Chapter 5

Question 1

Equal Credit Opportunity Act (ECOA)

Answer 1

Federal law requiring creditors to make credit equally available w/out discrimination based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs.

Question 2

Equity

Answer 2

The difference between current market value of a property and total debt obligations against the property. On a new mortgage loan, the down payment represents the equity of the property.

Question 3

Escrow

Answer 3

A transaction in which a third party acts as the agent for the seller and buyer, or for borrower and lender, in handling legal documents and disbursement of funds.

Question 4

Escrow Account

Answer 4

Acct held by lender to which borrower pays monthly installments, collected as part of the monthly mortgage payment for annual expenses such as taxes and insurance. Lender disburses escrow acct funds on behalf of the borrower when they become due., (aka impound acct)

Question 5

Estimated closing fees

Answer 5

An estimate of fees that must be paid on or before the closing date by the buyer and/or seller for services, taxes and items necessary to obtain mortgage. These fees will avg between 2% and 5% of the loan amount and vary by lender, property, location and type of mortgage.

Question 6

Experian

Answer 6

One of 3 largest credit bureaus in the U.S.

Question 7

Fair, Isaac and Co.

Answer 7

The company that invented credit-scoring software

Question 8

Fannie Mae

Answer 8

This agency buys loans that are underwritten to its specific guidelines. These guidelines are an industry standard for residential conventional lending.

Question 9

(FDIC) Federal Deposit Insurance Corporation

Answer 9

Independent Deposit insurance agency created by Congress to maintain stability and public confidence in the nation’s banking system.

Question 10

Federal Housing Administration (FHA)

Answer 10

A federal agency within the Department of Housing and Urban Development (HUD), which insures residential mortgage loans made by private lenders and sets standards for underwriting mortgage loans.

Question 11

Fee Simple

Answer 11

Absolute ownership of real property

Question 12

Federal Reserve Board

Answer 12

The 7-member Board of Governors that oversees Federal Reserve Banks, establishes monetary policy (interest rates, credit, etc.) and monitors the economic health of the country. Its members are appointed by the president subject to senate confirmation and serve 14-year terms. Aka the Fed.

Question 13

FICO

Answer 13

Most common credit-scoring model used by lenders, aka a “fair”, Isaac score. Your FICO can change from 200 to 900. According to this model, the higher your score, the less likely you are to default on your loan.

Question 14

Filing Fees

Answer 14

The amount charged by public officials in your area for recording your mortgage and other docs.

Question 15

Finance Charge

Answer 15

Your finance charge is the total of all the interest you would pay over the entire life of the loan, assuming you kept the loan maturity, as well as all prepaid finance charges.
If you prepay any principal during your loan, your monthly payments remain the same, but your total finance charge will be reduced.

Question 16

First Mortgage

Answer 16

A mortgage that is in first lien position, taking priority over all other liens, In the case of a foreclosure, the first mortgage will be repaid before any other mortgages.

Question 17

Fixed Rate

Answer 17

An interest rate that is fixed for the term of the loan

Question 18

Float

Answer 18

Until you request to secure a lender’s quoted interest rate, the interest rate will continue to change or float, due to market fluctuations. Locking / securing a rate protects you from these potential fluctuations from the time your lock is confirmed till it expires.

You may choose to float your rate up until the time your lender contacts you to schedule your closing. At this time, an interest rate must be secured in order to prepare your closing docs.

Question 19

Flood insurance

Answer 19

Insurance that compensates for physical damage to a property by a flood. Typically not covered under standard hazard insurance.

Question 20

Flood Life of Loan Coverage

Answer 20

Flood zone determinations may change from time to time. The “Life of Loan Coverage” fee allows us to track any changes in your property’s flood zone status over the life of your loan.

Question 21

Forbearance

Answer 21

The act by the lender of refraining from taking legal action on a mortgage loan that is delinquent.

Question 22

Good Faith Estimate

Answer 22

Written estimate of the settlement costs the borrower will likely have to pay at closing. Under the Real Estate Settlement Procedures Act (RESPA). The lender is required to provide this disclosure to the borrower within three days of receiving loan application.

Question 23

Grace Period

Answer 23

Period of time during which a loan payment may be made after its due date without incurring a late penalty. The grace period is specified as part of the terms of the loan in the Note.

