Section 13: Types of Mortgages and Sources of Financing

Reverse Annuity Mortgage

- A mortgage for homeowners 62 and older who have a significant amount of equity built up in their house. - They can borrow against that equity— taking the cash in a lump sum, as a monthly income stream or a line of credit - The money doesn't have to be repaid until the owner moves, sells the house or dies. - Upon the sale of the home, the loan has to be repaid with any remaining proceeds going to the home owner including heirs. - HUD's Federal Housing Administration insures most. - Also called a Reverse Mortgage or a Home Equity Conversion Mortgage (HECM).

Conservatorship (estate)

under the management or strict control of.

The Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act) of 2008

•This Act created minimum standards for licensing and registering Mortgage Loan Originators .•Requires MLO's to register with the Nationwide Mortgage Licensing System (NMLS) •Mortgage Loan Originators not employed by Federally chartered and regulated institutions must also be state licensed to conduct loans and work under state regulations.

$20,000

$100,000 purchase, putting 20% down would equal ______________.

Housing Expense Ratio (HER)

- A ratio used to assess the ability of a borrower to pay debt; defined as the monthly payment of principal and interest on the loan plus monthly payments into an escrow account toward property taxes and hazard insurance divided by the borrower's gross monthly income. - FHA places a limit on the amount of debt that a buyer can acquire for the housing expense; borrowers cannot exceed 31% for the PITI + MIP. - FHA acknowledges that borrowers may not have certain debts at the time of a loan, such as a car payment, the borrower is better protected financially if they leave room in their budget for the possibility. FHA tries to prevent term "house poor" because so much of a person's earnings are going into housing expense.

Federal Housing Administration

- Provides mortgage insurance on loans made by FHA-approved lenders throughout the US and its territories. - Insures mortgages on single family and multifamily homes including manufactured homes. - Largest insurer of mortgages in the world. Loans are made in the primary market from approved lenders; nonconventional mortgage providers. - It is not the actual lender; it's the insurer. - Does not have a Due-on-Sale Clause. - Has a Prepayment Clause. - Known as "FHA."

Equal Credit Opportunity Act (ECOA)

1) Prohibits discrimination in loan underwriting on the basis of sex, marital status, race, religion, age, or national origin. (A lender cannot require an applicant's spouse to join in (sign) a loan application.) 2) Prohibits discriminatory treatment of income from alimony, child support, public assistance, or part-time employment 3) Prohibits inquiry about, or consideration of, child bearing plans or potential for child bearing

State Bond Loans or Mortgage Revenue Bond (MRB) Loans

A local State Bond Loan program for qualified first-time home buyers. Provides eligible borrowers a below-market interest rate to purchase a home that they intend to own and occupy. Obtained through the Housing Finance Agency (HFA) which is most often a state-wide agency. Not every mortgage lender offers this loan.

Government National Mortgage Market Association (GNMA) - Ginnie Mae

A WHOLLY owned government corporation under HUD that provides a secondary market for VA and FHA loans. The Mortgage-backed securities program provided are Pass-Through Securities as it acts as a GUARANTOR of these securities rather than the actual purchaser or creator of the securities. The securities carry the FULL FAITH and CREDIT GUARANTEE of the U.S. Government. Charges a fee for this guarantee.

Mortgage Broker

A _________________ _____________ conducts Loan Origination Activities by acting as an intermediary who brokers mortgage loans on behalf of individuals or businesses. Do not lend their own money or service loans. Their role is to find a bank or a direct lender for individual seeking loans.

The landlord's name, address, and phone number (if renting), an explanation for any credit report late payments, inquiries, charge-offs, collections, judgments, and liens and a copy of bankruptcy papers if filed bankruptcy within the last seven years. If the lender verifies the majority of this information at the outset, a Credit Pre-Approval will be provided to the buyer. If the lender takes verbal information from the buyer without enough documentation; then a pre-qualification is provided. All of this information will be used combined with the property appraisal to determine whether the buyer qualifies for the mortgage.

A buyer should be prepared to provide a credit verification that includes:

Bank statements on all accounts, stocks, mutual funds, bonds, 401K statements, an explanation of any large deposits and sources of those funds, and the copy of the closing disclosure if the buyer recently sold a home.

A buyer should be prepared to provide asset information, including:

W2s, pay stubs and federal tax returns (1040's) and Year-to-Date Profit and Loss Statements if self-employed.

A buyer should be prepared to provide income information. Lenders will document the following information:

36%; 41%; 43%; 31%

A buyer will have to meet qualifying requirements to obtain a loan. If the loan is for a conventional mortgage, the buyer's Total Obligation Ratio (TOR) cannot exceed _____%. For a VA loan it cannot exceed _____%. FHA allows for the highest total obligation ratio at _____%. FHA also requires the buyer stay at or under _____% for the buyer's Housing Expense Ratio (HER).

