CHAPTER 1 Q&A MLO FLORIDA
MLO Compensation Rule
(Regulation Z)
In addition to the Federal Reserve, oversight of the mortgage industry includes:|
• Federal Deposit Insurance Corporation (FDIC)-Insures deposits and examines and supervises financial institutions • Office of Comptroller of Currency (OCC)Charters, regulates, and supervises all national banks • National Credit Union Administration (NCUA)-Charters and supervises federal. credit unions • Federal Financial Institutions Examination Council (FFIEC)-Formal interagency body empowered to prescribe uniform principles, standards, und make recommendations • Federal Housing Finance Agency (FHFA)-Legal and regulatory authority over the secondary mortgage markets, Fannie Mac/Freddie Mac, and the FIL Banks • Department of Housing and Urban Development (HUD)-Cabinet-level federal agency dedicated to quality, affordable housing for everyone; enforcement oversight for the federal Fair Housing Act. 5.
The laws prohibiting predatory lending include:
• Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act) • Home Ownership and Equity Protection Act (HOEPA) • Higher-Priced Loans (Regulation Z) • MLO Compensation Rule (Regulation Z)
The privacy protection and consumer identification laws include:
• The Fair Credit Reporting Act (FCRA) • The Fair and Accurate Credit Transactions Act (FACTA) - Red Flag Rules • Portions of the Gramm-Leach-Bliley Act related to information privacy - The National Do Not Call Registry • The U.S.A. PATRIOT Act
The laws surrounding federal disclosure requirements include:
• The Loan Estimate/Closing Disclosure (TRID) - Regulation Z (12 CER $1026) • Mortgage Disclosure Improvement Act (MDIA) • Home Ownership and Equity Protection Act (HOEPA) • Home Mortgage Disclosure Act (HMDA) - Regulation C (12 CFR $1003) • Real Estate Settlement Procedures Act (RESPA) - Regulation X (12 CFR $1024) • Homeowners Protection Act (HPA) • Equal Credit Opportunity Act (ECOA) - Regulation B (12 CFR §1002) The CFPB's rules and laws related to financial disclosure are summarized in a chart (see Appendix B- Financial Disclosure Laws & Regulations) as a useful reference.
An MLO, mortgage broker, mortgage banker, or any other agent of the lender should be aware of the various disclosure requirements when making real estate loans, such as:
• The total costs involved in the transaction • Any relationship between lending and other service companies to whom Buyer or seller might be referred, including any compensation paid.
Department of Housing and Urban Development (HUD)
A federal cabinet department active in national housing programs. Among its many programs are urban renewal, public housing, model cities, rehabilitation loans, FHA subsidies, fair housing enforcement, and water and sewer grants.
Office of Comptroller of Currency (OCC)
A government agency dedicated to ensuring a safe and sound national banking system. Charters, regulates, and supervises all national banks.
mortgage
A long-term loan extended to someone who buys property
Secondary Mortgage Market
A market in which mortgage loans can be sold to investors. Secondary markets are iprivate investors, government-sponsored enterprises or government agencies that buy and sell real estate mortgages. The secondary mortgage market was established by the federal government in an attempt to moderate local real estate cycles: • When secondary market players buy mortgages from local banks, those local banks then have more money to lend again to other potential homeowners in their area. • When local banks invest surplus funds in real estate investments from other regions of the country, the effects of local real estate cycles can be moderated as the banks also have stable investments from other areas that may be going through different phases of the real estate cycle . An important by-product of secondary mortgage markets is the standardization of loan criteria. Any changes implemented by secondary mortgage markets become requirements around the country for those wanting to sell mortgages in the secondary market.
Mortgage banker vs. mortgage broker
A mortgage banker makes and services mortgage loans. A mortgage broker acts as a liaison between borrowers and lenders for a fee.
