Section 15
According to the Equal Credit Opportunity Act, if a credit applicant wishes to know the specific reason for their rejection, how long do they have to ask that question?
60 days
What is the maximum loan-to-value (LTV) for most conventional loans?
95% with a 5% down payment
What is a loan-to-value ratio for FHA loans?
96.5 (a 3.5% down payment)
computerized loan origination (CLO)
A computer network tied into a major lender that allows agents across the country to initiate mortgage loan applications in their own offices. gives borrower instant access to various loan options automated underwriting is the primary form of underwriting
Net Worth Math
A person's net worth is simply the sum of all of their assets minus (-) all of their debts (also known as liabilities).
Payment-to-Income Ratio Conventional Loan Requirements
For a conventional loan, monthly payments cannot exceed 28% of a borrower's monthly income. FHA loan payments generally cannot exceed 31% of a borrower's income.
The Loan Estimate form takes the place of which two forms?
Good Faith Estimate and the initial Truth in Lending Disclosure
What is the primary difference between pre-approval and final loan approval?
In both loan approval steps, the borrower is evaluated, but property information is not considered until the final loan approval stage.
Consumer Financial Protection Bureau (CFPB)
The Consumer Financial Protection Bureau is an agency of the United States government responsible for consumer protection in the financial sector. CFPB's jurisdiction includes banks, credit unions, securities firms, payday lenders, mortgage-servicing operations, foreclosure relief services, debt collectors and other financial companies operating in the United States. Since its founding, the CFPB has "engaged the 21st century" by using technology tools to monitor how financial entities used social media and algorithms to target consumers
Calculating the payment-to-income ratio and the debt-to-income ratio will most likely give you two different numbers. That being the case, what are two things to know?
The borrower needs to qualify under both ratios. Whichever ratio produced the smallest PITI amount will be the one that is used.
Desktop Underwriting (DU) is designed to reduce the subjective element involved in underwriting loans. However, because it does not use FICO scores or consider extenuating circumstances, lenders who use DU still must consider each loan applicant on a case-by-case basis. True or False
True
Fannie Mae encourages lenders to use its automated electronic underwriting system, Desktop Underwriter (DU). This tool is designed to reduce the time and cost involved in underwriting. True or False
True
debt service coverage ratio (DSCR)
When lenders want to measure whether or not a property can adequately cover the debt Most lenders are looking for a DSCR above 1.2, though it is common for lenders to require anything from 1.15 - 1.5.
Which qualifying ratio is considered the back-end ratio?
debt-to-income ratio
Which of the following lists is comprised entirely of items that could influence a credit score?
payment history, percentage of available credit used, current unpaid debt
Which qualifying ratio is considered the front-end ratio?
payment-to-income ratio
What happens if a borrower's loan application is rejected by a CLO?
the file goes to a live underwriter for review
the BEST definition for pre-qualification?
the first step in the loan application process in which lenders give prospective borrowers a general estimate of the loan amount for which they may be approved. It's based on information reported by the borrower.
When the borrower receives a Loan Estimate:
the lender has not yet approved or denied the loan application
What happens when the property and the buyer have both met the lender's underwriting requirements?
the loan is approved
Besides a borrower's financial qualifications and creditworthiness, a loan underwriter also must consider the:
value of property that will act as security for the loan
residential mortgage credit report (RMCR)
provides a comprehensive overview of an individual's credit history and current status. merge Equifax, Experian, and TransUnion scores approval is based off middle of three scores
What are two primary types of properties that will be evaluated in a loan approval process?
residential (non-income producing) commercial (income producing)
All of the following are advantages of computerized loan origination:
saves time allows consumers to search on their own less likelihood of discrimination
What are the two types of qualifying ratios?
payment to income ratio (also known as housing expense ratio or housing expense-to-income ratio) debt to income ratio (also known as debt service ratio or total debt service-to-income ratio)
Why do most sellers find buyers with pre-approvals more appealing than buyers with pre-qualification?
preapproval is a more vigorous process, indicating more about the buyers ability to get a loan
Which of the following is NOT one of the line items that make up the Calculating Cash to Close section on the Loan Estimate form?
prepayment penalty
based on borrower-supplied information
prequalification
carries less weight than the other two loan approval steps
prequalification step
Where does the estimated total monthly payment appear on both the Loan Estimate and the Closing Disclosure?
first page
The underwriter making the loan decision will consider a borrower's:
income, credit, source of funds, debt and net worth
Requests for credit history can also be referred to as:
inquiries
Should net operating income (NOI) from investment properties that are owned by a loan applicant always be considered as income when evaluating that loan applicant?
it should be considered as income or debt depending on positive or negative cash flow
The Equal Credit Opportunity Act (ECOA)
lenders are required to abide by this act unlawful for a creditor to discriminate against any applicant, with respect to any aspect of a credit transaction, on the basis of demographic information such as race, color, religion, national origin, sex, marital status, or age.
