Mortgage Originator Quiz 1

Retail lender
Correspondent lender
Wholesale lender
Closed-end financing
Open-end financing
Fixed-rate mortgage
Interest-only mortgage
Funds loans and sells them to wholesale lenders
No amortization during loan term; balloon payment
Provides fixed amount repayable over fixed period
Funds loans applied for through mortgage brokers
Borrower may repay and reborrow up to credit limit
Interest rate and payments don’t change for set term
Interacts directly with borrower, actually makes loan



For more than 30 years, Federal law has required lenders to provide two different disclosure forms to consumers applying for a mortgage. The law also has generally required two different forms at or shortly before closing on the loan. Two different Federal agencies developed these forms separately, under two Federal statutes: the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act of 1974 (RESPA). The information on these forms is overlapping and the language is inconsistent. Not surprisingly, consumers often find the forms confusing. It is also not surprising that lenders and settlement agents find the forms burdensome to provide and explain. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) directs the Consumer Financial Protection Bureau (the Bureau) to integrate the mortgage loan disclosures under TILA and RESPA sections 4 and 5. Section 1032(f) of the Dodd-Frank Act mandated that the Bureau propose for public comment rules and model disclosures that integrate the TILA and RESPA disclosures by July 21, 2012. The Bureau satisfied this statutory mandate and issued proposed rules and forms on July 9, 2012. To accomplish this, the Bureau engaged in extensive consumer and industry research, analysis of public comment, and public outreach for more than a year. After issuing the proposal, the Bureau conducted a largescale quantitative study of its integrated disclosures with approximately 850 consumers, which concluded that the Bureau’s integrated disclosures had on average statistically significant better performance than the current disclosures under TILA and RESPA. The Bureau has now finalized a rule with new, integrated disclosures (TILA-RESPA rule).1 The TILA-RESPA rule also provides a detailed explanation of how the forms should be filled out and used.

The first new form (the Loan Estimate) is designed to provide disclosures that will be helpful to consumers in understanding the key features, costs, and risks of the mortgage loan for which they are applying. The Loan Estimate must be provided to consumers no later than three business days after they submit a loan application. The second form (the Closing Disclosure) is designed to provide disclosures that will be helpful to consumers in understanding all of the costs of the transaction. The Closing Disclosure must be provided to consumers three business days before they close on the loan. The forms use clear language and design to make it easier for consumers to locate key information, such as interest rate, monthly payments, and costs to close the loan. The forms also provide more information to help consumers decide whether they can afford the loan and to compare the cost of different loan offers, including the cost of the loans over time. The Loan Estimate and Closing Disclosure must be used for most closedend consumer mortgages. Home equity lines of credit, reverse mortgages, or mortgages secured by a mobile home or by a dwelling that is not attached to real property (i.e., land) must continue to use current disclosure forms required by TILA and RESPA separately. The TILA-RESPA rule does not apply to loans made by persons who are not considered “creditors” because they make five or fewer mortgages as year. Generally, the Loan Estimate and Closing Disclosure require the disclosure of categories of information that will vary due to the type of loan, the payment schedule of the loan, the fees charged, the terms of the transaction, and State law provisions. The extent of these variations cannot be shown on a single, static example. This Guide includes most of the requirements concerning completing the Loan Estimate and Closing Disclosure. However, this Guide may not illustrate all of the permutations of the information required or omitted from the Loan Estimate or Closing Disclosure for any particular transaction. Only the TILA-RESPA rule and its official interpretations can provide complete and definitive information regarding its requirements.

Loan Estimate

Issuance and Delivery

You must provide a Loan Estimate to the consumer, either by delivering by hand or placing in the mail, no later than three business days of the receipt of an application. An application is considered received when the consumer provides the following information: § Consumer’s name, § Consumer’s income, § Consumer’s Social Security number to obtain a credit report, § Address of the property, § Estimate of the value of the property, and § The mortgage loan amount sought.

Revised Loan Estimate

When there is a changed circumstance after the Loan Estimate has been provided, the creditor can revise the Loan Estimate within three business days. A revised Loan Estimate generally can be provided no later than seven business days before consummation. (See section 2.1.5 below)

Use of Compliance Guide

Please see Compliance Guide, sections 6, 7, 8, and 9, for additional information on details of these requirements. The information that follows discusses how to complete the Loan Estimate. Samples of completed Loan Estimates can be found at


Dollar amounts must be rounded to the nearest whole dollar where noted in the regulation. (§ 1026. 37(o)(4)) If an amount is required to be rounded but is composed of other amounts that are not required or permitted to be rounded, use the unrounded amounts in calculating the total and then round the final sum. Conversely, if an amount is required to be rounded and is composed of rounded amounts, use the rounded amounts in calculating the total. (Comment 37(o)(4)-2) Percentage amounts may not be rounded and should be shown up to two or three decimals, as needed, except where noted in the regulation. (§ 1026.37(o)(4)(ii)) If a percentage amount is a whole number, show the whole number only with no decimals. (§ 1026.37(o)(4)(ii); Comment 37(o)(4)(ii)-1).


Consummation is not the same thing as closing or settlement. Consummation occurs when the consumer becomes contractually obligated to the creditor on the loan, not, for example, when the consumer becomes contractually obligated to a seller on a real estate transaction. (§ 1026.2(a)(13)) The point in time when a consumer becomes contractually obligated to the creditor on the loan depends on applicable State law. (§ 1026.2(a)(13); Comment 2(a)(13)-1) Creditors and settlement agents should verify the applicable State laws to determine when consummation will occur, and make sure delivery of the Loan Estimate occurs within three business days of the receipt of an application.


The point in time when a consumer becomes contractually obligated to the creditor on the loan depends on applicable State law. (§ 1026.2(a)(13); Comment 2(a)(13)-1) Creditors and settlement agents should verify the applicable State laws to determine when consummation will occur, and make sure delivery of the Loan Estimate occurs within three business days of the receipt of an application.

Good To Know
This Guide uses references to the legal obligation, which includes the promissory note plus any other agreements between the creditor and consumer concerning the extension of credit.

loan estimate

Page 1 of the Loan Estimate includes general information, a Loan Terms table with descriptions of applicable information about the loan, a Projected Payments table, a Costs at Closing table, and a link for consumers to obtain more information about loans secured by real property at a website maintained by the Bureau. Page 1 of the Loan Estimate includes the title “Loan Estimate” and a statement of “Save this Loan Estimate to compare with your Closing Disclosure.” (§ 1026.37(a)(1),(2)) The top of page 1 also includes the name and address of the creditor. (§ 1026.37(a)(3)) A logo or slogan can be used along with the creditor’s name and address, so long as the logo or slogan does not exceed the space provided for that information. (§ 1026.37(o)(5)(iii)) If there are multiple creditors, use only the name of the creditor completing the Loan Estimate. (Comment 37(a)(3)-1) If a mortgage broker is completing the Loan Estimate, use the name and address of the creditor if known. If not yet known, leave this space blank.

Date Issued

The date the Loan Estimate is mailed or delivered to the consumer. (§ 1026.37(a)(4)) Applicants Applicants includes the name and mailing address of the consumer(s) applying for the loan. Use each Applicant’s name and mailing address if there are multiple Applicants. An additional page may be added to the Loan Estimate if the space provided is insufficient to list all of the Applicants.


Property is the address of the property (which must include the zip code) that will secure the transaction. If the address of the Property is unavailable, use a description of the location of the property, for example a lot number. Always use a zip code.  Personal property such as furniture or appliances that also secures the credit transaction may be, but is not required to be included as Property. An additional page may not be appended to the Loan Estimate to disclose a description of personal property.

Sale Price or Appraised Value or Estimated Value

If the loan is for a purchase money mortgage, use Sale Price. (§ 1026.37(a)(7)(i)) If personal property is included in the Sale Price of the Property, use that price without any reduction for the appraised or estimated value of the personal property.  If the loan is for a transaction without a seller, use Appraised Value or Estimated Value.

Loan Term

Loan Term is the term of the debt obligation. Describe the Loan Term as “years” when the Loan Term is in whole years. For example “1 year” or “30 years.”  For a Loan Term that is more than 24 months but is not whole years, describe using years and months with the abbreviations “yr.” and “mo.,” respectively. For example, a loan term of 185 months is disclosed as “15 yr., 5mo.” For a Loan Term that is less than 24 months and not whole years, use months only with the abbreviation “mo.” For example, “6 mo.” or “16 mo.”


Describe the consumer’s intended use for the loan. (§ 1026.37(a)(9)) Purpose is disclosed using one of four descriptions: Purchase, Refinance, Construction, or Home Equity Loan.

