A bank
may not request information about an applicant's spouse or former spouse except
under which of the following circumstances?
The
applicant is NOT relying on alimony, child support, or separate maintenance
income as a basis for obtaining the credit.
The
income is derived from a second job
The
applicant is relying on the spouse’s income, at least in part, as a source of
incomeYou correctly checked this.
The
spouse filed bankruptcy 12 years ago
Under §
1002.5(d), a creditor may not request information about an applicant’s spouse
or former spouse unless it is being relied on for the loan.
The non-applicant spouse will be a permitted user of or joint obligor on the
account. (NOTE: The term “permitted user” applies only to open-end accounts.)
The non-applicant spouse will be contractually liable on the account.
The applicant is relying on the spouse’s income, at least in part, as a source
of repayment.
The applicant resides in a community property state, or the property upon which
the applicant is relying as a basis for repayment of the credit requested is
located in such a state.
The applicant is relying on alimony, child support, or separate maintenance
income as a basis for obtaining the credit.
If the credit transaction is secured, the creditor may ask the applicant’s
marital status. This information may be necessary to determine what would be
required to gain access to the collateral in the event of default.
Score: 100%
Question 2
When is
it permissible to ask about age on a credit application?
A
creditor may consider the age of an elderly applicant when such age is used to
favor the elderly applicant in extending creditYou correctly checked this.
Never
When
the applicant is not old enough to enter into a legal binding contract under
state law
When
the term of the loan exceeds the life expectency of the applicant
In any
system of evaluating creditworthiness, a creditor may consider the age of an
elderly applicant when such age is used to favor the elderly applicant in
extending credit. In an empirically derived, demonstrably and statistically
sound, credit scoring system, a creditor may use an applicant's age as a
predictive variable, provided that the age of an elderly applicant is not
assigned a negative factor or value. In a judgmental system of evaluating
creditworthiness, a creditor may consider an applicant's age or whether an applicant's
income derives from any public assistance program only for the purpose of
determining a pertinent element of creditworthiness.
Score: 100%
Question 3
Within
how many business days of receipt of an application that lacks info the
borrower can provide, the creditor must provide a notice of incomplete
application?
15
days
3
days
30
daysYou correctly checked this.
60
days
A
creditor must notify the applicant of an incomplete application within 30 days.
Score: 100%
Question 4
Shakira
just submitted a fully completed credit application for a loan. When must the
creditor advise her of its determination?
30
daysYou correctly checked this.
60
days
3
days
It
doesn't have to provide notice of rejection.
Notice
is Required within: Completed Application: 30 days after receiving a completed
application concerning the creditor’s approval, counteroffer, or adverse
action. Adverse Action on an Incomplete Application: 30 days after taking
adverse action on an incomplete application, unless notice is provided
regarding incompleteness. Existing Account: 30 days after taking adverse action
on an existing account.
Score: 100%
Question 5
If a
loan is denied, which does not apply?
A
written notice must be sent to the applicants.
The
notice must contain the reason for denial or advise the applicant of his/her
right to a statement of specific within 30 days.
The
application must have a a second review before final denial.You correctly checked this.
The
notice must contain the principal reasons for denial.
A
notification given to an applicant when adverse action is taken shall be in
writing and shall contain a statement of the action taken; the name and address
of the creditor; a statement of the provisions of section 701(a) of the Act;
the name and address of the Federal agency that administers compliance with
respect to the creditor; and either: (i) A statement of specific reasons for
the action taken; or (ii) A disclosure of the applicant's right to a statement
of specific reasons within 30 days, if the statement is requested within 60
days of the creditor's notification. The disclosure shall include the name,
address, and telephone number of the person or office from which the statement
of reasons can be obtained. If the creditor chooses to provide the reasons
orally, the creditor shall also disclose the applicant's right to have them
confirmed in writing within 30 days of receiving the applicant's written
request for confirmation.
Score: 100%
SCORE
80%
COMPLETED ON
08/01/2021
TOOK 2 MIN
USER
Caroline
Gerardo Barbeau
Question 1
Financial
institutions are required to send annual privacy notices to individuals who
have done what?
Maintained
an account relationship.You correctly checked this.
Only
if they have changed the name on the account.
Taken
their accounts to another institution.
Paid
off their loan.
A
former customer "has obtained" a financial product or service from a
financial institution but no longer has a continuing relationship with it. For
purposes of a company’s obligations under the Privacy Rule, a former customer
is considered to be a consumer.
Score: 100%
Question 2
How
often must a customer receive a privacy notice?
No
less than once every 2 years
When
they inquire about refinance rates
When
they lease their home
At
the time of establishing a customer relationship with a consumerYou correctly checked this.
Whether
or not a company shares customer NPI, it must give all its customers a privacy
notice. It must provide an "initial notice" by the time the customer
relationship is established. The company must also give its customers an
"annual notice", which is a copy of its full privacy notice, for as
long as the customer relationship lasts.
Score: 100%
Question 3
The
term "nonpublic personal information" means:
Information
on the internet
Non-public
information collected by a creditorYou correctly checked this.
Information
found in public records
Information
in bankruptcy records
The
Privacy Rule protects a consumer's "nonpublic personal information"
(NPI). NPI is any "personally identifiable financial information"
that a financial institution collects about an individual in connection with
providing a financial product or service, unless that information is otherwise
"publicly available."
Score: 100%
Question 4
The
GLBA includes provisions to protect:
The
status of consumers' financial institution accounts.
Financial
institutions.
Consumers'
personal financial information held by financial institutions.You correctly checked this.
Employment
401K account balances.
The
Gramm-Leach-Bliley Act was enacted on November 12, 1999. The GLB Act seeks to
protect consumer financial privacy.
Score: 100%
Question 5
"Customer"
means;
Someone
who obtains or has obtained a financial product or service from a financial
institution that is to be used primarily for personal, family, or household
purposes, or that person's legal representative. The term "consumer"
does not apply to commercial clients, like sole proprietorships.You shouldn't have checked this.
Someone
who obtains or has obtained a financial product or service from a financial
institution that is to be used primarily for personal, family, or household
purposes, or that person's legal representative, including business clients
Someone
who obtains or has obtained a financial product or service from a financial
institution that is to be used primarily for personal, family, or household
purposes, or that person's legal representative, who have a continuing
relationship with a financial institution.You should have checked this.
An
individual that has not yet applied for a line of credit.
A Consumer is someone who
obtains or has obtained a financial product or service from a financial
institution that is to be used primarily for personal, family, or household
purposes, or that person's legal representative. Customers are a subclass of
consumers who have a continuing relationship with a financial institution. It's
the nature of the relationship - not how long it lasts - that defines a
customer.
Privacy
notices can be delivered to customers electronically?
Only
with consent from customer.
Any
time,
Only
with consent from customer and disclosure of certain terms.You correctly checked this.
Only
with consent from the customer, disclosure of certain terms, and a signed
waiver.
Information
required by law, to be in writing, can be made available electronically to a
consumer only if he or she affirmatively consents to receive the information
electronically and the company clearly and conspicuously discloses specified
information to the consumer before obtaining his or her consent.
Score: 100%
Question 2
Is the
e-consent provided only good for initial disclosures?
No,
for the life of the loanYou shouldn't have checked this.
It
is based on product type chosen
The
use is required is part of the lender's disclosureYou should have checked this.
It
has a 5 year authorization under the law
The
consent use is outlined in the lender disclosure to the consumer
Score: 0%
Question 3
Does
the delivery of the LE immediately after the consumer affirmatively consents to
e-consent meet the 3-business LE delivery requirement?
Yes,
once consented it complies.You correctly checked this.
No
the LE must be delivered electronically on the 3rd business day.
Not
it must be put in the mail.
Yes
but receipt acknowledgement is required by all applicants.
