has calculated guidelines for residual income based on income, family size, and location on a VA table; 2. Borrower must either be active military, have been honorably discharged from the military with sufficient service time, or be the unmarried surviving spouse of a veteran meeting specified requirements.

What is a VA loan?

VA - are mortgage loans partially guaranteed against foreclosure loss (up to 25%) by the VA. These loans are only offered to veterans of the Armed Services, those currently on active or reserve duty, and their spouses. The VA guarantees the repayment of mortgage loans made to qualified borrowers up to a specified amount. The VA charges the borrower a funding fee for guaranteeing the mortgage loan, which can usually be financed as part of the loan amount. Eligible veterans are required to obtain a Certificate of Eligibility. They may apply for this certificate through an online portal, through a lender, or by completing a written Request for a Certificate of Eligibility and returning it by mail.

What types of Violations happen under ECOA?

Violations exist in 3 forms: a. Overt Discrimination - blatant discrimination on a prohibited basis b. Disparate Treatment - treatment of individuals or applicants differently based on one or more of the prohibited factors c. Disparate Impact - when uniform practices applied to all individuals or applicants have a discriminatory effect on a prohibited basis and such practice is not based on business necessity

Explain Wholesale Origination

Wholesale Origination refers to a mortgage lending channel were the lender purchases loans from other mortgage lenders (correspondents) and/or brokers. Wholesale includes correspondent and brokered originations.

You are a residential underwriter and you are currently reviewing a single family property appraised to verify that it meets conforming guideline. The appraisal is marker "subject to" a. What is expected with regards to the appraiser's inspection of a property? b. Name two reason that the appraiser may have marked the property as "subject to" c. What specific appraisal-related form or for number would be required to clear this appraisal as satisfactory?

a. Fannie Mae requires that the appraiser conduct a complete visual inspection of the accessible area of the interior and exterior of the property. The appraiser is responsible for noting in his/her report adverse conditions (such as, but not limited to, needed repairs, deteriorations, or the presence of hazardous wastes, toxic substances, or adverse environment conditions) that were apparent during the inspection of the property or that he/she became aware of during the research involved in performing the appraisal. The appraiser is expected to consider and describe the overall condition and quality of the property and identify items that require immediate repair as well as items where maintenance have been deferred and which may not require immediate repair. On the other hand, an appraiser is not responsible for hidden or unapparent conditions. b. The property could be new construction and is not finished, the property could need additional inspections (mold, water in basement, foundations, well septic, etc) c. The appraiser would need to provide an Appraisal Update / Certificate of Completion 1004D or Form 442

Key points of Appraiser Independence

o Appraisers must be certified or licensed in the state in which the property is located and must be able to perform appraisals in that state o Appraisers must be familiar with the local market in which the property is located o Sellers must select appraisers in compliance with AIR o Lenders that are part of the production staff are not allowed to be a part of any appraisal lists o No lender is allowed to provide a list to an AMC

In a few short sentences, explain why some critics state that allowing principal reduction is a moral hazard.

o Arguments have been made to offer principal reductions in connection with loan modification. Loan modifications are generally only offered to borrowers in default. The moral hazard is that offering a benefit (principal reduction) only to a borrower who defaults will penalize borrowers who are able to or chose to pay. o Many are also concerned that it will lead to a group of borrowers who "strategically default" to benefit from the principal reduction.

You are a residential underwriter reviewing a USDA loan. The borrower is married, but has a non-purchasing spouse. The subject property is located in one of the community property states. As an underwriter, what steps do you need to take in addition to what happens in GUS? Name one of the US States that is considered a common property state?

o Expect for obligations specifically excluded by state law, the debts of the non-purchasing spouses (NPSs) must be included in the applicant's qualifying ratios when the applicant resides in a common property state or the property guaranteed is located in a community property state. o The NPS's credit history is not considered a reason to deny a loan application. However, the NPS's obligations must be considered in the debt-to-income ratio unless excluded by state law. o A credit report complies with Rural Development o Community property states include: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

What transactions fall within the right of rescission per federal law

o Home Equity loan o Line of credit o Refinance

Describe at least two challenges that mortgage servicers face when foreclosure volumes rise to a level that impacts the overall economy

o Inventory of foreclosed home could lead to greater than expected expenses o Loss in revenue for the servicer o Constant changes in programs and regulator requirements o Changes in staffing models are required based on the changes o Money to funds to advance o Mortgage servicing systems were not built to keep up with daily changes in process for that many foreclosures