DSCR Calculation debt service coverage ratio
net operating income /total debt service = DSCR
At which step in the loan approval process is a lender willing to provide a letter indicating the borrower's ability to obtain financing pending property approval.
preapproval
What is the difference between pre-qualification and pre-approval?
prequalification is based on borrowers word preapproval is based on the lender verifying information
is generally a free service
prequalification step
A monthly payment includes:
principal, interest, taxes, and insurance
Collateral
property used to secure a loan
In order to determine whether or not to approve a loan, the underwriter needs to evaluate both:
the borrower and the property
Which of the following are things that is typically paid for from the cash-to-close funds?
underwriting fees transfer taxes title policy
What are the three steps to a mortgage loan approval?
1. prequalification -estimate based on word 2. preapproval- letter indicating how much you will get 3. final loan approval- final review of credit worthiness and adds it to the evaluation of the property collateralizing the loan- loan commitment is made
THE FHA requires a minimum FICO score of:
580
What is NOT used by Desktop Underwriter for risk analysis?
FICO credit scores
Monthly (Mortgage) Payments = PITI
Principal Interest Tax Insurance
What is a loan-to-value ratio for VA loans?
The VA will guarantee loans at 100% (no money down)
Net Operating Income (NOI)
The income projected for an income-producing property after deducting losses for vacancy and collection and operating expenses.
FICO Scores
a credit scoring system created by the Fair Isaac Corporation. Historically, it has been demonstrated that the higher the credit score, the less likely it is that the borrower will default on a loan. range from 300 to 850 FHA requires FICA of 580 Fannie and Freddie look at 620, they may require a higher rate of interest or larger down payment if score is under 660
Freddie Mac's Loan Prospector (LP) is the equivalent of Fannie Mae's Desktop Underwriter. What does the system determine?
accept a- minus caution manual underwriting loan- does not reject outright
Debt-to-Income Ratio
an underwriting process used to measure a borrower's creditworthiness and ability to take on the responsibility of a mortgage loan. looks at the debt beyond PITI that the borrower has eg car payment, credit card debt, court ordered payment
Loan approval consists of two different approvals. What are they?
approval of the buyer and approval of the property
The Real Estate Settlement Procedures Act (RESPA)
created in 1974 and took effect the following year as a way to regulate the lending process around federally related loans
Which of the following is NOT one of the major factors influencing credit scores?
gender of applicant
Geraldine runs a credit report on William, an applicant wishing to become a tenant in one of her units. Based on William's credit report, Geraldine decides to reject William's application. The Fair Credit Reporting Act states Geraldine MUST:
give William the name of the credit reporting agency
A borrower will learn all of the following information on their Loan Estimate form:
if they will owe a PMI penalty if their interest rate will change if they have a balloon payment
What are the five aspects of the applicants profile will the underwriter review?
income credit assets debt net worth
What is the process through which a buyer obtains a mortgage loan from a lender called?
loan origination
Which of these is the amount of money being loaned compared to the value of the property?
loan to value ratio
mortgage loan originator
loans are originated through the work of the mortgage loan originator it can be an institution or an individual that takes a borrower through a rigorous, multi-step process, that hopefully culminates in a loan agreement
Loan companies may not inquire about:
marital status beyond asking if a borrower is married or single.
What are two concerns or risks that a lender faces regarding the appraisal they have done on a property?
that the appraisal would be wrong from the beginning or that it would become invalid with a change in the real estate market
considers the property being purchased
final loan approval step
Debt-to-Income Ratio Formulas look at three pieces of info:
Monthly income monthly payment other debt
Emmy just bought a house. To purchase the house, she got a loan for $300,000 with 4 discount points. How much did she pay for the discount points?
$12,000.
Jeremy has a monthly income of $2,000. His payment-to-income ratio is 1/4. How much is his monthly payment?
$500
A property is sold for $350,000. The buyer has paid $12,000 as earnest money and is obtaining a 70% loan. Based on the information provided, how much additional cash will the buyer have to bring to the closing day?
$93,000.00
Debt-to-Income Ratio Loan Requirements
Fannie Mae and other GSE loans limit the debt-to-income ratio to 36%. That is, the total PITI plus the other debts cannot exceed 36% of the borrower's monthly income. FHA loans limit the debt-to-income ratio to 43%.
The Loan Estimate form, required since the fall of 2015, takes the place of which forms?