Electronic
delivery within 3-business days is not an LE violation
Score: 100%
Question 4
What
must the e-consent disclosure require?
The
ability to withdraw consent.You correctly checked this.
That
the consumer request it in the consumer's language.
Proof
of legal age.
That
the consumer identify the password to be used.
The
notice must inform the consumer of the right to withdraw consent given
Score: 100%
Question 5
Prior
to obtaining their consent, financial institutions must provide the consumer, a
clear and conspicuous statement informing the consumer of certain disclosures,
which is not required?
Informing
the consumer of any right or option to have the record provided or made
available on paper or in a non-electronic form, and the right to withdraw
consent, including any conditions, consequences, and fees in the event of such
withdrawal.
Informing
consumer of the procedures the consumer must use to withdraw consent and to
update information needed to contact the consumer electronically.
Informing
the consumer how the consumer may not request a paper copy of a record and
whether a fee will be charged if they do.You correctly checked this.
Informing
consumer whether the consent applies only to the particular transaction that
triggered the disclosure or to identified categories of records that may be
provided during the course of the parties’ relationship.
Prior to obtaining their
consent, financial institutions must provide the consumer, a clear and
conspicuous statement informing the consumer of the following: Any right or
option to have the record provided or made available on paper or in a
non-electronic form, and the right to withdraw consent, including any
conditions, consequences, and fees in the event of such withdrawal. Whether the
consent applies only to the particular transaction that triggered the
disclosure or to identified categories of records that may be provided during
the course of the parties’ relationship; Describing the procedures the consumer
must use to withdraw consent and to update information needed to contact the
consumer electronically; and Informing the consumer how the consumer may
nonetheless request a paper copy of a record and whether any fee will be
charged for that copy.
According
to the Insurance Information Institute, how many individuals had their
identities stolen in 2018?
18.9
Million
8.3
Million
20.2
Million
14.4
MillionYou correctly checked this.
In
2018, 14.4 million people had their identities stolen. In January 2019, 24
million mortgage and banking documents, including original documents, were
exposed in a data breach of unsecured servers. Identity thieves drain accounts,
damage credit, and even put medical treatment at risk. The cost to businesses
left with unpaid bills racked up by scam artists has a significant impact as
well.
Score: 100%
Question
2
A response to a red flag could be? |
Monitoring
and not opening a new account.You correctly checked this.
I
know their parents.
They
are new to town.
They
are a past customer.
Score: 100%
Question 3
A
compliant Red Flags Program will have policies and procedures to identify,
detect, and ______ Red Flags
Investigate
PreventYou shouldn't have checked this.
Remove
RespondYou should have checked this.
4- Step
Process to the Red Flags Rule: Identify relevant red flags, Detect red flags,
Respond by preventing and mitigating identify theft, Update the program
Score: 0%
Question 4
What
typically happens when a data breach occurs?
Identity
theft .You correctly checked this.
Businesses
begin using manual recordkeeping.
New
computer sales soar.
Loss
of internet.
Identity
theft is a typical outcome of a data breach.
Score: 100%
Question 5
The
four steps that are required as part of the Red Flags Rule are?
Find,
Investigate, Suspend, Remove
Inquire,
Evaluate, Act, Remove
Find,
Evaluate, Respond, Remove
Identify,
Detect, Respond, UpdateYou correctly checked this.
4- Step
Process to the Red Flags Rule: Identify relevant red flags, Detect red flags,
Respond by preventing and mitigating identify theft, Update the program
Score: 100%
Previous unit: Indentity
Theft Red Flags Slides 23-31
John
calls and speaks with Ben and applies for a loan. Does John have an established
business relationship with the bank?
YesYou correctly checked this.
No,
because he only applied for the loan.
No,
because he does not have an account with the bank.
No,
because he applied for the loan over the hone.
The
second type of established business relationship is based on a consumer’s
inquiry or application regarding a seller’s goods or services, and exists for
three months starting from the date the consumer makes the inquiry or
application. The inquiry must be of a nature that would create an expectation
on the part of the consumer that a particular company will call them. For
example, a call requesting information on hours or location would not trigger
the established business relationship exemption. However, submitting a loan
application or inquiring about the institution’s products or services would
satisfy as an inquiry or application.
Score: 100%
Question 2
Which
of the following are exempt from the Do Not Call List and free to Telemarket?
Business
to business.
Mortgage
Loan Solicitors.You should have checked this.
Calls
where an established business relationship exists.
Charitable
solicitors.You shouldn't have checked this.
Lenders
without a business relationship are must check the DNC list routinely.
Score: 0%
Question 3
What is
available to consumers to stop Telemarketing calls?
Using
the zip code do not call list.
Calling
911.
The
National Do Not Call Registry.You correctly checked this.
Calling
local law enforcement.
National
Do Not Call Registry is available.
Score: 100%
Question
4
What is the purpose of the Telemarketing Sales Rule? |
To
allow legitimate bill collectors access to a do not call list to locate
deadbeats.
To
allow a new sales staff a source of leads.
To
allow failing businesses a lead source to stay in business.
Combat
abuse and fraud, in calls to consumers.You correctly checked this.
Regulation
N, prohibits any person from making any material misrepresentation in
connection with an advertisement for any mortgage credit product. It applies to
institutions under the jurisdiction of the FTC.
Score: 100%
Question 5
What
Act empowered the FTC to enforce Telemarketing?
Equal
credit opportunity act
Fair
Credit Reporting Act
The
Telemarketing and Consumer Fraud Abuse Prevention ActYou correctly checked this.
Realestate
settlement procedures act
It
places restrictions and provides DNC options to consumers.
AML
training is required for employees of non-depository financial institutions
this often.
Once
As
often as the employer requires it
Annually
Annually
and as changes occur to the regulationYou correctly checked this.
AML
training is required annually and as regulations or company policies and
procedures change.
Score: 100%
Question 2
Ima
Thief paid Ida Doit $10,000 for the use of her personal information on a loan
application. Ida was the borrower on a new home purchase but she had no intent
to live in the home and it subsequently went into defatult. This type of
mortgage fraud is called:
straw
buyerYou correctly checked this.
falsified
loan
Identity
theft
ficticous
borrower
A straw
borrower is an individual who is paid for the use of their personal information
on a loan application.
Score: 100%
Question 3
BSA
stands for:
Bank
Suspicious Act
Bank
Suspicious Activity
Bank
Secrecy ActYou correctly checked this.
Bank
Serious Activity
Score: 100%
Question 4
The
seller agrees to give the buyer $3,000 in cash after closing to replace worn
carpet in the house. This was not written into the purchase contract. What type
of fraud is being perpetrated?
Silent
Second
Shotgunning
Identity
Theft
Undisclosed
kickbackYou correctly checked this.
Loan
origination fraud schemes remain a constant fraud scheme. These schemes involve
falsifying a borrower's financial informationâ€"â€"such as
income, assets, liabilities, employment, rent, and occupancy
statusâ€"â€"to qualify the buyer, who otherwise would be
ineligible, for a mortgage loan.
Score: 100%
Question 5
Appraisal
fraud can occur by certain lender/MLO actions. Which of the following is
considered an unacceptable practice by the lender, as it relates to the
appraiser?
requesting
a rush for completion
requesting
an addendum from the appraiser to address underwriter concerns
providing
additional comparables per the request of the appraiser
applying
pressure to meet a certain valueYou correctly checked this.
Mortgage
fraud perpetrators fraudulently inflate property appraisals during the mortgage
loan origination process to generate false equity that they will later abscond.
Perpetrators will either falsify the appraisal document or employ a rogue
appraiser as a conspirator in the scheme who will create and attest to the
inflated value of the property. Fraudulent appraisals often include overstated
comparable properties to increase the value of the subject property.
