Term
| Residential mortgage lenders include (5): |
|
Definition
- Savings & Loans
- Commercial banks
- Savings banks
- Credit unions
- Mortgage companies |
|
|
Term
| Savings & Loan Associations (S&L) are AKA: |
|
Definition
| "thrift institutions" or simply "thrifts" |
|
|
Term
|
Definition
intermediaries between large investors and home buyers applying for financing
ex: mortgage companies |
|
|
Term
| What does it mean to SERVICE a loan? |
|
Definition
| Collect and process the loan payments on behalf of the investor, often for a servicing fee |
|
|
Term
|
Definition
| Using short-term loan financing to originate loans before selling them to permanent investors, usually in packages |
|
|
Term
|
Definition
| Negotiates loans, bringing borrowers together with lenders in exchange for a commission |
|
|
Term
|
Definition
| makes loans (using investor funds or borrowed funds), sells or delivers the loans to an investor, and then (in many cases) services the loans to the end of their terms, in exchange for servicing fee |
|
|
Term
|
Definition
- Comprised of origination fees and discount points
- Short for 'percentage point'
- 1 point = 1% of loan amount
|
|
|
Term
| Origination fees is AKA (3): |
|
Definition
- Service fee
- Administration fee
- Loan fee |
|
|
Term
|
Definition
| Designed to pay administrative costs the lender incurs in processing a loan |
|
|
Term
|
Definition
| Processing loan applications and making loans |
|
|
Term
|
Definition
| A fee that a lender may charge to increase the yield (return) on the loan, over and above the interest rate |
|
|
Term
| On a 30-year loan, how many discount points does it take to raise a lender's yield by 1%? |
|
Definition
| 6 (as a general rule of thumb) |
|
|
Term
|
Definition
| When the seller pays the lender points to 'buy down' the interest rate on the buyer's loan |
|
|
Term
|
Definition
Truth in Lending Act
A federal consumer protection law that addresses the problem of comparing loan costs |
|
|
Term
|
Definition
| A regulation adopted by the Federal Reserve Board that implements TILA and is enforced by the Federal Trade Commission |
|
|
Term
| TILA has 2 major purposes: |
|
Definition
1. The act requires lenders and credit arrangers (such as mortgage brokers) to disclose complete costs of credit to consumer loan applicants
2. Regulates the advertisement of consumer loans |
|
|
Term
|
Definition
A loan to be used for personal, family, or household purposes
ex: buying a home, sending childred to college... |
|
|
Term
| What loans are covered by TILA: |
|
Definition
Consumer loans if:
- repaid in more than 4 installments, or subject to finance charges
- AND is either for $25,000 or less OR secured by real property |
|
|
Term
| Loans exempt from TILA (4): |
|
Definition
- corporations or organizations (only natural persons)
- for business, commercial, or agricultural purposes
- in excess of $25,000, unless secured by real property
(Real estate loans, if consumer loan, covered regardless of loan amount)
- most seller financing, because extending credit is not seller's ordinary course of business |
|
|
Term
| Disclosure requirements for lender or credit arranger (2): |
|
Definition
1. total finance charge
2. annual percentage rate (APR) |
|
|
Term
|
Definition
| The sum of all fees and charges the borrower pays in connection with the loan |
|
|
Term
Possible charges included in total finance charge (6):
(Also listed are 3 charges not included in total finance charges) |
|
Definition
1. Interest
2. Origination fee
3. Discount points paid by borrower
4. Finder's fees
5. Service fees
6. Mortgage insurance premiums
(Appraisal fees, credit report charges, and points paid by seller are not included) |
|
|
Term
|
Definition
Annual Percentage Rate
Expresses the total cost of the loan as an annual percentage of the loan amount
Allows borrower to compare loans more accurately |
|
|
Term
|
Definition
Lists good faith estimates of the finance charges of a loan.
Lender is required to give this to borrower w/in 3 days after receiving written application |
|
|
Term
|
Definition
When security property is borrower's principal residence, TILA allows borrower to rescind loan agreement up until 3 days after signing it, receiving the disclosure statement, or receiving notice of right of rescission, whichever is latest
(If never receive statement or notice, right of rescission expires in 3 years) |
|
|
Term
|
Definition
When one is used in advertising consumer credit, then all rest of terms must also be stated.
Ex: down payment amount, interest rate...
|
|
|
Term
| Under TILA it is always legal to state in an ad (2): |
|
Definition
1. Cash price
2. Annual percentage rate |
|
|
Term
|
Definition
| When a prospective buyer submits a loan application to a lender before starting to house-hunt so they know the specified maximum amount of a loan they can get |
|
|
Term
|
Definition
| The process of evaluating both the applicant and the property to determine whether they meet the lender's minimum standards |
|
|
Term
| When underwriting, 3 main factors to qualify the buyer: |
|
Definition
1. Income
2. Net Worth
3. Credit History |
|
|
Term
| 2 types of income ratios and what are their acceptable maximums: |
|
Definition
1. Housing expense to income ratio / 28%
2. Debt to income ratio / 36% |
|
|
Term
|
Definition
Principal
Interest
Taxes
Insurance |
|
|
Term
|
Definition
| Determined by subtracting total liabilities from total assets |
|
|
Term
|
Definition
Loan to Value Ratio
Expresses the relationship between the loan amount and the value of the property
The lower the LTV, the smaller the loan amount, and the bigger the downpayment (lower risk for lender) |
|
|
Term
|
Definition
| When a buyer obtains 2 loans at once, a primary loan to pay for most of purchase price, and a secondary loan to pay for part of the downpayment or closing costs required for the first loan |
|
|
Term
|
Definition
Adjustable-Rate Mortgage
Permits the lender to periodically adjust the loan's interest rate so it accurately reflects changes in the cost of money |
|
|
Term
Index:
Also give 2 examples:
|
|
Definition
A published statistical rate that is a reliable indicator of the changes in the cost of money.
