Mortgage Lending and Financial Regulations Flashcards

Vocabulary practice flashcards covering mortgage regulations, disclosures, loan options, calculation formulas, appraisal methodologies, and unethical lending practices.

Consumer Financial Protection Bureau (CFPB)

An independent US government agency that protects consumers from unfair, deceptive, or abusive financial practices.

Real Estate Settlement Procedure Act (RESPA/Reg X)

Federal regulation created to help customers become better shoppers for settlement services, covering $1$-$ $4$$ unit residential properties.

RESPA Section 6

The section of RESPA that regulates mortgage servicers.

RESPA Section 8

The section of RESPA that prohibits referral fees, kickbacks, and fee-splitting.

RESPA Section 9

The section of RESPA that prohibits sellers from requiring buyers to purchase title insurance from a specific title company.

RESPA Section 10

The section of RESPA that sets escrow account requirements.

Servicing Transfer Notice Requirement

Requirement under RESPA where the borrower generally receives notice of a servicing transfer $15$ days before the effective transfer date.

Truth in Lending Act (TILA/Reg Z)

Federal law that deals with APR, Cost of Credit, and Advertising of consumer loans.

Annual Percentage Rate (APR)

Represents the cost of credit expressed as a yearly rate.

Finance Charge

The cost of credit expressed as a dollar amount.

3-Day Right to Rescind

TILA provision where if only $1$ borrower rescinds, the loan is canceled; consumers can rescind until midnight of the $3\text{rd}$ business day, money must be returned within $20$ days, and the borrower must receive $2$ copies of the Notice of Right to Rescind.

Qualified Mortgage (QM)

A loan receiving safe harbor protection during foreclosure, with a maximum DTI of $43\%$, capped points/fees at $3\%$ or $3$ points, prohibition of non-doc/interest-only/negative amortization features, and prohibited prepayment penalties.

Home Ownership and Equity Protection Act (HOEPA)

TILA law designed to protect borrowers from predatory lending on high cost mortgages.

HOEPA Section 32

High cost mortgages where the APR exceeds APOR by more than $6.5\%$ on $1\text{st}$ liens or $8.5\%$ on $2\text{nd}$ liens.

HOEPA Section 35

High priced mortgages where loans exceed APOR by $1.5\%$ for $1\text{st}$ liens, $2.5\%$ for jumbo loans, and $3.5\%$ for $2\text{nd}$ liens.

TILA/RESPA Integrated Disclosure (TRID)

Regulatory framework requiring two major disclosure documents: the Loan Estimate and Closing Disclosure.

Loan Estimate (LE)

TRID disclosure required $3$ days after receiving an application containing Name, Income, SSN, Address, Loan amount, and Estimated property value.

Closing Disclosure (CD)

TRID disclosure provided to the borrower $3$ business days before loan consummation.

Equal Credit Opportunity Act (ECOA/Reg B)

Federal law dealing with discrimination when granting credit across $8$ protected classes: race, sex, religion, national origin, color, age, marital status, and public assistance.

Adverse Action Notice (ECOA)

Notice required within $30$ days of receiving a credit application if adverse action is taken.

Fair Housing Act (FHA)

Federal law prohibiting discrimination in the sale or lease of a property across $7$ protected classes: sex, race, religion, color, national origin, disability, and familial status.

Blockbusting

Trying to induce owners to sell their homes by suggesting that the ethnic or racial composition of the neighborhood is changing, with the implication that property values are declining.

Steering

Channeling prospective real estate buyers to particular neighborhoods based on race, religion, or ethnic background.

Redlining

Refusal to make loans on property located in a particular neighborhood for discriminatory reasons.

Reverse Redlining

Targeting protected groups for predatory or high cost lending.

Homeowners Protection Act (HPA)

Law requiring lenders or servicers to provide disclosures concerning PMI on residential transactions, allowing borrower request at $80\%$ LTV and automatic termination at $78\%$ LTV.

Home Mortgage Disclosure Act (HMDA/Reg C)

Law designed to identify possible discriminatory lending patterns by requiring financial institutions to report mortgage application data.

Fair Credit Reporting Act (FCRA/Reg V)

Law dealing with credit reporting agencies, establishing $5$ key consumer rights and preventing outdated credit information (negative info over $7$ years, bankruptcies over $10$ years) from being reported.

Fair and Accurate Credit Transaction Act (FACTA/Reg V)

Law intended to help customers fight identity theft, including the Section $114$ Red Flags Rule, card receipt truncation, fraud alerts, and credit freezes.

Gramm-Leach-Bliley Act (GLB-SPF)

Law requiring financial institutions to protect consumers' nonpublic personal information through the Safeguards Rule, Pretexting Provisions, and Financial Privacy Rule.

Do Not Call List (DNC)

Registry established under the Telemarketing Sales Rule allowing consumers to file complaints with the FTC, requiring national checks every $3$ months, internal checks every $30$ days, and featuring penalties up to $\$16,000$ per incident.