Mortgage Broker
A mortgage broker is a company or individual who, for a fée, places louns with whoteser lenders, but does not fund or service such loans. Mortgage brokers do not underwrite or fune loans, but, rather, act as a middleman in originating residential mortgages. Some services ih a mortgage broker typically provides include: • Collecting financial and other required information from borrowers • Analyzing income and debt to determine maximum mortgage amounts the borrower an afford • Advising borrowers on available loan programs • Explaining the loan process
Mortgage banker
A person or firm not otherwise in banking, who provides independent funds for mortgage financing as opposed to banks that rely on deposits of funds to originate loans. A mortgage banker is a company, individual, or entity that originates, processes, underwrites, closes/funds, and may service mortgage toans. While mortgage bankers close loans in their own name, they may fund loans with the company's own capital or through a warehouse line of credit until it is sold in the secondary market. .Processes a mortgage loan and collects information .Submits the loan to a mortgage banker (wholesale lender) who will complete the remaining functions beginning with analyzing/underwriting the loan file Analyzes (underwrites) a mortgage loan Creates and furnishes the loan documents and disclosures for the mortgage loan closing Funds. The mortgage banking loan closing with its own cash, corporate capital, or funds from a warehouse line of credit Services the mortgage banking loan for the secondary market purchaser
Underwriter
A person who evaluates and classifies risks to accept or reject them on behalf of the insurer.
Table Funding
A process in which a broker originates and closes a loan in his/her own name, then transfers the loan to a lender at closing. The lender provides funds for disbursement. When a mortgage loan is funded by an advance of loan funds and an assignment of the loan to the same entity advancing the funds-it is not a secondary market transaction. Most often, table funding is used by mini correspondents
Federal Home Loan Mortgage Corporation (FHLMC) or Freddie Mac 1970
A stockholder-owned, government-sponsored enterprise chartered by the US Congress in 1970 to keep money flowing to mortgage lenders in support of homeownership and rental housing for middle-income Americans. It purchases, guarantees, and securitizes mortgages to form mortgage-backed securities (MBSs).
Alt-A Loan
A type of loan in which the risk is greater than prime, but less than subprime. The borrower may have a strong credit history, but the mortgage may have elements that increase risk. Risk issues could include higher loan-to-value and debt-to-income ratios, or lack of documentation about the borrower's income
The Dodd-Frank Act established the A. Consumer Financial Protection Bureau. B. Federal Deposit Insurance Corporation. C. National Union Administration. D. Nationwide Multistate Licensing System & Registry.
A. CFPB
The Consumer Financial Protection Act combined consumer protection responsibilities under the CFPB from the following agencies EXCEPT the A. Department of Commerce. B. Department of Housing and Urban Development. C. Federal Deposit Insurance Corporation. D. Federal Trade Commission.
A. Department of Commerce.
The Consumer Financial Protection Bureau was created by the A. Dodd-Frank Act. B. Federal Home Loan Bank Act. C. Federal Reserve Act. D. National Housing Act.
A. Dodd-Frank Act. - The Dodd-Frank Act established the CFPB.
Which entity was established in 1932 as a cooperative to finance housing in local communities? A. Federal Home Loan Banks B. Federal Home Loan Mortgage Corporation C. Federal Housing Finance Agency D. Government National Mortgage Association
A. Federal Home Loan Banks. Created by Congress, the Federal Home Loan Banks have been the largest source of funding for mortgage lending for nearly eight decades and were established in 1932 as a cooperative to finance housing in local communities.
Mortgage brokers A. act as intermediaries between borrowers and lenders. B. originate and service mortgage loans. C. provide funding for mortgage loans. D. underwrite mortgage loans.
A. act as intermediaries between borrowers and lenders. A lender is a financial institution that makes loans directly to you. A broker does not lend money. A broker finds a lender. A broker may work with many lenders.
Average Prime Offer Rate (APOR)
An annual percentage rate that is based on average interest rates, fees, and other terms on mortgages that are offered to qualified borrowers. The APOR is used as a benchmark rate in identifying high-cost home loans and higher-priced mortgage loans under federal law.
