Federal Mortgage Loans Overview

Federal Mortgage Loans

• Federally-related mortgage loans involve federal government involvement, such as insurance or guarantee by FHA, VA, or USDA, or intended for sale to Fannie Mae or Freddie Mac.
• Loans cover residential purchases, refinances, lender-approved assumptions, property improvements, equity lines of credit, and reverse mortgages.

FHA (Federal Housing Administration)

• Part of the U.S. Department of Housing and Urban Development (HUD).
• Insures mortgages on single-family homes, multifamily properties, residential care facilities, and hospitals, made by FHA-approved lenders.
• FHA mortgage is underwritten and made under FHA guidelines with FHA mortgage insurance.

Finance Charge

• Defined under TILA/Reg Z as the cost of consumer credit, including fees like origination fees, underwriting fees, and borrower-paid discount points.
• Interest is always a finance charge; charges in a comparable cash transaction are not a finance charge.

Foreclosure

• Legal process where a lender acquires property because of borrower violations, typically missed payments.
• Lender sells the seized property to recover losses.

Government Loan

• General term for loans insured by FHA or guaranteed by VA or USDA.

Hazard Insurance (Homeowners Insurance)

• Insurance protecting property securing the mortgage loan.

High-Cost and Higher-Priced Mortgage Loans

• Loans categorized by APR or fee amounts compared to APOR.
• Specific restrictions and requirements apply.

Jumbo Loan

• Loan exceeding Fannie Mae/Freddie Mac limits.

Junior Lien

• Security for a loan on a property with another loan, usually a second mortgage.
• Based on recording order; the last recorded document is junior.
• A lien isn't always for a loan, it can result from unpaid non-property-related debts.

Legal Title Granted Via a Mortgage

• Title theory: Lender holds title until paid in full.
• Lien theory: Lender holds a lien on title until full payment.
• Intermediary theory: Borrower holds title, but the lender can reclaim it without legal action on default.

Lender Credit

• Cash credit from lender at settlement, sometimes negotiated for lower closing costs in exchange for a higher interest rate.
• Can also describe a tolerance cure for closing costs exceeding the Loan Estimate.

Lien

• Legal claim (hold) on property, recorded publicly.
• Can result from loan agreements (like mortgages) or legal judgments.
• Unpaid liens prevent clear title transfer and property sale.

Loan Origination Fee

• Fee lender charges borrower for the loan.

Loan Payment Collection

• Monthly payments are typically due on the first of the month.
• Late charges apply after the 15th.
• Bi-weekly payments are sometimes available.

Loan-to-Value (LTV) Ratio

• Purchase loan: Loan amount divided by sales price or appraised value.
• Refinance loan: Loan amount divided by appraised value.
• Important underwriting assessment.

Maturity Date

• Date loan is due to be fully paid, as stated in the agreement.

Mortgage Broker

• Defined by RESPA, an intermediary between lender and borrower for federally-related mortgage loans, also closes the loan in own name and funds the transaction.

Mortgage Insurance

• See Private Mortgage Insurance

Mortgage Investor

• Purchases mortgages from lenders, often government entities or government-sponsored enterprises.

Mortgage Lender

• Financial institution offering and underwriting home loans.
• Sets loan approval guidelines and terms.

Mortgagee

• Lender of the mortgage loan.

Mortgagor

• Borrower of the mortgage loan.

Negative Amortization

• Monthly payments don't cover accrued interest.
• Interest shortfall added to principal balance, increasing the balance.

Nonconforming Loan

• Doesn't meet Fannie Mae/Freddie Mac requirements.
• Might exceed limits or have other ineligibility features.

Nontraditional Mortgages

• Defined in 2006 interagency guidance.
• Includes "interest-only" and "payment option" adjustable-rate mortgages.
• Have potentially higher payment periods.

Note (Promissory Note)

• Legal document outlining the loan terms, signed by the borrower.

Explore the fundamentals of federally-related mortgage loans, including FHA, VA, and USDA programs. This quiz covers various aspects such as finance charges, underwriting guidelines, and the implications of foreclosure. Perfect for anyone looking to understand federal mortgage options and their impacts.