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NMLS Safe Exam Pt 7

Secondary Market, Closing, Appraisals & Loan Products

QuestionAnswer
What is the primary mortgage market? The market where loans are originated between lenders and borrowers.
What is the secondary mortgage market? The market where existing loans are sold to investors.
Who are the main players in the secondary market? Fannie Mae, Freddie Mac, Ginnie Mae.
What is Fannie Mae (FNMA)? A GSE that buys conventional loans to provide liquidity to lenders.
What is Freddie Mac (FHLMC)? A GSE that buys conventional loans, mostly from smaller banks and credit unions.
What is Ginnie Mae (GNMA)? A government agency that guarantees government-backed loans like FHA, VA, USDA.
Which GSE is directly overseen by HUD? Ginnie Mae (GNMA).
What is securitization? Pooling loans and selling them as mortgage-backed securities (MBS).
What are conforming loans? Loans that meet Fannie Mae and Freddie Mac’s underwriting guidelines.
What are non-conforming loans? Loans that do not meet Fannie/Freddie standards (e.g., jumbo, subprime).
What is a jumbo loan? A loan exceeding the conforming loan limit.
What is a loan commitment? A lender’s agreement to lend money under certain terms and conditions.
What is a closing disclosure (CD)? A TRID-required form showing final loan terms and closing costs.
How long before consummation must the CD be provided? At least 3 business days.
What is a closing agent (settlement agent)? The person/entity handling closing documents, fund disbursement, and recordation.
What is a wet settlement? A closing where funds are disbursed on the same day as signing.
What is a dry settlement? A closing where signing occurs before funds are disbursed.
What is a lien? A legal claim against a property as collateral for a debt.
What is title insurance? Insurance that protects against issues with property ownership and title defects.
Who typically pays for lender's title insurance? The borrower.
What is an appraisal? A professional estimate of a property's value.
Who performs appraisals? A licensed or certified appraiser.
What is the sales comparison approach? An appraisal method comparing the property to similar recently sold homes.
What is the cost approach? Appraisal method estimating value based on cost to rebuild minus depreciation.
What is the income approach? Used for rental/income properties, based on projected income generation.
What type of property is best suited for the income approach? Multi-unit or commercial income-generating properties.
What is the Uniform Residential Appraisal Report (URAR)? The standard form used for single-family home appraisals.
What is the 1004 form? Another name for the URAR (Uniform Residential Appraisal Report).
What is a 1007 form? A rent schedule used to estimate income on rental properties.
What is a 216 form? An operating income statement used with 2-4 unit investment properties.
What is the appraisal review process? Lender ensures the appraisal meets standards and is free from bias or error.
What is appraisal independence? Appraisers must operate free from influence, per the AIR Rule.
What law enforces appraisal independence? The Appraiser Independence Requirements (AIR), under TILA/Regulation Z.
What must be disclosed when using an appraisal? Borrowers must receive a copy no later than 3 days before closing.
What is the difference between a sales contract and a loan estimate? The contract is between buyer/seller; the LE shows loan terms and costs from lender.
What is the role of the closing agent? Manages document signing, fund distribution, and recording of documents.
What is the settlement statement for reverse mortgages? HUD-1.
What is the difference between funding and disbursement? Funding
What is table funding? A process where the broker closes in their name but funding comes from a lender immediately.
What is escrow (closing) in real estate? A neutral third party holds and manages funds/documents until all conditions are met.
What is a mortgage broker? A middleman who connects borrowers with lenders and does not fund the loan.
What is a mortgage banker? A lender who originates and funds loans using their own capital or warehouse lines.
What is a wholesale lender? Lender that funds loans originated by third-party brokers.
What is a correspondent lender? Originates and funds loans, then sells them to investors like Fannie or Freddie.
What is a direct lender? Lender who originates and underwrites loans in-house, typically working directly with consumers.
What is a portfolio lender? Lender that originates and retains loans in-house, not selling to the secondary market.
What is a subprime loan? A loan made to a borrower with weak credit or high risk of default.
What is an Alt-A loan? A loan to borrowers with strong credit but nontraditional income or documentation.
What is a non-QM loan? Non-qualified mortgage — does not meet ATR/QM guidelines, but still legal.
What is a qualified mortgage (QM)? A loan that meets Ability-to-Repay standards and avoids risky features.
What is the max points and fees allowed for a Qualified Mortgage (QM)? 3% of the loan amount for loans ≥ $100,000.