A buyer's monthly installment debt already found on the Credit Report, such as credit card payments, auto payments, student loans, child support payments; as well as add the proposed House Payment, that includes PITI (House Principal Payment, Interest, Taxes, & Insurance) and PMI

A buyer's total monthly obligations would include:

Package Mortgage

A mortgage agreement that provides home financing that includes real property, property improvements and movable equipment. For example, a home along with the furniture, and other personal property such as tables and chairs would be financed. Popular type of mortgage for a business that is purchasing a turnkey business opportunity.

Adjustable Rate Mortgage

A mortgage that allows for the interest charged to fluctuate depending upon the terms outlined in the loan. Referred to as an ARM. Components include: •Index•Margin (spread)•Adjustment interval•Interest rate caps•Payment cap •Teaser rate.

Conforming Conventional Loan

A conventional loan that meets the standards required for purchase in the secondary market by Fannie Mae or Freddie Mac.

FICO score

A credit score from 300-850 that rates how likely a person is to fall 90 days behind in a payment. It represents the statistical summary of data contained within the credit report. It includes bill payment history and the number of outstanding debts which a lender can compare to the borrower's income. The higher the borrower's score, the easier it is to obtain a loan or to pre-qualify for a mortgage. The lower the score, may persuade the lender to reject the application, require a large down payment, or assess a high interest rate in order to reduce the risk they are taking on the borrower.

VA Funding Fee

A fee paid to the VA at closing to guarantee the loan. The fee is in place to reduce the loan's cost to taxpayers. It is a percentage of the loan amount. The fee percentage varies based on the type of loan and military category. The fee can be financed into the loan or paid at closing.

Balloon Payment

A final payment of a mortgage loan that is considerably larger than the required periodic payments because the loan amount was not fully amortized. The loan balance that is unpaid at the end of the loan has to be made in one large payment.

Rural Housing Loan

A loan program under the Department of Agriculture designed to meet the needs of low-income and moderate-income rural residents to purchase, construct, repair, or relocate a dwelling and related facilities. 100% financing without monthly mortgage insurance premiums. Does require an upfront mortgage insurance premium, which can be financed into the loan.

home equity line of credit or HELOC

A loan taken out using the equity on the home you already own as collateral, and allows you to borrow up to a certain limit as you see fit, in whatever amounts and at whatever times you wish. Like a credit card, only one that allows you to borrow money instead of charging purchases to it.

standard home equity loan

A loan taken out using the equity on the home you already own as collateral. A certain amount of money is borrowed and repaid over a specified period of time.

home equity loan

A loan taken out using the equity on the home you already own as collateral. The portion of your home that's paid for is used to back the loan. The loan is secured by the value of your home, meaning you could lose the property to foreclosure the same as if you fail to make the payments on your regular mortgage. If there is already a mortgage on the home, it is a type second mortgage; a secondary lien (junior lien) secured by the equity in your home.

1-year ARM; 5-year ARM

A loan with an adjustment period of 1 year is called a __________________. A loan with an adjustment period of 5 years is called a _________________.

Assumable Mortgage

A mortgage that allows the purchaser of a property to assume (become liable) the mortgage from the property's seller. Mortgage rate for the buyer is often lower than prevailing market rates. Helps the purchaser avoid certain settlement costs. Very rare, with the exception of VA and FHA loans.

Fixed Rate Mortgage

A mortgage that charges the same interest rate throughout the entire term of the mortgage.

Up-Front Mortgage Insurance Premium (UFMIP)

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

Fannie Mae

A private (not a government agency) corporation that trades on the NYSE. Established for the purpose of stimulating the economy after the great depression and to create more opportunities for home ownership through increased money supply. It is a private corporation (not government owned) but is under strict government oversight. Is the Secondary Market for VA, FHA and conventional loans. Issues mortgage-back securities to investors. Is the largest single private mortgage purchaser.

Due-On-Sale Clause

A provision which requires the mortgage to be repaid in full upon a sale or conveyance of partial or full interest in the property that secures the mortgage.

Prepayment Clause

A provisional clause in conventional mortgages under which a borrower may pay off or retire a loan ahead of the schedule without penalty.

Periodic Caps

An interest rate cap that limits the amount the interest rate can increase from one interval period to another in an Adjustable Rate Mortgage (ARM).

Lifetime Caps

An interest rate cap that limits the amount the interest rate can increase in total over the life of the loan in an Adjustable Rate Mortgage (ARM).

3 ½

Buyers financing a home with an FHA loan must put down _____% of the purchase price or the appraised value (whichever is less); leaving a 96.5% Loan To Value (LTV). This may be paid by a relative with an approved gift letter, but cannot be paid by the seller.

flips

A type of mortgage fraud when ownership of one property changes several times in a brief period. Often used to artificially inflate the value of the property to obtain larger loans than what might otherwise be possible and to skim the equity off of the property. Warning signs include frequent ownership changes within a brief period of time, not having the property seller on the title, references to a double escrow or other closing disclosures, and large fluctuations of the sales price over a period of a few weeks or months.