Payment Shock
An issue faced by some borrowers of nontraditional mortgages when their payments change as a result of interest rate resets, expiration of interest-only payment periods, or negative amortization.
Which statement about Ginnie Mae is TRUE? A. Ginnie Mae buys loans from commercial banks and mortgage companies. B. Ginnie Mae guarantees mortgage-backed securities. C. Ginnie Mae is a participant in the primary market. D. Ginnie Mae is a private corporation.
B. Ginnie Mae guarantees mortgage-backed Securities. Ginnie Mae guarantees investors the timely payment of principal and interest on MBSs backed by federally- mainly loans insured by the FHA or guaranteed loans Mainly loans insured by the FHA or guaranteed by the VA.
Which is NOT a primary lender for residential properties? A. commercial banks B. insurance companies C. mortgage companies D. savings and loan associations
B. insurance companies. Insurance companies are not primary lenders of residential mortgages.
Exercise 1.4: Knowledge Check 1. Conforming loans follow loan-to-value and income expense guidelines that are set by secondary market agencies such as A. the CFPB. B. the FFIEC. C. the FNMA. D. PMI companies.
C. Fannie Mae FNMA (Fannie Mae) creates national underwriting criteria, which is the guideline to the loan characteristics that it will purchase in the secondary market.
Which GSE holds the largest amount of home loan mortgages? A. Federal Agricultural Mortgage Corporation B. Federal Home Loan Mortgage Corporation C. Federal National Mortgage Association D. Government National Mortgage Association
C. Federal National Mortgage Association - The Federal National Mortgage Association (FNMA/Fannie Mae) is the nation's largest investor in residential mortgages. Fannie Mae was originally chartered as a GSE by Congress in 1938 to provide liquidity and stability to the U.S. housing and mortgage markets, primarily as a place for lenders to sell their FHA-insured loans.
1. Which is NOT a function of the secondary market? A. moderate effects of local real estate cycles B. provide lenders with money to make more loans C. serve as a depository for consumer assets D. standardize underwriting guidelines
C. serve a depository for consumer assets. Secondary markets are non-depository entities that purchase closed loans, which conform to the guidelines set by the secondary market. They are not depository institutions and cannot accept as assets non- consumer deposits.
National Credit Union Administration (NCUA)
Charters and supervises federal credit unions.
Demand deposit
Checkings accounts. Is a deposit of money that can be withdrawn without prior notice.
Government National Mortgage Association (GNMA) 1968
Commonly known as "Ginnie Mae," this agency of HUD operates in the secondary mortgage market. It is involved with special government financing programs. The Government National Mortgage Association (GNMA/Ginnie Mae) was created in 1968 as a government-owned corporation operating under HUD. A primary function of Ginnie Mae is to promote investment by guaranteeing the payment of principal and interest on FHA, VA, Rural Housing Service, or HUD's Office of Public and Indian Housing federally-insured or guaranteed mortgages through its mortgage-backed securities program. Ginnie Mae's mortgage-backed securities are the only ones that carry the full faith and credit guarantee of the United States government. Therefore, regardless of whether the mortgage payment is made, investors receive payments.
Federal Housing Finance Agency (FHFA)
Created in 2008 under the Housing and Economic Recovery Act to oversee Fannie Mae, Freddie Mac, and the Federal Home Loan Banks; currently acting as conservator for Fannie Mae and Freddie Mac.
Section 1011 of Subtitle A of Title X under the Dodd-Frank Act
Created the CFPB whose task is to enforce consumer financial protection laws. While the CFPB is within the Federal Reserve, it is intended to function independently as an Executive agency.
Exercise 1.4 Servicing a mortgage loan involves all the following EXCEPT A. collecting payments from the borrower. B. handling a mortgage payment that is in default. C. keeping records of payments from the borrower. D. pooling the loan with other loans and selling on the secondary market.
