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NC Fundamentals of Residential Mortgage Loan Origination - General


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An independent real estate financing expert who specializes in the origination of residential and/or commercial mortgages.
Mortgage Broker
Originates and closes mortgage loans in their own name through the use of correspondent lines of credit, for the primary purpose of reselling these loans into the secondary market.
Mortgage Banker
A Legal Document or Contract by which real property is PLEDGED for the repayment of a loan or performance of a duty.
Concerns ALL of the activities your customer encounters when obtaining a mortgage loan. Includes: The completion of Loan Application, Validation of Credit, and Property information and all Loan Processing, underwriting and closing activities.
The Primary Market
The Retail Marketplace in which mortgage brokers and mortgage bankers originate and process mortgage loans.
The Primary Market
Lenders who acquire mortgage loans from the Primary Market through mortgage brokers, mortgage bankers, savings and loans, commercial banks, or sometimes from their own retail operations
(GSEs) government sponsored enterprises whose primary purpose is to facilitate the sale of mortgage that are not government mortgages but are conventional mortgages
FNMA fannie mae
FHLMC freddie mac
Government Sponsored Enterprises
All of the activities of packaging, buying and selling loans once they are originated.
The Secondary Market
Place in the market where loans are bundled in large "packages" and sold to institutional investors or to the major GSEs (Government Sponsored Enterprises)
The Secondary Market
The Loan Cycle includes:
Loan Origination
Loan Processing
Loan Servicing
Billing, Payment Collection, Escrow Account Management, Administration of Foreclosure, and Inveestor Accounting is referred to as _____________.
Loan Servicing
Loan Origination Includes:
1. Prospecting, Sales & Marketing.
2. Pre-Qualifying the Borrower
3. Plan out and recommend loan Strategy
4. Complete Loan Application (1003)
5. Complete Good Faith Estimate (GFE)
6. Gather and review initial documents
7. Complete and explain all disclosures
8. Transfer file to processing stage.
Performs the Client Contact work called Loan Origination
Loan Officer (LO)
Loan Processing Includes:
1. Organize and set up file
2. Review file for Completeness
3. Certify and return documents
4. Order credit report/input application into system
5. Submit verifications/complete disclosures
6. Order the appraisal and title work
7. Collect and review documentation
8. Deliver package to underwriting
9. Clear conditions and set up closing.
Completes the application and disclosure process begun by the Loan Officer (LO)
"Loan Processor (LP)
Sometimes the Loan Officer (LO) performs these activities.
Underwriting includes:
1. Evaluate File
2. Review Findings
3. Decide to approve or decline loan
4. Set and communicate conditions
5. Move the file to the closing department
Closing/Funding Includes:
1. Closing Instructions Sent to Closing Attorney
2. HUD Settlement Statement Prepared and Reviewed
3. Borrower Signs all Loan Documents (Closing)
4. Seller and Buyer Sign Real Estate Documents to transfer title (Purchase)
5. 3 Day Right of Recission (Refinance only)
6. Loan Funds are Dispersed
7. Wholesale Lender receives mortgage loan package.
3 Day Right of recission applies only to _____________.
Residential Refinancing of Primary Residence.
3 Day Right of Recission days are calculated using only _____________ days.
Refinancing of Investment Properties will resulting in funding ___________. (Timeframe)
Immediately -- No 3-day-recission period.
The Licensed and bonded responsible party who functions as a conduit for the loan products of competing lenders.
Mortgage Broker
A person who applies for a mortgage
borrower (mortgagor)
Lender (Mortgagee) Remember the E's
Borrower (Mortgagor) Remember the O's
A person or company that is actively involved in the building of homes for sale
developer or builder
A person who, for a commission or a fee, takes a borrowers application and finds the best program
Loan Originator
A company that collects mortgage payments and works with the customer after the loan closes
Loan servicer
A company that insures a lender for higher-risk loans
Mortgage insurance company
this person gathers all the information needed to meet the conditions requested by the lender to fund the loan
person responsible for evaluating the loan to determine the risk involved for the lender
a lender that typically works only with mortgage brokers
wholesale lender
another term for a loan application
Mortgage Brokers close and fund the loan in the name of the wholesale lender, except in the case of:
When the broker closes the loan in THEIR name (instead of the wholesale lender) and then immediately sells the loan at the closing to the wholesaleer and the loan actually funds in the name of the lender.
A person who represents a specific banker or wholesale lender
Account Executive
Wholesale Mortgage Bankers generally outsources the retail sales, marketing, origination and processing to mortgage brokers and mortgage bankers in exchange for a _____________________ __________ ____________
Yield Spread Premium (YSP)
Takes in funds from consumers through checking accounts, CDs Savings accounts, etc. These funds are then used to provide home, auto, business, and personal loans. They are commonly known as banks, savings and loans, or credit unions.
