NMLs study guide (fall 2021-2023) Graded A+

Dodd-Frank Act what does it do? - ANSWER Wall street reform act which implements MLO compensations and Safe ACT. created after recession Dodd-Frank Act created when? - ANSWER created 2010 SAFE Act - ANSWER Secure a ...

Dodd-Frank Act what does it do? - ANSWER Wall street reform act which implements MLO compensations and Safe ACT. created after recession Dodd-Frank Act created when? - ANSWER created 2010 SAFE Act - ANSWER Secure and Fair Enforcement for Mortgage Licensing Act SAFE Act - ANSWER Created to set minimum standards for the education licensing and testing of mortgage loan originators. such as NMLS NMLS - ANSWER Nationwide Mortgage Licensing System and Registry SAFE Act - ANSWER Requires Unique ID and licensing Dodd Frank created what? - ANSWER CFPB CFPB - ANSWER The Consumer Financial Protection Bureau (CFPB) is an independent federal agency that holds primary responsibility for regulating consumer protection with regard to financial products and services in the United States. Federal Reserve Act - ANSWER a law that set up a system of federal banks and gave government the power to control the money supply when was the federal reserve act created? - ANSWER 1913 Federal Home Loan Bank Act created when? - ANSWER 1932 What does the federal home loan bank act do? - ANSWER Allowed federal home loan banks to lend money to other institutes to do mortages Banking Act of 1933 - ANSWER created the Federal Deposit Insurance Corporation to guarantee bank deposits FDIC - ANSWER Federal Deposit Insurance Corporation HUD - ANSWER Department of Housing and Urban Development HUD was created in what year? - ANSWER 1965 What does the department of housing and urban development do? - ANSWER To provide incentives to renovate and build in certain areas What did the community reinvestment act do? - ANSWER analyzed bans success or failure of reaching out to local community it served FNMA - ANSWER Fannie Mae - Federal National Mortgage Association Fannie Mae - ANSWER Federal National Mortgage Association When was FNMA created? - ANSWER Fannie Mae was created in 1968 FNMA (Fannie Mae) and FHLMC (Freddie Mac) - ANSWER Government sponsored entities that only buy conventional loans and are overseen by the Federal Housing Finance Agency Ginnie Mae - ANSWER A government agency that plays an important role in the secondary mortgage market it guarantees mortgage backed securities using FHA insured and VA guaranteed loans as collateral. GSE - ANSWER Government Sponsored Entity FHLMC - ANSWER Federal Home Loan Mortgage Corporation Freddie Mac - ANSWER A secondary mortgage institution similar to Fannie Mae When was FHLMC - Freddie Mac created? - ANSWER 1970 What caused the great recession and when? - ANSWER It was created by the housing market in 2008 and 2009 subprime lender - ANSWER a finance company that lends to high-risk customers subprime lending - ANSWER lending to home buyers who don't meet the usual criteria for being able to afford their payments Mortgage brokers - ANSWER An intermediary who brings mortgage borrowers and mortgage lenders together, but does not use its own funds to originate mortgages. Mortgage servicer - ANSWER The entity that collects monthly mortgage payments; pays taxes, insurance, and other items as they come due; and notifies the borrower of late payments. secondary market - ANSWER the market in which previously issued securities are traded among investors MBS - ANSWER mortgage backed securities MU4 - ANSWER To apply to become an LMO in the state you want Surety Bond - ANSWER A guarantee that protects a business when another person or business fails to fulfill the terms of a contract between them Temporary Authority - ANSWER to work in a new state if licensed in another, OR A W2 Registered employment with business approved in this state LO Compensation Rule - ANSWER No loan originator shall receive any payment that is based on term of the loan TILA - ANSWER Truth in Lending Act - Requires lenders to reveal total cost of loan and APR. TILA reg? - ANSWER reg Z. Zero lies RESPA - ANSWER Real Estate Settlement Procedures Act Real Estate Settlement Procedures Act (RESPA) - ANSWER The federal law that requires certain disclosures to