D. pooling the loan with other loans and selling on the secondary market. The servicing of a mortgage loan is defined as the process of collecting payments, keeping records, and handling defaults for loans.
The Mortgage Reform and Anti-Predatory Lending Act (Title XIV under the Dodd-Frank Act) requires MLOS to apply qualifying minimum standards and defines a category of qualified loans to prevent A. borrower fraud. B. high-cost home loans. C. mortgage fraud. D. predatory lending practices.
D. predatory lending practices.
Exercise 1.4 By participating in the secondary mortgage market, mortgage lenders can A. close more conventional loans. obtain government backing for their closed loans. C. provide competitive interest rates. D. replenish the funds used to make mortgage loans.
D. replenish the funds used to make mortgage loans. When mortgage lenders sell their mortgage loans to secondary market participants, the source of money used to fund the sold loans is replenished and becomes available to make loans to new consumers.
Dodd-Frank Wall Street Reform and Consumer Protection Act in July 2010
Dodd-Frank Wall Street Reform and Consumer Protection Act in July 2010. The stated purpose of this far-reaching financial legislation was "to promote the financial stability of the United States by improving accountability and transparency in the financial system, to end 'too big to fail,' to protect the American taxpayer by ending bailouts, ti protect consuemers from abustve financial services practices, and for other prurposes.
GSE (Government Sponsored Enterprise)
FHL BANKS, FANNIE MAE AND FREDDIE MAC. are entities established by congress to improve the efficiency of markets and enhance the flow of credit to targeted sectors of the economy.
AUS Automated underwriting systems
Fannie Mae - Desktop Underwriter Freddie Mac - Loan Product Advisor
Federal Financial Institutions Examination Council (FFIEC)
Formal interagency body empowered to prescribe uniform principles, standards, und make recommendations.
Ginnie Mae is government- and managed by HUD
Ginnie Mae guarantees payment of principal and interest on government-insured or guaranteed loans (such as FHA and VA) for its mortgage backed securities
Home Ownership and Equity Protection Act
HOEPA
HUD (Department of Housing and Urban Development)
Is a federal cabinet-level agency whose stated mission is to create strong, sustainable, inclusive communities and quality affordable homes for all, HUD was created in 1965 and is dedicated to strengthening the housing market and protecting consumers. Is the regulator of Ginnie Mae and Freddie Mac (not fannie mae b/c theyre private). A program that helps with housing shortages in urban/rural areas and forces non-discrimination laws.
Mortgage Reform and Anti-Predatory Lending Act (Title XIV)
It takes several steps to address what Congress considers to be abusive or predatory lending practices in the mortgage industry.
MBS (mortgage backed securities)
Large pools of mortgages repackaged to be sold as a new financial product rated AAA even when including subprime mortgages
Subprime loans
Loans made to homeowners who do not qualify for standard (prime) home loans. Subprime loans can have high fees, and costly prepayment penalties that "lock in" the borrower to a high interest rate.
Loan Processor
One who is responsible for verifying information contained in a prospective borrower's loan file and for coordinating aspects of the loan process.
Freddie Mac also issues mortgage-backed securities
Private interprise
Mortgage Loan Originator MLO
Real estate licensee who conducts mortgage loan origination activities and is required to register annually on the Nationwide Mortgage Licensing System & Registry (NMLS)
Equal Credit Opportunity Act (ECOA)
Regulation B
Home Mortgage Disclosure Act (HMDA)
Regulation C
Real Estate Settlement Procedures Act (RESPA)
Regulation X
The Loan Estimate/Closing Disclosure (TRID)
Regulation Z
CFPB (Consumer Financial Protection Bureau)
Regulatory agency charged with overseeing financial products and services offered to consumers.
Secure and Fair Enforcement for Mortgage Licensing Act
SAFE Act
Correspondent Lender
Someone who processes, underwrites, closes and funds their own files in their name and them sells the loans to other mortgage lenders immediately.
