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MLO study stack
MLO questions for federal exam
| Question | Answer |
|---|---|
| Mortgage Backed Securities | Debt issues backed by a pool of mortgages. Investors receive payments from interest and principal payments made on underlying mortgages. |
| Promissory Note | written promise to repay a debt. One person/entity loans another money, and the other signs a promissory note, promising to repay the loan (plus interest). |
| Mortgage | Contract that makes the real property collateral for the loan. creates a lien on the property. |
| Conventional Loan | any institutional mortgage loan that ISN'T insured or guaranteed by a government agency. |
| Conventional Conforming Loan | mortgage loan that meets all requirements to be eligible for purchase by federal agencies (Fannie/Freddie). |
| Conventional Nontraditional Loan | Any mortgage product other than a 30-year fixed-rate product. |
| Conventional Sub-prime Loan | Mortgage loan made to individuals who don't qualify for loans that may be sale-able to Fannie or Freddie. |
| Conventional Adjustable-Rate Mortgages (ARM) | Mortgage on which the interest rate and monthly payments may be adjusted periodically to correspond with changes in the index to which the ARM loan was originated. |
| In a ARM what is the interest rate indicator used to determine changes in the mortgage interest rate? | The Index |
| What is the amount/percentage added to the index at each adjustment interval to determine the new interest rate to be paid by the borrower? | The Margin. This remains constant over the life of the mortgage. Index rate+margin=interest rate. |
| what is a adjustment interval? | the frequency with which the interest rate and/or monthly payment amount can be reset. |
| Negative Amortization/Deferred Interest | when loan payment is less than interest alone. even though payments are made on time, amount owing increases. |
| Standard Fixed Rate (FHA 203b) | 15 or 30 year loan. FHA's single (1-4) family housing used to finance the purchase of new or existing home. low down payment, flexible qualifying guidelines, limited fees, and limit on max loan amount ($417,000). |
| Rehabilitation Loan Program (FHA 203k) | FHA mortgage insurance program that enables home-buyers to finance both purchase of a house and the cost of its rehabilitation through a single mortgage loan. |
| Adjustable Rate Mortgage (FHA 251) | helps to keep mortgage interest rates and payments low they may change over the life of the loan. Max fluctuation amount in interest-rate in any given year is 1% point. and Life of loan is 5% points. |
| what are the qualifying ratios for FHA loans (DTI mortgage payment only) and (DTI with mortgage payment plus minimum monthly payments to long-term debt) | DTI mortgage payment only: 31% of gross income DTI mortgage payment plus long-term debt: 43% of gross income |
| Housing Expense Ratio | DTI ratio that only includes the mortgage payment. |
| Total expense Ratio | DTI ratio that includes the mortgage payments plus any minimum monthly payments to long term debt. |
| what are Upfront Mortgage Insurance Premiums (UFMIP) | Insurance premium collected on FHA loans. contrast to PMI. UFMIP are added to a pool of money that is used to help entities like FHA to insure loans for certain borrowers. |
| FHA requirements for properties | All properties must be owner-occupied, single family to four family homes are eligible, max amount to borrower $417,000, and loans assumable at lender's discretion. |
| Benefits of FHA financing | low down payment (3.5% LTV), liberal qualifying ratios, liberal credit considerations, previous bankruptcy acceptable w/time limitations. |
| what is Loan To Value (LTV) | LTV ratio expressed the amount of a 1st mortgage lien as a percentage of the total appraised value of real property or sales price which ever is less) |
| what is Combined Loan To Value (CLTV) | The proportion of loans (secured by a property) in relation to its value. All loans added together divided by value of property. |
| what is PITI | Principle, Interest, Taxes, and Insurance |
| what loans require an escrow/impound account? | insured conventional loans (exceeding LTV of 80%), all FHA/VA loans require borrower to escrow for property taxes and homeowners' insurance. |
| what is the normal amount of annual property tax and annual hazard insurance premium each month withheld in an escrow account? | 1/12 (one-twelth) of annual property tax and 1/12 (one-twelth) of annual hazard insurance premium each month. |
| how is homeowners insurance paid? | 1st year insurance premium paid to insurance company. If escrowing renewal premiums are paid to lender every month, lender pays the annual renewal out of borrowers escrow account |