consumers about mortgage loan settlements. The law also prohibits the payment or receipt of kickbacks and certain kinds of referral fees. RESPA is what reg? - ANSWER Reg x. it puts a stop to fees kickbacks Loan orginator compensation - ANSWER Helps consumers be able to trust LMO, now helps pick a better loan for everyone to avoid further unnecessary compensation What is this an example of that is no longer here because of a rule? LMO purposely picked a higher interest rate to generate more money for themselves? - ANSWER LO comp. it does not allow LMO to compensate from a term of a loan. can mortgage brokers underwrite or fund loans? - ANSWER No Can Mortgage bankers / mortgage lenders fund and underwrite loans? - ANSWER Yes Whole saler or wholesale lending - ANSWER Lender underwrites and funds mortgage broker loans Is MLO license is inactive for 3 years - ANSWER 20 HRS OF pRE EDUCATION AGAIN MLO license inactive for 5 years - ANSWER has to redo the MLO test with UST MU4 how long to update? - ANSWER must update within 10 days any changes MLO renewal - ANSWER Yearly late as 12/31, renewal opens 11/01 CE for MLO renewal how many hours? - ANSWER 8 hrs of CEU required 3 - federal law 2- ethics 2- traditional 1- elective or state specific Prohibited acts - ANSWER 1. committing fraud 2. collecting a fee for best efforts 3. threating, bribing or refusing to pay a third party regulator - ANSWER representative of each state to examine LMOs investigation - ANSWER triggered by complaint goes deeper examination - ANSWER routine audit What is the max fine for violating SAFE Act? - ANSWER 25 thousand PER violation When was LO comp rule passed? - ANSWER 2014 How long must you keep records of compensation for per the LO comp rule? - ANSWER 3 years. What all does LO comp rule cover - ANSWER No compensation based on term, no steering, no dual compensation, keep records of compensation for 3 year and NMLS ID number must appear on applications When presenting loans to potential borrower what must be included? - ANSWER Lowest interest rate they qualify for, lowest points and origination fees, and the lowest rate the consumer qualifies for on a loan with no risky features Graduated Payment Mortgage - ANSWER a mortgage that starts with unusually low payments that rise over several years to a fixed payment. Who would benefit from a Graduated Payment Mortgage (GPM) - ANSWER A newly graduated student such as a doctor. Fixed Mortgage - ANSWER A mortgage in which the interest rate, principal/interest payment and term does not change during the entire term of the loan. Traditional Mortgage - ANSWER 30 year fixed rate mortgage PITI - ANSWER Principal, Interest, Taxes, Insurance P&I - ANSWER principal and interest What 7 things can be included in Mortgage payment? - ANSWER PITI. (principal, interest, taxes insurance) HOA due Mortgage insurance, flood insurances Escrow - ANSWER borrower is asking lender to include fire insurance, taxes etc are due they are paid during monthly payment. non traditional mortgages - ANSWER anything NOT 30 years ARM - ANSWER Adjustable Rate Mortgage what do ARM loans start off with? - ANSWER An initial interest rate and payment. Can remain a month to a year depending on INDEX adjustment period - ANSWER on an adjustable-rate mortgage, the period of time between rate or payment changes On an ARM loan what do indexes and margins do? - ANSWER Index represents the interest rate which flucatuates. Margins is what the lender makes which stays the same What are the 4 most common indexes? - ANSWER COFI- cost of funds index CMT- Constant Maturity Treasury SOFR- Secured Overnight Financing Rate the older one LIBOR- London Interbank Offered Rate What does COFI stand for? - ANSWER Cost of funds index CMT index - ANSWER Constant maturity Treasury SOFR Index - ANSWER Secured overnight financing rate LIBOR Index - ANSWER London interbank offered rate - older done away with in 2021 Fully Indexed Rate - ANSWER In an ARM, the interest rate indicated by adding the current index value and the margin. If your margin is 1.25% and the index is 0.5% what is your fully indexed rate? - ANSWER 1.75 % Fully index rate is always margin and index added together Do ARM loans have interest rate caps? and why? - ANSWER