Score: 100%
Question 6
FinCEN
stands for:
the
Financial Crimes Enhancement Network
The
Financial Crimes Enforcement NetworkYou correctly checked this.
the
Financial Custodian Enforcement Network
The
Federal Crimes Enforcement Network
FinCEN
is housed under the US Dept. of Treasury and is not limited to financial
institutions, including, depository institutions, casinos money services
businesses, insurance industry, securities and futures, precious metals/jewelry
industry and mortgage co/brokers.
Score: 100%
Question 7
The
introduction of illegally obtained currency into the banking system and/or
using the banking system to illegally hide currency that was lawfully obtained.
Suspicious
activity
Money
LaunderingYou correctly checked this.
AML
Red
flag rule
Money
Laundering is the participation in any transaction that seeks to conceal or
disguise the nature or origin of funds derived from illegal activities such as
fraud, corruption, organized crime, or terrorism etc. Offences for money
laundering are defined by local law.
Score: 100%
Question 8
An
employee of ABC Mortgage appears to be living beyond their means, buying luxury
vehicles, taking tropical vacations, buying a new home, etc. The appropriate
action to take when this occurs is to:
Write
up a warning on the employee and put in their employee file
Fire
the employee immediately
Notify
the Compliance Officer of suspicious activityYou correctly checked this.
Do
nothing
This
may indicate a "red flag" and be reported to FinCEN as a SAR.
Score: 100%
Question 9
A
borrower closes on 2 separate cash-out refinances on the same home on the same
day and neither lender is aware of the other. What type of fraud is the
borrower committing?
Straw
borrower
ShotgunningYou correctly checked this.
Undisclosed
kickback
Identity
theft
Loan
origination fraud schemes remain a constant fraud scheme. These schemes involve
falsifying a borrower's financial informationâ€"â€"such as
income, assets, liabilities, employment, rent, and occupancy
statusâ€"â€"to qualify the buyer, who otherwise would be
ineligible, for a mortgage loan. This is done by supplying fictitious bank
statements, W-2 forms, and tax return documents to the borrower's favor.
Perpetrators may also employ the use of stolen identities.
Score: 100%
Question 10
This
Act is also known as the Currency and Foreign Transactions Reporting Act of
1970:
FinCEN
BSAYou correctly checked this.
CFPB
AML
The
Currency and Foreign Transactions Reporting Act of 1970 is also known as The
Bank Secrecy Act (BSA).
A
borrower is not eligible for FHA financing if the Minimum Decision Credit Score
(MDCS) is below what level?
600
450
550
500You correctly checked this.
500 is
the absolute floor.
Score: 100%
Question 2
What is
the minimum required credit score to obtain 96.5% financing on an FHA loan?
500
580You correctly checked this.
700
600
Borrowers
with credit scores of at least 580 can obtain maximum financing.
Score: 100%
Question 3
FHA is
a division of which of the following?
Homeland
Security.
Federal
Bureau of Investigation.
Veterans
Administration.
Department of
Housing & Urban Development (HUD).You correctly checked this.
1n 1965
FHA became a division of HUD.
Score: 100%
Question 4
What is
the FHA minimum required investment in downpayment and closing costs?
3.50%You correctly checked this.
12.50%
10%
5%
At
least 3.5% is required
Score: 100%
Question 5
On an
FHA cash out refinance what is the maximum loan-t-value percent?
90%
80%You correctly checked this.
95
96.50%
Cash-out
refinances are limited to 80% LTV.
OAN LIMITS
About VA home limits
What’s a VA home loan limit?
A VA home loan limit is the maximum amount of money you can
borrow using a VA-backed home loan, without paying a portion of the home’s
total sale price up front (called a down payment). It’s not a cap on the
maximum amount you can borrow.
Here’s how it works:
If you qualify for a VA-backed home loan, you’ll receive a home
loan entitlement. This is the maximum amount we’ll guarantee the lender that
we’ll pay if you default on your loan.
As long as you qualify for a loan based on your income and
credit history, and the property’s value matches its asking price, your lender
will likely agree to loan you up to 4 times the amount of your entitlement
without a down payment. This is your loan limit.
You may still be able to borrow more than this amount if you’re
able and willing to pay a down payment. Most lenders require that your
entitlement, down payment, or a combination of both cover at least 25% of your
total loan amount.
What will my loan limit be?
This will depend on your entitlement, and on the location of the
property for which you want the loan. Loan limits vary by county because a
property’s location affects its value. For example, the same home in or near a
major city will likely cost much more than it would in a more rural location.
You may qualify for 2 types of entitlement:
- Basic
entitlement: As
your basic entitlement, we’ll guarantee to your lender that we’ll pay up
to at least $36,000 or 25% of your loan amount, whichever is less, if you
default on your loan. So, your loan limit would be $36,000 X 4 = $144,000.
- Bonus
entitlement: You
may want to buy a home that costs more than $144,000. To help you do this,
VA offers what’s called bonus (or Tier 2) entitlement.
Entitlement Percentage
Calculation Impacted by the Adoption of The Blue Water Navy Vietnam Veterans
Affairs Act of 2019 (The Act)[1]
On June 25th, 2019 the President signed the Act to become
effective with loans closed after January 1, 2020. The Act impacts bonus entitlement on
loans greater than $144,000 as follows:
Adjustment of Loan Limit:
The Act expands the maximum guaranty amounts for purchase,
construction, and cash-out refinance loans greater than the Freddie Mac
conforming loan limit (CLL) in certain circumstances. However, the Act does not
change the maximum amount of guaranty entitlement available to Veterans for
loans equal to or less than $144,000 regardless of the Freddie Mac CLL.
(1) Freddie Mac CLLs are no longer a factor for Veterans with
full entitlement. For Veterans with full entitlement, the maximum amount of
guaranty for a loan above $144,000 is 25 percent of the loan amount, regardless
of the Freddie Mac CLL.
[1] VA
Circular 26-19-30 November 15, 2019
Example
A1: Veteran has full entitlement available and the loan
amount is $1,200,000.
$1,200,000 x 25% =
$300,000 [Maximum Guaranty and Entitlement Available]
What if the Veteran doesn’t use all of his/her entitlement on
their first home loan?
They’ll have what’s
called “remaining entitlement.” He/ she can use this remaining amount, either
on its own or in combination with a down payment, to take out another home loan
in the future. [1]
Example A2: Veteran is
looking to complete a cash-out refinance of an existing VA-guaranteed loan in
which the Veteran has used $80,000 of entitlement. The amount of the refinance
loan is $600,000. The entitlement used for the existing VA-guaranteed loan can
be restored for purposes of the refinance, resulting in full entitlement
available to the Veteran.
$600,000 x 25% =
$150,000 [Maximum Guaranty and Entitlement Available]
(2) For Veterans who have previously used entitlement and such
entitlement has not been restored, the maximum amount of guaranty is the lesser
of 25 percent of the loan amount OR the maximum amount of guaranty entitlement
available. The maximum amount of guaranty entitlement is 25 percent of the
Freddie Mac CLL, reduced by the amount of entitlement previously used (not
restored) by the Veteran.
[1] https://www.benefits.va.gov/homeloans/documents/circulars/26_19_2
xample B: Loan amount is
$765,000; Entitlement used (not restored) is $70,000; Freddie Mac CLL is
$724,000.
$765,000 x 25% = $191,250
[25% of Loan Amount]
($724,000 x 25%) – $70,000 = $111,000 [Guaranty
Entitlement Available]
$111,000 / $765,000 = 14.51% [Maximum Guaranty]
Example C: Loan amount is
$200,000; Entitlement used (not restored) is $36,000; Freddie Mac CLL is
$500,000.