Amortized Mortgage

A type of mortgage that has a monthly payment that is constant, or the same amount paid every month on the combined principal and interest, for the term of the mortgage. Also called a level-payment plan. As the loan is paid off, the amount applied to the principal increases and the amount applied to the interest decreases. The schedule is based on either 15 or 30 years, but can be paid off early. The payment can still fluctuate some as only the principal and interest that are held constant; the cost of the insurance and taxes can vary from year to year. Of the total payment, the interest is paid first.

Uniform Residential Loan Application

Lenders use the ______________ ______________ __________ _________________ to collect information they need to qualify the borrower, such as employment, credit, assets, and liabilities.

Purchase Money Mortgage

Also called seller financing or owner financing, is a home-financing technique in which the buyer borrows from the seller instead of, or in addition to, a bank. Sometimes done when a buyer cannot qualify for a bank loan for the full amount. Title is transferred to the buyer as with a regular closing. Seller files a lien on the property.

fixed rate; adjustable rate

An amortized mortgage can be calculated using either a _________ _________ mortgage or an _______________ __________ mortgage.

All of the above

An increase in the discount rate a. Results in less lending and reduces money supply b. Is actually the least effective way to influence the interest rate charged with real estate loans. c. Is one of three ways for the Federal Reserve to conduct monetary policy d. All of the above

Negative Amortization

An unintended consequence of an amortized mortgage payment cap. Payment caps keep the mortgage payment from rising past a certain level, the amount of interest being charged on the balance due could actually be higher than the total payment collected and the difference is added to the loan balance. The mortgage balance increases.

Increase; Decrease

______________ in discount rate results in less lending and reduces money supply. _____________ in discount rate results in more lending and increases money supply.

True.

T or F. The Real Estate Settlement Procedures Act (RESPA) requires that prospective buyers get a special information booklet within three business days of submitting a loan application information on closing costs to be given to loan applicant.

True.

T or F. To qualify for a Reverse Annuity Mortgage a homeowner must be 62 years old or older and have a significant amount of equity built up in their house.

False. With an amortized Mortgage, as the loan is paid off, the amount applied to the principal increases and the amount applied to the interest decreases.

T or F. With an amortized Mortgage, as the loan is paid off, the amount applied to the principal decreases and the amount applied to the interest increases.

Mortgage Fraud

Any misrepresentation or concealment used to obtain a mortgage loan. Occurs when someone deliberately falsifies information to obtain mortgage financing that would not have been granted otherwise.

qualify

As a real estate licensee you should ___________ the buyer before house-hunting ever begins. It's good to know just how much house the borrower can afford, puts the buyer at a better negotiating advantage, and saves time and aggravation by not bidding on properties that cannot be obtained.

1st Month: •$120,000 x .06 = $7,200.00 ÷12 = $600 paid toward interest •$842.15 -$600 = $242.15 paid toward principal •$120,000 -$242.15 = $119,757.85 new balance of unpaid mortgage 2nd month: •How much of Kate's 2nd payment is Interest?$119,757.85 x .06 = $7,185.47 ÷12 = $598.79 paid toward interest •How much is paid toward the principal in the 2nd payment? $842.15 -$598.79 = $243.36 paid toward principal •What will her new balance be after the 2nd payment?$119,757.85 -$243.36 = $119,514.49 new balance of unpaid mortgage

Borrower Kate has a starting balance of $120,000 at the beginning of March. She is being charged 6% interest. Her total monthly payment for combined principal and interest is $842.15. How much of Kate's 2nd monthly payment is interest? How much is paid toward the principal the 2nd month? What will her new balance be at the end of month 2?

•How much of Kate's payment is Interest? $120,000 x .06 = $7,200.00 ÷12 = $600 paid toward interest •How much is paid toward the principal? $842.15 -$600 = $242.15 paid toward principal •What will her new balance be? $120,000 -$242.15 = $119,757.85 new balance of unpaid mortgage

Borrower Kate has a starting balance of $120,000 at the beginning of March. She is being charged 6% interest. Her total monthly payment for combined principal and interest is $842.15. How much of Kate's payment is interest? How much is paid toward the principal? What will her new balance be?

$234.25

Borrower Kathy has a starting balance of $150,000 at the beginning of January. She is being charged at 3.25% interest. Her total monthly payment for combined principal and interest is $640.50. How much of the first payment is the principal? a. $640.50 b. $844.64 c. $406.25 d. $234.25

Down Payment/LTV, PMI, and Qualifying Ratios of the buyer's income to debt, and other loan approval requirements

Because most lenders actually "sell" the loans they've made in the "secondary market," standards were created to determine whether a buyer qualified for the loan. Following these standards are said to be conforming loans. To mitigate the risk to the lender and subsequent investors that purchase the loan in the secondary market what are some of the loan approval requirements?

