Exam (elaborations)
CRU MBA Test #1
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Exam of 39 pages for the course CRU at CRU (CRU MBA Test #1)
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CRU MBA Test #1Functions of Mortgage Banking - Answer 1. Loan Production
2. Funding, Warehousing, Shipping,
3. Secondary Marketing
4. Loan Administration
Loan Production - Answer **Origination and manufacturing of loans
Origination - loan app is taken and originated
Processing - manufacturing starts. All information on the loan app is verified and necessary documentation is collected
Underwriting - determine whether lending risk is acceptable
Closing - preparation and delivery of all legal documents to consummate the loan with the borrower
Funding, Warehousing, Shipping - Answer Funding - mortgage banker's act of providing money for the loan
Warehousing - ensuring there is enough funds through warehousing to close the loan
Shipping/QC - quality control
Shipping/Delivery - sending the full loan file to the investor that is purchasing the loan
Secondary Marketing - Answer -Finding and maintaining a product mix to fit the mortgage banker's business model
-Setting interest rates that a mortgage banker will offer
-Negotiating loan purchase commitments with investors
-Managing market risks
Loan Administration - Answer -Receiving payments from borrowers
-Remitting funds received for P and I to the investors
-Managing the escrow account
-Handling of administrative functions relative to loan payoffs, assumptions, loss mitigations, foreclosures
-Responding to customer inquiries
Mortgage Banker - Answer Refers to companies that fund the loans at closing and service the loans after closing. Bankers may either sell the loans on the secondary market or keep them in portfolio (less common)
Correspondent - Answer specialized type of mortgage banker whose function is limited to the production of mortgage loans that are then sold to other mortgage bankers under a specific commitment. CRU MBA Test #1
Wholesaler - Answer lender who specializes in the purchase and servicing of mortgages obtained from other mortgage origination entities, such as brokers, correspondents, thrifts, credit unions, or commercial banks. They generally sell the loans on the secondary market
Conduit - Answer companies that purchase closed loans and pool the closed loans for sale to investors as securities
Underwriter Responsibilities - Answer 1. Analyze loan file for a thorough understanding of the parties and transaction
2. Determine borrower's ability and willingness to repay the loan
3. Ascertain the property value and ensure that the value and condition meet investor guidelines
4. Validate AUS conditions have been met
5. No red flags
4 Cs of Underwriting - Answer 1. Credit
2. Capacity
3. Capital
4. Collateral
Credit - Answer **Determining if the borrower has the ability to make the payments and if he/she will be willing to do so on a timely basis for the duration of the loan term
-Determination is based on if the borrower has paid all his or her bills on time in the past
-Utilizes credit scores from Equifax, Experian, Trans Union. Use the middle score.
-The middle credit score will be bracketed. You can improve scores through Rapid Rescore if an accuracy is present the borrower can fix it with documentation. Paying something off or resolving outstanding debt will increase the credit score
Capacity - Answer Does the borrower consistently earn enough money to be able to make the mortgage payments and is this likely to continue?
-Measures the borrower's ability to repay
-Housing to Income Ratio: expected to be 28%
-DTI: back end should be 36%
Capital - Answer The borrower's available capital is an important factor in a loan application. Capital can be in the form of:
-Checking
-Savings
-Money market accounts
-CDs
-Stocks and bonds
-Mutual funds
-Retirements CRU MBA Test #1
Collateral - Answer Value and condition of the property being collateralized
Planned Unit Development (PUD) - Answer single family dwelling, either attached or detached, that has common areas (pools, parking lots, recreation) that are owned by
all in the PUD. Common areas are maintained through a homeowners association fee.
*Owner may have an exclusive easement over some parts of the common areas
Type E:
- established project with the HOA controlled by the unit owners
- no review required
Type F:
- new or existing project where unit owners do not control the HOA
Condo - Answer individual ownership of a unit in a multi-unit structure where elements of the building and common areas are owned and maintained together with
the other unit owners and managed through an association to which all owners pay dues
Cooperative - Answer property where the residents don't have ownership over an individual unit but rather are shareholders in a corporation that owns the property entitling them to exclusive use of a unit in the property
Closing - Answer purpose is to finalize the legal transaction between the mortgage lender and borrower and to transfer the ownership between the buyer and seller. Involves the:
-Execution of the closing documents
-Transfer of funds
-Transfer of title to the property
-Final Goal: proper transfer of fees and funds to pay off the current mortgage in the case of a refinance, to remit funds to the seller in the case of a purchase, and to disburse funds due to third parties
Closing Documents - Answer 1. Promissory Note: creates the borrower's legal obligation to repay the loan and is generally secured by a security instrument. Contains the terms of the loan, the lender, and the borrower.
2. Security Instruments - Mortgage and Deed of Trust
3. CD: 5 page form that provides final details about the mortgage payments, costs, terms of the loan including projected monthly payments, fees, and other costs related to closing. Must be provided 3 business days prior to closing CRU MBA Test #1
4. Hazard Insurance Policy (Property Insurance): provides compensation to the insured in the case of property loss or damage
5. Title Insurance Policy: guards the lender's lien position against any past defects in the chain of title
Conventional Loan - Answer require PMI if the mortgage loan balance exceeds 80% of the value of the property. Originated in accordance with Fannie Mae or Freddie Mac
FHA - Answer insured by FHA. Insures lender against loss due to borrower default. Intended to assist lower income borrowers. Borrower pays a mortgage insurance premium (MIP)
VA - Answer allows veterans to obtain mortgage loans with little to no down payment
with generous qualifying criteria
Jumbo - Answer exceed the conforming loan limit
Alt-A - Answer higher level of risk often with multiple layers of risk such as higher income or debt ratios, lower credit score, or other risk factors. These loans include a risk-based price adjustment which are premiums paid by the borrower and passed through to an investor. There's a private market for these loans as well as programs offered by Fannie and Freddie
Growing Equity Mortgage (15 Years) - Answer payments start at the necessary payment amount then increase from the baseline. Can pay off the mortgage ahead of time with this method
ECOA - Answer prohibits discrimination based on any of the 9 aspects of the credit transaction such as sex, marital status, age, race, color, religion, national origin, public assistance benefits
Fair Housing Act - Answer applies to mortgage and home improvement loans and protects the applicant from discrimination based on race, color, handicap, national origin, sex, religion, familial status
TILA - Answer protects borrowers from inaccurate and unfair credit practices. Requires lenders to provide borrowers with very detailed information on loan payment, terms, and cost so they are able to comparison shop for loans. Borrowers also have right of rescission
RESPA - Answer provides consumer protection against unnecessarily high settlement charges caused by certain abusive practices. Promotes consumer notification in a timely manner and regulates management of escrow accounts.
HMDA - Answer requires covered institutions to compile and disclose data about applications they receive and home purchase and home improvement loans they originate or purchase during each year to see if financial institutions are serving the housing credit needs of all communities
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