$200,000 x 25% = $50,000
[25% of Loan Amount]
($500,000 x 25%) – $36,000 = $89,000 [Guaranty
Entitlement Available]
$50,000 / $200,000 = 25.00% [Maximum Guaranty]
Example D: Loan amount is
$400,000; Entitlement used (not restored) is $161,000; Freddie Mac CLL is
$600,000. The Veteran does not have entitlement available for this purchase.
$400,000 x 25% = $100,000
[25% of Loan Amount] ($600,000 x 25%) – $161,000 = ($11,000) [No Guaranty
Entitlement Available]
(3) Interest Rate Reduction Refinance Loans (IRRRLs). VA will
continue to guarantee 25 percent of the loan amount without regards to the
Veteran’s available entitlement and/or Freddie Mac CLLs. See Lenders Handbook,
M26-7, Chapter 6 for additional information.[1]
Popular VA Home Loan Programs[2]
PURCHASE
PROGRAM
Lenders offer competitive interest rates on VA-backed purchase
loans. This can help you buy, build, or improve a home—especially if you don’t
want to make a down payment.
Eligibility
All of these must be true. You:
- Qualify for a VA-backed home
loan Certificate of Eligibility (COE), and
- Meet the VA—and your
lender’s—standards for credit, income, and any other requirements, and
- Will live in the home you’re
buying with the loan
A VA-backed purchase loan often offers:
- No
down payment as
long as the sales price isn’t higher than the home’s appraised value (the
value set for the home after an expert inspects the property)
- Better
terms and interest rates than
other loans from private banks, mortgage companies, or credit unions (also
called lenders)
- No
need for private mortgage insurance (PMI) or mortgage insurance premiums
(MIP)
- PMI is a type of insurance
that protects the lender if you end up not being able to pay your
mortgage. It’s usually required on conventional loans if you make a down
payment of less than 20% of the total mortgage amount.
- MIP is what the Federal
Housing Administration (FHA) requires you to pay to self-insure an FHA
loan against future loss.
- Fewer
closing costs, which
may be paid by the seller
- No
pre-payment penalty fee if
you pay the loan off early
If you qualify for a VA-backed
purchase loan, you can use the loan to:
- Buy a single-family home, up to
4 units
- Buy a condo in a VA-approved
project
- Buy a home and improve it
- Buy a manufactured home or lot
- Build a new home
- Make changes or add new
features (like solar power) to make your home more energy efficient
You can also:
- Get a VA-backed home loan to
buy your first home
- Use your VA loan benefit again
if you sell or refinance a home you bought with a VA-backed home loan
- Assume a VA-backed home loan
(which means that instead of opening a new mortgage loan, the buyer takes
over the seller’s loan)
Interest Rate
Reduction Refinance (IRRRL)
Lenders must include with every Interest Rate Reduction
Refinance loan, a statement signed by the borrowers showing they understand the
effects of the refinance. In most cases this statement must also show the
effects of the refinance through a summary of how long it will take the veteran
to recoup the costs associated with the refinance. Lenders may use this sample
document. This statement should be on the lender’s letterhead. See VA Lenders Handbook, Chapter 6, Section 1. d.
Exhibit
A – Frequently Asked Questions (FAQs) The FAQs, information and examples
provided are solely to assist lenders in implementing noncompliant IRRRL cure
plans. Nothing in this document supplements, overrides, or supersedes any
provisions of law, applicable statutes, regulations, or VA policies and by no
means are comprehensive.
Question 1: Must we
cure loans that did not meet recoupment because the IRRRL either resulted in an
increased principal and interest payment due to a lower term or refinanced from
an adjustable rate to a fixed rate?
Yes, all refinancing
loans originated on or after May 25, 2018, must comply with requirements of
Public Law (PL) 115-174. The law does not allow VA to guaranty IRRRLs that do
not meet the recoupment requirement. IRRRLs with a term reduction, or that
refinanced from an adjustable rate to a fixed rate, in which the principal and
interest payment is not reduced, can only be made if the Veteran has incurred
no fees, closing costs, or expenses that must be recouped under the law.
Lenders should be following the requirements outlined in the statute and VA
Circular 26-19-22, dated August 8, 2019. Some lenders have incorrectly cited VA
Circular 26-18-1 (which pre-dates PL 115-174) suggesting that certain IRRRLs do
not need to meet recoupment. Circular 26-18-1, however, only discusses when
lenders have to present recoupment disclosure information to the Veteran.
Neither this Circular, nor VA Circular 26-18- 13, state that such loans are
exempt from recoupment under PL 115-174.
Question 2: If we
choose to cure with a no cost refinance, does the loan have to meet the
seasoning requirements of PL 115-174?
Any new refinance loan
must meet loan seasoning requirements. For IRRRLs and Type I Cash Out Refinance
loans, lenders should follow the loan seasoning requirements outlined in Public
Law 116-33 (This bill modifies this date to (1) when the borrower has made six
consecutive monthly payments, or (2) 210 days after the first payment is due.),
Protecting Affordable Mortgages for Veterans Act of 2019 (formerly S.1749). For
Type II Cash-Out Refinance loans, lenders should follow VA regulatory
requirements outlined at 38 CFR 36.4306.
Question 3: If the
loan was previously reviewed by VA, how should it be handled if we discover
that it is not compliant with PL 115-174?
While some loans may
have been previously selected for review by VA, the scope of this project is
specifically focused on ensuring overall compliance with the requirements of PL
115-174. As such, lenders must provide evidence that all IRRRL loan
applications taken on or after May 25, 2018, are fully compliant with the
requirements of the statute. Lenders are required to self-report all
non-compliant IRRRLs, in accordance with the attached Circular, via email to
the Regional Loan Center (RLC) of jurisdiction for your corporate office. The
email addresses for each of the RLCs are located at: https://www.benefits.va.gov/HOMELOANS/contact_rlc_info.asp.
WebLGY & IRRRSs: WebLGY is a VA Portal web-based application that allows the
lender to input loan data and have WebLGY immediately issue the actual guaranty
for IRRRLs. Additionally, WebLGY will check to ensure compliance with the
following rules prior to the creation of the LGC:
- If the prior loan has a fixed
interest rate and the IRRRL has a fixed interest rate, the IRRRL interest
rate must be at least 0.50 percent less than the prior loan.
(fixed-to-fixed)
- If the prior loan has a fixed
interest rate and the IRRRL has an adjustable interest rate, the current
IRRRL interest rate must be at least 2 percent less than the prior loan.
(fixed-to-ARM)
- Validation of prior loan
seasoning.[1]
Question 4: We
reviewed the files in question, and it appears that there was an error when
entering loan data into WebLGY. Specifically, we incorrectly entered all fees
paid by the borrower and/or the closing costs and failed to exclude certain
fees, expenses and closing costs, as outlined in VA Circular 26-19-22. How do
we go about fixing this error?
Lenders should review
WebLGY and their internal systems to determine if an error was made. Lenders
are required to provide supporting documentation as evidence that any loans
identified as being potentially noncompliant meet all requirements of the law.
VA will review all documents submitted and provide a final determination of
compliance to close out the case. Corrective action and supporting
documentation must be uploaded into WebLGY “Correspondence” as Document
Association “IRRRL” > Document Type “IRRRL Disclosure Compliance”. [2]
[1] https://content.govdelivery.com/accounts/USVAVBA/bulletins/288e5a3
[2] https://www.benefits.va.gov/HOMELOANS/documents/circulars/26_20_16.pdf
THE
IMPACT OF PUBLIC LAWS 115-174 & 116-33 ON IRRRLS.
