US MORTGAGE CERTIFICATION COURSE

US MORTGAGE CERTIFICATION COURSE


 A. COMPULSORY MODULE

o US MORTGAGE BASICS



 B. OPTIONAL MODULES (CHOOSE ANY 3 FOR CERTIFICATION)

o LOAN ORIGINATION
o LOAN UNDERWRITING
o LOAN CLOSING
o DEFAULT SERVICES
o SERVICING
o SECONDARY MARKETS
 EACH TRAINING MODULE WILL BE FOLLOWED BY AN ASSESSMENT.









US MORTGAGE BASICS


o FUNDAMENTALS OF MORTGAGE LENDING

o THE MORTGAGE MARKETS

o TYPES OF LOANS

o UNDERSTAND CREDIT

o UNDERSTAND MORTGAGE JARGONS


WHAT IS MORTGAGE?
o A person who borrows money to buy a piece of property voluntarily gives the lender the right to take the property if the borrower fails to repay the loan.
o The property is pledged to lender as collateral or security

MORTGAGE LAW
o Mortgagee has a lien on the property as security
o If mortgager defaults, mortgagee must go through a formal
o Foreclosure proceeding to obtain legal title
o Property is offered for sale
o Defaulting mortgager may redeem the property during certain period after the sale, else he loses the property irrevocably


LIFE OF MORTGAGE LOAN – CONSUMER PERSPECTIVE
o Borrower talks to Salesperson.
o Selects the loan product and applies for the loan.
o Loan application is sent to the Underwriter. The Underwriter evaluates probability of prospective borrower repaying the loan.
o If approved the loan is funded by the lender.
o Borrower begins making payments through the Servicer.

PURPOSE OF LOAN

PROPERTY TYPES

o ATTACHED HOUSING
o TOWN HOUSE
o CONDOMINIUM
o CO-OPERATIVE


o DETACHED HOUSING
o SINGLE FAMILY
o PLANNED UNIT DEVELOPMENT (PUD)
o 2 – 4 UNIT PROPERTY

PROPERTY TYPES - ATTACHED HOUSING

TOWN HOUSE - A row house on a smaller land which has exterior limits common to similar units (common walls) and includes ownership of the land

CONDOMINIUM – A building or housing development where each person owns his or her unit and shares ownership of common areas including the land

CO-OPERATIVE - A housing complex or building where the borrower becomes a shareholder in the corporation that owns the property

PROPERTY TYPES - DETACHED HOUSING

SINGLE FAMILY DETACHED
o A standard home with no common areas, no homeowners’ dues or sharing of common walls
o A home intended to be occupied by one family only

PLANNED UNIT DEVELOPMENT (PUD)
o A single-family residence located in a community with association dues and other required monthly payments
o A PUD can be available in attached housing also

2-4 UNIT PROPERTY
o A property that consists of a structure that provides living space for 2 to 4 families

MANUFACTURED HOME
o A structure built on a permanent chassis designed to be used as a dwelling with or without a permanent foundation

OCCUPANCY TYPES

o PRIMARY RESIDENCE
A residential property physically occupied by the owner for the major portion of the year, usually more than 6 months

o SECOND HOME
These are vacation or weekend homes that the borrower occupies in addition to his or her primary or principal residence

o INVESTMENT PROPERTY
A property which is owned by the borrower, but not occupied by the borrower for own residential purposes and is being used for income purposes, such as renting etc


MORTGAGE LIFE CYCLE


o ORIGINATION

o PROCESSING

o UNDERWRITING

o CLOSING

o WAREHOUSING

o DELIVERY

o SERVICING

o SECONDARY MARKET OPERATIONS
























MORTGAGE LIFE CYCLE - ORIGINATION CYCLE

WHAT ARE THE COSTS?



MORTGAGE LIFE CYCLE - PROCESSING
o Gather, organize and verify all the information that the underwriter will need in order to underwrite the loan

MORTGAGE LIFE CYCLE - UNDERWRITING
o The process an underwriter uses to determine loan approval. It involves evaluating the property and the borrower's credit and ability to pay the mortgage

o Most of the risks and terms that underwriters consider fall under the four C’s of underwriting: CREDIT, CAPACITY, COLLATERAL and CAPITAL



AUTOMATED UNDERWRITING

o This is a tool available to lenders to provide recommendations on the risk of a loan and borrower and it provides the amount of documentation needed to verify the risk

AUTOMATED UNDERWRITING TOOLS

o DESKTOP ORIGINATOR (DU)
o LOAN PROSPECTOR (LP)


MORTGAGE LIFE CYCLE – CLOSING
o Signing the mortgage documents
o The mortgage is recorded on the public record