Federal National Mortgage Association (FNMA) or Fannie Mae 1938
THE NATION LARGEST GSE, INVESTOR IN RESIDENTIAL MORTGAGE. A privately owned corporation that purchases FHA, VA, and conventional mortgages. A US government-sponsored enterprise that was created in 1938 to expand the flow of mortgage money by creating a secondary mortgage market. It is a publicly traded company that operates under a congressional charter that directs it to channel its efforts into increasing the availability and affordability of homeownership for low-, moderate-, and middle-income Americans.
FDIC (Federal Deposit Insurance Corporation) 1933
The Banking Act of 1933, also known as the Glass-Steagall Act, created the Federal Deposit Insurance Corporation (FDIC) to insure depositors against bank default. This was an important step in enticing people to, once again, save their money in banks, This enhanced the banks' ability to increase available funds to make more home mortgage loans.
Dodd-Frank Wall Street Reform and Consumer Protection Act
The FDIC insures a depositor's qualified account(s)up to $250,000. This maximum amount was made permanent under the Dodd-I'rank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act)
FHFA (Federal Housing Finance Agency)
The Federal Housing Finance Agency (FHFA) is an independent federal agency created by the Federal Housing Finance Regulatory Reform Act of 2008 (Division A of the larger Housing and Economic Recovery Act of 2008), The purpose of the FHFA is to promote a stronger, safer US housing finance system, To that end, the FHFA has broad powers similar in function and structure to federal banking regulators, including expanded legal and regulatory authority over the secondary mortgage markets and oversight of the 14 housingrelated GSES including Fannie Mae and Freddie Mac-and oversight of the eleven FHL Banks.
Disintermediation
The loss of deposits to competing investments that offer higher returns.
Service Release Premium (SRP)
The payment received by a lending institution, such as a bank or retail mortgage lender, on the sale of the right to service a closed mortgage loan. A payment to the originating lender for the transfer of servicing obligations to a new loan servicer.
Securitization
The process of transforming loans or other financial assets into securities.
Dodd-Frank Act Mortgage-Related Legislation
The two titles of the Dodd-Frank Act with the greatest impact on the mortgage industry are Title X, designated as the Consumer Financial Protection Act, and Title XIV, designated as the Mortgage Reform and Anti-Predatory Lending Act.
Consumer Financial Protection Act (Title X)
Title X of the Dodd-Frank Act, designated as the Consumer Financial Protection Act, provides broad authority to promulgate and enforce rules to address and prevent what it defines as "abusive financial practices.
Primary Mortgage Market
When borrowers and MLOs come together to negotiate terms and close mortgage loan transactions. mortgage market in which loans are originated, consisting of lenders such as commercial banks, savings associations, and mutual savings banks.
Federal Deposit Insurance Corporation (FDIC)
an agency created in 1933 to insure individuals' bank accounts, protecting people against losses due to bank failures. Insures deposits up to 250.000 per person and examines and supervises financial institutions.
Fannie Mae was created in 1938
as the first secondary market to address the problem of the uneven supply of money for mortgage loans
Fannie Mae is the largest investor in residential mortgages
buying and selling mortgage-backed securities
The National Housing Act of 1934
created the FHA to insure banks against losses for defaults on home loans
The Federal Reserve Act of 1913
created the Federal Reserve, established a federal charter for banks to make real estate loans, and set up a way to influence interest rates.
The primary market consists of
lenders making mortgage loans directly to borrowers. Primary lenders include commercial banks, S & L's, savings and mutual savings banks, and mortgage companies, which include mortgage bankers who may originate/fund/service Loans and mortgage brokers who place loans with lenders
The secondary market consists of
private investors, government-sponsored enterprises and government entities that buy and sell home mortgages and was created to moderate local real estate cycles, give lenders new money to lend again, and standardize loan criteria
mortgage bankers
who may originate/fund/service Loans
mortgage brokers
who place loans with lenders