Ex: one-year Treasury bill index and Eleventh District cost of funds index
|
|
|
Term
|
Definition
The difference between the index value on an ARM and the interest rate the borrower is charged.
Ensures sufficient income for administrative expenses and profit |
|
|
Term
|
Definition
| Limits how much a lender can raise the interest rate on a loan (ARM), even if the index goes way up |
|
|
Term
|
Definition
| Limits how much a lender can increase the monthly payment of a loan (ARM) |
|
|
Term
|
Definition
| When the lender adds unpaid interest to the loan's principal balance |
|
|
Term
|
Definition
Interest rate on a loan is fixed for a specified number of years at the start of the loan, then the rate becomes adjustable.
Ex. 3/1 ARM or a 5/1 ARM |
|
|
Term
|
Definition
| When a loan does not meet secondary market criteria and cannot be sold to the major secondary market agencies |
|
|
Term
|
Definition
Private mortgage insurance
designed to protect lenders from the greater risk of high-LTV loans; PMI makes up for the reduced borrower equity
usually required on LTV's over 80% |
|
|
Term
|
Definition
Federal Housing Administration
- Est. 1934 by Congress in the National Housing Act
- Today, its part of HUD
- Most popular loan
- Serves as a giant mortgage insurance agency |
|
|
Term
| Mutual Mortgage Insurance Plan |
|
Definition
| FHA's insurance program that is funded with premiums paid by FHA borrowers |
|
|
Term
LTVs:
Conventional vs. FHA vs. VA |
|
Definition
Conventional: 80% standard (altho loans common now with up to minimum 5% down)
FHA: 96.5% (that's min. cash investment of 3.5% down)
VA: 0% |
|
|
Term
|
Definition
Mortgage insurance premiums
Required for FHA loans |
|
|
Term
|
Definition
Based on length of active service in US armed forces. (Dishonorable discharges not eligible)
Also, vet's surviving spouse if not remarried & vet KIA or service related injuries. (Or MIA or POW)
|
|
|
Term
| Certificate of Eligibility |
|
Definition
| The document that establishes a veteran's eligibility to apply for a VA home loan |
|
|
Term
|
Definition
Notice of Value
The document issued when a home is appraised in connection with the underwriting of a VA loan |
|
|
Term
| 4 unique characteristics of VA loan: |
|
Definition
1. 0% down / no downpayment req'd
2. No max. loan amount or income restrictions / loans not limited to low- or middle- income buyers
3. Less stringent underwriting standards
4. Mortgage insurance not required |
|
|
Term
| How much is the funding fee that a VA borrower is required to pay? |
|
Definition
2.15% of loan amount for most borrowers.
Fee is reduced if borrower is going to make a downpayment of 5% or more
Disabled vets waive this fee |
|
|
Term
|
Definition
the vet's "entitlement"
The amount of the loan that is guaranteed |
|
|
Term
| Restoration of Entitlement |
|
Definition
| If vet sells property financed with a VA loan and repays loan in full, vet gets full restoration of guaranty rights for future use |
|
|
Term
| Substitution of Entitlement |
|
Definition
When an eligible vet agrees to substitute their entitlement for the seller's.
The selling vet can restore their entitlement.
A VA loan can be assumed by a non-vet if they meet creditworthiness standards, but selling vet's entitlement will not be restored. |
|
|
Term
| Qualifying VA loans, what ratio is used: |
|
Definition
| only total debt to income ratio (not housing expense to income ratio) and the max is considerable higher than usually allowed for conventional loans |
|
|
Term
|
Definition
| Calculated by underwriter by substracting the proposed mortgage payment, all other recurring obligations, and certain taxes from the veteran's gross monthly income. |
|
|
Term
|
Definition
| Income that satisfies the lender's standards of quality and durability |
|
|
Term
|
Definition
| A type of lender that is not a depository institution and that makes loans on behalf of large investors or using borrowed funds. Sometimes called a mortgage banker. |
|
|
Term
|
Definition
| An individual or company that arranges loans between borrowers and investors, but does not make or service the loans |
|
|
Term
|
Definition
| Percenages used to determine whether a loan applicant's stable monthly income is sufficient |
|
|
Term
|
Definition
Automated Underwriting
Analysis of a loan applicantion with a computer program that makes a preliminary recommendation for or against approval |
|
|
Term
|
Definition
| A number calculated by applying a statistical model to a loan applican'ts credit report, used as an indication of how likely the applicant is to default on a proposed loan |
|
|
Term
|
Definition
| Lending practices used by unscrupulous lenders and mortgage brokers to take advantage of unsophisticated borrowers |
|
|
