Segment 12

Duke is applying for a 30-year FHA-insured loan to purchase a $200,000 property with a $30,000 down payment. How much will Duke pay per month for his first year of monthly mortgage insurance (MMI)?

$113.33 The loan-to-value of Duke's purchase is 85%. ($200,000 - $30,000) ÷ $200,000 = 0.85 or 85% For loans less than $625,000 with a term longer than 15 years and at less than 95% LTV, the mortgage insurance premium is 0.80% of the loan amount (80 BPS). $200,000 - $30,000 = $170,000 $170,000 × .008 = $1,360 (this is the annual cost for insurance) $1,360 ÷ 12 months per year = $113.333333, truncated to $113.33 MMI is recalculated annually. As Duke repays the loan, the MMI will decrease.

Manna is using her VA loan entitlement for the first time to purchase a property for $250,000 with a 12% down payment. How much will the VA funding fee cost her?

$2,750 The VA funding fee for a first-time entitlement use with a down payment of 10% or greater is 1.25% of the loan amount. $250,000 X .12 = $30,000 down payment $250,000 - $30,000 = $220,000 loan amount $220,000 X .0125 = $2,750 VA funding fee

Duke is applying for a 30-year FHA-insured loan to purchase a $200,000 property with a $30,000 down payment. How much will his upfront mortgage insurance premium be?

$2,975 For an FHA-insured loan, the upfront mortgage insurance premium is 1.75% of the loan amount. $200,000 - $30,000 = $170,000 $170,000 X .0175 = $2,975

What is the maximum funding amount on the Limited 203(k) loan?

$35,000 The Limited program sets a maximum of $35,000 for rehabilitation costs, which includes materials, inspector fees, permits, and other costs. It does not have a minimum funding amount. The standard 203(k) has a $5,000 minimum funding amount and no set maximum, as its maximum is based on several factors.

What is the minimum amount for repair costs under the standard 203(k) loan?

$5,000

A reverse mortgage loan has its loan origination fee capped at __________ if the loan is for more than $125,000.

$6,000

The limit for a loan origination fee for a HECM is

$6,000. The correct answer is $6,000. The HECM is FHA's reverse mortgage loan program. It has a maximum origination fee of 2% up to an MCA of $200,000, plus 1% of the MCA above $200,000, up to $6,000.

An adjustable rate mortgage loan was written at 5% interest with a 1/5 cap. If the index rate increases 1% each year, what would the ARM interest be at the 12th year?

10% An ARM with a 1/5 cap has a 1% cap per year and a 5% lifetime cap. The interest rate on the loan could never be increased by more than 1% in a year or by more than 5% (to a maximum of 5% + 5% = 10%) over the life of the loan.

For a conventional mortgage, the property seller is allowed to pay __________ towards the buyer's (i.e., the borrower) real estate closing costs.

3%

Qualifying guidelines on an FHA loan are

31% housing ratio and 43% total debt ratio. The monthly mortgage payment cannot exceed 31% of the borrower's gross income and the total monthly financial obligations of the borrower (mortgage, bills, etc.) cannot exceed 43% of the borrower's gross income.

To qualify for an FHA loan, a borrower without any compensating factors must meet which of the following ratios?

31% housing/43% debt For an FHA loan the housing-to-income ratio for an FHA loan is 31% and the debt-to-income ratio is 43%. For a conforming loan the ratios are 28%/36%. For a VA loan the only ratio is 41% for debt plus a residual income calculation.

The Good Neighbor Next Door program helps a qualified borrower purchase a home in a HUD-revitalization area by offering qualified purchasers a __________ discount off the list price of homes available from HUD's inventory.

50%

For a 30-year FHA-insured loan that is less than $625,000 and greater than 95% loan-to-value, what is the monthly mortgage insurance (MMI) rate?

85 BPS If the FHA-insured loan is greater than 95% LTV, for a term longer than 15 years, and for values less than or equal to $625,500, the rate is 85 base points.

What risk is PMI intended to cover?

A foreclosure sale that was not enough to pay the outstanding loan balance Private Mortgage Insurance (PMI) is insurance to protect the lender of conventional loans. PMI insures the lender against loss when a borrower defaults. This insurance reduces the lender's risk because losses are shared between the lender and the insurance company if the loan results in a default. The PMI company pays the lender for its loss.

Which one of the following loans types would NOT be a nonconventional loan?

A-paper loan A nonconventional loan is one that is originated outside of Fannie Mae or Freddie Mac guidelines. These include second mortgages, jumbo loans, HELOCs, and hard money loans. An A-Paper loan is also known as a conventional mortgage.

