Federal Mortgage Loans Overview
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Questions and Answers

What is a defining feature of federal mortgage loans?

  • They are exclusively for commercial properties.
  • They are solely offered by government institutions.
  • They typically have no finance charges.
  • They include loans insured or guaranteed by federal agencies. (correct)

    • Which of the following types of loans is NOT covered under federal mortgage loans?

  • Residential home purchase loans
  • Commercial property loans (correct)
  • Equity lines of credit
  • Refinance loans

    • What type of insurance does the Federal Housing Administration (FHA) provide?

  • Insurance for single-family homes and certain other facilities. (correct)
  • Insurance for commercial real estate.
  • Insurance that covers all types of loans.
  • Insurance exclusively for multifamily properties.

    • What does the finance charge include under TILA/Reg Z regulations?

    <p>All costs imposed by the lender related to the loan.</p> Signup and view all the answers

    What is the purpose of a foreclosure?

    <p>To legally acquire the property due to the borrower's default.</p> Signup and view all the answers

    Which definition aligns with a high-cost mortgage loan?

    <p>A loan defined based on APR compared to APOR and other fee amounts.</p> Signup and view all the answers

    What is a Higher-Priced Mortgage Loan primarily defined by?

    <p>Its APR compared to the Average Prime Offer Rate (APOR).</p> Signup and view all the answers

    Which of these options best describes hazard insurance?

    <p>It insures against risks to the property securing the mortgage loan.</p> Signup and view all the answers

    What characterizes a jumbo loan?

    <p>It exceeds the Fannie Mae/Freddie Mac limit.</p> Signup and view all the answers

    In lien theory states, what does the lender have until the loan is paid in full?

    <p>A lien against the title to the property.</p> Signup and view all the answers

    What is the principal purpose of lender credit?

    <p>To lower closing costs in exchange for a higher interest rate.</p> Signup and view all the answers

    What does the loan-to-value (LTV) ratio assess?

    <p>The risk of the property against the loan amount.</p> Signup and view all the answers

    Who is referred to as the mortgagor?

    <p>The borrower of the mortgage loan.</p> Signup and view all the answers

    What is a nonconforming loan?

    <p>A loan that has terms exceeding conventional limits.</p> Signup and view all the answers

    What occurs during negative amortization?

    <p>The principal balance increases due to unpaid interest.</p> Signup and view all the answers

    What is the maturity date in relation to a loan?

    <p>The date the loan is scheduled to be fully paid off.</p> Signup and view all the answers

    What role does a mortgage broker play?

    <p>Acts as an intermediary between lender and borrower.</p> Signup and view all the answers

    Which of the following describes a junior lien?

    <p>A second mortgage or lien that exists alongside another.</p> Signup and view all the answers

    Study Notes

    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.
    • 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.

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    Description

    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.

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