Yes to ensure the borrowers interest rate never goes over a certain amt each time it adjusts What are the three type of interest rate caps? - ANSWER 1. The initial adjustment cap 2. The subsequent adjustment cap 3. The lifetime adjustment cap What does the first adjustment cap do in an arm loan? - ANSWER Controls how much it can change for the first adjustment What does the subsequent cap do in an ARM loan? - ANSWER Second of the three numbers, how much it can increase in the adjustment periods that follow the first adjustment What does the Lifetime cap on an ARM do? - ANSWER Controls the HIGHEST the interest rate can go compared to what it started at. third number but must look at second number still When figuring out ARM index cap rates what is important to remember. - ANSWER When figuring out the lfitime cap you need to remember that the subsequent cap still is in effect. Hybrid ARM - ANSWER An adjustable rate mortgage loan that provides for an initial period of fixed interest charges, hence fixed payments, before the interest rate becomes adjustable. The fixed interest rate period typically ranges from three to ten years. Example of a hybrid ARM. It a 3/1 - ANSWER It is fixed for 3 years then adjusts for annually. If a hybrid arms is fixed for 5 years and adjusts every 2 years what is it? - ANSWER Its a 5/2 Interest-Only ARM - ANSWER requires that the borrower pays jsut the interest for a certain amount of time Why do people do Interest only - ANSWER It allows a smaller payment at the beging, when that ends borrower has to pay on the principle also Pay Option ARM - ANSWER Had interest only option, minimum payment option, amortizing 30 year, 15 year option. Min payment was dangerous as it didnt cover interest Negative Amortization - ANSWER When the principal balance on a mortgage loan increases because the monthly loan payment is lower than the amount of monthly interest being charged; some ARMs are subject to this undesirable condition. What is a benefit of an ARM? - ANSWER Generally as a lower starting interest rate if you time it right, also can be less expensive over a period of time if you feel if interest rates will get lower Questions to ask before suggesting ARM? - ANSWER would they be able to handle loan if payment does go up, any other big debts coming up, how long do they plan on staying? If selling soon would an ARM loan be a good option. - ANSWER Yes because they could sell prior to first change of interest Conforming Loan - ANSWER a standardized conventional loan written on uniform documents that meets the purchase requirements of Fannie Mae and Freddie Mac - both loan amount and borrower characteristics must meet the guidelines Conventional Loan - ANSWER a mortgage agreement that does not have government backing and that is offered through a commercial bank or mortgage broker AUS - ANSWER Automated underwriting system what is fannies AUS called? - ANSWER DO Desk top originator or DU Desktop underwriter What is Freddie Mac's automated underwriting system called? - ANSWER LPA Loan product advisor. Use to be known as LP DTI - ANSWER Debt to income What are AUS looking for? - ANSWER Down payment, DTI, min Credit score, PMI PMI - ANSWER Private mortgage insurance; insurance designed to protect lenders from the greater risks of high-LTV conventional loans. PMI is required when buyer is putting less than - ANSWER 20% down Chapter 7 Bankruptcy - ANSWER The forfeiture of an individual's assets in exchange for the discharge of debts. Chapter 13 Bankruptcy - ANSWER a reorganization form of bankruptcy for individuals that allows the debtors to keep their property and use their income to pay a portion of their debts over three to five years How many years from a chapter 13 discharge to do a conforming loan such as fannie and Freddie? - ANSWER 2 years from discharge 4 years from dismissal How many years from a chapter 7 discharge to do a conforming loan such as fannie and Freddie? - ANSWER 4 years usually, or 2 years from extenuating circumstance death of a primary wage earner How long from a foreclosure or short sale for conforming loans? - ANSWER 7 years foreclosure 4 years short sale How much can a seller contribute on closing cost for a conforming loan? - ANSWER No