  • Purchase is disclosed if the loan will be used to finance the Property’s acquisition.
  • Refinance is disclosed if the loan will be used for the refinance of an existing obligation that is secured by the Property (even if the creditor is not the holder or servicer of the original obligation).
  • Construction is disclosed if the loan will be used to finance the initial construction of a dwelling on the property disclosed on the Loan Estimate.
  • Home Equity Loan is disclosed if the loan will be used for any other purpose.


Provide a description of the loan.  You are required to include two pieces of information in this disclosure: The first piece of information is any payment feature that may change the periodic payment, which includes Negative Amortization, Interest Only, Step Payment, Balloon Payment, or Seasonal Payment. (§ 1026.37(a)(10)(ii)) Additionally, the duration of the relevant payment feature must be disclosed with a Negative Amortization, Interest Only, Step Payment, or Balloon Payment.  For example, a payment feature where there is a five-year period during which the payments cover only interest, and are not applied to the principal balance, would be disclosed as a 5 Year Interest Only for the payment feature.

  1. Negative Amortization is when the principal balance of the loan may increase due to the addition of accrued interest to the principal balance. § Interest Only is when one or more regular periodic payments may be applied only to interest accrued and not to the principal of the loan.
  2. Step Payment is when the scheduled variations in regular periodic payment amounts occur that are not caused by changes to the interest rate during the loan term.
  3. Balloon Payment is when the terms of the legal obligation include a payment that is more than two times that of a regular periodic payment.
  4. Seasonal Payment is when the terms of the legal obligation expressly provide that regular periodic payments are not scheduled between specified unitperiods on a regular basis. For example, a “teacher” loan that does not require monthly payments during summer months has a Seasonal Payment.
  5. If the loan can be described with more than one of these descriptions, only the first applicable feature is disclosed. For example, a loan that would result in both Negative Amortization and a Balloon Payment would only disclose Negative Amortization as part of Product

The second piece of information disclosed is whether the loan uses an Adjustable Rate, Step Rate, or Fixed Rate to determine the interest rate applied to the principal balance.

  • An interest rate is an Adjustable Rate if the interest rate may increase after consummation, but the rates that will apply or the periods for which they will apply are not known at consummation. Each description must be preceded by the duration of any introductory rate or payment period, and the first adjustment period, as applicable. For example, a product with an introductory rate that is fixed for the first five years and adjusts every three years starting in year 6 is a 5/3 Adjustable Rate. When there is no introductory period for an Adjustable Rate, disclose “0.”  For example, a product with no introductory rate that adjusts every year after consummation is a 0/1 Adjustable Rate.
  • An interest rate is a Step Rate if the interest rate will change after consummation and the rates that will apply and the periods for which they apply are known at consummation. Each description must be preceded by the duration of any introductory rate or payment period, and the first adjustment period, as applicable. For example, a product with a step rate that lasts for ten years, adjusts every year for five years, and then adjusts every three years for the next 15 years is a 10/1 Step Rate.When there is no introductory rate for a Step Rate, disclose “0” and then the applicable time period until the first adjustment.
  • An interest rate is a Fixed Rate if the interest rate is not an Adjustable Rate or Step Rate. The following are examples of Product with both pieces of information included:
  • Year 7 Balloon Payment, 3/1 Step Rate: a step rate with an introductory interest rate that lasts for three years and adjusts each year thereafter until a balloon payment is due in the seventh year of the loan term.
  • 2 Year Negative Amortization: a fixed rate product with a step-payment feature for the first two years of the legal obligation that may negatively amortize. When the time periods disclosed in Product are not in whole years, for time periods of 24 months or more, disclose the applicable fraction of a year by use of decimals rounded to two places. For time periods of 24 months or less, disclose the number of months with the abbreviation “mo.” For example:
  • An Adjustable Rate Product with an introductory interest rate for 31 months that adjusts every year thereafter is a 2.58/1 Adjustable Rate.
  • An Adjustable Rate Product with an introductory interest rate for 18 months that adjusts every 18 months thereafter is an 18 mo./18 mo. Adjustable Rate.
  • Loan Type Loan Type is the type of the loan, such as Conventional or FHA. For Loan Type, disclose: Conventional if the loan is not guaranteed or insured by a Federal or State government agency,
  • FHA if the loan is insured by the Federal Housing Administration,
  • VA if the loan is guaranteed by the U.S. Department of Veterans Affairs, and § Other with a brief description if the loan is insured or guaranteed by another Federal or a State agency.
  • Loan ID# Loan ID # is the creditor’s loan identification number that may be used by a creditor, consumer, and other parties to identify the transaction. The Loan ID # may contain alpha-numeric characters and must be unique to the particular transaction. The same Loan ID # may not be used for different, but related, loan transactions (such as different loans to the same borrower). When a revised Loan Estimate is issued, the Loan ID # must be sufficient for the purpose of identifying the transaction associated with the initial Loan Estimate.
  • Rate Lock Indicate the rate is locked with Yes, indicate the rate is not locked with No. When the interest rate is locked at the time of the Loan Estimate’s delivery, the date and time (including the applicable time zone) when the lock period ends must be disclosed. The date and time (including the applicable time zone) at which the estimated closing costs expire must be disclosed on every Loan Estimate.

Loan Terms

Disclose in the Loan Terms table:

  • Loan Amount (if the amount is in whole dollars, do not disclose cents)
  • § Initial Interest Rate,
  • Initial Monthly Principal & Interest amount
  • Any adjustments to these amounts after consummation,
  • Whether the loan includes a Prepayment Penalty, and § Whether the loan includes a Balloon Payment.

Interest Rate & Monthly Principal & Interest

If the initial Interest Rate is not known at consummation, the fully-indexed rate is disclosed; a fully-indexed rate is the interest rate calculated using the index value and margin at the time of consummation. The initial principal and interest payment amount also would be calculated using the same fully-indexed rate. Adjustment to Loan Amount, Interest Rate, and Monthly Principal & Interest after consummation Under the subheading Can this amount increase after closing?, if the Loan Amount, Interest Rate, or Monthly Principal & Interest amounts can increase after consummation, disclose Yes where applicable with the information pertinent to the adjustment after consummation.

  • For an adjustment in Loan Amount, the creditor must also disclose the maximum principal balance for the transaction and the due date (expressed as the year or month in which it occurs, rather than an exact date) of the last payment that may cause the principal balance to increase, together with a statement whether the maximum principal balance may or will occur under the terms of the legal obligation.  The date disclosed is the year in which the event occurs, counting from the due date of the initial periodic payment.
  • For an adjustment in the Interest Rate, also disclose the frequency of interest rate adjustments, the date when the interest rate may first adjust, the maximum interest rate, and the first date when the interest rate can reach the maximum interest rate.  The date disclosed is the year in which the event occurs, counting from the date that interest for the first scheduled periodic payment begins to accrue after consummation. Also, disclose and reference the Adjustable Interest Rate (AIR) Table on page 2 of the Loan Estimate.
  • For an adjustment to the Monthly Principal & Interest, the creditor would also disclose the scheduled frequency of adjustments, due date of the first adjustment, and the maximum possible amount (and the earliest date it can occur) of the Monthly Principal & Interest. In addition, if there is a period during which only interest is required to be paid, also disclose that fact and thedue date of the last periodic payment of such period. The date disclosed is the year in which the event occurs, counting from the due date of the initial payment. (Also, disclose and reference the Adjustable Payment (AP) Table on page 2.  When the Loan Amount, Interest Rate, or Monthly Principal & Interest payment cannot increase after consummation, disclose No where applicable. (§ 1026.37(b)(6)) Prepayment Penalty and Balloon Payment A Prepayment Penalty is a charge imposed for paying all or part of a transaction’s principal before the date on which the principal is due. It does not include a waived third-party charge that the creditor imposes if the consumer prepays the loan’s entire principal sooner than 36 months after closing.  A Balloon Payment is a payment that is more than two times a regular periodic payment. Under the subheading Does the loan have these features?, when the loan has a Prepayment Penalty or a Balloon Payment disclose Yes, as applicable.  and (5)) When the answer is Yes to either, also disclose, as applicable: § The maximum amount of the Prepayment Penalty and the date when the period during which the penalty may be imposed terminates. For example, As high as $3,240 if you pay off the loan in the first two years. § The maximum amount of the Balloon Payment and the due date of such payment. For example, You will have to pay $149,263 at the end of year 7.