Let’s review the
impact and guidance from the 2018 Public Law 115-74, Economic Growth,
Regulatory Relief, and Consumer Protection Act (the Act) and the 2019 Public
Law 116-33, Protecting Affordable Mortgages for Veterans Act of 2019
The Acts address the
following:
- Fee
recoupment
- Net
tangible benefits
- Loan
seasoning requirements
- Disclosure
standards
VA Circular 26-19-22
Dated August 8, 2019[1] mandates
that a lender or broker issuing an IRRRL refinance loan that it must certify to
the following:
- Recoup Fees. Certify that certain fees
and costs of the loan will be recouped on or before 3 years after the loan
note date. The recoupment standard applies to all IRRRLs. This includes,
but is not limited to, IRRRLs where the principal balance is increasing,
the term of the loan is decreasing, or where the loan being refinanced is an
adjustable-rate mortgage (ARM).
For an IRRRL that results in the same or higher monthly PI payment, the Veteran has incurred no fees, closing costs, or expenses (other than taxes, amounts held in escrow, and any Funding Fees paid. - Net Tangible Benefit (NTB). Establish that when the
previous loan had a fixed interest rate
- the new fixed interest rate is at least .5% lower
(Example: the loan being refinanced has a 3.75% note rate. The new loan must be no higher than 3.25%) - if the new loan has an adjustable rate, that the
rate is at least 2% lower than the previous loan. In each instance, the
lower rate cannot be produced solely from discount points except in
certain circumstances;
- A loan with an NTB means that it is in the
financial interest of the Veteran. The NTB outlined in 38 U.S. Code § 3709. Refinancing
of housing loans are required.
- Loan Seasoning. Follow a seasoning
requirement for all VA-guaranteed loans. A loan cannot be refinanced until
- the date on which the borrower has made at least
six (6) consecutive monthly payments on the loan being refinanced, and
- the date that is 210 days (6 months) after the
first payment due date of the loan being refinanced; and
- Disclosure. Lenders should twice
present a comparison of the refinance loan and the loan being refinanced
to the Veteran. Once within 3 business days from the initial loan
application and again at closing that includes information about the
overall cost of refinance.
QUALIFICATION AND ABILITY TO REPAY/
RESIDUAL INCOME/ TOTAL DEBT TO INCOME DTI
A determination must
be made on all mortgage loans as to the borrower(s) Ability to Repay or ATR.
Many factors go into the calculation especially as it pertains to useable and
effective income as well as debts and obligations. VA
Pamphlet Chapter 4: Credit Underwriting outlines one
such VA requirement for ATR.[1]
It operates on the
mathematical assumption that on a VA loan the entitled veteran and or spouse
must have enough money to live on after calculated expenses are deducted from
calculated income.
The evaluation takes
into consideration:
- Income
- Expenses
(including shelter expenses)
- The
loan sizes
- The
family sizes
- The
geographic region (higher cost areas require higher residual income)
The process is as
follows:
The lender compares
the Veteran’s appropriate residual family income to the amount from the
following tables in the “guideline” box. Residual income is the amount of net
income remaining (after deduction of debts and obligations and monthly shelter
expenses) to cover family living expenses.
The numbers are based
on data supplied in the Consumer Expenditures Survey (CES) published by the
Department of Labor’s Bureau of Labor Statistics. They vary according to loan
size, family size, and region of the country.
[1] https://www.benefits.va.gov/WARMS/docs/admin26/pamphlet/pam26_7/ch04.pdf
[1] https://www.benefits.va.gov/HOMELOANS/documents/circulars/26_19_22.pdf
A key to the geographic regions is listed
in the following tables:
Based on loan amounts of $79,999 and below
Examples:
A Veteran has a family size of 3 purchasing a home in Arizona
with a loan amount of $400,000. The residual figure will be $990.
A Veteran has a family size of 8 purchasing a home in Georgia
with a loan amount of $150,000. The residual figure will be $1,199 (family size
of 5 which is $1,039 adding $80 for each additional family member up to a
family size of 7). The eighth person will not be considered in the calculation.
Special Instructions:
Count all members of the
household (without regard to the nature of the relationship) when determining
“family size,” including:
- A borrower’s spouse who is not
joining in title or on the note, and
- Any other individuals who
depend on the borrower for support. If a dependent is claimed on the
Federal Tax Returns, then the dependent must be considered as a member of
the household, to calculate residual income.
Examples
- Children from a spouse’s prior
marriage who are not the borrower’s legal dependents.
- A dependent parent. Exceptions
for Considering All Members of the Household The lender may omit any
individuals from “family size” who are fully supported from a source of
verified income which, for whatever reason, is not included in effective
income in the loan analysis.
Examples
- a spouse not obligated on the
title or on the note that has stable and reliable income sufficient to
support his or her living expenses.
- a child for whom sufficient
foster care payments or child support is received regularly, or
- a parent who has sufficient
stable and reliable non-taxable income.
VA’s minimum residual incomes (balance available for family
support) are a guide. They should not automatically trigger approval or
rejection of a loan. Instead, consider residual income in conjunction with all
other credit factors.
However, an inadequate residual income alone can be a basis for
disapproving a loan.
If residual income is marginal, look to other indicators such as
the borrower’s credit history, and in particular, whether and how the borrower
has previously handled similar housing expense.
Consider the ages of the borrower’s dependents in determining
the adequacy of residual income.
Examples:
A Veteran has a family size of 3 purchasing a home in Arizona
with a loan amount of $400,000. The residual figure will be $990.
A Veteran has a family size of 8 purchasing a home in Georgia
with a loan amount of $150,000. The residual figure will be $1,199 (family size
of 5 which is $1,039 adding $80 for each additional family member up to a
family size of 7). The eighth person will not be considered in the calculation.
Special Instructions:
Count all members of the
household (without regard to the nature of the relationship) when determining
“family size,” including:
- A borrower’s spouse who is not
joining in title or on the note, and
- Any other individuals who
depend on the borrower for support. If a dependent is claimed on the
Federal Tax Returns, then the dependent must be considered as a member of
the household, to calculate residual income.
Examples
- Children from a spouse’s prior
marriage who are not the borrower’s legal dependents.
- A dependent parent. Exceptions
for Considering All Members of the Household The lender may omit any
individuals from “family size” who are fully supported from a source of
verified income which, for whatever reason, is not included in effective
income in the loan analysis.
Examples
- a spouse not obligated on the
title or on the note that has stable and reliable income sufficient to
support his or her living expenses.
- a child for whom sufficient
foster care payments or child support is received regularly, or
- a parent who has sufficient
stable and reliable non-taxable income.
VA’s minimum residual incomes (balance available for family
support) are a guide. They should not automatically trigger approval or
rejection of a loan. Instead, consider residual income in conjunction with all
other credit factors.
However, an inadequate residual income alone can be a basis for
disapproving a loan.
If residual income is marginal, look to other indicators such as
the borrower’s credit history, and in particular, whether and how the borrower
has previously handled similar housing expense.
Consider the ages of the borrower’s dependents in determining
the adequacy of residual income.
DEBT-TO INCOME
RATIO:
VA’s debt-to-income ratio is a ratio of total monthly debt
payments (housing expense, installment debts, and other obligations listed in
section D of VA Form 26-6393, Loan Analysis, to gross monthly income. It is a
guide and, as an underwriting factor, it is secondary to the
residual income. It should not automatically trigger approval or rejection of a
loan. Instead, consider the ratio in conjunction with all other credit factors.
A ratio greater than 41
percent requires close scrutiny.
THE
BLUE WATER NAVY VIETNAM VETERANS AFFAIRS ACT OF 2019 (THE ACT) ADJUSTMENT OF
LOAN FUNDING FEES
What is the VA funding
fee?
