NMLS Test Prep
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. What would you like to do?
Do all balloon mortgages have a reset option?
Tip to Determine if Balloon has reset
Both numbers total 30
One common balloon that exhibits a reset option
When a security property is sold - proceeds of sale are applied to claimants in what priority?
1) Real Estate Taxes
2) Holder of first mortgage
3) Second mortgage, and so on.
Second Lien is also ________.
A junior mortgage
List subordinate lien mortgages
- -Piggyback Loans
Home Equity Line of Credit
Open ended mortgage debt, like a credit card.
Payments with a HELOC
-Required to make monthly payments which may be P&I or at a minimum interest only.
Home Equity Loan (HEL)
- Closed-end mortgage debt
- -"cash out refinance"
- 2nd mortgage that closes simultaneously
- -can avoid a down payment or mortgage insurance
Title 7 of URLA
Details of Transaction
Acknowledge and agreement
Info for government monitoring purposes
Type of mortgage and terms of loan
Property information and purpose of loan
Monthly income, combined housing expense
Assets and liabilities
__% Payment History
__% Credit Utilization
__% Length of Credit History
__% Types of credit used
__% Recent Searches
__% Line item adjustments
__% Net Adjustments
__% Gross Adjustments
Uniform Residential Loan Application
6 pieces of information you need to have a completed loan application
- 1. Name
- 2. Monthly income
- 3. SSN
- 4. Property Address
- 5. Estimated Value
- 6. Amount of Loan sought
Settlement Cost Booklet
- -Right to negotiate terms
- -The risks/advantages of an ARM
- -due within 3 days
When Your Home Is On The Line
- -Home Equity Line of Credit
- Good Faith Estimate, estimate cost of doing loan due within 3 days.
Initial Escrow Statement
- -Info about taxes/insurance included in monthly payment
- -Due: within 45 days of account being established.
Annual Escrow Statement
- -show balance of Escrow
- -due within 30 days of analysis
- -cushion of 2 months
- -overage: $50 within 30 days of analysis
Affiliated Business Arrangement
- -1% ownership
- -If relationships exist between lender & settlement service provider
- -Due: At time of referral
HUD-1 and HUD-1A
- -Tells clienet actual cost
- Due: AT CLOSING
- -Tells client APR
- -due within 3 days
- -Disclose if changed by 1/8 of 1%
Right to Receive Appraisal
- -Client can get copy
- -Due within 30 days
- -Can request a copy? Within 90 days.
Right to Rescind
- -Right to cancel.
- -Due: At time of closing.
- -Anyone with ownership is able to rescind.
Right to Cancel PMI
- Cancelled at 78% LTV or 5 years.
- Can be removed at 80% LTV
Initial Privacy Notice/Opt Out
Due: Before info is shared.
- -Lender may transfer service
- -due within 3 days
- -Disclose nearest 25% of # of loans that are serviced.
Servicing Transfer Statement
- -Service of loan is being transferred
Periodic payments of principal and interest on a loan.
-Ensures loan will be paid off by the end of term.
A fee charged for the use of borrowing money.
The amount of money borrowed.
A lien on a property that secures a promise to repay a loan.
A legal claim against a property that must be satisfied when sold.
Security in the form of money or property pledged for the payment of a loan.
To assure payment of a debt by pledging property.
What is the exception for cost on a fixed rate mortgage?
Total PITI payment can only adjust if expenses paid out of escrow account changes.
Holds monies for future disbursement for taxes/insurance.
Fixed Rate Mortgage
Interest rate and principal payment does not change.
-Variable rate that may change one or more times during the life of a loan (depending on index)
Measure of interest rate changes that the lender uses to determine interest rate of an ARM.
In an ARM, the borrower pays _________.
Fully indexed rate = Margin rate + current index rate.
Most common forms of ARMs
Combines fixed rate with ARM
- Multiple payment options:
- -interest only
- -15 year, 30 year.
Balloon, interest only, or negatively amortizing.
set rate added by lender that doesn't change, typically lender's profit
- London Interbank Offered Rate
- Treasury Bills
- Cost of Funds Index (11th District)
ARMs are based on a __________.
360 month (30 year) amortization schedule.
Maximum amount of increase or decrease at any adjustmnet. Caps are projections.
-Limit on how much the required monthly (or periodic) payment can increase or decrease at the time of a scheduled adjustment.
5 -- Initial Rate
2 -- Periodic
5 -- Lifetime
Lifetime Interest Rate Cap
Maximum percentage points a rate may increase or decrease from the initial rate.
Initial Interest Rate Cap
Maximum allowed change to the interest rate at the first adjustment.