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New NMLS Test Guidelines 2017

Federal Mortgage-Related Laws (23%)

  • A. Real Estate Settlement Procedures Act (RESPA), Regulation X
  • B. Equal Credit Opportunity Act (ECOA), Regulation B
  • C. Truth-in-Lending Act (TILA): Regulation Z
    • 1. Home Ownership and Equity Protection Act (HOEPA Section 32)
    • 2. High Price Mortgage Law (HPML Section 35)
    • 3. Loan Originator Compensation
  • D. TILA-RESPA Integrated Disclosure Rule (TRID)
  • E. Other Federal laws and guidelines
    • 1. Home Mortgage Disclosure Act (HMDA)
    • 2. Fair Credit Reporting Act (FCRA)/Fair and Accurate Credit Transactions Act (FACTA)
    • 3. Privacy protection / Do Not Call
    • 4. FTC Red Flag rules
    • 5. Dodd-Frank
    • 6. Bank Secrecy Act/Anti-Money Laundering (BSA/AML)
    • 7. Gramm-Leach-Bliley Act – Privacy and FTC Safeguard Rules
    • 8. Mortgage Acts and Practices – Advertising (Regulation N)
    • 9. Electronic Signature in Global and National Commerce Act (E-SIGN Act)
    • 10. USA PATRIOT Act
    • 11. Homeowners’ Protection Act
  • F. Regulatory authority
    • 1. Consumer Financial Protection Bureau (CFPB)
    • 2. Department of Housing and Urban Development (i.e., HUD, related to fair lending and fair housing)

General Mortgage Knowledge (23%)

  • A. Qualified and Non-qualified Mortgage programs
    • 1. Conventional/conforming (e.g., Fannie Mae, Freddie Mac)
    • 2. Government (e.g., FHA, VA, USDA)
    • 3. Conventional/nonconforming (e.g., Jumbo, Alt-A)
      • a. Statement on Subprime Lending
      • b. Guidance on Nontraditional Mortgage Product Risk
      • c. Non-qualified mortgage (Non-QM)
  • B. Mortgage loan products
    • 1. Fixed
    • 2. Adjustable
    • 3. Balloon
    • 4. Reverse mortgage
    • 5. Home equity (fixed and line of credit)
    • 6. Construction mortgage
    • 7. Interest-only
  • C. Terms used in the mortgage industry
    • 1. Loan terms
    • 2. Disclosure terms
    • 3. Financial terms
    • 4. General terms

Mortgage Loan Origination Activities (25%)

  • A. Application information and requirements
    • 1. Application accuracy and required information (e.g., 1003)
      • a. Borrower
      • b. Loan originator
      • c. Verification and documentation
    • 2. Suitability of products and programs
    • 3. Disclosures
      • a. Accuracy (e.g., tolerances)
      • b. Timing (e.g., Loan Estimate, Closing Disclosure, Homeownership Counseling Disclosure)
      • c. Delivery method (e.g., electronic, mail, face-to-face)
  • B. Qualification: processing and underwriting
    • 1. Borrower analysis
      • a. Assets b. Liabilities
      • c. Income
      • d. Credit report
      • e. Qualifying ratios (e.g., housing, debt-to-income, loan-to-value)
      • f. Ability to repay
      • g. Tangible net benefit
    • 2. AppraisalsCopyright © 2015. SRR. All rights reserved.
    • 3. Title report
    • 4. Insurance: hazard, flood, and mortgage (PMI, MIP)
  • C. Closing
    • 1. Title and title insurance
    • 2. Settlement/Closing agent
    • 3. Explanation of fees
    • 4. Explanation of documents
    • 5. Funding
  • D. Financial calculations used in mortgage lending
    • 1. Periodic interest
    • 2. Payments (principal, interest, taxes, and insurance; mortgage insurance, if applicable)
    • 3. Down payment
    • 4. Loan-to-value ratios
    • 5. Debt-to-income ratios
    • 6. Temporary and fixed interest rate buy-down (discount points)
    • 7. Closing costs and prepaid items
    • 8. ARMs (e.g., fully indexed rate)
    • 9. Qualified Mortgage monthly payment calculations

Ethics (16%)

  • A. Ethical issues related to federal laws
    • 1. Violations of federal law
    • 2. Prohibited acts
    • 3. Fairness in lending
    • 4. Fraud detection
    • 5. Advertising
    • 6. Predatory lending and steering
  • B. Ethical behavior related to loan origination activities
    • 1. Financial responsibility
    • 2. Handling consumer complaints
    • 3. Company compliance
    • 4. Relationships with consumers
    • 5. Truth in marketing and advertising
    • 6. Consumer education
    • 7. General business ethics

Uniform State Content (13%)

  • A. SAFE Act and CSBS/AARMR Model State Law
    • 1. Department of Financial Institutions or Mortgage Regulatory Commission
      • a. Regulatory authority
      • b. Responsibilities and limitations
  • 2. State Law and Regulation Definitions
  • 3. License Law and Regulation
    • a. Persons required to be licensedCopyright © 2015. SRR. All rights reserved.
    • b. Licensee qualifications and application process
    • c. Grounds for denying a license
    • d. License maintenance
    • e. NMLS requirements
  • 4. Compliance
    • a. Prohibited conduct and practices
    • b. Required conduct
    • c. Advertising

Does Advertising Is Illegal For A Loan Originator?

The following requirements apply to consumer credit advertising:

  • Credit advertising may not be false or misleading.
  • Disclosures must be made clearly and conspicuously (i.e., in a reasonably understandable form).
  • Specific credit terms may only be stated if those terms actually are or will be arranged or offered to the consumer.
  • Bait-and-switch credit promotions are not allowed (e.g., advertising a loan at very attractive terms and then informing potential customers that that loan is not available but that a different loan with different terms is).

An advertisement may not state that a specific installment payment or a specific down payment can be arranged unless the lender is prepared to make those arrangements, nor may it misrepresent an adjustable-rate mortgage as a fixed-rate mortgage. However, an ad may contain terms that will be offered only for a limited time or that will become available at a known future date.

Trigger Terms
If an ad contains a trigger, or triggering, term, it must disclose a number of additional credit terms. A triggering term is any of the following specific credit terms:

  • The amount or percentage of any down payment (e.g., “5% down,” “95% financing,” “$6,200 down”), except when the amount of the down payment is zero
  • The number of payments or period of repayment (e.g., “360 monthly payments” or “30-year loan”)
  • The amount of any payment (e.g., “payments of less than $1,400 per month”)
  • The amount of any finance charge (e.g., “total financing costs of less than $3,000”)

Good To Know
If an ad states a rate of finance charge, it must state the rate as an annual percentage rate, using that term or the abbreviation “APR.” The primary lending rate that may be advertised is the APR. If the APR can change during the loan term, that fact must be contained in the ad.


Disclosure is required even if a triggering term is not stated explicitly but may be readily determined from the content of the ad.

An ad that states “80% financing” implies that a 20% down payment is required, so additional disclosures are required. However, an ad that states “100% financing” requires no further disclosures because no down payment is required.

Disclosures required in an ad containing a triggering term include:

  • the amount or percentage of the down payment.
  • the terms of repayment (i.e., the payment schedule [i.e., the number, timing and amount of the payments], including any final balloon payment, scheduled to repay the debt).
  • the annual percentage rate, using that term or the abbreviation “APR.”
An ad containing all the required credit terms would be:
Cash price $100,000. $5,000 down. Interest at 9?% (10.5% APR). Mortgage of $94,600 to be paid in 360 equal and consecutive monthly installments of $822.08, plus taxes and insurance..

Advertisements for Credit Secured by a Dwelling
The following requirements apply to any ad for credit secured by a dwelling, other than television or radio advertisements, including promotional materials accompanying applications.

If the ad states a simple annual rate of interest and more than one simple annual rate of interest will apply over the term of the advertised loan, the ad must clearly and conspicuously (i.e., with equal prominence and in close proximity to any advertised rate) disclose:

  • each applicable simple annual rate of interest. In a variable-rate transaction, a rate determined by adding a reasonably current index and margin must be disclosed.
  • the period of time during which each simple annual rate of interest will apply.
  • the APR for the loan.

If the ad states the amount of any payment, it must clearly and conspicuously disclose:

  • the amount of each applicable payment over the term of the loan, including any balloon payment (based on reasonably current index and margin, for a variable-rate loan).
  • the period of time during which each payment will apply.
  • for credit secured by a first lien on a dwelling, the fact that the payments do not include amounts for taxes and insurance premiums, if applicable, and that the actual payment obligation will be greater.

An ad for credit secured by a dwelling must avoid causing confusion between fixed- and variable-rate loans. Therefore, it may not:

  • use the word “fixed” to refer to rates, payments or the credit transaction for a variable-rate transaction;
  • use the word “fixed” to refer to rates, payments or the credit transaction for any transaction where the payment will increase (e.g., a stepped-rate mortgage transaction with an initial lower payment); or
  • use the word “fixed” to refer to rates, payments or the credit transaction in an ad for both variable-rate transactions and nonvariable-rate transactions.