The VA funding fee is
a one-time payment that the Veteran, service member, or survivor pays on a
VA-backed or VA direct home loan. This fee helps to lower the cost of the loan
for U.S. taxpayers since the VA home loan program doesn’t require down payments
or monthly mortgage insurance.[1]
Adjustment of Loan
Fees:
The Act amends 38
U.S.C. § 3729(b)(2) by replacing the loan fee / funding fee table. The below
table summarizes funding fee rates for the most common types of loans for all
Veterans (Regular Military, Reserves, and National Guard) for loans closed on
or after January 1, 2020, and before January 1, 2022.
Type
of Loan |
Downpayment |
Percentage
for First Time Use |
Percentage
for Subsequent Use |
Purchase and Construction Loans |
None |
2.30% |
3.60% |
Cash-Out Refinance Loans |
N/A |
2.30% |
3.60% |
IRRRLs |
N/A |
.50% |
.50% |
Loan Assumptions |
N/A |
.50% |
.50% |
You won’t have to pay
a VA funding fee if any of the below descriptions is true. You’re:
- Receiving
VA compensation for a service-connected disability, or
- Eligible
to receive VA compensation for a service-connected disability, but you’re
receiving retirement or active-duty pay instead, or
- The
surviving spouse of a Veteran who died in service or from a
service-connected disability, or who was totally disabled, and you’re
receiving Dependency and Indemnity Compensation (DIC), or
- A
service member with a proposed or memorandum rating, before the loan
closing date, saying you’re eligible to get compensation because of a
pre-discharge claim or
A service member on
active duty who before or on the loan closing date provides evidence of having
received the Purple Heart
[1] https://www.va.gov/housing-assistance/home-loans/funding-fee-and-closing-costs/
ALLOWABLE AND UNAUTHORIZED CHARGES BY A LENDER
Veterans Benefits
Administration
Circular 26-14-10
Department of Veterans Affairs [1]
May 7, 2014
Washington, D.C. 20420
Policy Clarification
on Unallowable Fees
- Purpose.
The purpose of this Circular is to clarify the Department of Veterans Affairs (VA) policy on the treatment of unallowable fees when lenders charge a loan origination fee that is less than one percent (1%) of the loan amount on purchase and cash-out transactions, and less than one percent (1%) of the payoff amount on interest rate reduction refinance loans (IRRRLs). - Background.
Lenders may charge a flat fee, referred to as a loan origination fee, not to exceed one percent (1%) of the loan amount (for IRRRLs, the one percent (1%) flat charge is based on the payoff amount). This flat charge is intended to cover all of the lender’s costs which are not reimbursable as itemized fees. Non-reimbursable fees that are not included in the flat fee are considered unallowable. - Policy.
If the lender charges the full one percent (1%) loan origination fee, they cannot charge unallowable fees. Unallowable fees are those that are not expressly specified in 38 CFR 36.4313. Note: VA treats pest inspection fees the same as any other unallowable fee. Examples of unallowable itemized fees can be found in Chapter 8, Section 2d of the VA Lenders Handbook: https://www.benefits.va.gov/WARMS/docs/admin26/handbook/ChapterLendersHanbookChapter8.pdf - Example: If the lender charges a
$1,000 loan origination fee on a $100,000 loan, they have charged the
maximum allowable origination fee, and cannot charge additional
unallowable fees, such as a document preparation fee or pest inspection
fee. However, if the lender charged an $800 loan origination fee on a
$100,000 loan, the lender may charge up to $200 in additional fees, such
as a document preparation fee or pest inspection fee. In all cases, the
aggregate of the loan origination fee and unallowable fees cannot exceed
the one percent (1%) threshold.
- Clarification.
Third-party overcharges are not treated the same as unallowable fees for purposes of determining the aggregate one percent limit; third-party charges are limited to the invoice charge, regardless of the amount charged for the loan origination fee. In the case of appraisals, the amount charged cannot exceed VA’s published rates. - Example
1: The
lender charged an origination fee of $800 on a $100,000 loan. The credit
report charges on the Closing Disclosure (CD) Settlement Statement is
$50. The credit report invoice reflects $20. In this case, the lender
must refund the $30 overcharge to the Veteran.
- Example
2: The
lender charged an $800 origination fee on a $100,000 loan. The appraisal
charge on the Closing Disclosure, Settlement Statement is $500. VA’s
maximum published appraisal rate for the state is $425. In this case, the
lender must refund the $75 overcharge to the Veteran.
- Subordination
Fees.
Subordination fees are treated differently than unallowable and third-party fees. Subordination fees cannot be financed into the loan, regardless of the amount charged for the loan origination fee. A subordination fee may be charged on the HUD-1, Settlement Statement (Now Closing Disclosure or CD); however, the Veteran must either pay this fee in cash or have a premium pricing credit large enough to cover the subordination charge.
REHABILITATION LOAN PROGRAMS
203(K) REHAB MORTGAGE
INSURANCE[2]
Summary:
Section 203(k)
insurance enables homebuyers and homeowners to finance both the purchase (or
refinancing) of a house and the cost of its rehabilitation through a single
mortgage or to finance the rehabilitation of their existing home.
The Section 203(k)
program is FHA’s
primary program for the rehabilitation and
repair of single-family properties. As such, it is an important tool for
community and neighborhood revitalization, as well as to expand homeownership
opportunities.
Purpose:
Section 203(k) fills a
unique and important need for homebuyers. When buying a house that needs repair
or modernization, homebuyers usually have to follow a complicated and costly
process. The interim acquisition and improvement loans often have relatively
high interest rates, short repayment terms and a balloon payment. However,
Section 203(k) offers a solution that helps both borrowers and lenders,
insuring a single, long term, fixed or adjustable rate loan that covers both
the acquisition and rehabilitation of a property. Section 203(k) insured loans
save borrowers time and money. They also protect the lender by allowing them to
have the loan insured even before the condition and value of the property may
offer adequate security.
For less extensive
repairs/improvements, see Limited 203(k). For housing rehabilitation
activities that do not also require buying or refinancing the property,
borrowers may also consider HUD’s Title I Property Improvement Loan program.
Type of Assistance:
Section 203(k) insures
mortgages covering the purchase or refinancing and rehabilitation of a home
that is at least a year old. A portion of the loan proceeds is used to pay the
seller, or, if a refinance, to pay off the existing mortgage, and the remaining
funds are placed in an escrow account and released as rehabilitation is
completed. The cost of the rehabilitation must be at least $5,000, but the
total value of the property must still fall within the FHA mortgage limit for the area. The value of
the property is determined by either
- the value of the property
before rehabilitation plus the cost of rehabilitation, or
- 110 % of the appraised value of
the property after rehabilitation, whichever is less.
Many of the rules and
restrictions that make FHA’s basic single-family mortgage insurance product (Section 203(b)) relatively
convenient for lower income borrowers apply here. But lenders may charge some
additional fees, such as a supplemental origination fee, fees to cover the
preparation of architectural documents and review of the rehabilitation plan,
and a higher appraisal fee.
Eligible Activities:
The extent of the
rehabilitation covered by Section 203(k) insurance may range from relatively
minor (though exceeding $5000 in cost) to virtual reconstruction: a home that
has been demolished or will be razed as part of rehabilitation is eligible, for
example, provided that the
existing foundation system remains in place. Section
203(k) insured loans can finance the rehabilitation of the residential portion
of a property that also has non-residential uses; they can also cover the
conversion of a property of any size to a one-
to four- unit structure. The types of improvements that
borrowers may make using Section 203(k) financing include:
- structural alterations and
reconstruction
- modernization and improvements
to the home’s function
- elimination of health and
safety hazards
- changes that improve appearance
and eliminate obsolescence
- reconditioning or replacing
plumbing; installing a well and/or septic system
- adding or replacing roofing,
gutters, and downspouts
- adding or replacing floors
and/or floor treatments
- major landscape work and site
improvements
- enhancing accessibility for a
disabled person
- making energy conservation
improvements
HUD requires that
properties financed under this program meet certain basic energy efficiency and
structural standards.