What are risky loan features prohibited in QM loans? Negative amortization, interest-only, terms over 30 years, balloon payments (except small creditors).
What is the Ability-to-Repay (ATR) Rule? Requires lenders to verify a borrower’s ability to repay the mortgage.
What is the difference between QM and non-QM loans? QM loans meet ATR standards and offer legal protections; non-QM loans do not.
What is negative amortization? When loan payments are less than interest due, causing the balance to increase over time.
What is an interest-only loan? A loan where the borrower pays only interest for a period before starting principal payments.
What is a balloon loan? A loan with low payments and one large payment at the end of the term.
What is an ARM (Adjustable-Rate Mortgage)? A mortgage with interest rate changes after a fixed period based on an index.
What is a hybrid ARM? A mortgage with an initial fixed rate period, then converts to an ARM (e.g., 5/1 ARM).
What does the "5/1 ARM" mean? Fixed rate for 5 years, adjusts every 1 year thereafter.
What are ARM adjustment caps? Limits on how much the rate can increase — initial, periodic, and lifetime caps.
What is the margin in an ARM? The fixed percentage added to the index to determine the fully indexed rate.
What is the index in an ARM? The variable component of an ARM (e.g., SOFR, CMT).
What is the fully indexed rate? Index + Margin.
What is a payment shock? A large increase in monthly payment due to rate adjustment on an ARM.
What is a fixed-rate mortgage? A mortgage with the same interest rate for the life of the loan.
What is a biweekly mortgage? A mortgage where the borrower pays half of the monthly payment every 2 weeks.
How many full payments does a biweekly plan make each year? 13 full payments (26 half-payments).
What is a graduated payment mortgage (GPM)? A loan with low initial payments that increase over time.
What is the purpose of a GPM? To help borrowers qualify with lower initial income expecting future income increases.
What is a construction loan? A short-term loan used to finance building a home — often interest-only during construction.
What is a construction-to-permanent loan? Converts to a regular mortgage after construction is complete.
What is a bridge loan? A short-term loan used until permanent financing is secured or an existing home sells.
What is a piggyback loan? A second mortgage used simultaneously with the first to avoid PMI or large down payments.
What is the purpose of a Home Equity Line of Credit (HELOC)? To access revolving credit based on the equity in your home.
What type of credit is a HELOC? Revolving credit — similar to a credit card, secured by home equity.
What is a closed-end second mortgage? A lump-sum loan secured by home equity, repaid over a fixed term with set payments.
What is a reverse mortgage? A loan for seniors 62+ allowing them to convert home equity into income with no monthly mortgage payments.
What is the most common reverse mortgage program? FHA HECM — Home Equity Conversion Mortgage.
What are borrower requirements for a HECM? Must be 62+, occupy the home as a primary residence, and receive counseling.
When is a reverse mortgage due? Upon borrower’s death, sale of the home, or moving out for 12+ months.
What is the max LTV for an FHA loan? 96.5% with a 580+ credit score.
What are the typical terms of a VA loan? 100% LTV, no MI, backed by VA guarantee.
What is the funding fee on a VA loan? A one-time fee (waived for disabled vets) based on down payment, loan type, and prior use.
What is the max LTV for a USDA loan? 100%.
What is the income requirement for USDA loans? Household income must be at or below 115% of the area median income.
What are the two types of USDA loans? USDA Guaranteed Loan and USDA Direct Loan.
What is the max term for a USDA loan? 30 years.
What is the purpose of an FHA 203(k) loan? To finance both the purchase and renovation of a home.
What is a streamline 203(k)? A simplified renovation loan for repairs under $35,000.
What is the purpose of a VA IRRRL loan? Interest Rate Reduction Refinance Loan — streamline refinance for VA borrowers.
What is mortgage insurance? Insurance that protects the lender if the borrower defaults on the loan.
When is PMI required? On conventional loans with LTV > 80%.
How can PMI be removed? Automatically at 78% LTV or by borrower request at 80%.
What is MIP? Mortgage Insurance Premium — required on all FHA loans.
When does FHA MIP last for the life of the loan? When down payment is less than 10%.
What is hazard insurance? Homeowner’s insurance that protects against damage to the property.
What is a flood zone determination? A report that determines whether the property lies in a federally designated flood zone.
Who determines flood zone status? FEMA — Federal Emergency Management Agency.
What form discloses the APR? The Loan Estimate (LE) and the Closing Disclosure (CD).
Created by: jenniferhudson
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