The use of the word “fixed” may be used when advertising variable-rate loans if:

  • the phrase “adjustable-rate mortgage,” “variable-rate mortgage,” or “ARM” appears in the advertisement before the first use of the word “fixed” and is at least as conspicuous as any use of the word “fixed” in the ad; and
  • each use of the word “fixed” to refer to a rate or payment is accompanied by an equally prominent and closely proximate statement of the time period for which the rate or payment is fixed and the fact that the rate may vary or the payment may increase after that period.

An ad for credit secured by a dwelling may not:

  • state that a product is a “government loan program,” “government-supported loan” or otherwise endorsed or sponsored by any government entity unless the ad is for an FHA loan, VA loan or similar loan program that is, in fact, endorsed or sponsored by a government entity.
  • use the name of the consumer’s current creditor if the ad is not sent by or on behalf of that creditor, unless:
    • the name of the person or lender making the advertisement is disclosed with equal prominence; and
    • the ad includes a clear and conspicuous statement that the person making the advertisement is not associated with, or acting on behalf of, the consumer’s current creditor.
  • make any misleading claim that the product offered will eliminate debt or result in a waiver or forgiveness of a consumer’s existing loan terms with, or obligations to, another lender.
  • use the term “counselor” to refer to a for-profit mortgage broker or mortgage lender, its employees or persons working for the broker or lender that are involved in offering, originating or selling mortgages.
  • provide information about some trigger terms or required disclosures (e.g., an initial rate or payment) only in a foreign language and provide information about other trigger terms or required disclosures (e.g., information about the fully indexed rate or fully amortizing payment) only in English.

Oral Rate Disclosures (12 CFR Section 1026.26)
If a consumer orally asks about the cost of credit, the lender must state the APR. For closed-end credit, he may also give a periodic or simple interest rate that is applied to an unpaid balance. If a lender cannot determine the APR for the specific closed-end credit about which he is being asked, he may disclose instead the APR in a sample transaction.

For open-end credit, once a lender states the APR, he may also give the periodic rate. Other information that applies to the consumer’s specific transactio

Who Needs To Be Licensed in Mortgage Business

This is a question which many people ask. To be safe with RESPA violations a person needs to be licensed when he or she:

  • takes a residential application and facilitate a decision on whatewer to extend an offer of residential mortgage loan terms to a borrower or prospective borrower; or accepting the terms offered by a borrower or prospective borrower in response to a solicitation.

A state is not required to license the following individuals as loan originators (continued):

  • A licensed attorney who negotiates the terms of a residential mortgage loan on behalf of a client as an ancillary matter to his representation of the client, unless the attorney is compensated by a lender, mortgage broker or other mortgage loan originator, or by any agent of the same
  • An individual who is an employee of a federal, state or local government agency or housing finance agency and who acts as a loan originator in his official duties as an employee
Good To Know!
A housing finance agency is any authority: that is: chartered by a state to help meet the affordable housing needs of the residents of the state; supervised directly or indirectly by the state government; and subject to audit and review by the state in which it operates; and whose activities make it eligible to be a member of the National Council of State Housing Agencies.

A state is not required to license the following individuals as loan originators :

  • An employee of a bona fide nonprofit organization who acts as a loan originator:
    • in his capacity as an employee of the bona fide nonprofit organization; and
    • makes residential mortgage loans with terms that are favorable to the borrower

For an organization to be considered a bona fide nonprofit organization, a state supervisory agency that does not require the licensing of an employee of such an organization must determine that the organization:

  • has the status of a tax-exempt organization under section 501(c)(3) of the Internal Revenue Code of 1986;
  • promotes affordable housing or provides homeownership education or similar services;
  • conducts its activities in a manner that serves public or charitable purposes rather than commercial purposes;
  • receives funding and revenue and charges fees in a manner that does not incentivize it or its employees to act other than in the best interests of its clients;
  • compensates its employees in a manner that does not incentivize employees to act other than in the best interests of its clients;
  • provides or identifies for the borrower residential mortgage loans with terms favorable to the borrower and comparable to mortgage loans and housing assistance provided under government housing assistance programs; and
  • meets other standards that the state determines appropriate.

A state must periodically examine the books and activities of a bona fide nonprofit organization and revoke its status as such an organization if it does not continue to the meet the criteria.

For Example
Alice Lost, a new homebuyer, applies for a mortgage loan at the Bank of Wonderland. Matt Hatter discusses the bank’s loan terms and rates with Alice and takes her application. Matt hands off the application to Katt Appeller who, over the next few weeks until closing, speaks with Alice on the phone to obtain information from her that is necessary to complete the application process. Matt is a registered loan originator; he has a unique identifier from the NMLS. Katt is a loan processor; she is not registered with the NMLS.

Background Checks (12 USC Section 5104(a); 12 CFR 1008.105(g); MSL.050)
When making an application to any state for licensing and registration as a state-licensed loan originator, the applicant must, at a minimum, furnish to the NMLS information concerning his identity, including:

  • fingerprints for submission to the Federal Bureau of Investigation and any governmental agency or entity authorized to receive such information for a state, national and international criminal history background check; and
  • his personal history and experience, including authorization to obtain:
    • an independent credit report obtained from a consumer reporting agency; and
    • information related to administrative, civil or criminal findings by any governmental agency.

The Attorney General must provide access to all criminal history information to officials of the state licensing agency responsible for regulating state-licensed loan originators as required under the state’s loan originator licensing laws. (12 USC Section 5110(a))

Prelicense Education (12 USC Section 5104(c); 12 CFR 1008.105(d); MSL.070)
An applicant for a loan originator license must satisfactorily complete a prelicensing course of study that includes at least 20 hours of NMLS-reviewed and -approved education. The 20 hours of education must include:

  • three hours of federal law and regulations;
  • three hours of ethics, including instruction on fraud, consumer protection and fair lending issues; and
  • two hours of training related to lending standards of the nontraditional mortgage product marketplace (i.e., any mortgage product other than a 30-year fixed-rate mortgage [15 USC 1503])

NMLS-approved prelicensing education courses may be:

  • provided by the employer of the applicant, an entity which is affiliated with the applicant by an agency contract or any subsidiary or affiliate of such employer or entity.
  • offered in a classroom, online or by any other means approved by the NMLS.

Any prelicensing education course in federal law and regulations, ethics or lending standards for the nontraditional mortgage product approved by the NMLS for any state may be accepted as credit towards completion of the prelicensing education requirement in the licensing state.

Testing and Retesting (12 USC Section 5104(d); 12 CFR 1008.105(e); MSL.080)
In addition to completing the prelicensing education, an individual applying for a loan originator license must pass a written test, developed by the NMLS and administered by an approved test provider.

The written test is required to measure the applicant’s knowledge and comprehension in subject areas that include:

  • ethics;
  • federal law and regulation pertaining to mortgage origination;
  • state law and regulation pertaining to mortgage origination; and
  • federal and state law and regulation as it relates to fraud, consumer protection, the nontraditional mortgage marketplace and fair lending issues.

An applicant must pass the examination with a score of at least 75 percent. An applicant that fails the test may take it two additional times, if necessary, with at least 30 days between each attempt. If he fails three consecutive tests, the applicant must wait at least six months before taking the test again.

A state-licensed loan originator who fails to maintain a valid license for a period of five years or longer must also retake the licensing test. The five-year timeframe does not take into account any period of time during which an individual acted as a registered loan originator.

License Qualifications and Application Process

Surety Bond (12 USC Section 5104(b)(6); 12 CFR Section 1008.105(f); MSL .140)
Each mortgage loan originator must be covered by a surety bond. If he is an employee or exclusive agent of a person subject to the state’s SAFE Act, the surety bond of his employing licensee may be used to satisfy the loan originator surety bond requirement.

The penal sum of the surety bond must be maintained in an amount that reflects the dollar amount of loans originated. When an action is commenced on a licensee’s bond, the state licensing agency may require the filing of a new bond. Immediately upon recovery of any action filed against the bond, however, the licensee must file a new bond.

Net Worth (12 USC Section 5104(b)(6); 12 CFR Section 1008.105(f); MSL .140)
Some states may require a mortgage loan originator to continuously maintain a minimum net worth. As with the surety bond requirement, if the mortgage loan originator is an employee or exclusive agent of a person subject to the state’s SAFE Act, the net worth of that person may be used to satisfy the mortgage loan originator’s requirement.

The amount of the minimum net worth will be a reflection of the dollar amount of loans originated.

State Fund (12 USC Section 5104(b)(6); 12 CFR Section 1008.105(f); MSL .140)
A state may also choose to develop and administer a fund specifically to provide protection to consumers by making funds available for claims resulting from violations of state or federal laws and regulations. In lieu of a surety bond or net worth requirement, a state may require a loan originator to pay a certain amount into the state fund.