Financial Depository Institutions.
A private corporation that began in 1938 as a subsidiary of the Reconstruction Finance Corporation. A Govornment Sponsored Enterprise.
Fannie Mae (FNMA)
the primary buyer of government insured loans
GNMA ginnie mae
Industry Partners who provide critical ancilirary services to the lending process.
Appraisers, Title Insurance Companies, Loan Closers (Attorneys), Home Inspectors,.Termite Inspectors, Surveyors, Mortage Insurance Companies, and Homeowners Insurance Companies are all ____________________________
An individual who provides an opinion of the property's fair market value based on specific market data
Strategic Partners include:
Insurance Agents
Tax and Financial Planners
Regulators are the state and federal agencies that oversee the industry. Name the two primary Federal Regulators
Department of Housing and Urban Development (HUD)
Federal Reserve.
Regulators are the state and federal agencies that oversee the industry. Name the primary regulator for the State of NC
The North Carolina Commissioner of Banks
Name the North Carolina Commissioner of Banks
Joseph A. Smith, Jr.
An insurance Policy paid by the borrower that protects the lender in case of default in exchange for lending at a higher risk (above 80% loan-to-value).
Private Mortgage Insurance (PMI)
PMI is only changed/used on _________ Loans.
If the mortgage being obtained is higher than 80% of the value this insurance is needed
PMI private mortgage insurance
other than making a down payment of 20% or more, the only other way to eliminate the need for PMI is to do this
obtain a second mortgage
Credit Scoring is a ______________ of a person's credit file at a specific point in time.
________ _______ and __________ was the primary creator of the basis for the credit scoring system and assisted in developing the scoring models of Beacon and Emperica.
Fair Isaac and Company
A _______ ________ is meant to measure a person's "credit risk" for a lender to aid in both the loan approbal and interest rate pricing.
Credit Score
The three major credit bureaus
equifax, experian and transunion
A document used to verify the mortgage or rent history of a borrower
(VOM) Verification of Mortgage and
(VOR) Verification of rent
A document signed by the borrower's employer verifying the borrower's position and salary
(VOE) Verification of Employment
A document signed by the borrower's bank verifying balance and history
(VOD) Verification of Deposit
GNMA is an acronym for:
Government National Mortgage Association.
Interest charged in excess of the legal rate established by law
The fee that covers the cost of evaluating an entire loan package
underwriting fee
A loan that is in line with the guidelines of fannie mae and freddie mac is said to be
Any mortgage that is not insured or guaranteed by a government agency
conventional loan
A Security Instrument in which a borrower TRANSFERS THEIR RIGHTS and conveys title to the property to a TRUSTEE until the loan is repaid.
Deed of Trust
A Mortgage Contract specifying the amount of money owed over a specified period of time at a speficied rate of interest
The Promissory Note or Note.
What is a mortgage?
a mortgage is a legal contract that grants a lender interest in the property and protects the lender
What is a mortgage payment made up of?
PITI principal, interest, taxes, and insurance
The financial instrument, which ADJUSTS UP AND DOWN, used to compute the adjustable interest rate.
The Index
Common Indices (indexes) are published in the Wall Street Journal on a daily basis. They include:
Prime Rate
One-Year Five-Year and Ten-Year Treasury Notes
11th District Cost of Fund
1-month and 6-month LIBOR.
LIBOR stands for
London Interbank Offered Rate.
The Yeald or Spread added to the index rate that, then totaled, makes up the note rate or FULLY INDEXED RATE.
The Margin.
The period of time, spelled out in the ARM contract, between rate adjustments.
Adjustment Period or Adjustment Interval
Limits that ARM Loans can Adjust
The Maximum amount a loan can adjust up or down in any one adjustment period:
Interim Caps or Adjustment Caps
Limits that an ARM can adjust over the life of a loan term
Lifetime Caps.
Payment Caps (which are not commonly used today) are dangerous because of:
Negative Amortization caused by Deferred Interest.