Correspondent Lender

Brokers who act as a direct mortgage lender, having the authority to underwrite their own loans funded by their investors. Their goal is to do loans in great quantities, package them together, and sell them in the secondary market before the first payment from the borrowers are due. They have secured trade lines from investors-acting as direct lenders -in which loans are funded.

The Housing and Economic Recovery Act of 2008

Passed by Congress in 2008. Expanded regulatory authority over Fannie Mae and Freddie Mac by the newly established FHFA, and gave the U.S. Treasury the authority to advance funds for the purpose of stabilizing Fannie Mae, or Freddie Mac. As a result, both Fannie Mae and Freddie Mac are now under a conservatorship.

The appraisal fee and any inspection fees, actual cost of credit reports, lender's origination fee, deposit verification fees, home inspection service fees up to $200, cost of title examination and title insurance, document preparation (by a third party not controlled by the lender), property survey, attorney's fees, recording fees, transfer stamps and taxes, test and certification fees, water tests, etc.

Closing Costs for an FHA loan may include:

Mortgage brokers

Conduct Loan Origination Activities by acting as an intermediary who brokers mortgage loans on behalf of individuals or businesses. They do not lend their own money or service loans. Their role is to find a bank or a direct lender for individual seeking loans. They can connect the person to the right loan source that best meets their needs.

1. Beginning Principal Balance × Interest Rate= Annual Interest 2.Annual Interest ÷12 = Monthly Interest Due 3.Scheduled Monthly Payment -Monthly Interest Due = $ Paid on Principal 4.Beginning Principal Balance -$ Paid on Principal = New Balance

Explain the formula for amortizing a Level-Payment Plan Mortgage.

loan limits

FHA ________ __________ were established to define how much you can borrow for an HUD-backed mortgage. Each state area has different limits based on the costs in the area. In Florida, the range of loan limit varies dramatically depending upon where in the state the borrower is seeking an FHA loan. 2016 Florida Loan Limits, for example, for a single family home in Manatee County is $285,200 vs. $529,000 for a Single Family Home in Key West, FL.

Credit Unions

Financial institutions that are owned by it members. Are not-for-profit. Operate to serve members rather than to maximize profits. Offers higher savings rates, lower fees, and lower rates on loans. Either chartered with the state or the federal government. Insured by The National Credit Union Administration (NCUA) of up to $250,000 in deposit. They make single family home loans and home equity loans. Provide conventional, FHA and VA loans

Portfolio Lenders

Financial institutions that make nonconforming real estate loans that are kept and serviced in house instead of selling them on the secondary markets.

U.S. securities

Financial instruments issued by the federal government to borrow money to finance expenditures that exceed tax revenues, such as Treasury bills, Treasury notes, Treasury bonds, and US saving bonds.

loan-to-value (LTV) ratio

Financial term used by lenders to express the ratio of a mortgage loan to the value of an asset purchased or appraised value of real property. Ideally, lenders want 20% down, leaving a ratio of 80%.

6

For an FHA loan is that sellers are allowed to pay up to ____% of the sales price towards the buyer's closing costs.

Geoff doesn't qualify for a conventional loan because his TOR is above 36% Total Monthly Obligations ÷ Monthly Gross Income = TOR Total Monthly Obligations = $2500 / $4,200 = .5952 or 60%. TOR cannot exceed 36%: Doesn't qualify for a conventional loan. HER doesn't apply to conventional mortgages.

Geoff wants to buy a home with a conventional mortgage. The total PITI on the home he wants to buy will total $1,500. He is already paying $1000 in other long term debt obligations. Geoff's gross monthly income is $4,200. Which of the following statements is true? a. Geoff doesn't qualify for a conventional loan because his TOR is above 36% b. Geoff qualifies for a conventional loan. c. Geoff doesn't qualify for a conventional loan because his HER is 36% d. Geoff qualifies for the loan because his TOR is 24%

Private Money Bankers or Real Estate Bankers

Groups, individuals, companies or funds, that pool private money, and then lend those pooled funds for profit.

Index + Margin = Full Indexed Rate

How is a full indexed rate calculated?

Monthly housing expenses (PITI and MIP) ÷ monthly gross income = HER •Principal + Interest+ Property Taxes + House Insurance + FHA Mortgage Insurance Premium = Monthly Housing Expenses

How is the Housing Expense Ratio (HER) calculated?

Total Monthly Obligations ÷Monthly Gross Income = TOR

How would a lender find out a borrower's TOR?

Beginning Principal Balance × Interest Rate= Annual Interest

How would you find the Annual Interest Rate?

second

If there is already a mortgage on the home, a home equity loan is a type of ______________ mortgage. That is, it's a secondary lien (junior lien) secured by the equity in your home.

appraiser

If you use an FHA loan to buy a house, the property will have to be appraised and inspected by an HUD-approved home _______________. This individual will determine the current market value of the property, and will also inspect it to ensure it meets HUD's minimum property standards.

no-doc mortgage

Illegal. Does not require mortgage lenders to document the borrower's income or assets. Illegal today because they violate the requirement that lenders must verify the borrower's ability to repay before approving a mortgage. Were designed to make home purchases easier for individuals who often had plenty of cash flow but couldn't document their income.