Good Faith Estimate and the initial Truth in Lending Disclosure
Brooke is in the mortgage industry. Primarily, she talks with buyers and helps them locate the right lender for their financial situation. Brooke is a:
Mortgage Broker
Assets - Debts =
Net worth
What three programs help home buyers that cannot afford the 20% down payment?
PMI- private mortgage insurance- a borrower paid insurance program for conventional loans MIP - mortgage insurance premium - for FHA loans VA guarantee- guarantees 20% of a qualified buyers loan so a down payment requirement is satisfied
Dodd-Frank Wall Street Reform and Consumer Protection Act
Passed in 2010, creation of the Consumer Finance Protection Bureau, a single point of accountability for enforcing federal consumer financial laws and protecting consumers in the financial marketplace
can result in a loan commitment
final loan approval step
The Back-End Ratio
To gather the information needed to build a debt-to-income ratio requires the more rigorous investigation of pulling a credit report and gathering other verification documents. needed for a pre-authorization letter to be populated by the lender
If a conventional borrower's down payment equals more than 20% of the sales price, they can avoid paying:
a private mortgage insurance premium
Which of the following statements is true about discount points offered by lenders?
each lender has their own pricing structure when it comes to discount points, it pays to shop around Most lenders will reduce the interest rate by 25 basic points (.25%) in exchange for the payment of the first discount point
Payment-to-Income Ratio = Front End Ratio
compares the monthly house payment (PITI) to the borrower's monthly income. primarily used to pre-qualify the applicant word is taken concerning salary- credit not pulled
The Loan Estimate form
part of the Dodd-Frank Protection Act 3 page form that informs the borrow about the important details regarding the requested loan, including the estimated interest rate, monthly payment and total closing cost of the loan lender must provide this within 3 business days of receiving your application
The Closing Disclosure
part of the Dodd-Frank Protection Act provides final details about the mortgage loan. It includes the loan terms, projected monthly payments, and how much will be paid in fees and other closing costs. Its format is designed to facilitate easy comparison to the Loan Estimate, allowing the borrower to spot any changes that have taken place. The lender is required to deliver the Closing Disclosure at least three business days before closing (consummation)
What are discount points?
the fee that the lender charges to lower the lending rate: one point cost one percent of the loan amount
What is pre-approval?
the official process of a borrower being approved by a lender to borrow a specific amount at an interest rate within a small range. A mortgage application, credit report, and supporting financial documentation are required.
What is underwriting?
the process of deciding the level of risk a lender would take on by offering a loan to a certain borrower for a specific property.
Underwriting
the process of determining the level of risk a lender is willing to take in extending a loan to a borrower. takes place during preapproval and continues through final loan approval In order to determine whether or not to approve a loan, the underwriter needs to evaluate both the buyer AND the property.
Loan origination
the process through which a buyer obtains a mortgage loan from a lender overseen by the FDIC to ensure compliance with Title 14 (XiV) and the Doff-Frank Wall Street Reform and Consumer
Loan-to-Value Ratio (LTV)
the ratio of debt to the value of a property the gap between the property value and the loan value simply the numerical expression of the existing gap, lenders don't like to loan 100% generally 80% loan on the value of the property with 20% down payment, if more than 80% the borrower will pay PMI
Uniform Residential Loan Application (URLA
the standard application used by banks to determine an applicant's ability to secure a mortgage loan.
What does covering the debt mean?
the underwriter must be able to verify that the property will be able to consistently produce the cash flows necessary to pay the debt obligations while still having a little left over after expenses. for commercial properties
Once a buyer submits a loan application, how long does the lender have to provide them with the Loan Estimate disclosure form?
three business days
The buyer MUST receive a copy of their Closing Disclosure by:
three business days prior to closing
Fair Credit Reporting Act (FCRA)
was enacted with the intention of protecting consumers from willful and negligent inclusion of inaccurate information in their credit reports. act from the U.S. Federal Government to promote the accuracy, fairness, and privacy of consumer information contained in the files of consumer reporting agencies.
Verification of Employment (VOE) forms
which request the length of the applicant's employment, gross salary, additional income (such as overtime, bonuses, and royalties), and the likelihood of continued employment. looks for two years of employment commission worker- needs two years of tax returns, if partial commission then 2-years of W-2 and VOE 60 days or more of employment gaps need to be documented
Lender credits
work the same way as points, but in reverse. You pay a higher interest rate and the lender gives you money to offset your closing costs. When you receive lender credits, you pay less upfront, but you pay more over time with the higher interest rate. - 1% on lenders worksheet
When you receive lender credits:
you pay less upfront, but you pay more over time with the higher interest rate.