If a borrower has a loan-to-value of less than 90% on an FHA-insured loan, when can the borrower cancel the required monthly mortgage insurance?

After 11 years of making payments on the loan

Fannie Mae's automatic underwriting program is called __________ .

Desktop Underwriter

Fannie Mae is the more common name of the

Federal National Mortgage Association.

Which of the following is associated with a federal VA loan?

Funding fee For a VA loan, the applicant is charged an upfront funding fee, which may be financed. This pays for a guarantee that ensures the lender against loss in the event the borrower defaults. PMI (private mortgage insurance) serves the same purpose as the VA guarantee, but is used in conventional financing. MIP (mortgage insurance premium) refers to the charge to a borrower obtaining an FHA loan for the insurance to protect the lender against default. Risk-based pricing is the concept of charging the borrower a higher interest rate that should cover a lender's losses on high-risk loans, so as to avoid the need for mortgage insurance (i.e., self-insurance). It was used for subprime loans.

A lender who does not cancel PMI when the LTV reaches 78% is in violation of which federal law?

Homeowners Protection Act The Homeowners Protection Act also requires the lender to automatically cancel the PMI if the LTV reaches 78% of the home as long as the borrower is current and in good standing.

The USDA's rural low-income loan programs are managed by the:

Housing and Communities Facilities Programs (HCFP).

A type of nontraditional mortgage that allows a borrower to pay only the loan's interest for a specified number of years, after which the borrower must begin to pay the principal plus interest, is a __________ .

I-O Payment Plan Interest-only or I-O payment plans allow the borrower to pay only the loan's interest for a specified number of years. After that, the monthly payment will increase even if interest rates stay the same, because the borrower must begin to pay back the principal and the interest each month.

Lenders who originate subprime loans are to follow the:

Interagency Guidance on Nontraditional Mortgage Product Risks.

Which of the following is a characteristic of a USDA Section 502 guaranteed loan?

It has a 30-year term.

Which of the following is true of the COFI?

It stands for the Cost of Funds Index.

Freddie Mac's automatic underwriting program is called __________ .

Loan Prospector

The index LIBOR is actually called the

London Interbank Offered Rate. An index is a guide used by lenders that measures an interest rate change. The most common indexes are the one-year constant-maturity Treasury (CMT) securities, the Cost of Funds Index (COFI), and the London Interbank Offered Rate (LIBOR). Some lenders use their own cost of funds as an index.

MIP

Mortgage Insurance Premium: refers to the charge to a borrower obtaining an FHA loan for the insurance to protect the lender against default.

Which of the following is TRUE with regard to margin rates of adjustable rate mortgages?

Once set, the margin usually does not change over the life of the loan. The margin rate provides the lender's profit. Once set it usually remains constant for the life of the loan. The index rate is the rate that changes. The interest rate is equal to the index rate plus the margin rate. A loan could have a lower interest rate with a higher margin rate, if the index rate were lower.

Which one of the following improvements is NOT eligible under the Limited 203(k) program?

Structural repairs Major rehabilitation, major remodeling, structural repairs, landscaping, or repairs expected to take longer than 6 months are not eligible for the Limited 203(k).

In order to avoid having private mortgage insurance, a buyer's down payment must be at least

The correct answer is 20%. A down payment is the difference between the purchase price and loan amount. It does not include closing costs. As a percentage, it is 100 percent of the price less the LTV or the CLTV. If the LTV is 80 percent, the down payment is 20 percent. When a loan is above 80 percent, the lender may require that the borrower purchase mortgage insurance.

What is the lifetime cap on an adjustable rate loan?

The maximum the interest rate can increase over the life of the loan

There are __________ disbursement plan choices for a borrower who has a reverse mortgages.

There are six disbursement plans: tenure, term, line of credit, single disbursement lump sum, modified tenure, and modified term.

What is the down payment requirement for a VA-insured loan?

There is no down payment required on a VA loan A VA loan does not require a down payment, however, there is a VA funding fee.

Which one of the following is a characteristic of a subprime borrower?

Two or more 30-day delinquencies within the past year Some of the characteristics of a subprime borrower include a bankruptcy within the past 5 years, a debt-to-income ratio of 51% or higher, a credit score of 660 or lower, and two or more 30-day account delinquencies in the past 12 months.

Which government agency makes loans when no local lender is available?

USDA Rural Development The United States Department of Agriculture (USDA) offers loan programs for low- to moderate-income borrowers in eligible rural areas.