Fannie Mae and Freddie Mac

Lenders planning to resell mortgages in the secondary market follow a strict standard of loan guidelines established by the government-sponsored enterprises (GSEs):

index

In an Adjustable Rate Mortgage (ARM), the interest rate can fluctuate during the term of the loan based on an agreed upon __________. Lenders base interest rates on a variety of indexes. Normally, the index chosen is outside of the lender's control. The most common are the one-year constant maturity treasury security, the cost of funds index, or the london interbank offered rate.

Margin

In an Adjustable Rate Mortgage (ARM), the______________ is the amount the lender adds to the index in order to make the loan profitable. May be based on credit. The better your credit, the lower that is added.

Collects employment, credit, assets, liabilities information

Lenders use the Uniform Residential Loan Application to collect information they need to qualify the borrower such as:

Savings Associations

Institutions that accept savings at interest and lend money to savers for home mortgage loans (may offer checking accounts). They are either chartered with the state or the federal government. Insured by the FDIC up to $250,000 per depositor per account. They mostly make loans for single family homes or for home equity loans or lines of credit. Makes primarily conventional loans but will make FHA or VA loans

PMI or Private Mortgage Insurance

Insurance that covers the lender in the event that the borrower defaults on the debt. Charged to a borrower when he has less than 20% equity in the residence. The insurance covers the lender in the event that the borrower defaults on the debt. Used to insure the part of the loan above 80% LTV. The cost is usually added to the Buyer's Payment.

down

Interest rates go __________ when there are less borrowers competing for loans.

up

Interest rates go __________ when there are more borrowers competing for loans. Interest rates go down when there are less borrowers competing for loans.

Teaser Rates

It is when an initial rate is lower than the fully indexed rate in an Adjustable Rate Mortgage (ARM). The lender charges a higher rate after the initial discounted rate period passes. These types of loans are often combined with larger initial loan fees. The initial low rate and subsequently lower payment, makes the loan appear to be more attractive. Also called discounted rates or start rate.

primary

Loans are made in what is called the "____________ market."

conforming loans

Loans that meet FNMA/FHLMC standards, and can be sold on the secondary market.

Sub-Prime Loans

Loans with more risks and higher interest rates offered by some lenders (than allowed in the conforming market) to borrowers with questionable credit histories. Also called B-C Loans or B-C Credit.

amortize

Meaning to diminish by installment payments.

$100,000

Mortgage fraud is a second-degree felony when the loan documents exceed _______________.

Conventional Loan

Mortgage loan not guaranteed or insured by the government. Lender assumes all the risk of default. Buyer required to make a down payment to help offset the risk to the lender.

Non-Conventional Loans

Mortgage loans guaranteed by government. Includes loan programs offered by the Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA).

Biweekly Mortgage

Mortgage payment plan where payments are based on a regular amortization schedule, but divided in half and set up to pay every 2 weeks instead of once a month. It forces the borrower to make an extra monthly payment annually by having them pay a total of 26 payments. 52 weeks divided by 2 = 26 Payments. By using this payment strategy, a 30-year mortgage is paid off in 22.6 years instead of 30.

mortgage-backed securities

Mortgages or bonds backed by mortgage payments.

nonconforming mortgage

Mortgages that do not meet agency's underwriting standards and cannot be sold to Fannie Mae or Freddie Mac

Disintermediation

Occurs when depositors take their money out of financial institutions because they can earn more money in other investments.

private investors

Often pool their money and participate in investment opportunities with mortgage brokers and bankers either in the primary or secondary market. Private investors have an opportunity to invest in real estate and mortgages that they wouldn't otherwise have the resources to do. However, with these investments are increased risks compared to the conforming market. This is a nonconforming loan.

$50,000

On a $250,000 purchase, the required 20% down payment would be _____________.

adjustment period

On an adjustable-rate mortgage, the period of time between rate or payment changes. Could be based on months, quarters or years.

straw buyers

People who consent to the use of their names and personal details by companies or people who will obtain mortgage loans but do not intend to live in the homes.

Interest Rate Caps

Places a limit on how much the interest rate can increase in an Adjustable Rate Mortgage (ARM).

Hard Money Lenders

Predominantly small, highly specialized mortgage brokers familiar with commercial real estate lending. Mortgage pools are structured and operate similar to commercial banks.

Commercial Banks

Privately owned financial institutions that accept demand deposits and make loans and provide other services for the public. Insured by the FDIC the same as Savings Associations. Mostly make commercial loans as well as single family home loans. Provide conventional, FHA and VA loans.