Application:
Applications must be
submitted through an FHA approved lender.
VA Loans for Alteration and Repair/ Supplemental Loans
Loans for Alterations
and Repairs[3]
VA may guarantee a
loan for alteration and repair:
- Of a residence already owned by
the Veteran and occupied as a home, or
- Made in conjunction with a
purchase loan on the property.
The alterations and
repairs must be those ordinarily found on similar property of comparable value
in the community.
The cost of
alterations and repairs to structures may be included in a loan for:
- the purchase or
- regular “Cash-Out” refinance of
improved property to the extent that their value supports the loan amount.
Alterations/ Repairs
with a VA Supplemental Loan
A supplemental loan is
a loan for the alteration, improvement, or repair of a residential property.
The residential property must secure an existing VA-guaranteed
loan, and be owned and occupied by the Veteran, or the Veteran will reoccupy
upon completion of major alterations, repairs, or improvements.
The alterations,
improvements, or repairs must:
- Be for the purpose of
substantially protecting or improving the basic livability, or utility of
the property, and
- Be restricted primarily to the
maintenance, replacement, improvement or acquisition of real property,
including fixtures.
Installation of
features such as barbecue pits, swimming pools, etc., does not meet this
requirement.
No more than 30 % of
the loan proceeds may be used for the maintenance, replacement, improvement,
repair, or acquisition of non-fixtures or quasi-fixtures such as refrigeration,
cooking, washing, and heating equipment. The equipment must be related to or
supplement the principal alteration for which the loan is proposed.
Change in Rate
The existing loan must
be current with respect to taxes, insurance, and amortized payments, and must
not otherwise be in default unless a
primary purpose of the supplemental loan is to improve the ability of the
borrower to maintain the loan obligation.
The making of a
supplemental loan can never result in any increase in the rate of interest on
the existing loan.
A supplemental loan to
be written at a higher rate of interest than that payable on the existing loan
must be evidenced by a separate note from the existing loan
Procedures
Submit a statement
describing the alterations, improvements, or repairs made or to be made with
the prior approval application (or loan closing package, if closed
automatically). In addition, report the amount outstanding on the existing loan
as of the date of closing of the supplemental loan in the loan closing package.
If the cost of the
repairs, alterations, or improvements exceeds $3,500: an NOV and compliance
inspections are required.
Under $3,500 requires
a statement from an appraiser
If the cost of the
repairs, alterations, or improvements does not exceed $3,500: an NOV (Notice of
value) and compliance inspections are not required. Instead, a statement of
reasonable value may be submitted. The
statement must be completed and signed by a VA-designated appraiser. A
VA-designated appraiser is an individual nominated by the lender (who may be an
officer, trustee, or employee of the lender or its agent) who has been approved
by the local VA office.
The statement must
specify the:
- work done or to be done,
- purchase price or cost of the
work and material, and
- purchase price or cost does not
exceed the reasonable value.
In lieu of VA
compliance inspections, the lender must submit a certification as follows:
“The undersigned
lender certifies to the Department of Veterans Affairs that the property as
repaired, altered, or improved has been inspected by a qualified individual
designated by the undersigned, and based on the inspection report, the
undersigned has determined that the repairs, alterations, or improvements
financed with the proceeds of the loan described in the attached VA Form 26-1820, appear to have been completed
in substantial conformance with related contracts.”
COLLATERAL/ PORTFOLIO LOANS
Hindsight often gives
us different perspectives and allows us to see things in the past more clearly.
Much is written in hindsight about the cause(s) of the financial crisis of
2007/2008. There are many theories that it’s cause was the extensive use by lenders
of subprime financing.
Subprime lending
carries many definitions. Investopedia defines subprime lending as the practice
of lending to borrowers with low credit ratings and higher interest rates due
to relatively high default rates. Subprime lending also was chalked full of
predatory features like teaser rates and prepayment penalties.
Subprime lending is
viewed as having contributed to the 2007–2008 financial crisis, due in part to
the phenomenon of securitization. [4]
But there also existed
a non-traditional lending practice that carried a significant impact on the
financial crisis that was not considered a subprime product. That was the
practice of lenders making available collateral loans to all risk ranges of
borrowers.
Collateral loans were
loans in which the traditional practice of determining a borrower’s ability to
repay (ATR) was deemed to not be necessary because properties (collateral) were
appreciating very rapidly in many areas of the country. From a risk management
perspective, lenders did not determine ATR because in the event of foreclosure
the appreciation of the collateral for the mortgage (the property) would
protect the lender from loss.
Collateral loans
allowed lenders to relax their strict lending policies and offer customer
friendly mortgages that in come cases were no-doc (no documentation) and
low-doc (very little documentation) thus allowing customers to get loans
without the burden of proof of ATR.
The financial crisis
caused housing prices to fall and, in many instances, borrowers simply walked
away from their homes because collateral loans, based on expected appreciation,
left borrowers owing more then the value of their homes.
Nevada experienced the
biggest drop during the recession, with a 60 percent decline in home prices.[5]
Portfolio Loans
A portfolio lender
uses its own money to grant loans and does not sell its loans to institutional
investors. The two largest investors in mortgages, Fannie Mae and Freddie Mac,
buy only loans that meet their strict underwriting standards because they want
to minimize risk for their investors. Borrowers who don’t meet Fannie and
Freddie guidelines may want to turn to a portfolio lender.
Portfolio lenders are
likely to be smaller, community banks with more flexible lending standards than
conventional banks. They invest in communities and relationships, so they can
make decisions based on more than the answers on a borrower’s application. They
can consider intangible factors, too, and may grant mortgages to people with
blemished credit with whom they’ve had long-standing relationships.
But portfolio lenders
do not offer all the loan programs that large commercial banks do. Some may not
offer the 30-year fixed-rate mortgage but can grant a 15-year fixed-rate
mortgage or an adjustable-rate mortgage that matches up well with the
investment strategy of the institution. Also, a portfolio lender will often
require that the borrower have his money and accounts with them.[6]
Portfolio lenders use
their portfolios for different types of lending such as commercial as well as
residential loans. They also may use it to comply with the Federal Community
Reinvestment Act (CRA) which since 1977 encourages lenders to meet low-income
neighborhood needs.
SELLER FINANCING
Seller financing is
best thought of as the seller acting as a lender instead of a buyer seeking financing
through traditional sources such as a bank, credit union, mortgage broker or
mortgage banker. There are a number of circumstances that might dictate this
type of rare sale.
From the buyer’s side
- The buyer may not be able to
get regular financing from a lender because they are unqualified
- The buyer may want a lower cost
option where the closing costs are less than a bank
- There may be a need for a
quicker transaction to provide access to the property in a shorter
timeframe then the lender process
- The property may not meet
property standards required by lenders but the buyer still wants the
property
- The property may be in a
geographic area where traditional financing is not readily or
competitively available
From the seller’s side
- The seller may not need the
proceeds or cash right away in the home sale
- The seller may not want to do
the repairs required by a traditional lender (As Is)
- The seller may not want to
remove an outbuilding such as a mobile home on the site
- The seller can get a higher
rate of interest providing seller financing making the note a good
investment
- Like the buyer, the seller may
want a quick transaction
- Seller financing may give the
seller a competitive edge in selling the property
General considerations
- Both parties should have legal
or real estate representation
- Financing terms typically favor
the seller
- Financing is not typically long
term (a couple of years) with a balloon feature that require buyers to
refinance and pay the seller off
- Buyers must ensure that
documentation provides credit for downpayment and built up equity
- Buyers must ensure themselves that
the seller can legally provide seller financing and that the property
isn’t encumbered by a mortgage prohibiting seller financing sale
- Seller transactions typically
require a downpayment just like a traditional lender
These listed examples
are just a few of the many motivations of the buyer and the seller electing the
use of seller financing. This financing method typically accommodates a method
of sale and is not a preferred long-term financing option due to higher rates
and balloon options.[7]
AFFORDABLE HOUSING PROGRAMS
USDA: AKA Rural
Development
The US Department of
Agriculture provides government assistance in rural areas throughout the US.
