Mortgage Servicing and Insurance Quiz

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Questions and Answers

What happens if a borrower fails to maintain property insurance while their loan is being serviced?

  • The lender will force-place the insurance to protect the property. (correct)
  • The lender will begin foreclosure proceedings.
  • The borrower will be required to pay a late fee.
  • The loan will be immediately transferred to a new servicer.

Which of these events would require a lender to have a borrower purchase flood insurance?

  • The borrower has a history of late payments.
  • The borrower's property is located in a high-risk area.
  • The borrower's property is located in a flood zone. (correct)
  • The borrower's loan is nearing the end of its term.

What is the purpose of the Homeowners Protection Act of 1998 (HPA) in relation to mortgage servicing?

  • To regulate the process of foreclosure.
  • To establish provisions for canceling and terminating private mortgage insurance (PMI). (correct)
  • To ensure that borrowers are provided with timely and accurate information about their loan.
  • To protect borrowers from predatory lending practices.

Under what circumstances can a borrower request PMI cancellation?

<p>When the loan is paid down to 80% of the original loan amount. (A)</p> Signup and view all the answers

What is the primary function of a servicer in managing a borrower's escrow account?

<p>To ensure that taxes, insurance, and other fees are paid on time. (C)</p> Signup and view all the answers

How does force-placed insurance generally compare to ordinary homeowners insurance?

<p>It is typically more expensive. (A)</p> Signup and view all the answers

What is a servicer's responsibility regarding a borrower's credit history?

<p>To report the borrower's payment history to credit bureaus. (D)</p> Signup and view all the answers

Which of the following is NOT a primary responsibility of a mortgage servicer?

<p>Providing legal representation to borrowers in foreclosure. (A)</p> Signup and view all the answers

What is the primary role of loan servicing?

<p>Maintaining and managing a loan after closing (B)</p> Signup and view all the answers

Who typically benefits from servicing rights?

<p>Investors who receive loan payments (B)</p> Signup and view all the answers

Which of the following can perform loan servicing?

<p>A variety of entities including lenders and servicing companies (A)</p> Signup and view all the answers

What happens to servicing rights after a loan is closed?

<p>They can be sold or transferred to another entity (D)</p> Signup and view all the answers

When does the loan servicing stage begin?

<p>When the loan closing process is completed (C)</p> Signup and view all the answers

Flashcards

Loan Servicing

The maintenance of a loan after closing until terms are satisfied.

Servicing Rights

An asset that allows a servicer to manage a loan for a fee.

Who Can Service Loans

Loans can be serviced by lenders, servicing companies, or others.

Servicing Fee

A fee paid to the servicer for managing a loan.

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Market-Determined Value

The price at which servicing rights can be sold based on market conditions.

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Servicer Responsibilities

Servicers collect mortgage payments, manage escrow accounts, and handle borrower inquiries.

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Escrow Account Analysis

Annual overview of the borrower's escrow account, detailing payments for taxes and insurance.

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Force-Placed Insurance

Insurance purchased by lenders when borrowers lack required property insurance, often more expensive.

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Flood Insurance Requirement

Lenders must ensure borrowers maintain flood insurance, especially if risk zones change.

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PMI Cancellation Act

Legislation allowing cancellation of Private Mortgage Insurance under certain conditions.

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LTV Ratio

Loan-to-Value ratio; a key metric for mortgage insurance cancellation.

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Foreclosure Process

Lenders must follow legal steps to reclaim properties when borrowers default on loans.

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Record Retention Requirement

Servicers must keep loan records for one year after terms are met or when transferred.

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Study Notes

Loan Servicing

  • Servicing begins after loan closing and continues until loan terms are met. It involves maintaining the loan on behalf of the investor owner for a fee.

  • Servicing rights are assets that can be sold to another party. The servicer can be the originating lender, a different lender, a servicing company, or another entity.

Servicer Responsibilities

  • Collecting payments: Includes actively pursuing late payments.
  • Escrow account management: Manages escrow for taxes, insurance, and mortgage insurance.
  • Annual Escrow Account Analysis: Providing required analysis to borrowers.
  • Insurance: Force-places insurance if the borrower fails to maintain it (more expensive than typical insurance). This cost is added to the loan and paid by the borrower or through foreclosure. Lenders ensure flood insurance is maintained and collected in the escrow account.
  • Flood insurance: Lenders must stay updated on flood zone maps (FEMA updates). If a property's zone changes to “A” or “V”, the borrower must have flood insurance.
  • Communication: Provides timely notices, information, reconciliations, disclosures, and documents to borrowers and investors.
  • Complaints & Inquiries: Investigates borrower complaints and responds to inquiries, including reporting credit history.
  • Foreclosure: Processes foreclosures accurately, evaluates loss mitigation, and follows legal procedures for repossession.
  • Property disposition: Manages and reviews services and providers for disposing of repossessed properties.
  • Claims: Files mortgage insurance and guarantor claims.
  • PMI Cancellation: Follows the Homeowners Protection Act (HPA) and conditions for canceling Private Mortgage Insurance (PMI). PMI cancels automatically at 78% loan-to-value ratio (LTV) and at 80% LTV with borrower request. Conditions apply to high-risk mortgages.
  • Transfers: Ensures a smooth transfer of information and documents during a servicing sale or acquisition and provides notices to borrowers.
  • Record Keeping: Retains records for one year after loan terms are completed or loan transfer.
  • Loan Payoffs: Processes pay-off requests and provides payoff balances.
  • Loan satisfaction: Files mortgage satisfaction or Deed of Trust reconveyances with correct county recorders when loans are paid in full.

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