more then 3% Conforming assumable? - ANSWER No can someone be a corborrower on a conforming loan if they do not live there? - ANSWER Not usually debt to income (DTI) - ANSWER TWO RATIOS Front End housing Back end total expenses FRONT END (HOUSING EXPENSE RATIO) - ANSWER Your 7 things PITI, HOA, flood insurance etc divided by income back-end ratio (total income) - ANSWER total expenses. Housing, whats on credit report, and court ordered How do you calculate LTV? - ANSWER loan amount divided by the appraised market value or sell price (within 12 months ) which ever is lower LTV - ANSWER Loan to value why do you take the lower value when calculating LTV? - ANSWER Lender is better protected to get their money back CLTV - ANSWER Combined Loan to Value CLTV or TLTV (combine or total loan to value) - ANSWER Calculated by taking the amt of a 1st mortgage and any other subordinate liens or mortgages divided by the appraised value of the property burrower sourced down payment is proffered why - ANSWER Shows the borrower is serious and less risk for lender Loan limits for a conventional mortage on a 1 unit property? - ANSWER Continental US d.c. and puerto rick is 647,200 Alasks, haawaii, guam, and US virgin islands 970,800 Seller Concessions - ANSWER what seller is paying PITI reserves - ANSWER A cash amount that a borrower must have on hand after making a down payment and paying all closing costs for the purchase of a home. The principal, interest, taxes, and insurance (PITI) reserves must equal the amount that the borrower would have to pay for PITI for a predefined number of months. PMI (Private Mortgage Insurance) - ANSWER Insurance that protects the lender in case the borrower defaults and is unable to repay the loan. Generally a borrower must pay PMI if their equity is less than 20% of the home's value. So such as less the na 20 percent down payment PMI vs MMI - ANSWER PMI- private mortgage insurance conventional MMI - monthly mortgage insurance government FHA HOME OWNERS PROTECTION ACT (HPA) - ANSWER The act that requires Private Mortgage Insurance (PMI) removal once equity is 20% or the balance drops to 78% When is the lender REQUIRED to remove PMI? It happens automatically - ANSWER When balance DROPs to 78% When can buyer request PMi to be removed? - ANSWER Once equity is at 20% it can be requested to eb removed FHA max DTI - ANSWER FE 31% / BE 43% FHA minimum down payment and LTV? - ANSWER 3.5% down and LTV of 96.5% FHA minimum credit score - ANSWER 580 if lower larger downpayment maybe required Upfront Mortgage Insurance Premium (UFMIP) - ANSWER Mortgage insurance for an FHA loan that is paid at closing Bankruptcy with FHA Loan - ANSWER Chapter 7 - 2 years after discharge Chapter 13- 1 year after filing if payments are on time and if court approve FHA loan after forclosure? - ANSWER Yes after 3 years FHA LTV cash out refinance - ANSWER 85% Seller Concessions of FHA - ANSWER as high as 6% Non occupying coborrower on FHA loan? - ANSWER Yes FHA Loans - assumability - ANSWER on some loans not all FHA Owner Occupancy requirements - ANSWER FHA requires that property must be owner occupied within 60 days and stay for a minimum of 1 year What is behind FHA loans? - ANSWER HUD - Department of housing and urban development 1965 FHA Underwriting - ANSWER DE Direct endorsement- have ability to approve FHA loan Does HUD protect FHA loan? - ANSWER Yes, if loan defaults the lender can submit a claim to FHA. What loan accepts non conventional credit such as recurring rent or insurance payments etc? - ANSWER FHA Why would someone assume a loan? - ANSWER If there is a really good interest rate. for example say the house is worth 240k. but they only own 200k. The buyer could pay them 40 k and assume the loan and interest rate 4 c's of underwriting of FHA - ANSWER Credit, capacity to repay, cash assets, collateral CAVRS - ANSWER Credit Alert Verification Reporting System CAVRS see if borrower has defaulted on other government loans - ANSWER Created by the government What is FHA less stringent on? - ANSWER Credit score What is FHA more stringent on? - ANSWER Property qualifications. So anything with significant defects or updates needed. They look at safety soundness and security FHA allows gift