Question 24

Guideline Ratios

Answer 24

2 guideline ratios used to qualify for a mortgage:
1.) Front-end ratio (top ratio): calculated by dividing new total monthly mortgage payment by gross monthly income (should not exceed 28%)

2.) Back-end/bottom ratio: Equal to new monthly mortgage payment plus total your total monthly debt divided by gross monthly income (should not exceed 36%)

Question 25

Homeowners Insurance

Answer 25

Required by all lenders to protect their investment, and must be obtained before closing. In most cases, coverage must be equal to the loan balance or the value of the home.

Question 26

Impound Account

Answer 26

Also known as an Escrow account it is an account held by the lender to which the borrower pays monthly installments, collected as part of the monthly mortgage payment, for annual expenses such as taxes and insurance.

Question 27

Index

Answer 27

Most lenders tie adjustable rate mortgage loan (ARM) interest rate changes to an "index". An index is widely published rate such as LIBOR, T-Bill, or 11th District Cost of Funds (COFI). Lenders use these indices to establish the interest rates charged on mortgage loans. For ARMs, a predetermined margin is added to the index to compute the interest rate adjustment.

Question 28

Initial Cap

Answer 28

Consumer safeguard that limits the amount the interest rate on an adjustable rate mortgage can change during the first adjustment period

Question 29

Initial Rate

Answer 29

Rate charged during the first interval of an ARM loan

Question 30

Insurance

Answer 30

Type of insurance(s) required for your loan. Private mortgage insurance may also be required in addition to what is indicated.

Question 31

Interest

Answer 31

Charge paid for borrowing money

Question 32

Interest Rate

Answer 32

The annual rate of interest on the loan, expressed as a percentage of 100.

Question 33

Interest Rate Cap

Answer 33

Consumer safeguard that limits amount of interest rate on an ARM loan can change in an adjustment interval and/or over the life of the loan. For example, if your per-period cap is 1% and current rate is 7%, your newly adjusted rate is between 6% and 8% regardless of actual change in index.

Question 34

Interest Rate Disclosure

Answer 34

Description of conditions applicable to the processing of your loan as well as the terms of your interest rate agreement with Quicken Loans.

Question 35

Joint Liability

Answer 35

Liability shared among two or more people, each of whom is liable for the full debt.

Question 36

Joint Tenancy

Answer 36

A form of ownership of property giving each person equal interest in the property, including rights of survivorship.

Question 37

Jumbo Loan

Answer 37

``` A mortgage larger than the limits set by Fannie Mae and Freddie Mac as shown below: Lower 48 states 1 unit $322,700 2 unit $413,100 3 unit $499,300 4 unit $620,500 ```

Question 38

Junior Mortgage

Answer 38

A mortgage subordinate to the claim of a prior lien or mortgage. In the case of a foreclosure, a sr. mortgage or lien will be paid first.

Question 39

Late charge

Answer 39

Penalty paid by a borrower when a payment made after the due date.

Question 40

Lender Fees

Answer 40

Lender fees are fees paid to the lender

Question 41

Lender Processing Fee

Answer 41

The lender processing fee covers the cost of analyzing your loan app and compiling and packaging the necessary supporting documentation to close your loan.

Question 42

LIBOR (London Interbank Offered Rate)

Answer 42

Interest rate charged among banks in the foreign market for short-term loans to one another-a common index for ARM loans.

Question 43

Lien

Answer 43

A legal claim by one person on the property of another for security for payment of a debt

Question 44

Lifetime (or Overall) Cap

Answer 44

Consumer safeguard that limits the amount the interest rate on an adjustable rate mortgage loan (ARM) can change over the life of the loan.

Question 45

Loan Application

Answer 45

Initial statement of personal and financial information required to apply for a loan

Question 46

Loan Application Fee

Answer 46

Fee charged by a lender to cover initial costs of processing a loan application, The fee may include the cost of obtaining a property appraisal, a credit report, and a lock-in fee or other closing costs incurred during the process of the fee may be in addition to these charges.

Question 47

Loan Origination Fee

Answer 47

Fee charged by a lender to cover administrative costs of processing a loan

Question 48

Loan Term

Answer 48

The period of time between the closing date and the date of your last payment is paid.

Question 49

Lock or Lock-in

Answer 49

A lender's guarantee of an interest rate for a set period of time-usually between loan application approval and loan closing. The lock-in protects you against rate increases during that time.