| what is Private Mortgage Insurance (PMI) or Mortgage Insurance Premium (MIP) | w/ conventional loans more than 80%LTV lenders require borrower to pay for PMI/MIP. mortgage insurance company charges annual premium that is collected monthly. |
| what are compensating factors? | money, cash flow, potential of new higher paying job, and damages to credit |
| what is a Uniform Residential Loan Application (Form 1003)? | is the basis of all the necessary information needed to process, underwrite, approve, and close a residential mortgage loan. |
| Section IX (9) of the 1003 is what? | Acknowledgement and Agreement section that borrower signs and agrees that all information provided is correct and truthful. |
| Section X (10) of the 1003 is what? | Information for Government Monitoring Purposes. borrowers are asked, not required to disclose ethnicity, race and gender. lender must fill out this form is borrower doesn't disclose this information. |
| What is the Good Faith Estimate (GFE) | estimate of all closing fees, including prepaid and escrow items, as well as lender charges. helps customers shop for loans. |
| what is a title/escrow company? | an entity in the business of selling policies of title insurance guaranteeing the ownership and quality of title to land, as well as providing closing services on behalf of borrower,lender, and seller |
| what is the HUD-1 Settlement Statement? | Statement that itemizes services provided to borrower and fees that will be charged to borrower. form is filled out by settlement agent (closer) who will conduct the settlement |
| what is the purpose of the Truth In Lending Act? | to promote the informed use of consumer credit by requiring disclosures about its terms and costs. |
| what does HOEPA (Homeownership and Equity Protection Act) Section 32 NOT apply to? | Residential Mortgage transaction (pg. 95), reverse mortgage, and open-end credit plan (traditional home equity line of credit). |
| When must the Truth In Lending Disclosure be given to the borrower? | within 3 business days after receiving a consumer's app. for a mortgage loan and before any fees are collected from borrower (except reasonable credit report charges) |
| how long until the creditor(s) can close the loan after borrower has received initial (TIL) disclosures? | on or after 7 business days once borrower has received these initial disclosures. |
| When must a new TIL disclosure be provided? | If APR changes by more than 1/8 percentage point above or below initial APR. |
| when can the 7 and 3 business day waiting periods be waived? | in writing if consumer determines there is a bona fide personal financial emergency. waiver must describe emergency, specifically waive waiting period, and be signed by all applicable consumers. |
| how many copies of the Notice of Right of Rescission must be given to the borrower(s) | 2 copies to each borrower (only 1 if delivered electronically in accordance w/consumer consent and other applicable provisions of E-Sign Act |
| what is a principle dwelling/Primary Residence? | Primary location that a person inhabits. can be a house, apartment, trailer, or boat as long as it's where you live. |
| what is a dwelling? | house,townhome,condo,cottage,residential building,second homes,rental properties containing no more than 4 families under 1 roof. |
| what is a lien? | a right to keep property belonging to another person until a debt is paid fully. |
| what is a closed-end mortgage? | cannot be prepaid, renegotiated, or refinanced w/out paying breakage costs to lender. also prohibit pledging collateral that has already been pledged to another party. |
| what is Bait and Switch advertising? | advertises a low APR that is not attainable and then is switched to a higher APR upon closing the mortgage. |
| The ECOA (REG.B) prohibits discrimination against whom when applying for credit and/or extensions of credit | Race, religion, receipt of income from public assistance, sex marital status, national origin, color, and/or age |
| what is a community property state? | a state where all property (including income) acquired during marriage is presumed to belong equally to both parties (husband and wife) |
| how long must a creditor keep records of applicants according to the ECOA (REG.B)? | 25 months |
| once creditor has all information needed to file and has been submitted to underwriting, how long does the lender have to render a decision? | 30 days once all information has been collected and has been submitted to underwriting |
| according to REG.B how many copies of the adverse action must be given to each borrower? | 1 copy must be given to each borrower |
| if creditors fail to comply w/ECOA REG.B what are the penalties? | $10,000 individual action, and $500,000 or 1% of creditor's net worth in class action |
| According to the FACT Act what is required by creditors? | Requires creditors to make certain disclosures regarding a borrower's credit history. |