Consumer Credit Protection Act or The Truth in Lending Act (TILA)

Promotes the informed use of consumer credit by requiring disclosures about its terms and costs. The overall goal is to inform borrowers of the true costs of a loan. It does not regulate loan charges, instead it requires a "uniform standard disclosure" of loan costs and charges so that the consumer can fairly shop loans by comparing one to the other. Requires that the disclosure be made to consumers of credit, that they have a 3 day right of rescission. The 3 day right of rescission does not apply to home mortgages except as refinances or home equity loans.

FHA mortgage insurance

Provides lenders with protection against losses as the result of homeowners defaulting on their mortgage loans. The lenders bear less risk because FHA will pay a claim to the lender in the event of a homeowner's default. Loans must meet certain requirements established by FHA to qualify for insurance.

Federal Reserve Requirement

Refers to the amount of funds that a bank must have on hand each night (held in cash in it's vault or as a deposit at its local FED bank). Has the most important impact on the money supply. Small increase in the requirement causes large reduction in money supply. Small decrease in requirement causes large increase in money supply.

True.

T or F. Straw buyers are people who consent to the use of their names and personal details by companies or people who will obtain mortgage loans but do not intend to live in the homes. This is considered mortgage fraud and is illegal.

True.

T or F. The Federal Reserve System was established to provide a safer and more stable monetary system and to influence the availability and cost of money and credit.

FICO score

Represents the statistical summary of data contained within the credit report. It includes bill payment history and the number of outstanding debts which a lender can compare to the borrower's income.

Real Estate Settlement Procedures Act (RESPA)

Requires that the borrower be provided a booklet of information regarding closing costs. A financial institution or mortgage broker is required to provide a borrower with a copy of the "Special Information Booklet" at the time a written application is submitted or no later than 3 business days after application is received, as well as disclosure of key features, costs, and risks of the mortgage loan for which the person has applied. The form details all the costs associated with the closing including lender fees, real estate agent commissions, title closing fees, APR, and prorations between the buyer and the seller. Prohibits kickbacks, also called fee-splitting or unearned fees, to a lender from vendors of closing related services.

Payment Caps

Set a limit of how much the payment can actually be increased in between terms in an Adjustable Rate Mortgage (ARM).

Interest rates

Set by the supply and demand in the credit markets. Manipulated by central banks and governments-the Federal Reserve. A surge in money supply can force it down.

Trigger Terms

Specific credit terms that may not be advertised unless the advertisement includes other detailed information. If an advertisement for credit for real estate (mortgages) contains any of the following terms, three specific disclosures must be included in the advertisement. The terms are: 1. The amount of the down payment, expressed either as a percentage or as a dollar amount. 2. The amount of any payment expressed either as a percentage or as a dollar amount. 3. The period of repayment (the total time required to repay). Including the terms means all three of these disclosures must be included: 1. The amount or percentage of the down payment; 2. The terms of repayment; and 3. The "Annual Percentage Rate," using that term spelled out in full. If the annual percentage rate may be increased after consummation of credit transaction, that fact must be disclosed. "No down payment" and phrases that are vague are not included.

True.

T or F. A conventional loan is a mortgage loan that is not guaranteed or insured by the government

False. All Savings Associations are insured by the FDIC up to $250,000 per depositor per account.

T or F. All Savings Associations are insured by The National Credit Union Administration (NCUA).

False. The Equal Credit Opportunity Act (ECOA) prohibits discrimination in loan under writing on the basis of sex, marital status, race, religion, age, or national origin. Plus it prohibits discriminatory treatment of income from alimony, child support, public assistance, or part-time employment. And it prohibits inquiry about, or consideration of, child bearing plans or potential for child bearing.

T or F. Because an applicant needs to be able to prove that they can pay a mortgage payment for the entire life of a loan, lenders are allowed to factor in someone's age when approving or denying them for a loan..

False. Intermediation is the normal flow of money into financial institutions from the public in the form of deposits. Disintermediation occurs when depositors take their money out of financial institutions because they can earn more money in other investments.

T or F. Disintermediation is the normal flow of money into financial institutions from the public in the form of deposits.

True.

T or F. Negative amortization arises when the payment made by the borrower is less than the interest due and the difference is added to the loan balance.

Mortgage Insurance Premium (MIP)

The FHA insurance that is a percentage of the loan amount that the borrower is charged as a premium divided between the monthly payments.

25% down

The Truth in Lending Act disclosure requirements considers which of the following statements to be a triggering term? 1) 25% down 2) Pay weekly 3) Terms to fit your budget 4) 5% below our standard Rate

Guarantee Feature

The ________________ _________________ is a Partial Guarantee that guarantees a portion of the loan, enabling the lender to provide favorable terms.

