Mortgage Boot Camp – Primary & Secondary Markets, Loan Process, Federal Regulations

A comprehensive set of flashcards covering key concepts from mortgage markets, loan processing, loan types, federal regulations, calculations, and consumer protection laws discussed in the lecture notes.

What is the main purpose of the secondary mortgage market?

To provide liquidity (source of funds) to the primary market by purchasing loans and turning them into mortgage-backed securities.

Which type of institution funds loans with depositors’ money?

Depositories – federally or state-chartered banks, savings & loans, and credit unions.

Who funds loans using warehouse lines of credit?

Mortgage bankers (non-depositories).

What role acts as the liaison between borrower and lender but does not fund loans?

Mortgage broker.

Define a Mortgage Loan Originator (MLO) under the SAFE Act.

An individual who, for compensation, takes loan applications AND negotiates rates or terms.

Who approves or denies an MLO license application?

The state’s banking or licensing department (e.g., NC State Banking Department).

What is securitization?

Pooling mortgages and selling them as mortgage-backed securities on the secondary market.

Which entity guarantees MBSs for FHA, VA, and USDA loans?

Ginnie Mae.

What are the two categories of MLOs?

Registered (work for depositories/Farm Credit) and Licensed (work for non-depositories or brokers).

What does the SAFE Act fine for an unlicensed processor taking an application?

Up to 25,000 per application.

List the six pieces of information that constitute a completed loan application ("ALIENS").

Address, Loan amount, Income, Estimated value/purchase price, Name, Social Security number.

When can a creditor collect fees beyond the credit report fee?

After issuing the Loan Estimate and receiving the borrower’s Intent to Proceed ("LE + ITP = additional fees").

If an appraisal comes in lower than the purchase price, which value is used?

The lower of the appraised value or purchase price.

Within how many days must the lender deliver a Notice of Action Taken under ECOA?

Within 30 days of receipt of a completed application (ALIENS).

Define consummation in mortgage lending.

The moment the borrower becomes contractually obligated on the loan (closing/settlement).

Differentiate closed-end credit from open-end credit.

Closed-end has a set amount and term (e.g., fixed-rate mortgage); open-end is revolving with a credit limit (e.g., HELOC).

What document gives the creditor the right to foreclose?

The mortgage or deed of trust (security instrument).

Which document shows the loan’s repayment terms?

The Note.

First-lien priority is generally determined by what?

Chronological order of recording (first come, first served) unless a super lien (taxes, IRS, HOA) exists.

Formula for Loan-to-Value (LTV).

LTV = First mortgage balance ÷ Property value (lower of price or appraisal).

Define Combined LTV (CLTV).

(1st mortgage balance + 2nd mortgage balance) ÷ Value.

Define High Combined LTV (HCLTV).

(1st mortgage balance + 2nd mortgage credit LIMIT) ÷ Value (used when 2nd is a HELOC).

Maximum seller concession on most conventional loans with >90% LTV.

3% of purchase price (varies by program).

What is a seller carry-back?

Seller financing where the seller lends part of the purchase price to the buyer; must be disclosed.

Define discount point.

1% of the loan amount paid to reduce the interest rate on a mortgage.

What is a borrower credit (formerly YSP)?

Cash rebate created by accepting a higher interest rate to pay closing costs; must be credited to the borrower.

Acceptable forms of "cash-to-close".

Cashier’s check, money order, or wired funds (no briefcase of cash).

Two refinance types and their definitions.

No-cash-out (rate/term) – new loan pays off current mortgage + costs; Cash-out – borrower receives additional funds above payoffs.

List the four main ARM components.

Index, Margin, Adjustment Frequency, Caps.

Formula for a fully-indexed ARM rate.

Index value + Margin = New interest rate (subject to caps).

What do ARM caps limit?

Initial, periodic, lifetime rate increases (and sometimes payment).

What is a 5/1 hybrid ARM?

Rate fixed 5 years, adjusts annually thereafter.

Front-end DTI formula.

Housing payment (PITI + MI + HOA) ÷ Gross monthly income.

Back-end DTI formula.

(Housing payment + monthly consumer debts) ÷ Gross monthly income.

Minimum down payment for an FHA loan with 580+ score.

3\.5%.

Duration of FHA MIP when LTV is \le90%.

11 years ("10 gets you 11").

Key borrower age requirement for an FHA HECM.

62 years or older.

Maximum VA guaranty with full entitlement (loan >144k).

25% of the loan amount (not the full balance).

Name the upfront VA fee and who is exempt.

Funding Fee; exempt = disabled vets, surviving spouses of vets who died in duty, Purple Heart recipients on active duty.

USDA loan highlights.

100% financing, rural property, income limits, upfront and annual guarantee fees, fixed-rate only.

Purpose of RESPA.

Protect consumers from excessive settlement costs and unearned fees.

RESPA’s prohibition on paying for referrals.