In order for a state to approve a license application, the following minimum standards must be met. The applicant must show that he:

  • has never had a loan originator license revoked in any governmental jurisdiction (a revocation that has been vacated will not be deemed a revocation).
  • has not been convicted of, or pled guilty or nolo contendere to, a felony in any court:
    • during the seven-year period preceding the date of the application; or
    • at any time if the felony involved an act of fraud, dishonesty or a breach of trust or money laundering.

If the applicant has received a pardon of a conviction, for licensing purposes, the conviction will not be considered
  • has completed the prelicensing education requirements and passed the written licensing test.
  • has met either a net worth or surety bond requirements or paid into a state fund as applicable.
  • has demonstrated the financial responsibility, character and general fitness to command the confidence of the community and warrant a determination that he will operate honestly, fairly and efficiently under reasonable standards established by the individual state.

Grounds for Denying License

An applicant will have shown he is not financially responsible when he has shown disregard in the management of his own financial condition. This may be evidenced by:

  • current outstanding judgments, except judgments solely as a result of medical expenses;
  • current outstanding tax liens or other government liens and filings; and/or
  • foreclosures or a pattern of seriously delinquent accounts within the past three years.

Ward Smith is applying for a loan originator license. He has taken the required prelicense education and passed the written examination. Ward was convicted of auto theft eight years ago, money laundering ten years ago, and burglary nine years ago.

Ward does have a lengthy rap sheet, but the reason his application must be denied is the money laundering conviction. An applicant may not at any time have been convicted of a felony involving fraud, dishonesty, breach of trust or money laundering. Felonies involving any other crimes result in automatic denial if committed within seven years prior to the application date.

Continuing Education(12 USC Section 5105); 12 CFR 1008.107; MSL.100)
In order to meet the annual continuing education requirement, a state-licensed loan originator must complete at least eight hours of NMLS-reviewed and -approved coursework. The eight hours must include:

  • three hours of federal law and regulations;
  • two hours of ethics, including instruction on fraud, consumer protection and fair lending issues; and
  • two hours of training related to lending standards for the nontraditional mortgage product marketplace.

In meeting the continuing education requirement, a state-licensed loan originator:

  • may only receive credit for a course in the year in which the course is taken.
  • may not take the same approved course in the same or successive years.
  • if he is an approved instructor of continuing education, may receive credit towards his own annual continuing education requirement at the rate of two hours credit for every one hour taught.

A person who has successfully completed the continuing education requirements for any state may have that approved coursework be accepted as credit toward completion of his continuing education in the licensing state.

An individual who was previously licensed and is applying to be licensed again must have completed all of the continuing education requirements for the year in which his license was last held.

Renewal (12 USC Section 5105; 12 CFR 1008.107; MSL.090)
In order to renew his license, a state-licensed loan originator must:

  • continue to meet the minimum standards for license issuance;
  • satisfy the annual continuing education requirements; and
  • pay all required renewal fees.

The license of a mortgage loan originator failing to satisfy the minimum renewal requirements will expire. Procedures for the reinstatement of expired licenses may be adopted by the state, provided they are consistent with the standards established by the NMLS. If a licensee fails to meet continuing education required for license renewal, he may make up any deficiency based on the rules set forth by his licensing state.

Mortgage Call Reports (12 USC Section 5104(e); 12 CFR Section 1007; MSL.180)
A mortgage licensee must submit to the NMLS reports of condition. The reports must be in the form and contain the information which may be required by the NMLS.

Registration of Employees of Depository Institutions

The SAFE Act requires the creation of a registration system for those individuals acting as mortgage loan originators while employed by:

  • a depository institution;
  • a subsidiary that is controlled by a depository institution and regulated by a federal banking agency (e.g., the FDIC or the NCUA); or
  • an institution regulated by the Farm Credit Administration.

The federal banking agencies and the Federal Farm Credit Administration were originally charged with the responsibility for creating the registration system. This was accomplished with the creation of Regulation G in July 2010.

In December 2011, the CFPB which, under the SAFE Act, had inherited the authority to regulate the licensing and registration of mortgage loan originators from the federal banking agencies, republished Regulation G with changes to reflect the transfer of authority. These updated regulations are located in Title 12, Chapter X, Part 1007, of the Code of Federal Regulations.

Under the registration system, an applicant must meet minimum statutory requirements by furnishing to the NMLS information concerning his identity, including:

  • fingerprints for submission to the Federal Bureau of Investigation and any governmental agency or entity authorized to receive such information for a state and national criminal history background check; and
  • the applicant’s personal history and experience, including authorization to obtain:
    • an independent credit report obtained from a consumer reporting agency; and
    • information related to administrative, civil or criminal findings by any governmental agency.


Registration of Mortgage Loan Originators

Why Real Estate is a Good Investment Choice

Real estate allows an investor to control a valuable asset with only a small commitment. For investment purposes, an initial investment consists of a 20% down payment plus some closing costs. If you are buying a fixer, then your investment will be higher. That said, your initial investment is much smaller in relation to the value of the asset you are purchasing. Few investments allow this kind of leverage.

Indeed, leverage can be a double edged sword. It can magnify your investment results when things go well. It can work in reverse as well. That is why a margin of safety is vital. A margin of safety is a principle typically associated with investing in securities. It can also be applied to real estate.

Margins of safety for real estate can include the spread between your income and expenses. This is where you only settle for properties offering good, consistent cash flows. For example, a residential property in a distressed market is likely to be underpriced. Your mortgage payments are low in relation to what you’re getting for rent. Being a residential property, there are also plenty of people to rent the property to. Compare this with a commercial property with a greater return on investment but is attractive for only certain types of businesses. You have a much higher risk of vacancy loss. This simply means the property is sitting empty while you are paying the mortgage, taxes, and upkeep. This is why the residential property is the better investment choice despite having a lower ROI.

Another metric that is useful is the market’s price to medium income ratio. This is an important metric to avoid getting caught up in manias and bubbles. When the price for a median home is much more that three times the median income, the overall market is overpriced. As Warren Buffet has said, there are times in which it’s best to do nothing. Opportunities will eventually come.

In addition to getting positive cash flow, real estate is a good inflation hedge over long periods of time. There will be bubbles and panics again in the future. However, real estate will always revert back to its intrinsic value. Investors are best off when they don’t get caught up in the highs and lows. Instead, only buy properties that offer positive cash flow while you wait for price appreciation to accumulate.

Lower Prices for Las Vegas Real Estate

The real estate market in Las Vegas continues its extended slump. S & P has reported yet another 8.5% drop in prices, this time covering a period that spans form October 2010 to October 2011. The Vegas area also has an unemployment rate of 12.5% with tons of underwater mortgages.

On a more positive note, those who have a mortgage owned by Fannie Mae or Freddie Mac may be able to refinance even with an underwater mortgage. You may not get the principal reduced, but you may be able to reduce your monthly payments considerably. See our video below.

Investing with a Cash Flow Approach

Models that value assets are often based on discounting future cash flows. This means that the value of an investment depends on how much cash and when the investor will receive it. Any other purchase is a speculation.

Obviously, a dollar now is worth more than a dollar tomorrow. This is why we discount future cash flows. That is, we actually reduce the value by a certain degree depending on when the cash will be received. This is called discounting. Examples of discounting models are the popular discounted cash flow analysis and net present value. The farther into the future in which the cash flow is expected, the more discounted it is.

Our own cash flow analysis calculator for rental properties only values the yields based on the immediate year’s cash flow. We feel this is most important even though cash flows will rise with inflation assuming you have a fixed interest rate on your mortgage. But there’s a problem. We don’t know how much inflation we will see in the coming years. And, therefore, cannot put an accurate cash flow value on it. In fact, this is the trouble we have with traditional valuation models. Our cash flow analysis calculator, mentioned earlier, is based on a higher degree of certainty.

Whichever model is best is debatable. What is important, however, is the concept of knowing the difference between sound investing and speculating. Sound investments require a realistic way for turning assets into cash. This could be a building with a tenant, a franchise sandwich shop, or a plant that manufactures widgets.

Things that offer no cash flow are only a speculation. These can range from collectibles to raw land. Gold, depending on your approach, can be pure speculation. If you buy it hoping for capital appreciation and a quick profit, then it’s just a speculation. If you buy and hold it for security reasons, such as a hedge against paper currencies, then it may not be a speculative play. It shouldn’t be considered an investment either. It should consist of only a portion of your portfolio which should include cash generating investments. It’s important to understand the difference between the two and being able to balance your life accordingly.

 Simple Steps to Maximize Your Return with Real Estate Investing

When owning rental property, it’s important to both maximize your gross income and keep expenses low. It’s important to keep up-to-date on comparable rents and keep the property in good condition.