Periodic Interest Rate Cap
Maximum change allowed for the interest rate at any adjustment period, after first.
increase in housing payment
1) Consumer Handbook on ARMs
2) Truth-in-lending Act
Reg Z, TILA, in regards to an ARM
Within 3 days of following receipt of loan application, CHARM booklet is sent out.
Full Principal Balance comes due at a predetermined time in payment cycle.
360 month (30 years) amortization payment amount.
Balance due in 180 months (15 years)
Advantage of a balloon
Interest rate is typically lower.
Disadvantage to a balloon
Large lump sum
A conditional refinance provision to convert to fully amortizing.
Prepaid Finance Charges include all of the following, except?
A) Discount Fee
B) Appraisal Fee
C) Mortgage Insurance Escrow
D) Tax Service Fee
B) Appraisal Fee
(this multiple choice question has been scrambled)
"A written document signed, dated and usually recorded that conveys property from one owner to another."
Shawna is a mortgage loan originator who has let her state license lapse for the last 6 years. Which of the following scenarios most likely will happen?
a) Shawna will need to retake the licensing test
b) The state authority will serve a cease and desist
c) Shawna will need an additional 3 hours of training
d) The state authority will impose a fee.
Shawna will need to retake the licensing exam.
An origination point cannot be:
Limited to only conventional loans.
Which mortgage clause allows a lender to declare the unpaid balance due upon a borrower's default?
What is the current monthly mortgage insurance premium factor for FHA refinance loans with a term greater than 15 years and a LTV of 90%?
When is the lender permitted to charge a fee for preparing a settlement statement?
Under no circumstances.
A lender is not able to facilitate their own closing - they must employ a third party settlement service provider to prepare the closing documents and facilitate closing.
The following example is a violation of which of the following acts below: Two minority loan applicants were told it would take several hours and require the payment of an application fee up front to determine if they would qualify for a home mortgage loan; and more than likely they will end up not qualifying:
The recission period runs from the last of the following three events, except:
a) Preparation of final closing documents
b) Consummation of the transaction
c) Delivery of the material disclosures
d) Delivery to the consumer of required disclosures
Preparation of final closing documents.
The recission period begins at closing. This question is asking which option does not happen at closing. Preparation of the final closing documents can happen anytime prior to closing, not at closing.
Market Data Approach
Three previous sales of similar square footage from the same neighborhood.
Market value is the same as the sales comprison approach. In addition to the above previous sales in the same neighborhood the homes must have sold within the last 6 months in most cases.
On the Truth In Lending Statement, "finance charge" is defined as:
Interest + Mortgage Insurance + Prepaid Finance Charges
According to RESPA what kind of payment would be acceptable?
A referral fee paid between employees of the same mortgage company.
Best definition of a "person"
Either an individual, company, or association.
What is the penalty for violating Section 6 of RESPA?
- Individual: $1,000.00
- Class action: $1,000.00 for each memember. $500,000 or 1%
What is the penalty for violating Section 8?
$10,000.00 or one year in prison.
What is the penalty of violating Section 9?
Treble. Triple amount of title cost.
What is the penalty for violating Section 10 of RESPA?
$75 per violation, limited to $130,000.00 in a 12 month period.
Intentional violation: $110/violation.
What is the penalty for violating TILA?
Class action: $500,000 or 1% of net worth of creditor.
Willful or knowing violations: $5,000.00 and/or one year.
What is the penalty for violating ECOA?
- Civil: $5,000/day up to $25,000.00.
- Punitive: limited to $10,000 an individual or $500,000 or 1% of creditor's net worth.
Statute of limitations of ECOA
What is the penalty for violating Do Not Call Act?
$16,000 for each violation.
HUD-1 must be retained
5 years from final transaction
What is the retention time for RESPA?
What is the retention time for HMDA?
What is the retention time for TILA?
What is the retention time for ECOA?
Certificate of Reasonable Value
statement showing the property's current market value based on the appraisal
DTI for Conventional Conforming Loans
Minimum down payment for conventional
FHA minimum down payment
VA minimum down payment
USDA minimum down payment
Seller concession for conventional
- If under 10% dp = 3%
- Over 10% dp = 6%
- Investment property= 2%
Seller Concession for FHA
Seller concession for VA
Seller concession for USDA
6%, unlimited with appraisal justification.
Up-Front Mortgage Insurance Premium
Guaranty fee for USDA
2% on purhcase
Mortgage Insurance Premiuum
monthly insurance that must be paid for five years or until the LTV reaches 78%
Terms greater than 15 years
LTV is greater than 95%
Terms Greater than 15 Years
LTV is 95% or less:
Terms of 15 Years or Less
LTV is greater than 90%
Terms of 15 Years or Less
LTV is from 78.01-90%
Terms 15 years or less
LTV value is 78% or less:
Penalties under Dodd-Frank:
3 times the amount of direct or indirect compensation.