Mortgage loan origination

The actual process of working with a buyer to: •Process loan applications •Negotiate the terms and conditions of a loan between the borrower and the lender

Entitlement

The amount that the VA will guarantee based on 25% of the home's value. $417,000 is the Maximum Guarantee Loan Amount allowed in MOST of the country for VA loans ($417,000 x .25 = $104,250 Maximum Entitlement). The buyer would need to make a down payment for the difference. Homes with a purchase price of up to $417,000 do not require a down payment. It can be reduced by previous usage which could trigger a down payment. A buyer can choose a more expensive home and make up the difference with a down payment.

Mortgage Index

The benchmark interest rate that reflects general market conditions.

Federal Reserve System (the Fed)

The central banking authority; established to provide a safer and more stable monetary system and to influence the availability and cost of money and credit. It conducts monetary policy through 3 ways: open-market operations, discount rate, and reserve requirements. Has regulatory and supervisory responsibilities over banks created by TILA and Equal Credit Opportunity Act.

The beginning principal balance, interest rate and the scheduled monthly payment

The information needed to amortize a mortgage is:

Discount Rate

The interest rate charged to commercial banks and depositories for loans received from the Federal Reserve Bank (the interest rate on the loans that the Fed Reserve makes to banks). It is the 2nd most common method used to control supply of money. It is actually the least effective way to influence the interest rate charged with real estate loans.

secondary market

The market for reselling financial assets (mortgage loan, etc.)

Intermediation

The normal flow of money into financial institutions from the public in the form of deposits. These deposits are combined and accessed to loan out to earn income for the institution.

Adjustment Interval

The period for an adjustable rate mortgage for which the payment rate can be changed.

securities

The sale and purchase of U.S. ____________ is the principal method and most effective tool used to influence supply of available money.

TransUnion, Experian, and Equifax

The three major credit bureaus:

20%

To avoid the PMI fee, a borrower must either make a down payment of _____ or more, or procure subordinate financing to cover the needed funds.

Total Obligation Ratio (TOR)

To calculate the _______________________________, you have to calculate the borrower's total monthly debt obligations. This is anything that is reported on the credit report including child support payments. The total monthly cost of the home that the buyer is trying to purchase must be added to the other long term debt to equal the total monthly obligations. Dividing this total by the borrower's monthly gross income gives the ratio. If it is 36% or less, then the buyer would qualify for the loan based on this one parameter.

36%

To qualify for a conforming conventional mortgage, a borrower cannot exceed a maximum total monthly obligation ratio of ____%.

The Total Obligation Ratio (TOR) and the Housing Expense Ratio (HER) * FHA loans allow for more long term debt than conventional loans. It allows up to 43% TOR for an FHA Mortgage, whereas a conventional mortgage cannot exceed 36%.

To qualify for an FHA loan there are two measures that look at a buyer's finances to gross income:

Veteran's Administration (VA) Loan

Type of mortgage loan designed to benefit veterans, un-remarried surviving spouses of veterans, or active military personnel that allows for a true zero-down mortgage; generally more expensive than a conventional mortgage. Homes that qualify are single family residences or up to 4 unit buildings with the borrower living in one of the units as an Owner Occupied Residence; home loans for new construction or existing construction; and refinance of homes. It includes: •Government Guaranteed Mortgage •Loans made by approved lenders •Requires NO MONEY Down (Maximum Entitlement Benefit) •No Loan Maximum •Can be Assumed •No Upfront or Monthly Mortgage Insurance Charged Funding Fee is Charged •Interests Rates are negotiable •Loan Origination Fee Maximum of 1% of the Loan •No HER requirement, TOR up to 41%

•Total Monthly Obligations ÷Monthly Gross Income = TOR •Total Monthly Obligations = $800 + $1,000 = $1800 •$1,800 ÷$3,200 = .5625 or 56% Waldo doesn't qualify because his TOR would have to be 36% or less.

Waldo wants to buy a home with a conventional mortgage. The total PITI on the home he wants to buy will total $1,000. He is already paying $800 in other long term debt obligations (car payment of $525 and total credit cards of $275). Waldo's gross monthly income is $3,200. Will he qualify for this home?

•Monthly housing expenses (PITI and MIP) ÷monthly gross income = HER •$625 ÷$3,200 = .20 or 20% HER •Total Monthly Obligations ÷Monthly Gross Income = TOR •Total Monthly Obligations = $800 + $625 = $1,425 •$1,425 ÷$3,200 = .45 or 45% TOR •Would qualify by HER (below 31%) standards but does not qualify due to TOR ratio (must be below 43%).

Waldo wants to buy a home with an FHA loan. The total PITI + MIP on the home he wants to buy will total $625. He is already paying $800 in other long term debt obligations (car payment of $525 and total credit cards of $275). Waldo's gross monthly income is $3,200. Will he qualify for this home?

The Federal Home Loan Mortgage Corporation (Freddie Mac)

Was created to expand the secondary market. Buys conventional mortgages on the secondary market, pools them, and sells them as a mortgage-backed security to investors on the open market. Shares are sold publicly. Under conservatorship of the Federal Government.

Fraud for housing or property, Fraud for profit, and Fraud for criminal enterprise

What are the three categories for mortgage fraud?