Generally, a well maintained property will rent for more than a similar property that has not been maintained. You can both collect higher rent an find better quality tenants. Better tenants will be more responsible in maintaining your property. Although maintenance is a cost in the short run, it will help keep costs lower in the long run. Maintenance can prolong the life of many appliance and other fixtures which are very expensive to replace.

Often, it is wise to invest in a periodic remodel. You need to be careful, though. Don’t overbuild for your neighborhood. This can result in a lot of wasted capital. Location is the most important part of a property’s value. Avoid over-investing if comparable homes are average to low quality. That being said, you should strive to keep your property average to slightly above average condition in relation to what the local market expects. This will help you get the optimal cash flow from your rental property.

Avoid over-renovating so you can keep costs low. You don’t want to renovate as if you were moving into the property yourself. Nor do you want to have the fanciest home in the neighborhood. You should strive to get a positive return for every dollar you use to improve the property. This can be a challenge at time. It’s important to focus on what offers the best payoff.

One thing to place a priority on is the landscaping in the front yard. The front yard is a first impression. It appeals to quality tenants. You want your tenants to be proud of where they live. This will offer an incentive to take care of the property. You should also look into investing in new paint and carpet. This is often worthwhile between tenants. Also, be sure your property has a modern look and feel. This will also increase the market value when you decide to sell the property.

Think Twice Before Making Extra Principal Payments

Many homeowners are in a rush to pay off their home loans. This is not always a wise decision. First, you lose liquidity and put your home equity at a higher risk. This is especially the case if you have little cash set aside and if you have few liquid investments. You should always strive to have at least six months of savings set aside.

Consider the following two situations. The first is a homeowner who routinely pays extra on her mortgage with the intent of the home being paid off early. Yes, it is true that if you pay a little extra each month, you will pay the home off substantially faster. Now, the second homeowner only makes the minimum payment each month.

Let’s imagine that a few years go by and both homeowners lose their jobs. And can no longer make their mortgage payments. Who is better off? The first homeowner has more equity than the second owner. However, the real estate market is slow and she may not be able to sell the home before it goes into foreclosure. And, yes, the second owner is in the same situation.

That being said, the second homeowner, who had been just making the minimum payment, has more options. She knows that the bank has little incentive to foreclose on the property. This is because the mortgage balance is high. That is, the bank isn’t in a position to gain hardly anything by foreclosing. The firs homeowner is a better target for the bank because they can sell the property and recover their losses.

Let’s also pretend that the second homeowner either saved or invested the money in which she was considering paying extra on the mortgage. She now has multiple options. She can keep current on her mortgage from these savings. This is the case whether she kept the money in a savings account or invested the money in liquid investments like stocks. Or, if she stops making the payments, the bank would be in no rush to foreclose.

Banks are incentivized to foreclose on properties with low loan balances first. This is because they can recover their losses easily. A home that is underwater or has a high balance will cause the lender to incur a loss, which is why lenders are seldom in a rush to foreclose on an underwater home. This is especially the case in a weak market because it would only add to the inventory of homes for sale, which is one more thing driving down prices.

Mortgage Dictionary

As you go through the home financing process, you may hear some industry terms that you are unfamiliar with.  We hope that this list of common terms helps your understanding of this process.

2/1 Buy Down Mortgage
The 2/1 Buy Down Mortgage allows the borrower to qualify at below market rates so they can borrow more. The initial starting interest rate increases by 1% at the end of the first year and adjusts again by another 1% at the end of the second year. It then remains at a fixed interest rate for the remainder of the loan term. Borrowers often refinance at the end of the second year to obtain the best long term rates; however, even keeping the loan in place for three full years or more will keep their average interest rate in line with the original market conditions.

Acceleration Clause
Provision in a mortgage that allows the lender to demand payment of the entire principal balance if a monthly payment is missed or some other default occurs.

Additional Principal Payment
A way to reduce the remaining balance on the loan by paying more than the scheduled principal amount due.

Adjustable-Rate Mortgage (ARM)
A mortgage with an interest rate that changes during the life of the loan according to movements in an index rate. Sometimes called AMLs (adjustable mortgage loans) or VRMs (variable-rate mortgages).

Adjusted Basis
The cost of a property plus the value of any capital expenditures for improvements to the property minus any depreciation taken.

Adjustment Date
The date that the interest rate changes on an adjustable-rate mortgage (ARM).

Adjustment Period
The period elapsing between adjustment dates for an adjustable-rate mortgage (ARM).

Affordability Analysis
An analysis of a buyers ability to afford the purchase of a home. Reviews income, liabilities, and available funds, and considers the type of mortgage you plan to use, the area where you want to purchase a home, and the closing costs that are likely.

The gradual repayment of a mortgage loan, both principle and interest, by installments.

Amortization Term
The length of time required to amortize the mortgage loan expressed as a number of months. For example, 360 months is the amortization term for a 30-year fixed-rate mortgage.

Annual Percentage Rate (APR)
The cost of credit, expressed as a yearly rate including interest, mortgage insurance, and loan origination fees. This allows the buyer to compare loans, however APR should not be confused with the actual note rate.

A written analysis prepared by a qualified appraiser and estimating the value of a property.

Appraised Value
An opinion of a property’s fair market value, based on an appraiser’s knowledge, experience, and analysis of the property.

Anything owned of monetary value including real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, etc.).

The transfer of a mortgage from one person to another.

An assumable mortgage can be transferred from the seller to the new buyer. Generally requires a credit review of the new borrower and lenders may charge a fee for the assumption. If a mortgage contains a due-on-sale clause, it may not be assumed by a new buyer.

Assumption Fee
The fee paid to a lender (usually by the purchaser of real property) when an assumption takes place.

Balance Sheet
A financial statement that shows assets, liabilities, and net worth as of a specific date.

Balloon Mortgage
A mortgage with level monthly payments that amortizes over a stated term but also requires that a lump sum payment be paid at the end of an earlier specified term.

Balloon Payment
The final lump sum paid at the maturity date of a balloon mortgage.

Before-tax Income
Income before taxes are deducted.

Biweekly Payment Mortgage
A plan to reduce the debt every two weeks (instead of the standard monthly payment schedule). The 26 (or possibly 27) biweekly payments are each equal to one-half of the monthly payment required if the loan were a standard 30-year fixed-rate mortgage. The result for the borrower is a substantial savings in interest.

Bridge Loan
A second trust that is collateralized by the borrower’s present home allowing the proceeds to be used to close on a new house before the present home is sold. Also known as “swing loan.”

An individual or company that brings borrowers and lenders together for the purpose of loan origination.

When the seller, builder or buyer pays an amount of money up front to the lender to reduce monthly payments during the first few years of a mortgage. Buydowns can occur in both fixed and adjustable rate mortgages.

Limits how much the interest rate or the monthly payment can increase, either at each adjustment or during the life of the mortgage. Payment caps don’t limit the amount of interest the lender is earning and may cause negative amortization.

Certificate of Eligibility
A document issued by the federal government certifying a veteran’s eligibility for a Department of Veterans Affairs (VA) mortgage.

Certificate of Reasonable Value (CRV)
A document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA mortgage.

Change Frequency
The frequency (in months) of payment and/or interest rate changes in an adjustable-rate mortgage (ARM).

A meeting held to finalize the sale of a property. The buyer signs the mortgage documents and pays closing costs. Also called “settlement.”

Closing Costs
These are expenses – over and above the price of the property- that are incurred by buyers and sellers when transferring ownership of a property. Closing costs normally include an origination fee, property taxes, charges for title insurance and escrow costs, appraisal fees, etc. Closing costs will vary according to the area country and the lenders used.

Compound Interest
Interest paid on the original principal balance and on the accrued and unpaid interest.

Consumer Reporting Agency (or Bureau)
An organization that handles the preparation of reports used by lenders to determine a potential borrower’s credit history. The agency gets data for these reports from a credit repository and from other sources.

Conversion Clause
A provision in an ARM allowing the loan to be converted to a fixed-rate at some point during the term. Usually conversion is allowed at the end of the first adjustment period. The conversion feature may cost extra.

Credit Report
A report detailing an individual’s credit history that is prepared by a credit bureau and used by a lender to determine a loan applicant’s creditworthiness.

Credit Risk Score
A credit score measures a consumer’s credit risk relative to the rest of the U.S. population, based on the individual’s credit usage history. The credit score most widely used by lenders is the FICO® score, developed by Fair, Issac and Company. This 3-digit number, ranging from 300 to 850, is calculated by a mathematical equation that evaluates many types of information that are on your credit report. Higher FICO® scores represents lower credit risks, which typically equate to better loan terms. In general, credit scores are critical in the mortgage loan underwriting process.

Deed of Trust
The document used in some states instead of a mortgage. Title is conveyed to a trustee.