Illegal to give or receive any thing of value for referrals; penalties up to 10k fine and 1-year imprisonment.

RESPA escrow limits when establishing accounts.

Collect no more than 2-month cushion; perform annual analysis; refund excess >50 within 30 days.

Timing for RESPA Servicing Transfer Notice.

Old servicer: 15 days before transfer; new servicer: within 15 days after; 60-day grace for late payments.

ABA disclosure timing and content.

Given at time of referral; must state % ownership, estimate of charges, and that the consumer is free to shop.

TILA disclosures must show cost of credit in which two ways?

Finance Charge (dollars) and APR (annual percentage rate).

When must an APR be re-disclosed?

If it varies more than 0.125% (⅛%) on a regular loan or finance charges increase by >100$.$$

List four common finance charges under TILA (C.O.I.M.).

Closing/settlement fees, Origination/processing/underwriting fees, Interest-related charges (discount points, per-diem), Mortgage broker/MIP/PMI fees.

Define a TILA trigger term and give one example.

An advertisement term (e.g., payment amount, down payment, # of payments, finance charge) that triggers additional required disclosures; example: "Payments as low as 900/mo".

Rescission period for a primary-residence refinance.

3 business days (excluding Sundays & federal holidays); any owner may cancel; failure to deliver gives 3-year right.

TRID: Loan Estimate timing rules.

Due within 3 business days of application AND at least 7 business days before consummation.

TRID: Closing Disclosure timing.

Borrower must receive CD at least 3 business days prior to consummation.

Zero-tolerance items on the LE.

Fees controlled by or known to the creditor: credit report, origination, appraisal, affiliate fees, transfer taxes.

ATR Rule basic requirement.

Lender must make a reasonable, good-faith determination that the borrower can repay the loan using verified, reliable documents.

Three "3s" and "No BIN" for Qualified Mortgages.

Points/fees \le3% of loan, \le30-year term, APR threshold test; No Balloons, Interest-only, or Negative amortization.

Gramm-Leach-Bliley Act primary mandates ("POS").

Privacy notice, Opt-Out right for sharing non-public info, Safeguards rule for data security.

FCRA requirement when using a credit report for denial.

Obtain permissible purpose; provide Adverse Action Notice with credit bureau contact info.

Protected classes under ECOA.

Race, color, religion, national origin, sex, marital status, age, receipt of public assistance, participation in credit counseling.

HMDA’s primary function.

Collect and report data to detect discriminatory lending patterns ("Hey, It’s My Duty to Ask").

Four actions MLOs must perform under the USA PATRIOT Act.

Verify identity, maintain records, check OFAC list, share info with law enforcement (CIP compliance).

HOEPA (Section 32) loan triggers.

High-cost if APR, points/fees, or prepayment penalty exceed thresholds on a principal dwelling.

HOEPA restrictions (name three).

No negative amortization, no balloons (few exceptions), no prepayment penalties, no direct payments to contractors.

HPML (Section 35) basic requirement.

APR exceeds APOR by 1.5% (first lien conforming) / 2.5% (jumbo) / 3.5% (subordinate); requires 5-year escrow and ATR.

Servicing escrow requirement for HPML loans.

Must maintain tax & insurance escrow for at least 5 years.

Notice of Action Taken timeframe under ECOA.

Within 30 days after receiving a completed application.

Purchase booklet ("Your Home Loan Toolkit") delivery deadline.

Within 3 business days of completed application (ALIENS).

CHARM booklet timing.

Due within 3 business days of application for an ARM.

What does "15/15/60" refer to in servicing transfers?

15 days before goodbye, 15 days after hello, 60-day no-penalty period for late payments.

Define "business day" for LE general timing.

Any day creditor is open to the public for substantially all business.

Define "business day" for CD precise timing.

All calendar days except Sunday and federal holidays.

Penalty for unlicensed MLO activity under SAFE Act.

Up to 25,000 per violation.

Maximum FHA seller concession.

6% of the purchase price.

Conventional loan PMI cancellation point by law.

Automatically cancelled at 78% LTV, borrower-requested at 80% LTV with good payment history.

Key index examples for ARMs.

SOFR, 11th District COFI, Constant Maturity Treasury (CMT).

What is negative amortization?

When loan payments are insufficient to cover interest, causing the balance to grow rather than shrink.

Define "warehouse line of credit".

Short-term credit line a lender uses to fund mortgages until they are sold on the secondary market.

What does "MBS" stand for?

Mortgage-Backed Security.

Describe equity-based lending (prohibited).

Approving a loan solely on property equity without regard to the borrower’s ability to repay.

Purpose of an Initial Escrow Statement.

Discloses estimated escrow payments for the first 12 months; due at or within 45 days of closing.

What triggers a revised Loan Estimate under TRID?

Valid change of circumstance causing a cost increase beyond tolerance limits.

Who issues the Consumer Handbook on Adjustable-Rate Mortgages (CHARM)?

Consumer Financial Protection Bureau (CFPB).