Bankruptcy lasts for ____ years.
A provision of a loan allowing the lender to demand full repayment of the loan if the property is sold. (Also known as "Alienation Clause")
This is an evidence of debt that is in the form of a mortgage contract, deed of trust, or sales contract. It is always signed at a closing when a new loan is involved.
The legal right that gives someone, other than the owner, access to the use of a property for a specific purpose. Easements may affect property values and are sometimes a part of the deed.
A credit report will ALWAYS have:
A borrower's name and address.
- -Amount of any finance charge
- -Amount of down payment
- -Number of payments and period of repayment
- -The amount of the payment
HOEP must exceed __ % threshold on 1st mortgage and __ % on a 2nd.
Loan Processor or Underwriter
performs clerical or support duties
Registered Mortgage Loan Originator
An individual who fits the definition of a mortgage loan originator, but is an employee of a depository institution.
-must register with NMLS
Failure to maintain license for 5+ years
Must start process again.
Fair Credit Reporting Act, accuracy and fairness in credit reporting.
Red Flags Rules
- "develop, implement & administer identithy theft prevention programs"
Notice of Right to Receive a Credit Score
"notify borrower of their right to obtain their credit score"
Obtaining information under false pretenses =
2 years imprisonment
Bank Secrecy Act & Anti-Money Laundering Law
"requires financial institutions to report suspicious activity that may indicate money laundering, tax evasion, or other criminal activities."
Most of GLBA is monitored by ____.
-Security plan that outlines how a company will protect a consumer's non-public personal information.
"the act of obtaining an individual's non-public personal information through false pretenses."
Dodd-Frank Wall Street Reform & Consumer Protection Act
"increase regulation concerning MLO compensation (amending TILA), underwriting & appraisal"
Documents needed at Closing:
- -final HUD-1
- -final TIL
- -The promissory note
- -Security instrument (mortgage or deed of trust)
Allows a mortgage broker to originate and process a loan under their name. However, at the time of closing, teh loan is transferred to a lender who provides the funds for disbursement.
Loan Amount / Property Value = LTV
CLTV (TLTV) formula:
1st Loan Balance + 2nd Loan Balance / Property Value = CLTV
The HLTV (HCLTV) formula:
1st Loan Balance + HELOC Credit Limit /Property Value = HCLTV
Front End Ratio
All Housing Expenses
Housing Expense / Income = Front Ratio
Back End Ratio
Total Debt Ratio
Total Monthly Debts / Income = Back Ratio
Loan Amount x Points = Cost of Discount
Prepaid Finance Charge
The charge is paid prior to or at closing.
Finance Charge, "Amount financed"
the amount of the loan principal (including fees rolled into the loan amoutn) MINUS prepaid finance charges and any down payment at the inception of the loan.
Notice of Action Taken
- Notify applicant of approval, counter offer or adverse action.
Notice of Incomplete Application
- Due within 30 days of receving an application, must notify applicant of missing information.
Notice of Right to Receive an Appraisal
notify applicant their right to receive a copy of appraisal report. Due at time of appraisal.
Disclosures Regarding Monitoring Programs
Must disclose to applicant that information on race, ethnicity, gender, marital status, and age are used for monitoring purposes only.
Higher Priced Mortgage Loans
-APR on 1st lien is 1.5 or more percentage points above the average prime offer on a comparable transaction
-APR on subordinate lien is 3.5 or more percentage points above.
TILA/Reg Z mandates escrow accounts for _____.
Higher-Priced Mortgage Loans
Home Ownership and Equity Protection Act, Section 32.
A safeguard against abusive lending, must make sure a borrower's qualification is based on ability to REPAY the loan, not collateral.
Mortgage Disclosure Improvement Act
A borrower does not have to go through the loan process just because they have received disclosures
CSBS and AARMR established NMLSR for the residential mortgage industry to do the following:
- -increase uniformity for state licensing
- -reduce regulatory burden
- -enhance consumer protection
- -reduce fraud
The state or state authority (Commissioner) has the authority to __________.
apply, interpret, and enforce the SAFE Act of 2008.
American Association of Residential Mortgage Regulators (AARMR)
national association of executives and employees responsible for administratoin and regulation of residential mortgage lending, servicing, and brokering.
Head of the CFPB
Immediate family memmber
Any of the following: spouse, child, sibling, parent, grandparent, grandchild, stepparent, stepchild, stepsibling, adoptive relationship.
A natural person.
any of the following: natural person, corporation, company, limited liability company, partnership, or association.