MORTGAGE LIFE CYCLE – WAREHOUSING

o A small lender borrows money from a warehouse bank to provide funds to the borrower and then sells the loan to the investor to repay the warehouse bank

MORTGAGE LIFE CYCLE - DELIVERY

o Process of packaging and delivering the loan to the investor, also known as shipping of the loan

MORTGAGE LIFE CYCLE - SERVICING

o All the steps and operations a lender performs to keep the loan in good standing like collecting monthly mortgage payment from the borrower, Payment of Taxes, Insurance and Property Inspections

MORTGAGE LIFE CYCLE – SECONDARY MARKET OPERATIONS

o The Sale and Purchase of existing Mortgages take place.
o The transaction generally happens as part of “POOL” of mortgages




TYPES OF MORTGAGES














 CONVENTIONAL LOANS
 GOVERNMENT LOANS

1. CONVENTIONAL LOAN

Any mortgage loan other than an FHA, VA or RHS loan is Conventional one.
It has two categories:

o CONFORMING LOAN
o NON-CONFORMING LOAN


 CONFORMING LOAN
o 80% of residential loans are conventional loans
o Originated by lending institutions
o Falls under loan limits set by Fannie Mae or Freddie Mac
o Currently the GSE conforming limit is $417000

 NON-CONFORMING LOAN
o Generally above the loan limits
o Interest rate tend to be higher about 0.25 – 0.05%
o Do not offer safety to investor as conventional loans





2. GOVERNMENT LOANS

All the loans secured by the Government entity is called Government Loans like:
o FHA Loans (The Federal Housing Administration)
o VA loans (Veterans Affairs)
o RHS Loan (The Rural Housing Service)





 FHA (FEDERAL HOUSING ADMINISTRATION)
Insured by (but not funded by) the Federal Housing Administration (FHA) a division of the US department of Housing and Urban Development (HUD),

FHA loans have somewhat more relaxed qualifying standards

 VA (VETERANS ADMINISTRATION)
For those qualified by military services, the Veterans Administration (VA) insures (but does not fund)

 RHS (RURAL HOUSING SERVICE)
The Rural Housing Service (RHS) of the U.S. Dept. of Agriculture guarantees loans for rural residents with minimal closing costs and no down payment







MORTGAGE LOAN PRODUCTS

FIXED RATE MORTGAGE (FRM)

An FRM is a mortgage that has no provision for changing the interest rate. Hence, the rate stated in the note is fixed for the entire term of the loan

ADJUSTABLE RATE MORTGAGE (ARM)
A mortgage on which the interest rate, after an initial period, can be changed by the lender


HYBRID RATE NOTE
The interest rate stays fixed for certain number of years, then changes to a variable rate

BALLOON MORTGAGE
A mortgage which is payable in full after a period that is shorter than the term

INTEREST-ONLY MORTGAGE

A mortgage on which for some period the monthly mortgage payment consists of interest only. During that period, the loan balance remains unchanged

JUMBO MORTGAGE

A mortgage larger than the maximum eligible for purchase by the two Federal agencies, Fannie Mae and Freddie Mac


MORTGAGE INDUSTRY AND ITS PLAYERS

o PRIMARY MARKET - is that portion of mortgage market where originations of mortgages take place.

o SECONDARY MARKET - It is basically the buying and selling of existing mortgages, usually as part of “pool” of mortgages





MORTGAGE INDUSTRY AND ITS PLAYERS (SECONDARY MARKET)

 GINNIE MAE (Government National Mortgage Association)
 FANNIE MAE (Federal National Mortgage Association)
 FREDDIE MAC (Federal Home Loan Mortgage Corporation)
 INVESTORS: These are usually big banks which have their own special mortgage programs which they buy back from the primary market lenders. E.g. CitiMortgage, Wells Fargo etc

OPPORTUNITIES AND RISKS IN MORTGAGE MARKET

3 PRIMARY RISKS IN PRIMARY MARKET

o CREDIT / DEFAULT is the risk that a borrower will stop making defined payments on mortgage

o PREPAYMENT is the risk that the borrower will pay the loan off early

o INTEREST RATE is the risk that changes in market interest rates will impact the cost of funds and the rate at which repaid principal and interest can be reinvested in new mortgages. Interest rates impact both credit and prepayment risk.


SOME REAL ESTATE AND MORTGAGE TERMS

ORIGINATION FEE - is charged for the lenders work in evaluating and preparing the mortgage loan.
o Prepaid finance charges imposed by the lender at closing to increase the lender's yield beyond the stated interest rate on the mortgage note.
o One point equals one percent of the loan amount

AMORTIZED LOAN - A loan that is paid off, both interest and principal, by regular payments that are equal or nearly equal

APPRAISAL - An estimate of value of property resulting from analysis of facts about the property; an opinion of value.