Mortgage Assistance Relief Services Rule (MARS)

Rule addressing loan modifications, short sales, and foreclosures; bans collecting fees until homeowners have an acceptable written offer from lender/servicer and prohibits advising consumers to stop communicating with lenders.

Bank Secrecy Act (BSA)

Anti-money laundering legislation requiring financial institutions to file reports of cash transactions exceeding $\$10,000$.

Non-traditional Mortgage

Any mortgage product other than a $30\text{-year}$ fixed loan.

Conforming Mortgage

A mortgage that meets standards set by Fannie Mae and Freddie Mac and can be sold in the secondary market.

Non-conforming Mortgage

A mortgage that does not meet standards set by Fannie Mae and Freddie Mac and cannot be sold in the secondary market.

Subprime Loan

A loan that allows more risk than allowed in the conforming mortgage market.

Secondary Financing

Financing where a buyer borrows money from another source to cover part of the purchase price or closing costs.

Acceleration Clause

Clause giving the lender the right to declare the entire loan balance due immediately because of borrower default.

Due on Sale Clause (Alienation)

Clause giving the lender certain stated rights when there is a transfer of ownership in the property.

Fully Indexed Rate Formula

Calculated as $\text{Fully Indexed Rate} = \text{Index} + \text{Margin}$.

Reverse Mortgage

Loan product allowing qualified borrowers age $62$ or older to convert equity in their home without making payments, which becomes due when the last surviving borrower dies, sells, leaves for $12$ consecutive months, or fails to pay taxes and insurance.

Uniform Residential Loan Application (URLA)

Form $1003$ (Fannie Mae) used by borrowers to apply for a residential mortgage.

Conventional Loan

A mortgage loan not insured or guaranteed by the government, requiring $28\%$ housing expense ratio, $36\%$ total DTI ratio, PMI if LTV exceeds $80\%$, and a late fee of $5\%$.

FHA Loan

Government-insured mortgage loan with a minimum down payment of $3.5\%$, qualifying ratios of $31\%$ HE and $43\%$ DTI, max $6\%$ seller concessions, no prepayment penalty, mandatory principal residence occupancy within $60$ days, and required MIP/UFMIP.

VA Loan

Mortgage guaranteed through Veterans benefits with max guaranty of $25\%$ of purchase price or appraised value, $0\%$ down payment, no prepayment penalty, nonrefundable fee (except for disabled vets & surviving spouses), and a DTI qualifying ratio of $41\%$.

USDA Loan (Section 502)

Department of Agriculture loan program offering $100\%$ financing ($0\%$ down payment) for low and moderate-income buyers in eligible rural or farm areas with no maximum loan amount.

Sales/Market Approach

Appraisal method comparing the property being appraised with other similar properties sold recently in the same market area (used for residential properties).

Cost/Replacement Approach

Appraisal method calculating the cost of land, site improvements, and building the structure (used for construction and new builds).

Income Approach

Appraisal method estimating value by analyzing current or potential revenue compared to similar properties (used for commercial or investment properties).

Loan-to-Value Ratio (LTV)

Formula calculated as $\text{LTV} = \frac{\text{1st Loan Amount}}{\text{Lesser of Sales Price or Appraised Value}}$.

Combined Loan-to-Value (CLTV)

Formula calculated as $\text{CLTV} = \frac{\text{1st Loan Amount} + \text{2nd Loan Amount}}{\text{Lesser of Sales Price or Appraised Value}}$.

Loan Flipping

Unethical practice of refinancing a loan with a fee-rich loan that provides no benefit to the borrower.

Equity Skimming

Making loans or 'rescues' knowing the borrower will not be able to repay.

Silent Second

When a buyer gives a seller a second mortgage without informing the primary lender.

Air Loan

Mortgage fraud scheme involving non-existent loans and non-collateral loans.

Straw Buyer

A person who makes a purchase on behalf of another person who cannot complete the transaction.

Straw Seller

An individual who accepts a fee to falsely claim ownership of a property being sold.

Bait and Switch

Unethical sales tactic switching consumers from buying an advertised product to something else.

Secure And Fair Enforcement Act (SAFE)

Law created under the Housing and Economic Recovery Act (HERA) requiring states to implement an MLO licensing process meeting NMLS criteria (established by CSBS and AARMR).

Loan Originator

An individual who takes a residential mortgage application or offers/negotiates terms of a residential mortgage loan for compensation and gain.

Churning

The process of repeatedly refinancing a mortgage loan for the lender's profit, often leading to higher costs for the borrower.

Chunking

A practice where loan originators divide a larger mortgage loan into smaller loans, often to meet specific lending criteria or to exploit regulatory gaps.

Home Equity Line of Credit (HELOC)

Usually a one-time payment for a specific amount of money or purpose (closed end loan)

Temporary Buy-Down

When funds are placed in a separate escrow account to offset the monthly payments and reduce the payment rate over time