Failure to make mortgage payments on a timely basis or to comply with other requirements of a mortgage.

Failure to make mortgage payments on time.

This is a sum of money given to bind the sale of real estate, or a sum of money given to ensure payment or an advance of funds in the processing of a loan.

In an ARM with an initial rate discount, the lender gives up a number of percentage points in interest to reduce the rate and lower the payments for part of the mortgage term (usually for one year or less). After the discount period, the ARM rate usually increases according to its index rate.

Down Payment
Part of the purchase price of a property that is paid in cash and not financed with a mortgage.

Effective Gross Income
A borrowers normal annual income, including overtime that is regular or guaranteed. Salary is usually the principal source, but other income may qualify if it is significant and stable.

The amount of financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on the mortgage.

An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the deposit of funds or documents into an escrow account to be disbursed upon the closing of a sale of real estate.

Escrow Disbursements
The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.

Escrow Payment
The part of a mortgagor’s monthly payment that is held by the servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due.

Fannie Mae
A congressionally chartered, shareholder-owned company that is the nation’s largest supplier of home mortgage funds.

FHA Mortgage
A mortgage that is insured by the Federal Housing Administration (FHA). Also known as a government mortgage.

FICO Score
FICO® scores are the most widely used credit score in U.S. mortgage loan underwriting. This 3-digit number, ranging from 300 to 850, is calculated by a mathematical equation that evaluates many types of information that are on your credit report. Higher FICO® scores represent lower credit risks, which typically equate to better loan terms.

First Mortgage
The primary lien against a property.

Fixed Installment
The monthly payment due on a mortgage loan including payment of both principal and interest.

Fixed-Rate Mortgage (FRM)
A mortgage interest that are fixed throughout the entire term of the loan.

Fully Amortized ARM
An adjustable-rate mortgage (ARM) with a monthly payment that is sufficient to amortize the remaining balance, at the interest accrual rate, over the amortization term.

A government-owned corporation that assumed responsibility for the special assistance loan program formerly administered by Fannie Mae. Popularly known as Ginnie Mae.

Growing-Equity Mortgage (GEM)
A fixed-rate mortgage that provides scheduled payment increases over an established period of time. The increased amount of the monthly payment is applied directly toward reducing the remaining balance of the mortgage.

Guarantee Mortgage
A mortgage that is guaranteed by a third party.

Housing Expense Ratio
The percentage of gross monthly income budgeted to pay housing expenses.

HUD-1 statement
A document that provides an itemized listing of the funds that are payable at closing. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow amounts. Each item on the statement is represented by a separate number within a standardized numbering system. The totals at the bottom of the HUD-1 statement define the seller’s net proceeds and the buyer’s net payment at closing.

Hybrid ARM (3/1 ARM, 5/1 ARM, 7/1 ARM)
A combination fixed rate and adjustable rate loan – also called 3/1,5/1,7/1 – can offer the best of both worlds: lower interest rates (like ARMs) and a fixed payment for a longer period of time than most adjustable rate loans. For example, a “5/1 loan” has a fixed monthly payment and interest for the first five years and then turns into a traditional adjustable rate loan, based on then-current rates for the remaining 25 years. It’s a good choice for people who expect to move or refinance, before or shortly after, the adjustment occurs.

The index is the measure of interest rate changes a lender uses to decide the amount an interest rate on an ARM will change over time.The index is generally a published number or percentage, such as the average interest rate or yield on Treasury bills. Some index rates tend to be higher than others and some more volatile.

Initial Interest Rate
This refers to the original interest rate of the mortgage at the time of closing. This rate changes for an adjustable-rate mortgage (ARM). It’s also known as “start rate” or “teaser.”

The regular periodic payment that a borrower agrees to make to a lender.

Insured Mortgage
A mortgage that is protected by the Federal Housing Administration (FHA) or by private mortgage insurance (MI).

The fee charged for borrowing money.

Interest Accrual Rate
The percentage rate at which interest accrues on the mortgage. In most cases, it is also the rate used to calculate the monthly payments.

Interest Rate Buydown Plan
An arrangement that allows the property seller to deposit money to an account. That money is then released each month to reduce the mortgagor’s monthly payments during the early years of a mortgage.

Interest Rate Ceiling
For an adjustable-rate mortgage (ARM), the maximum interest rate, as specified in the mortgage note.

Interest Rate Floor
For an adjustable-rate mortgage (ARM), the minimum interest rate, as specified in the mortgage note.

Late Charge
The penalty a borrower must pay when a payment is made a stated number of days (usually 15) after the due date.

Lease-Purchase Mortgage Loan
An alternative financing option that allows low- and moderate-income home buyers to lease a home with an option to buy. Each month’s rent payment consists of principal, interest, taxes and insurance (PITI) payments on the first mortgage plus an extra amount that accumulates in a savings account for a downpayment.

A person’s financial obligations. Liabilities include long-term and short-term debt.

Lifetime Payment Cap
For an adjustable-rate mortgage (ARM), a limit on the amount that payments can increase or decrease over the life of the mortgage.

Lifetime Rate Cap
For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate can increase or decrease over the life of the loan. See cap.

Line of Credit
An agreement by a commercial bank or other financial institution to extend credit up to a certain amount for a certain time.

Liquid Asset
A cash asset or an asset that is easily converted into cash.

A sum of borrowed money (principal) that is generally repaid with interest.

Loan-to-Value (LTV) Percentage
The relationship between the principal balance of the mortgage and the appraised value (or sales price if it is lower) of the property. For example, a $100,000 home with an $80,000 mortgage has an LTV of 80 percent.

Lock-In Period
The guarantee of an interest rate for a specified period of time by a lender, including loan term and points, if any, to be paid at closing. Short term locks (under 21 days), are usually available after lender loan approval only. However, many lenders may permit a borrower to lock a loan for 30 days or more prior to submission of the loan application.

The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.

The date on which the principal balance of a loan becomes due and payable.

Monthly Fixed Installment
That portion of the total monthly payment that is applied toward principal and interest. When a mortgage negatively amortizes, the monthly fixed installment does not include any amount for principal reduction and doesn’t cover all of the interest. The loan balance therefore increases instead of decreasing.

A legal document that pledges a property to the lender as security for payment of a debt.

Mortgage Banker
A company that originates mortgages exclusively for resale in the secondary mortgage market.

Mortgage Insurance
A contract that insures the lender against loss caused by a mortgagor’s default on a government mortgage or conventional mortgage. Mortgage insurance can be issued by a private company or by a government agency.

Mortgage Insurance Premium (MIP)
The amount paid by a mortgagor for mortgage insurance.

Mortgage Life Insurance
A type of term life insurance In the event that the borrower dies while the policy is in force, the debt is automatically paid by insurance proceeds.

The borrower in a mortgage agreement.

Negative Amortization
Amortization means that monthly payments are large enough to pay the interest and reduce the principal on your mortgage. Negative amortization occurs when the monthly payments do not cover all of the interest cost. The interest cost that isn’t covered is added to the unpaid principal balance. This means that even after making many payments, you could owe more than you did at the beginning of the loan. Negative amortization can occur when an ARM has a payment cap that results in monthly payments not high enough to cover the interest due.

Net Worth
The value of all of a person’s assets, including cash.

Non Liquid Asset
An asset that cannot easily be converted into cash.

A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.

Origination Fee
A fee paid to a lender for processing a loan application. The origination fee is stated in the form of points. One point is 1 percent of the mortgage amount.

Owner Financing
A property purchase transaction in which the party selling the property provides all or part of the financing.

Payment Change Date
The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM) or a graduated-payment mortgage (GPM). Generally, the payment change date occurs in the month immediately after the adjustment date.

Periodic Payment Cap
A limit on the amount that payments can increase or decrease during any one adjustment period.

Periodic Rate Cap
A limit on the amount that the interest rate can increase or decrease during any one adjustment period, regardless of how high or low the index might be.

PITI Reserves
A cash amount that a borrower must have on hand after making a down payment and paying all closing costs for the purchase of a home. The principal, interest, taxes, and insurance (PITI) reserves must equal the amount that the borrower would have to pay for PITI for a predefined number of months (usually three).

A point is equal to one percent of the principal amount of your mortgage. For example, if you get a mortgage for $165,000 one point means $1,650 to the lender.Points usually are collected at closing and may be paid by the borrower or the home seller, or may be split between them.

Prepayment Penalty
A fee that may be charged to a borrower who pays off a loan before it is due.

The process of determining how much money you will be eligible to borrow before you apply for a loan.

Prime Rate
The interest rate that banks charge to their preferred customers. Changes in the prime rate influence changes in other rates, including mortgage interest rates.

The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.

Principal Balance
The outstanding balance of principal on a mortgage not including interest or any other charges.