APPRAISAL REPORT - The end result of the appraisal process usually consists of one major standardized form such as, the Uniform Residential Appraisal Report form 1004

CLOUD ON TITLE - An irregularity, possible claim, or encumbrance which, if valid, would adversely affect or impair the title.

PROMISSORY NOTE - It is borrowers promise to repay the debt . It states the amount, method of payment and rate of interest. It is legally enforceable

DEED OF TRUST - It is a third party instrument. The deed is given as security for loan to third party (trustee) who holds the bare title on behalf of lender

COMPARABLE SALES - Sales that have similar characteristics as the subject property, used for analysis in the appraisal. Commonly called "comps."

ASSIGNMENT OF MORTGAGE - Selling of the note to a third party (investor or mortgage company), without changing the provisions of the contract

RELEASE / DISCHARGE - When the loan is repaid, the lender executes a satisfaction, returning all interest in Real Estate

ASSIGNMENT OF RENT - Borrower may provide for assignment of rents to lender in event of borrower’s default

FORECLOSURE - It is a legal procedure in which property pledged as security is sold to satisfy the debt, if the borrower defaults on payments or fails to fulfill any of obligations set forth in Mortgage or Deed of Trust

TITLE INSURANCE -
o It is based on the purchase price
o This is a one-time fee that is between 0.3% and 0.6% of the purchase price.
o This is an insurance against defects in the title

TEASER RATE – ARM’s interest rate for the first year or two of the loan is generally lower than a fixed- rate mortgage.

LOAN-TO-VALUE PERCENTAGE (LTV) - The loan amount divided by the selling price or the appraised value of the property (whichever is lesser).
PRIVATE MORTGAGE INSURANCE (PMI) - Fannie Mae generally requires private mortgage insurance for loans with loan-to-value (LTV) percentages greater than 80 percent.

CAP AND FLOOR
o INTEREST RATE CAP: A provision of an ARM limiting how much interest rate may increase or decrease per adjustment period or over the life of a mortgage.
o PERIODIC CAP: The annual rate cap is typically plus or minus 2 percent.
o LIFETIME CAP. A provision of an ARM that limits the highest rate that can occur over the life of the loan, generally 6 percent
o FLOOR: The interest cannot go below this (protects the lender)

CREDIT BUREAU AGENCIES
Three main credit bureau agencies:
 TRANSUNION (TUC)
 EQUIFAX (EFX)
 EXPERIAN (XPN)

o There are thousands of local and regional credit bureaus across the country.
o Most of these are affiliated with anyone of the 3 major Credit Bureaus

FICO SCORE
o FICO scores range from a low of 300 to a maximum of 850.
o FICO scores of 660 or more – carries very less risk
o FICO scores of less than 620 or less is a strong indication of credit risk.

REFINANCE
o The repayment of a mortgage with another mortgage
o Homeowners typically refinance to take advantage of lower interest rates
o To transform equity into cash (Cash out)

EQUITY
o It is the difference between the home's fair market value and the unpaid principal balance of the mortgage and any liens.
o It increases as the mortgage is paid down and as the property appreciates in value.

JUNIOR MORTGAGE - A home loan than is subordinate to the primary loan, or first mortgage.

EMERGING MARKETS (SUB PRIME) - Comprised of mortgage loan applications that who either do not have a credit bureau report or have a thin file credit bureau report which does not contain enough information to calculate a FICO score.

SUB PRIME LENDERS - Certain financial institutions also called “B paper lenders” specialize in loans for credit impaired people.

PITI - Stands for principal, interest, taxes and insurance, these elements generally are included in the borrower's monthly loan payment.

ASSUMABLE MORTGAGE
o A loan that allows a home buyer to take over a seller's mortgage when purchasing a home
o Assumable mortgages require the lender’s approval.
o When you assume a mortgage you inherit both its interest rate and monthly payment schedule.

BRIDGE LOAN
o An emergency loan for buyers who need money to close on a new home before they can sell their present home
o Bridge loans are short-term, usually up to 1 year, with high interest rates that let you borrow against the old home.
o Bridge loans are also called swing loans

ESCROW AGENT/OFFICER
o An escrow agent oversees escrow, the process that some states use to complete a home's sale or purchase.
o A neutral party who fairly represents from both the seller and buyer
o The escrow agent can be a lender, title company or real estate attorney.