| what is included in a Credit Disclosure Notice? | includes borrower's credit score, range of scores, credit bureaus, scoring models, and factors affecting their scores |
| according to the FACT Act you can obtain how many free credit reports every? | 1 free credit report from each 3 major credit agencies once every year. |
| REG. Z/HOEPA (Home ownership and Equity Protection Act) does NOT cover what? | purchase loans, new construction loans, reverse mortgages, or home equity lines of credit. |
| what is a purchase loan? | any loan secured by and made for the purpose of purchasing a "dwelling" also known as Purchase Money Mortgages |
| what is a due on demand clause? | mortgage clause that allows Lender (at any time) can require borrower to full repayment of loan immediately. |
| what is a due on sales clause? | if property is sold the loan balance must be repaid. mortgage containing this clause is not an assumable mortgage. |
| what is the purpose of the Gramm-Leach-Bliley Act (GLBA)? | requires lender to disclose its privacy policies and info. sharing practices to every customer at time of opened and each year thereafter. enforced by FTC |
| what are safeguard rules? | establish consistent practices for protection of confidentiality of customer's info. requires security plan, and it addresses disposal and integrity of storage. |
| what are per-texting provisions? | prohibits certain practices designed to access confidential customer information. |
| According to Section 9 of RESPA who is cannot require the buyer to use a particular title company? | The SELLER cannot require the buyer to use a particular title company. parties can negotiate in contract. seller can select his/her own choice |
| what is a portfolio lender? | lenders who make loans w/own funds and keep them on company books. don't sell them off in secondary market. |
| what does the SAFE (secure and fair enforcement) Act deal with? | Licensing/per-licensing, education, and requirements w/NMLS&R |
| what does the Fair Credit Reporting Act (FCRA) do? | protects the public from reporting of inaccurate info. by credit agencies. |
| what disclosures impact the FCRA compliance? | Privacy Policy Disclosure, Consent for Credit, Notice of Action Taken and Statement of Reasons, and Counteroffer Notice/Notice of Action Taken. |
| what is the purpose of Home Mortgage Disclosure Act (HMDA) REG.C? | requires lenders of federally regulated loans to disclose the # of loans applied for and # of loans made in different parts of their service area. |
| what is Redlining? | refusal by a lender to make loans secured by property in a certain neighborhood b/c of the racial/ethnic composition of the neighborhood |
| what 2 agencies contributed to the development of the SAFE Act? | Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AARMR) |
| what is predatory lending? | describes unfair,deceptive,or fraudulent practices of some lenders during the loan origination process. |
| What is Mortgage Fraud? | material misrepresentation,misstatement,or omission relied upon by an enterprise to fund or purchase a mortgage. |
| what is Fraud for Property? | perpetrated by borrowers, when they misrepresent info. on loan app., including income, employment, assets, and/or occupancy to purchase homes for homes they dont qualify for. |
| What is Fraud for Profit? | consists of systematic transactions by individuals who steal significant amounts of funds associated w/ mortgage lending |
| what is a Backward Application? | after identifying property to purchase, borrowers customize their income to meet loan criteria |
| What are Air Loans? | nonexistent property loans where there is usually no collateral. |
| What are Silent Seconds? | buyer of property borrows down payment from seller through the issuance of a non disclosed 2nd mortgage. |
| What is a Nominee Loan? | identity of borrower is concealed through the use of a nominee who allows the borrower to use the nominee's name and credit history to apply for a loan |
| What is Property Flipping? | property is purchased, falsely appraised at higher value, and then quickly sold. |
| What is a Foreclosure Scheme? | Subjects mislead homeowners who are in foreclosure or heading that way into believing that hey can save their homes in exchange for transfer of the dded and upfront fees. |
| What is American Land Title Association (ALTA)? | The association develops ALTA title insurance forms used voluntarily by title insurers and works to develop a better understanding of its industry among those who use land title services |
| Define a Broker | licensed individual/firm that charges a fee to serve as the mediator between buyer & seller. in business of arranging funding or negotiating contracts for a client but don't lend money. |
| What is DTI (Debt To Income)? | comparison ratio of gross income to housing and non-housing expenses. |