Standard Home Equity Loan and the Home Equity Line of Credit or HELOC

What are the two types home equity loans?

1.Mortgage loans are purchased from banks and other lenders. 2.The purchaser (Fannie Mae) assembles these loans into collections or "pools". 3.Fannie Mae "securitizes" the pools by issuing mortgage-backed securities. The securities are "secured" or backed by the real estate the mortgages are held against. 4.The investors, by holding the security, now have a liquid asset that are easier to buy, sell, or trade through securities dealers.

What does it mean: "Fannie Mae issues Mortgage-back securities"?

•Finance charge •Total amount financed •Total amount of payments •Annual percentage rate (APR) within ⅛ of 1% And it requires lenders to disclose interest, discount points, servicing fees, & origination fees

What loan terms does the TILA require disclosure of?

Land Contract

When a Seller provides a direct source of home financing for buyers, and can agree to sell their home as a contract. The seller holds legal title to the property and the buyer holds equitable title. Or the seller could transfer the deed to the buyer and act as the lender filing a mortgage lien against the property. These are purchase money mortgages that are amortized to pay off the amount due through the loan term or may require a balloon payment at the end of the term.

Inflated appraisals

When an appraiser's report inaccurately states an inflated property value. An appraiser places a much higher value on a property than can be justified. This practice has been commonly used in conjunction with other forms of mortgage fraud.

- The Primary Mortgage Market - Mortgage lenders which are institutions specifically in business to loan money (they are not depositories for checking or savings). - Savings associations, commercial banks, or credit unions who are also in business as depositories.

Where does a buyer go to get a loan?

Due-on-sale clause

Which mortgage provision makes a loan not assumable? a. A habendum clause b. A defeasance clause c. Due-on-sale clause d. An assumption clause

It is a government owned agency.

Which of the following statements are false regarding Fannie Mae? 1) It is a government owned agency 2) It is the Secondary Market for VA, FHA and conventional loans. 3) It issues Mortgage-back securities to investors 4) It is the largest single private mortgage purchaser.

Kickbacks are said to harm consumers by driving down the cost of transactions.

Which of the following statements are false regarding The Real Estate Settlement Procedures Act (RESPA)? a. Giving a kickback in exchange for referring a settlement service business to another person is prohibited. b. Kickbacks are said to harm consumers by driving down the cost of transactions. c. Brokers can only pay other mortgage brokers a referral fee. d. Real Estate Licensees can only pay other real estate licensees a referral fee.

A Loan Commitment states the amount of entitlement available to the veteran or serviceman. Certificate of Eligibility states the amount of entitlement available to the veteran or serviceman.

Which statement does not apply to VA Entitlements? a. It is possible to use up only part of an entitlement. b. The amount that is used up is equal to the amount that is being guaranteed by an existing VA loan. c. A Loan Commitment states the amount of entitlement available to the veteran or serviceman d. The unused entitlement is still available.

GNMA is part of the primary mortgage market.

Which statement is false regarding the Government National Mortgage Market Association (GNMA) a. GNMA is part of the primary mortgage market b. GNMA is a wholly owned government corporation under HUD. c. The Mortgage-backed securities program provided by GNMA are Pass-Through Securities as GNMA acting as a GUARANTOR of these securities rather than the actual purchaser or creator of the securities. d. GNMA provides the full faith and credit guarantee of the U.S. Government.

The interest rate charged is negotiable as part of the free flowing market.

Which statement is true regarding FHA loans? 1) The interest rate charged is set by the government 2) The interest rate charged is negotiable as part of the free flowing market 3) The interest rate charged is not part of the open money market 4) Buyers cannot negotiate the interest rate for FHA loans.

partially amortized mortgage

With a _______________ _____________ ______________, the payments are calculated using a longer term than what the mortgage requires to actually pay off the full balance. The loan balance that is unpaid at the end of the loan has to be made in one large payment called a Balloon Payment.

*Remember: Maximum Entitlement is $417,000 x .25 = $104,250 Maximum Entitlement $300,000 x .25% = $75,000 The amount is covered by Guarantee and below the available entitlement. No down payment is required because the VA is guaranteeing the top $75,000 of the loan.

With the maximum entitlement available is the borrower required to make a down payment: Buyer wants a $300,000 home purchase. If he/she has 100% of their entitlement available, what is the maximum entitlement that can be used?

Mortgage lenders

_______________ _____________ are specifically in business to loan money. Loans are either from the company's personal funds (investor's funds) or from borrowed capital. The company does not hold the loans once the loan is made. The company bundles the loans together, packages them, and sells them to the secondary market.

Conventional

__________________ Mortgages do not allow for an Assumable Mortgages as they feature a Due-on-Sale Clause.

Total Obligation Ratio (TOR)

_________________________________ is designed to protect the borrower and lender by capping the amount of long term debt a borrower can take on as a monthly payment.