ENCUMBRANCE - A right or claim upon real property (land) held by one other than the property owner.

ENCUMBRANCES ARE DIVIDED INTO TWO CLASSES:

o LIENS (mortgages, deeds of trust, mechanics' liens, local taxes, assessments, judgments, attachments, etc.)

o OTHER THAN LIENS which are limitations on the ownership of the land (such as conditions, restrictions, reservations, easements, etc.).
EARNEST MONEY DEPOSIT - A sum of money that a buyer gives to the seller when making an offer on a home

IMPOUND (ESCROW) - A type of account established by lenders for the accumulation of borrower's funds to meet periodic payments of taxes, mortgage insurance premiums, required to protect their security.

GOOD FAITH ESTIMATE
o An estimate of the total costs to get a loan when buying or refinancing a home
o The costs will include lender and broker fees, loan-related fees, and third-party fees, such as the title insurance and appraisal.
o Most of these fees must be paid on the closing date, the day when the sale or purchase of a home is completed.

GRANT DEED
o An official document that is used to transfer a property's ownership
o This is the most common type of deed used to transfer property from a seller to buyer
o In order to use this deed, the property must be clear of any claims.

GRANTEE - A term for a person who becomes the new owner of a property

GRANTOR - A term for a person who hands over ownership of a property to someone else

HAZARD INSURANCE
o Real estate insurance protecting against fire, some natural causes, like Earthquakes, floods, etc., depending upon the policy.
o Buyer often adds liability insurance and extended coverage for personal property.

HUD-1
o A document that gives a breakdown of the costs that the buyer and seller pay at closing
o Gives you the final record of the fees paid at closing.
o In some states, you receive the HUD-1 on or after the closing date.
o Is also called a closing statement and settlement statement

JUDICIAL FORECLOSURE
o When a lender uses court action to sell a property in order to pay a mortgage in default
o If a deed of trust or mortgage does not have a power of sale clause, the lender needs to take you to court in order to foreclose on your property.

LOCK PERIOD - The amount of time that a lender will guarantee a loan's interest rate

PORTFOLIO LOAN - A loan that a lender holds onto instead of selling on the secondary market

PREQUALIFICATION
o The lender or broker figures out how much you qualify to borrow.
o Before shopping for a home, borrower can save a lot of time by first finding out whether or not he is likely to qualify for the loan he wants.

PRELIMINARY TITLE REPORT
o The results of a title search on a property
o This report proves that the seller is the rightful owner of the property that borrower want to buy, and lists any claims against the property for unpaid debts, such as property and income taxes
o Before borrower go to closing, he will receive a preliminary title report from a title company

REAL ESTATE SETTLEMENT PROCEDURE ACT (RESPA)
o A federal law that says a lender must give a borrower an estimate of closing costs within three business days of applying for a loan.
o This act also requires that lenders give you a Uniform Settlement statement or HUD-1 before or at closing, which lists the final closing costs.

TRUTH-IN-LENDING ACT
o A federal law that requires a lender to give borrowers the annual percentage rate (APR).
o The APR helps borrowers compare one loan to another since it factors in not only the interest rate but also all the fees and closing costs that you need to pay.
o Is also called Regulation Z

REAL PROPERTY
o Land and anything permanently attached to it
o Includes your home, your backyard, and even your roses planted in the yard

RECORDING - Placing documents in public record

CHAIN OF TITLE - Record of property ownership traced through an unbroken chain

TITLE SEARCH - Examination of all public records to determine whether any defects exist in chain of title

SALE-LEASEBACK - An agreement where a home buyer allows the seller to stay in the property in exchange for rent

SECOND MORTGAGE
o A loan that in the event of foreclosure is paid off after the first mortgage
o These mortgages usually have a higher interest.
o In some states, this mortgage is called a junior trust deed.

HOME EQUITY LINE OF CREDIT (HELOC)
o A line of credit, secured by a property, that allows owners to tap into their home's equity
o You can get a line of credit equal to your home's equity that works like your checking account or credit card.

HOUSING DEBT RATIO - The percentage that results from dividing a borrower's housing expenses including principal, interest, taxes, insurance, mortgage insurance by his/her gross monthly income, used by the lender to evaluate an applicant's qualification for a loan

DEBT-TO-INCOME RATIO - The percentage of a person's monthly earnings used to pay off all debt obligations including monthly consumer debt. Consumer debt can be car payments, credit card debt, installment loans, and similar related expenses. Auto or life insurance is not considered a debt.

REVERSE MORTGAGE
o Loan against your home that you don’t have to repay as long as you live there
o Getting money from the equity in your home
o All the owners must be at least 62 years old.