Principal, Interest, Taxes, and Insurance (PITI)
The four components of a monthly mortgage payment. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the monthly cost of property taxes and homeowners insurance, whether these amounts that are paid into an escrow account each month or not.

Private Mortgage Insurance (PMI)
Mortgage insurance provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require MI for a loan with a loan-to-value (LTV) percentage in excess of 80 percent.

Qualifying Ratios
Calculations used to determine if a borrower can qualify for a mortgage. They consist of two separate calculations: a housing expense as a percent of income ratio and total debt obligations as a percent of income ratio.

Rate Lock
A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate and lender costs for a specified period of time.

Real Estate Agent
A person licensed to negotiate and transact the sale of real estate on behalf of the property owner.

Real Estate Settlement Procedures Act (RESPA)
A consumer protection law that requires lenders to give borrowers advance notice of closing costs.

Real Estate Agent®
A real estate broker or an associate who is an active member in a local real estate board that is affiliated with the National Association of Real Estate Agents.

The noting in the registrar’s office of the details of a properly executed legal document, such as a deed, a mortgage note, a satisfaction of mortgage, or an extension of mortgage, thereby making it a part of the public record.

Paying off one loan with the proceeds from a new loan using the same property as security.

Revolving Liability
A credit arrangement, such as a credit card, that allows a customer to borrow against a pre-approved line of credit when purchasing goods and services.

Secondary Mortgage Market
Where existing mortgages are bought and sold.

The property that will be pledged as collateral for a loan.

Seller Carry-back
An agreement in which the owner of a property provides financing, often in combination with an assumable mortgage. See Owner Financing.

An organization that collects principle and interest payments from borrowers and manages borrowers’ escrow accounts. The servicer often services mortgages that have been purchased by an investor in the secondary mortgage market.

Standard Payment Calculation
The method used to determine the monthly payment required to repay the remaining balance of a mortgage in substantially equal installments over the remaining term of the mortgage at the current interest rate.

Step-Rate Mortgage
A mortgage that allows for the interest rate to increase according to a specified schedule (i.e., seven years), resulting in increased payments as well. At the end of the specified period, the rate and payments will remain constant for the remainder of the loan.

Third-party Origination
When a lender uses another party to completely or partially originate, process, underwrite, close, fund, or package the mortgages it plans to deliver to the secondary mortgage market.

Total Expense Ratio
Total obligations as a percentage of gross monthly income including monthly housing expenses plus other monthly debts.

Treasury Index
An index used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. Based on the results of auctions that the U.S. Treasury holds for its Treasury bills and securities or derived from the U.S. Treasury’s daily yield curve, which is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market.

A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the annual percentage rate (APR) and other charges.

Two-step Mortgage
An adjustable-rate mortgage (ARM) with one interest rate for the first five or seven years of its mortgage term and a different interest rate for the remainder of the amortization term.

The process of evaluating a loan application to determine the risk involved for the lender. Underwriting involves an analysis of the borrower’s creditworthiness and the quality of the property itself.

VA Mortgage
A mortgage that is guaranteed by the Department of Veterans Affairs (VA). Also known as a government mortgage.

“Wrap Around” Mortgage
A mortgage that includes the remaining balance on an existing first mortgage plus an additional amount requested by the mortgagor. Full payments on both mortgages are made to the “Wrap Around” mortgagee, who then forwards the payments on the first mortgage to the first mortgagee. These mortgages may not be allowed by the first mortgage holder, and if discovered, could be subject to a demand for full payment.

Spear Phishing Emails in Mortgage Business

How to check if and email is a Spear Phishing Email and is used to attack us?

  • Comes from unknown sender
  • Solicits sensitive information, like your password
  • Prompts you to open an attachments or click a link
  • Appeals to urgency fear or desire
  • Contains spelling or grammatical error

Types of Social Engineering Attacks

  • Baiting – Attackers lure targets in with items of value: They might leave a flash drive where someone will find it or can upload malicious files to a site where thousands can download it.
  • Pretexting/Bohoing – Some attackers might impersonate a person of authority or whom trust to solicit sensitive information. An attackers might impersonate your username and password to solve some issues
  • Mind games – an attackers might send an email or call you in response to an imaginary question. This can lead the target to believe that he or she simply forgot their previous conversation, making the target more likely to give up information.
  • Spam & Phishing – Both methods usually rely on email to lure victims in. Most spam emails are after monetary gain while phishing emails usually solicit  sensitive information.
  • Tailgating – An attacker might wait besides a locked door to glean your credentials so they can get inside.


Here are some facts about Spear Phishing in Mortgage business

  • 1 in every in 2.3 organizaitons is targeted by a spear phishing attacks.
  • 600,000k it’s an average cots in USD to fix the damage done by a spear phishing attack.
  • Number of organizations affected by a data breach in 20014 rose 9% comparing data from 2013 year.

Types of Spear Phishing emails in mortgage industry

  1. Data Entry
  2. Click-Only
  3. Attachments 

A sample spare phishing email version 1

The webpage where person is forwarded looks like a legit website and even an email from which the message is sent looks like real one. In most cases can be misspelled or used ASCII symbols.

A sample spare phishing email version 2

A sample spare phishing email version 3


What is an NMLS and Mortgage Loan Originator

The Nationwide Mortgage Licensing System and Registry (the NMLS) is a mortgage licensing system developed by a Conference of State Bank Supervisors and American Assocaition of Residential Mortgage Regulators for the licensing and registration of state-licensed loan originators and the registrations of registered loan originators.

Mortgage Loan Originator – a person who takes a residential mortgage loan application and offers or negotiates terms of a residential mortgage loan.

It doesn’t include

a) person engaged solely as a loan processor or underwriter or any individual who performs purely administrative or clerical tasks  on behalf of a person who is licensed as a loan originator.

b) a person or entity that only performs real estate brokerage activities and is licensed or registered with the state, unless the person is compensated by a lender, a mortgage broker or the loan originator.

c) someone or entity involved in extensions of credit relating to time share plans.

Dweling – it’s a residential structure which contains 1-4 units. Its includes a mobile home and trailers if its used as a residence.

Residential real estate – it’s any real estate property located in a state upon which is constructed, or intended to be constructed, a dwelling.

What is a real estate brokerage activity?  It’s an activity that involves offering or providing real estate brokerage services to the public such us:

  • working as a real estate agent or real estate broker for a buyer, seller, lessor or lessee of real property;
  • bringing together parties interested in the sale, purchase, lease, rental or exchange of real property;
  • negotiating, on behalf of any party, any portion of a contract relating to the sale, purchase, lease, rental or exchange of real property (other than in connection with providing financing with respect to such transaction); and
  • engaging in any activity the person who does that is required to be registered or licensed as a real estate agent or real estate broker under any applicable law.

Helping to obtain or apply for a residential mortgage loan which includes:

  1. advising on a loan terms, including rates, fees and other costs.
  2. preparing a loan package or collecting information on behalf of the consumer with regard to a residential mortgage loan.

Loan processor/Underwriter – is a person who performs clerical or support duties at the direction of and subject to the supervision and instruction of a state-licensed loan originator or a registered loan originator. They include the receipt, collection, distribution and analysis of information common for the processing and underwriting of a residential mortgage loan and communicating wit ha consumer to obtain the information necessary for processing and underwriting (without negotiating loan rates and terms or counseling about them).

A processor or underwriter shouldn’t perform any public activities through advertising or other communicating and providing information (brochures, business cards, stationery, signs and other promotional materials) that she or he can or will perform any of the activities of a mortgage loan originator.

All residential mortgage loan-related activities from a taking an application through completion or all required loan closing documents and funding the residential mortgage loan is called origination of a residential mortgage loan. 

RLO – Registered loan originator person who meets the definition and is an employee of a depository institution  (a bank, saving association, or credit union). A subsidiary owned and controlled by a depository institution and regulated by a federal agency or an institution regulated by the Farm Credit Administration and is registered with and maintains a unique identifier through NMLS.

FBA – Federal Banking Agencies includes

  1. Comptroller of the Currency
  2. the Federal Deposit Insurance Corporation.
  3. the Board of Governors of the Federal Reserve System
  4. the National Credit Union Administration; and

A state-licensed loan originator cannot be employee of a depository institution, a subsidiary that is owned and controlled by a depository institution and regulated by a federal banking agency; or an institution regulated by the Farm Credit Administration; and must be a licensed by a state or by the CFPB if the loan originator is seeking licensing in a state that has failed to establish a licensing system and maintains a unique identifier through the NMLS.

Unique identifier permanently identifies a loan originator and its assigned by protocols established by the NMLS and the federal banking agencies to facilitate (electronic tracking of loan originators & uniform identification of the employment history including public access and any publicly adjudicated disciplinary actions against, a loan originator. )