| define desktop underwriter (DU) | Fannie Mae's mortgage software program to analyze borrower's app. to see if it meets mortgage criteria for sale to a secondary market |
| define Fair Issac Corporation (FICO) | person's credit score based on credit history. lenders and credit card companies use the number to decide if the person is a good candidate for the extension of credit |
| define Housing Expense Ratio (HER)/Front End Ratio | the HER is made up of the mortgage payment only for a potential borrower |
| what is High Loan To Value (HLTV) | HLTV mortgage/home equity loan is one that equals or exceeds the value of the borrower's home. Also known as Negative Equity Mortgage |
| define Loan Prospector (LP) | Freddie Mac's mortgage software program that gives its lenders an idea if a potential borrower is a good risk for the extension of credit |
| define Paid Outside of Closing (POC) | items on a good-faith estimate or HUD-1 that means a fee/charge was paid prior to closing. EX: appraisal and hazard insurance upfront fees |
| what is Par Rate? | interest rate used as the reference point that a mortgage lender will neither be paid a rebate nor require discount points from a borrower for a mortgage |
| define Service Release Premium (SRP) | income paid to a bank when it sells a mortgage with a higher than par rate into the secondary market |
| what is Total Obligations Ratio (TOR)/ Back End Ratio | made up of mortgage payment plus any minimum monthly payment of long-term debt for a potential borrower |
| define Verification of Deposit (VOD) | legal document issued by the bank. it validates the balance of borrower's checking and savings accounts |
| define Yield Spread Premium (YSP) | used by a mortgage broker to make a profit or used to pay for a borrower's closing costs on a loan. usually calculated as % of loan amount & paid to the broker by a 3rd party |
| What is Total Loan to Value (TLTV) | first mortgage plus equity line of credit max divided by value of property. |
| What are discount points? | point is a shortened form of percentage point. A point is 1 % point or 1 % of loan amount. charged by lenders to increase their yield/return on loan |
| define equity | difference between value of a piece of property and the charges against it. Market Value minus Total Debt equals Equity |
| what is Table Funding? | wholesale lenders offer loans to mortgage brokers/mortgage lenders. lenders/brokers originate, process, close, & record loan in their name w/funds from wholesale lender |
| what are the 4 C's of underwriting? | Capacity (income), Character (credit history), Capital (cash savings), and Collateral (property value). |
| define Acceleration Clause | allows the lender to call the entire loan balance due immediately if the borrowers is in default. same as due-on-demand clause. |
| define Prepayment Clause | gives borrower the right to prepay that is to make a larger payment than required, or pay off entire loan before its maturity date |
| define Prepayment Penalty | is a charge for paying off the loan early |
| define Subordination | means to waive priority of a claim in favor of another lender. EX: going from priority lender to a second position |
| what is Certificate of Reasonable Value (CRV) | based on an appraiser's estimate of the value of the property to be purchased |
| define Home Equity Line of Credit (HELOC) | mortgage loan usually in 2nd mortgage lien position, allowing borrower to obtain cash against the equity of a home, up to predetermined amount |
| what is Mortgage Insurance Premium (MIP) | monthly payment usually part of the mortgage payment paid by borrower for mortgage insurance |
| Define Monthly Treasury Average Index (MTA) | index comprised of the 12-month average of the monthly yields of U.S Treasuries. |
| what are Option ARMs? | "pick a payment" or "pay option" ARMs. Types: Interest Only Payments, Specified Minimum Payment, 15 year Fully Amortizing Payment, or 30 year Fully Amortizing Payment |
| What are Graduated Payment Mortgages? | have lower P & I for a period of 3-7 years. P & I level off & remain constant for rest of loan term. |
| Define Hybird ARMs | feature fixed rate for an initial period of time then a floating adjustable rate. |
| define Budget Mortgages | each payment include P&I ;lus 1/12 of annual taxes (T) and Insurance (I) =PITI. Lender places T&I money in escrow account |
| Define Reverse Mortgage | lender pays borrower lump sum, fixed monthly payments, or line of credit. tax free income w/o having to sell home, give up title or take on mortgage payments. must own home, be 62+, and have equity in home. |
| define Insured Conventional Mortgages | conventional LTV ratio over 80% requires Private Mortgage Insurance which is added to monthly payment PIT(I). |
| Define Construction Mortgage |
Created by:
mnwild28