(20hr) Day 5 - NTSMP - Discussion Questions

1.) How should underwriting standards address the features of nontraditional loan products?

2.) What is meant by "risk layering?"


3.) Define the difference between no-doc and reduced doc loans.


4.) What is the simultaneous or piggy back second?

13 comments:

  1. 1 of 4
    State the effects of substantial payment increases on the borrower's capacity to repay when the loan amortization begins (timeframe set by the loan chosen by borrower). Ensure that the borrower understands the risks involved with non-traditional loans, the experience of payment shock, and all other factors included in such a loan. Explanations need to be clear and plain for understanding.

    2 of 4
    This relaxes traditional underwriting standards. There is a higher potential that the borrower will default on their loan, but this is used to offer a chance of homeownership to those who would not qualify for a traditional loan.

    3 of 4
    no-doc loans are an option of lending that do not require income papers or bank statements if the borrower does not want to disclose that information. Reduced doc loans are meant to streamline the borrowing process for those who have more complicated financial standing, i.e. complicated tax returns.

    4 of 4
    The piggy back second is a second loan that is taken out at the same time as first loan to help reduce the cost of PMI. It tends to be a higher rate than the first loan but avoids paying the PMI that would normally by paid in the first loan by itself.

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  2. 1 of 4
    The greatest standard that should be addressed in underwriting in a non traditional loan is to ensure that the borrower is able to repay the debt. With less paperwork needed there needs to be a thorough look at the information provided as well as the MLO can explain the risk & possible payment shock involved in the transaction

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  3. 2 of 4
    Risk-layering is what happens when there are essentially "layers" of risk involved in a loan transaction that both the borrower & the lender are taking a risk. It can include things like a high DTI, low down payments & other factors that show risk of the borrower being unable to repay the debt

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  4. 3 of 4
    Reduced doc loans are used when items like W-2, paystubs, & tax returns can verify financial strength to repay the debt & is common for people who have complicated tax returns & need financing quickly so this allows a more streamlined process. No doc loans are when the borrower does not need to disclose his bank statements or financial information for the loan

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  5. 4 of 4
    Piggback loan is when a 2nd mortgage is taken out at the same time as the 1st mortgage so that the borrower can have a larger total amount available to lend.

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  6. 1 of 4
    Thoroughly explain the risks involved in the loan including payment shock, reduced equity and insure borrower is able to repay the debt

    2 or 4
    Risk layering occurs when 1 or more typical underwriting standards are relaxed such as 2nd lien mortgage, low/no doc loans and little to no down payment, potentially increasing risk of default.

    3 of 4
    Reduced doc loans typically rely on W-2s or tax returns for income verification. No doc loans don't require borrower to provide bank statements in instances where borrower has complicated tax returns. Both carry higher risk and higher interest rate and are to be used with caution

    4 of 4
    Piggy back loan is a 2nd mortgage, frequently used to avoid PMI, but typically carries higher interest increased risk and reduced equity

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  7. 1 of 4
    When offering nontraditional mortgage loan products, underwriting standards should address the effect of a substantial payment increase on the borrower’s capacity to repay the loan when amortization begins. Underwriting standards should comply with the agencies’ real estate lending standards, appraisal regulations, and associated guidelines.

    2 of 4
    Means relaxing more than one of the traditional underwriting standards, which could potentially increase the risk of a loan default.

    3 of 4
    No doc is a verbal verification with very little to no documentation of income and reduced doc is verification though a paystub or W-2 with no bank statements or credit report both are meant to streamline a loan process to not inconvenience a borrower but at high risk.

    4 of 4
    When a second loan is taken out at the same as the first to supplement and avoid PMI.

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  8. 1.)
    Underwriting standards should address should address the effect of a substantial payment increase on the borrowers capacity to repay.

    2.)
    Relaxing more than one of the traditional standards. This could increase the chance the borrower defaults on the loan.

    3.)
    Reduced doc applies to financial strength verification of items such as W-2's, pay stubs, and bank statements. No doc is verbal verification with little or no documentation of income.

    4.)
    A second loan taken out the same time as the first. Usually used to avoid PMI.

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  9. 1 of 1:
    Be clear and precise on how each nontraditional loan works and what possible payment shocks there could be in the future. Look hard at what loan plan would work better for a consumer and have their best interests in mind.

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  10. 2 of 2;
    Utilizing multiple underwriting standards and putting a consumer at a higher risk of failing on their mortgage.

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  11. 3 of 3:
    No-doc requires very little or no paperwork to process a loan.
    Reduced-Doc Streamlines the process with just w-2 forms and helps not to inconvenience certain borrowers who are in a hurry.

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  12. 4 of 4;
    Helping to get a borrower into a home with the option of a 80% loan on the 1st and have a 2nd at 20% to help from having a MIP insurance. both are taken out at the same time.

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  13. 1 of 4
    When a mortgage loan originator offers nontraditional mortgage loan products, underwriting
    standards should address the effect of a substantial payment increase on the borrower’s
    capacity to repay when loan amortization begins. Underwriting standards should also comply
    with the agencies’ real estate lending standards, appraisal regulations, and associated
    guidelines
    2 of 4
    "Risk layering" means relaxing more than one of the traditional underwriting standards, which
    potentially increases the risk of a loan default.
    3 of 4
    No doc is another variation for reduced doc loans.
    4 of 4
    A second mortgage taken out at the same time as a first mortgage.

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