A feature that a Payment-option ARM has that other ARM loan products might not have is:

a built-in payment recalculation period. Payment-option ARMs have a built-in recalculation period, usually every five years. At that point, the payment will be recalculated (or recast) based on the remaining term of the loan.

A loan in which assets and employment are verified, but income is not disclosed or used in qualifying the borrower, the loan decision is based on the borrower's credit rating and down payment or equity in the property, and standard guideline ratios relating housing expense and living expense to income are ignored, is called a

a no-ratio documentation loan.

A HECM reverse mortgage borrower is required to pay

an annual mortgage insurance premium.

An FHA-insured mortgage loan requires:

an upfront mortgage insurance premium. UFMIP

For its rural loan program, the USDA can:

both insure lender loans and originate its own loans.

A Hybrid ARM loan is a type of loan that:

can be described by using numbers such as 5/1 or 3/1. Hybrid ARMs are described with numbers such as "1/1," "3/1," and "5/1." The first number in each set refers to the initial period of the loan, during which the borrower's interest rate will stay the same for that period of years. The second number is the adjustment period, showing how often adjustments can be made to the rate after the initial period has ended.

A conforming loan is a loan that

follows the secondary market criteria set by Fannie Mae/Freddie Mac.

The single disbursement lump sum payment plan for reverse mortgages will:

give a single payment at loan closing that is 60% or less of the principal limit.

Under the Good Neighbor Next Door Programs, revitalization areas are designated by

household incomes, home-ownership rate, and the number of FHA-insured foreclosures.

The Homeowners Protection Act (HPA) allows borrowers with good history to request the cancellation of their PMI when the mortgage is paid down to the point that

it equals 80% of the original purchase price OR the appraised value of the home at the time the loan was obtained, whichever is less.

Before a homeowner can apply for a HECM reverse mortgage, the homeowner must

meet with a HUD-approved housing counselor.

When compared to traditional conforming loans, FHA-insured loans have lower interest rates and lower:

monthly mortgage insurance. A distinct advantage of an FHA insured loan, as compared to a conforming loan, is great interest rates and lower monthly mortgage insurance (MMI). They also have higher income ratios.

Insurance that reduces the lender's risk of loss in the event of foreclosure is

mortgage insurance The purpose of mortgage insurance, whether private, FHA, or the VA guarantee, is to compensate the lender for their loss in the event of a foreclosure. It is required when the borrower has less than a 20% down payment because of the increased risk of foreclosure.

A base point is

one-hundredth of 1%. The amount of change in interest rates is often expressed in terms of base points. A base point is equal to one-hundredth of 1%. Therefore, a reduction in mortgage interest rates of .25% (which is 25/100 of 1 percent) is a reduction of 25 base points.

When an FHA borrower sells the home he purchased five years ago, his loan can be assumed

only if the buyer will occupy the property. All FHA loans are assumable, subject to the person assuming the loan qualifying. However, a loan insured after 1989 can be assumed only by an owner-occupant.

A borrower can refinance into a VA-insured loan only if the:

original loan was also a VA-insured loan.

The type of insurance used to protect a conventional-mortgage lender from losses if its borrower defaults on their mortgage loan is called:

private mortgage insurance. PMI

PMI

private mortgage insurance: For conventional financing. serves the same purpose as the VA guarantee, but is used in conventional financing.

An Alt-A loan is a class of

subprime loan The term refers to the category of loan where there is alternative documentation and a credit score below that of a grade A borrower.

Risk-based pricing

the concept of charging the borrower a higher interest rate that should cover a lender's losses on high-risk loans, so as to avoid the need for mortgage insurance (i.e., self-insurance). It was used for subprime loans.

The interest rate of a variable or adjustable rate mortgage will be directly affected by changes in

the index rate. A variable (or adjustable) rate mortgage is one in which the interest rate is based on an index rate and a margin rate. The index rate will go up or down. The margin rate will remain constant. The lender periodically adjusts the interest rate based on changes in that index rate.

With regard to adjustable loans with interest rate caps, it is true that

the loan payments may increase even if the index rate decreases. The loan payments may increase even if the index rate decreases, as long as the index plus the margin is more than the rate the borrower has been paying before the adjustment. The cap period is whatever the adjustment period is, which could be one to five years. The cap would be higher when the adjustment period is longer, as the lender cannot make changes as frequently.

In regard to an ARM with a periodic adjustment cap, a new rate that is subject to an interest cap at the time of an adjustment is equal to

the lower of the current rate plus the cap or the index plus margin.