Loans that carry a lower rate of interest than fixed-rate loans in exchange for a "Call" provision:
Balloon Mortgages
this type of loan is a gamble because a conditional refinance does not guarantee financing
a balloon mortgage
These loans generally do not carry prepayment penalties
Conforming, FHA, VA
Fixed-rate loans guaranteed by the U.S. dept of Veteran Affairs
VA loans
The Document provided to Veterans that certifies their eligibility for loans under the VA programs
Certificate of Eligibility (COE)
The Appraisal issued by the Veterans Administration, performed by VA Approved Appraisers
Certificate of Reasonable Value (CRV)
Government Insured loans made under the programs of the Federal Housing Administration
FHA Loans
The current conforming loan limit (2005 -- normally adjusts annually)
this must be provided to the applicant within three days of the application
good faith estimate
typically a nonconforming loan is this
jumbo or subprime
a mortgage loan obtained to finance the purchase of a home
purchase financing
a mortgage loan with B-D credit or one that does not conform
subprime or jumbo
a three-day right-of-rescission is applicable under what circumstances?
refinancing residential property & HELOCs
this is a lender's promise to hold a certain interest rate and a certain number of points while application is being processed
rate commitment or rate lock
why do "D" credit mortgages cost more than "A" credit mortgages?
the investor is taking a risk that he may not be paid back
why wouldn't a servicer want to be paid back too quickly?
servicer paid a number of points to service the loan and if paid back to quickly will not recapture investment
three ways mortgage brokers make money
origination fees
yield spread premiums
Miscellaneous Fees.
A _____________ is the simplest and the most common of all mortgage products
fixed-rate mortgage
this is the amount of time it takes to pay off the loan
two distinct features of a fixed rate mortgage
interest rate and payments are fixed over term, the mortgage is paid off at end of term
a fully _________ loan is one that is completely paid off by the end of its term
this program offers the lowest payment possible
this is when a borrower prepays the interest in exchange for a lower rate for the first two or three years of the loan
temporary buydown
who may pay a buydown?
the builder,seller or lender - all who want to make the loan -
this type of mortgage has an interest rate that changes based on changing market rates and economic trends
ARM adjustable-rate mortgage
the interest rate of an ARM can increase or decrease based on what?
the index plus a "margin"
this product operates similarly to a credit card
HELOC home equity line of credit
What are the two subcategories of conventional loans?
conforming and nonconforming
how do most lenders determine credit score?
by using the middle of the three scores or the lower of two.
Fannie Mae requires how many years to elapse from the discharge date of a chapter 7,11 or 12 bankruptcy?
four (4) years
What is a subprime mortgage?
less than perfect credit
what is a jumbo loan?
a loan that exceeds FNMA and FHLMC loan limits
how much must a borrower invest in a FHA transaction?
at least 3%
What is the greatest disadvantage of a FHA loan?
the MIP
how much is the up front MIP on a FHA loan amount?
When will MMI payments automatically be canceled?
when the balance reaches 78% of the original purchase price
are miscellaneous fees (application, doc prep. etc.) charged to a borrower an a FHA transaction?
no. if the lender does charge it must be to the seller at closing.
what is the maximum seller contribution in a FHA transaction?
When paying off a FHA loan why is it important to schedule closing towards the end of the month?
because FHA has the right to collect interest on a loan until the end of the month regardless of payoff date
if a borrower does not have at least two trade lines in an FHA loan this may be used
Alternative forms of credit
A _______ ________ is equal to one-hunderdth of one percent and is a unit of measure used in pricing a loan.
Basis Point.
Evidence of Ownership is documented in the ____________.
Legal Instrument that conveys title to property upon acceptance by the grantee
Legal Instrument in which a borrower transfers property to a trustee as security for a debt
Deed of Trust
The difference between what is owed on a property and what it is worth.
In case the borrower defaults on the loan, the insurance that covers over 80% LTV
Private Mortgage Insurance (PMI)
An insurance policy that protects owners and lenders against undiscovered defects in chain of title
Title Insurance
Where the trasnsaction takes place between the borrower and mortgage banker/broker
Primary Mortgage Market
Chance of loss or default on a loan to a lender
Co-Ownership of real property by husband and wife, with rights of survivorship
Tenancy by the Entirety.
Stage of the loan transaction when the deed and funds are exchanged
A flexible-rate mortgage with a specified period of adjustment
ARM adjustable-rate mortgage
Repayment of a debt in periodic installments of interest and principal
A loan that has a pre-determined payout period and the payments do not change
fixed-rate mortgage
The percentage that the total finance change bears to the amount of the loan, calculated on an annual basis.
APR (Annual Percentage Rate)
A loan given to secure funds advanced to construct a home
Construction Loan
Sometimes called a binder, a cash deposit paid when the purchase agreement is signed.
Earnest Money
A condition spelled out in the contact that must be met for it to be binding.
Lenders who fund mortgage loans primarily through mortgage bankers/brokers
wholesale lender
The cycle of the loan where the loans' file is reviewed and approved
The person who orders credit report, verification of employment and gathers together the complete loan file:
The Processor
NC State Agency that licenses and regulates mortgage bankers/brokers.
NC Commissioner of Banks
The report that reflects the estimate of a property's value:
Category of loans designed to provide financing for those with less than perfect credit

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