funds but what is required? - ANSWER Gift funds can not ever be repayed, and this gift letter needs to be signed by donors with contact info, dollar amt and that it does not need to be repayed Does FHA or conventional require a specific appraisal? - ANSWER FHA requires a specific FHA appraiser UFMIP (up-front mortgage insurance premium) - ANSWER A one time charge at closing by the FHA for insuring a loan. Can be added into loan amount. Regardless of the term or LTV of the loans. Does the UFMIP premium change? - ANSWER yes currently 1.75% off the base loan amount LO Compensation Rule - ANSWER Finalized in 2014, and issued by CFPB MBS - ANSWER mortgage backed securities Ginnie Mae (GNMA) - ANSWER Government National Mortgage Association (GNMA) was established in order to buy special assistance mortgages carrying below market interest rates. GNMA is a government agency under HUD and deals only in VA and FHA mortgages. (See Pass Through Securities.) Construction Loan - ANSWER A short-term loan higher interest rate only last a few months until either paid or converted to a PERM Bridge Loan - ANSWER Short term loan using existing propert and new property. It would use original home they are sellings equity as a down payment for future home Neg AM - ANSWER Negative amortization HELOC - ANSWER Home Equity Line of Credit RESPA - ANSWER Real Estate Settlement Procedures act Reg X TILA - ANSWER Truth in Lending ACT Z HPA - ANSWER Homeowners Protection Act HOEPA - Home Ownership and Equity Protection Act - ANSWER Enacted in 1994 as an amendment to the Truth in Lending Act (TILA) to address abusive practices in refinances and closed-end home equity loans with high interest rates or high fees HECM - ANSWER Home Equity Conversion Mortgage HECM Home Equity Conversion Mortgage - ANSWER A FHA insured reverse mortgage that allows the conversion of equity in a home to cash nina - ANSWER No Income No Assets sisa - ANSWER Stated Income Stated Assets map - ANSWER mortgage acts and practices URLA - ANSWER Uniform residential loan application. 1003. ECOA - ANSWER Equal Credit Opportunity Act ECOA (Equal Credit Opportunity Act) - ANSWER Enacted in 1974,makes it unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction, on the basis of race, color, religion, national origin, sex, marital status, or age HMDA (Home Mortgage Disclosure Act) - ANSWER Reg C 1975 HMDA (Home Mortgage Disclosure Act) - ANSWER Identifies possible discriminatory lending patterns (HMDA is a disclosure law that determines whether financial institutions are serving the housing needs of their communities) DPA - ANSWER Down Payment Assistance Gross Income - ANSWER the total amount of income from wages before taxes VOE - ANSWER Verification of Employment GMI - ANSWER gross monthly income FCRA (Fair Credit Reporting Act) - ANSWER Protects the privacy of background information and ensures that the information supplied is accurate; imposes notice requirements on employers that rely on consumer background reports. FCRA (Fair Credit Reporting Act) - ANSWER regulation V Notice to Home Loan Applicant - ANSWER disclosure required where every borrow gets a COPY of their credit score NOT the report FinCEN - ANSWER Financial Crimes Enforcement Network FinCEN accomplishes its mission to safeguard the financial system from the abuses of financial crime, including terrorist financing and money laundering, by enforcing: - ANSWER financial crimes enforcement networks. fence in those terrorists USA Patriot Act - ANSWER law passed due to 9/11 attacks; sought to prevent further terrorist attacks by allowing greater government access to electronic communications and other information; criticized by some as violating civil liberties USA Patriot Act when it was passed - ANSWER 2001 AMC - ANSWER Appraisal Management Company Appraisal Management Company (AMC) - ANSWER An entity that, for compensation, acts as a third party intermediary by contracting with independent real estate appraisers to perform appraisals for lenders. FEMA - ANSWER Federal Emergency Management Agency SFHA - Special Flood Hazard Area - ANSWER Area where homeowners and businesses are required to purchase flood insurance if they use federally guaranteed financing of the buildings/property