MLO Study Guide: Regulations, Loan Limits, and Key Mortgage Terms

Regulation D
- Definition: A Federal Reserve rule that governs reserve requirements and limits specific types of transactions.
- Function: It historically restricts the number of withdrawals from savings and money market accounts.
- Specific Limit: Traditionally allows for a maximum of $6$ withdrawals per month.
- Study Note: While not heavily tested, it is necessary to recognize it as a Federal Reserve rule distinct from lending regulations.
Regulation O
- Focus: Governs loans that banks extend to their own insiders.
- Covered Parties: Includes executive officers, directors, and principal shareholders of the institution.
- Primary Purpose: To prevent insider abuse and ensure that bank officials do not receive preferential treatment or engage in self-dealing.
- Mnemonic: When "Reg O" is mentioned, think specifically of bank lending to its own personnel.

Conforming Loan Limit
- Definition: The maximum dollar amount for a mortgage that Fannie Mae and Freddie Mac are permitted to purchase.
- $2024$ Standard Limit: For most geographic areas, the limit is set at $766,550$ .
- High-Cost Areas: Certain regions with higher real estate values allow for limits above the standard amount.
- Jumbo Loan: Any loan amount that exceeds the conforming loan limit is classified as a non-conforming or "jumbo" loan.
Conventional Loan Ratio (LTV)
- Definition: Refers to the Loan-to-Value ( $LTV$ ) ratio.
- Standard Requirement: Conventional loans typically require a down payment of $20\%\,(\text{or an } LTV \text{ of } 80\%)$ to avoid the requirement for private mortgage insurance ( $PMI$ ).
- Maximum Threshold: Specific programs can allow the LTV to go as high as $97\%$ .

Consumer Financial Protection Bureau (CFPB)
- Origin: Created by the Dodd-Frank Wall Street Reform and Consumer Protection Act in $2010$ .
- Authority: Serves as the primary agency responsible for enforcing major mortgage regulations.
- Enforced Statutes: Includes the Real Estate Settlement Procedures Act (RESPA), the Truth in Lending Act (TILA), the Equal Credit Opportunity Act (ECOA), and the Home Mortgage Disclosure Act (HMDA).
- Exam Tip: If a test question asks which agency enforces a specific consumer financial rule, the CFPB is frequently the correct answer.
Department of Housing and Urban Development (HUD)
- Responsibilities: Oversees Federal Housing Administration (FHA) loans and enforces fair housing laws.
- Historical Context: HUD was the agency that historically utilized the HUD-1 Settlement Statement.
- Current Usage: While largely replaced by the Closing Disclosure, the HUD-1 remains relevant in certain specific transactions today.
Mortgage Assistance Relief Services (MARS) Rule
- Origin: A rule issued by the Federal Trade Commission (FTC).
- Protection Target: Designed to protect homeowners from fraudulent foreclosure relief and loan modification scams.
- Context: Specifically aimed at safeguarding individuals who are already facing financial hardship or struggling with mortgage payments.

Automated Underwriting System (AUS)
- Definition: Computerized systems that provide automated approval decisions based on loan data.
- Desktop Underwriter (DU): The Proprietary AUS used by Fannie Mae.
- Loan Prospector (LP): The Proprietary AUS used by Freddie Mac; also formally referred to as Loan Product Advisor.
Estoppel Letter
- Source: Issued by a Homeowners Association (HOA) or a condo association.
- Contents: Outlines the current association fees, any past-due amounts owed by the current owner, and any pending special assessments.
- Closing Requirement: Mandatory for closing to ensure there are no undisclosed financial obligations or "surprises" regarding the property's HOA standing.

Due-on-Sale Clause
- Requirement: Mandates that the borrower pay the full remaining loan balance immediately when the property is sold or the title is transferred.
- Purpose: Prevents the borrower from transferring the debt to a new buyer without the lender's express approval.
Rate Caps on Adjustable Rate Mortgages (ARMs)
- Initial Cap: Limits the amount the interest rate can change during the very first adjustment period.
- Periodic Cap: Limits the amount the interest rate can adjust during each subsequent adjustment interval after the initial period.
- Lifetime Cap: Defines the maximum total change the interest rate can undergo throughout the entire duration of the loan term.

Late Fees on Government-Backed Loans
- Applicable Loan Types: FHA, VA, and USDA loans.
- Maximum Penalty: The late fee cannot exceed $4\%$ of the monthly principal and interest payment.
- Grace Period: Borrowers are granted a $15$ -day grace period before the late fee is applied.
- Uniformity: This $4\%$ fee and $15$ -day grace period rule applies consistently across all three government loan types.
PITI
- Definition: An acronym representing the four core components of a standard monthly mortgage payment.
- $\mathbf{P}$ : Principal (the amount going toward the loan balance).
- $\mathbf{I}$ : Interest (the cost of borrowing the money).
- $\mathbf{T}$ : Taxes (property taxes typically held in escrow).
- $\mathbf{I}$ : Insurance (homeowners insurance held in escrow).
- Additional Add-ons: Monthly payments may also include HOA dues or mortgage insurance premiums depending on the specific property and loan type.