Its objective is helping improve the economy and quality of life in rural
America. Through their programs, it helps rural Americans in many ways:
- It offers loans, grants and
loan guarantees to help create jobs and support economic development and
essential services such as housing; health care; first responder services
and equipment; and water, electric and communications infrastructure.
- It promotes economic
development by supporting loans to businesses through banks, credit unions
and community-managed lending pools. It offers technical assistance and
information to help agricultural producers and cooperatives get started
and improve the effectiveness of their operations.
- It provides technical
assistance to help communities undertake community empowerment programs
and from a housing perspective it helps rural residents buy or rent safe,
affordable housing and make health and safety repairs to their homes.[8]
Rural Development (RD)
programs give individuals the opportunity to buy, build, repair or own safe
affordable housing. Eligibility for these loans, loan guarantees and grants are
based on income and the average median income for each area.
Rural Development
loans are made directly through the USDA. They are also made by USDA approved
lenders through loan guarantee programs. (This
course will highlight these two programs which can vary by state.) [9]
Single Family (Direct
Housing Program) Loans: AKA Section 502 Loan Program
- Safe, well built affordable
homes for “very-Low and low-income rural Americans”
- For families or individuals
- Purpose: to buy, build,
improve, repair or rehabilitate a rural home as a permanent residence
- Population: up to 35,000
- Loan made directly to the
borrower
- LTV up to 100% of market value
or cost
- Loan terms of 33/38 years
- Applicant may be eligible for a
payment assistance subsidy on the loan
Direct Program
Applicants must:
- Be without decent, safe, and
sanitary housing
- Be unable to obtain a loan from
other resources on terms and conditions that can reasonably be expected to
meet
- Agree to occupy the property as
your primary residence
- Have the legal capacity to
incur a loan obligation
- Meet citizenship or eligible
noncitizen requirements
- Not be suspended or debarred
from participation in federal programs
Single-Family Housing
Guarantee Program for Approved Lenders
- To assist low- to
moderate-income applicants/household buy their homes by guaranteeing loans
made by private lenders
- For Families or individuals
- For the purchase of a new or
existing home or refinance an existing Rural Development guaranteed or
direct loan
- Rural area also defined with
population limits up to 35,000
- The loan is guaranteed to an
approved lender and not a direct loan with Rural Development
- Terms: 30-year fixed. The
interest rate is negotiated between lender and borrower. Loans up to 100%
of market value plus the amount of the up-front guarantee fee being
financed.
WHO MAY APPLY FOR THE GUARANTEE
PROGRAM?
Guarantee Applicants
must:
- Meet income-eligibility.
- Agree to personally occupy the
dwelling as their primary residence.
- Be a U.S. Citizen, U.S.
non-citizen national, or Qualified Alien.
- Have the legal capacity to
incur the loan obligation.
- Have not been suspended or
debarred from participation in federal programs.
- Demonstrate the willingness to
meet credit obligations in a timely manner.
- Purchase a property that meets
all program criteria[10]
HUD Revitalization
Program[11]
Good Neighbor Next
Door
Law enforcement
officers, pre-Kindergarten through 12th grade teachers, firefighters and
emergency medical technicians can contribute to community revitalization while
becoming homeowners through HUD’s Good Neighbor Next Door Sales Program.
HUD offers a substantial
incentive in the form of a discount of 50% from the list price of the home. In
return you must commit to live in the property for 36 months as your sole
residence.
How the program works:
Eligible Single-Family
homes located in revitalization areas are listed
exclusively for sale through the Good Neighbor Next Door Sales program.
Properties are available for purchase through the program for seven days.
- Revitalization Areas are
HUD-designated geographic areas authorized by Congress under provisions of
the National Housing Act. Revitalization Areas are intended to promote
“the revitalization, through expanded homeownership opportunities, of
revitalization areas.”
The criteria for
designating an area as a Revitalization Area relate to:
- Household Income,
- Homeownership Rate, and
- FHA-insured mortgage
foreclosure activity.
HUD-owned
single-family properties located in a Revitalization Area are eligible for
discounted sale through special programs, including:
- Asset
Control Area (ACA): Foreclosed
properties conveyed back to FHA that are located in a designated ACA are
first offered for sale to an ACA participant. Under the ACA Program,
state, county and local units of government, as well as approved nonprofit
organizations may enter into a two-year contract with HUD requiring HUD to
first make FHA properties located in an ACA exclusively available for sale
to the ACA participant. ACA properties with an appraised value of $25,000
or less may be purchased for $100; all other properties sold under the ACA
Program are offered for sale at a minimum discount of 50 percent of the
appraised property value.
- Good Neighbor
Next Door (GNND): Under
GNND, HUD offers certain single-family properties for sale to police
officers, teachers, fire fighters, and emergency medical technicians at 50
percent off of the list price.
- HUD’s Single Family Home Locator displays
maps of REO properties and special programs such as Revitalization Areas
and Block Grants. There are many
revitalization areas across the country. HUD is
always working with localities to designate new areas.[12]
[1] https://www.benefits.va.gov/HOMELOANS/documents/circulars/26_14_10.pdf
[2] https://www.hud.gov/program_offices/housing/sfh/203k/203k–df
[3] https://www.benefits.va.gov/WARMS/docs/admin26/handbook/ChapterLendersHanbookChapter7.pdf
[4] https://www.investopedia.com/articles/economics/09/financial-crisis-review.asp
[5] https://www.corelogic.com/downloadable-docs/corelogic-peak-totrough-final-030118.pdf
[6] https://www.bankrate.com/glossary/p/portfolio-lender/
[7] https://www.investopedia.com/articles/mortgages-real-estate/10/should-you-use-seller-financing.asp
[8] https://www.rd.usda.gov/about-rd
[9] https://www.rd.usda.gov/files/RD_ProgramMatrix.pdf
[10] https://www.rd.usda.gov/resources/publications/fact-sheets
[11] https://www.hud.gov/program_offices/housing/sfh/reo/abtrevt
[12] https://www.hud.gov/program_offices/housing/sfh/reo/abtrevt
·
Lesson
·
What is the minimum guarantee
percent required on a VA loan?
·
·
12.50%
·
36%
·
50%
·
25%
· VA loans with no down
payment require a 25% minimum entitlement.
· Question 2
· Eligibility
of the surviving spouse will be deemed invalid in the event of which of the
following?
·
·
·
Having a baby fathered by the deceased veteran.
·
One of the children turns 18.
·
Change in marital status.
·
Moving in with in-laws.
· Eligibility of the
surviving spouse and the validity of guaranty entitlement hereby evidenced will
be null and void if any change in marital status occurs.
· Question 3
·
What document is requested from a
veteran to make a eligibility determination?
·
·
Most recent Paycheck.
·
Job record.
·
House location.
·
DD214.
· A DD214 generally
contains all information necessary for VA to make an eligibility determination.
· Question 4
·
A lender must make what
determination before a VA appraisal is ordered?
·
·
Marital status.
·
Credit qualification.
·
Available downpayment.
·
The veteran's eligibility.
· The lender must
ensure the applicant is an eligible Veteran before an appraisal is ordered.
· Question 5
·
Subsequent use of entitlement means
the veteran will typically pay higher what?
·
·
Credit report fees.
·
Appraisal fees.
·
Funding fee.
·
Homeowner premiums.
· Subsequent use costs
a veteran a higher funding fee.
·