If a person has, is, or is about to violate the law, the state authority or the Director can request each person involved to cease and desist from committing the violation, and the following can happen:
-The Director can publish the findings
-The Director will send a notice regarding the proceedings and will set a hearint date (a hearingbetween 30 and 60 days of receiving it)
-After the notice and opportunity for a hearing, the cease and desist order may require future plans for compliance, if the Director specifies.
A mortgage loan originator licensee must:
-submit mortgage call reports to the NMLS
-Compile reports and other information at the request of state Authorities
-Make available, upon request, to the state licensing agency all books and records relating to the operations of the originator
-Appear before the CFPB and produce any records or data and give relevant testimony when summoned
Uniform Residential Loan Application, 1003
Income - Capacity
Property - Collateral
Assets - Capitol
Credit - Credit
To verify borrower's income, per FNMA underwriting requirements, a ________ must be filed.
must be requested from the borrower, it is a federal income tax transcript summary request form.
It is valid for 120 days.
Borrowers who earn commission as _____% or more of their income or business, need....
2 years tax returns
Salary or hourly income borrowers need _______.
30 days worth of pay stubs
2 years W2 forms
CLTV is used by ______.
TLTV is used by ______.
3 most common types of appraisal approaches
Sales Comparison (Market approach)
Cost approach is used _______.
to appraise new home construction and cost to rebuild the home.
When determining the cost of Hazard Insurance, this appraisal approach is best...
Income Approach is used
to estimate the value of an income producing property
URAR stands for ________.
Uniform Residential Appraisal Report
most commonly used and is considered a "full appraisal" as it includes an interior and exterior inspection of the property being evaluated.
To maintain their certification an appraiser must _____
adhere to the USPAP
Uniform Standards of Professional Appraisal Practice
To meet Fannie Mac standards on top of USPAP the appraiser must...
be certified in the state where property is and be independent of the business that utilizes the services
An appraisal report is valid for _______.
Homeowners Insurance is a form of _______.
Primary Hazard is fire.
Lenders require the borrower to carry hazard but not homeowner's insurance.
100% replacement cost.
1) Max deductible?
2) What is force placed insurance?
2) kicks in if borrower allows his or her homeowner's policy to lapse.
Not all borrowers are required to obtain flood insurance.
The appraiser or surveyor will determine this requirement based on FEMA flood zones.
Flood Insurance covers/does not cover
Covers - building and foundation as well as personal property in the building.
Does not cover - basement, physical property to which the building is attached.
Special Flood Housing Area
1% chance to flood within any given year
National Flood Insurance Program, a FEMA program for flood insurance.
PMI is used for ____.
MIP is required for ______.
Which act ensures consumers can get rid of PMI?
Homeowners Protection Act (HPA)
The borrower usually pays PMI, but the lender may offer...
to cover PMI via a slightly elevated interest rate.
Is a processing fee allowed on FHA loans?
Restriction on re-sale
If a property is re-sold within 90s of date of purchase the property will not be eligible for a FHA mortgage.
Fannie Mae and Freddie Mac
- 125% mark up on non-Taxable
- 2 yer avg overtime/bonus
- 620 minimum FICO score
- 75% rental income
If revolving debt does not have monthly payment, 5% of debt must be included
A-paper or Prime Loans
conforming mortgages with limited risk
Who performs the title report search?
For us to do a loan there must be...
a tangible net benefit that the borrower must derive.
i.e. lower monthly payment, shorter loan term
The Guidance requires loan orignators to properly communicate to the borrower all potential risks with their new loan.
Some loans that are higher risk are:
- -Loans with simultaneous second liens or reduced doc
- -Balloon Loans
- -Neg amortization loans
What if the Annual Escrow Analysis carries a surplus of $50 or more?
Surplus must be refunded to the borrower within 30 days the analysis.
If its less, lender can refund or credit amount toward next year's escrow payments.
What if the loan program requires that client needs a Notice of Right to Rescind but is not properly provided one?
The borrower is then allowed a 3 year time period in which to rescind the loan.
Lender must have the client's permission and a valid reason.
i.e. extend credit to the applicant in the form of a mortgage loan.
HECM Origination Fee
if home is $125,000 or less = $2500
125-200,000 = 2%
200,000 and greater = max of $6,000
HECM and MIP
pays MIP up front and annually
- Up Front MIP is 2% of appraisal value
- or 0.1% on a HECM Saver Program
A clause in a mortgage or deed of trust that permits the lender to call the mortgage due upon FRAUD or misrepresentation by the borrower.
A provision in the terms of a loan that allows the buyer to take legal responsibility for the mortgage from the seller.
Any claim that affects the title to a property; such as loans, leases, easements, or restrictions.
For Sale by Owner
A home that is offered for sale by the owner without the benefit of a real estate professional.
What would you like to do?
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