14 Hour Mortgage Broker 2006

PRESORTED
STANDARD
U.S. POSTAGE
PAID
BERT RODGERS
SCHOOLS
Post Office Box 4708
Sarasota, Florida 34230-4708
www.bertrodgers.com
1 4 - H o u r M ORT G A G E B RO K E R I N G / L E N D I N G C E C OUR S E2 0 0 6 E diti o n
Florida Mortgage Brokering/Lending
Continuing Education
Online or Correspondence
Course Includes
• Latest updates to Florida laws and rules for the mortgage brokering/lending industry
• Modules include FNMA, fair housing, and real estate finance and mortgages
• Optional end-of-module review questions provided to ensure your
comprehension of the material. No final exam required.
• Accredited by the Florida Department of Financial Services (Permit #MBS 2006-43)
Convenience
• We send the book at no obligation—study the
modules in the book or online
• Submit your Registration Form/Affidavit and tuition
payment by mail, fax, or online
• Toll-free instructor, technical, and administrative
support
Bert Rodgers Schools – The Smart Choice.
Toll free 800-432-0320 or click: www.bertrodgers.com
F lo r i d a M o r t g a g e
b r o k e r i n g / l e n d i n g
1 4 - H o u R c o n t i n u i n g
e d u c at i o n c o u r s e
2 0 0 6 E diti o n
Online or
Correspondence
tuition only
$
39.95
tuition only $
39.95

No traffic, no stress.
Today our lives are busier than ever.
Bert Rodgers Schools offers you two
convenient ways to fulfill your
mandatory 14-hour continuing education
requirement – online or correspondence.
Study on your schedule, at your pace.
Correspondence
This book contains the 4-hour mandatory law and
rule update plus additional modules on real estate
finance and mortgages, FNMA, and fair housing.
Mail or fax your Registration Form/Affidavit to us
and receive your official Certificate of Completion.
Online
Everything you need is online. Study, register, pay
and print your official Certificate of Completion, all
online! Any time of the day or night.
Our friendly, knowledgeable staff
is always ready to help.
800-432-0320
www.bertrodgers.com
Toll-free instructor, technical, and administrative
support are only a click or call away.
Bert Rodgers Schools – Your Smart Choice! TEL (941) 378-2900 | FAX (941) 378-3883
Florida statutes and Department rules
require all loan originators, principal
representatives, associates, and mortgage
brokers to complete 14 hours of
continuing education every two years.
The next deadline is August 31, 2006.
Busy professionals can study on their
schedule, at home or work. There is no
need to travel and attend class or seminars.
This book contains the 14-hour course you
need to complete your education, including
the 4-hour law and rule update. Optional
end-of-module review questions provided
to ensure your comprehension of the
course material. No final exam required.
Take full advantage of the benefits of
distance learning! Bert Rodgers Schools
offers the identical course online and by
correspondence. At only $39.95 for 14
hours—online or correspondence—it is a
true value.
Providing high quality education to Florida
licensed professionals since 1958, Bert
Rodgers Schools is accredited by the
Florida Department of Financial Services
(Permit #MBS 2006-43).
C O N V E N I E N C E • V A L U E • S E R V I C E
Rely on us for fast, friendly,
professional service!

Continuing Education Course
2006 Edition
P.O. Box 4708, Sarasota, Florida 34230-4708
14hour_MortBroker.indb 1 5/5/05 5:02:26 PM
Mortgage Brokering/Lending 14-Hour
Florida

Bert Rodgers Schools of Real Estate, Inc.
© 2005
All rights reserved, including the right to reproduce this manual or any portion of this manual
in any form, or to use it for teaching purposes without the express written consent of the copy-
right holder.
This publication is designed to provide accurate and authoritative information in regard to the
subject matter covered. It is provided with the understanding that the publisher is not engaged
in rendering legal, accounting, or other professional service. If legal advice or other expert
assistance is required, the services of a competent professional person should be sought.
Bert Rodgers Schools of Real Estate, Inc. shall not be liable in any way for failure to receive
and/or process your Registration Form/Affidavit within any specific time period. It is your
responsibility to ensure that you have complied with your license renewal requirements in a
timely manner.
Bert Rodgers Schools of Real Estate, Inc. recognizes and respects its students’ privacy. Course
records are confidential, and the School does not sell or rent students’ names or other infor-
mation to any company or organization.
Cover design and photographs: Digital Ink Design Group
ISBN: 1-891753-32-2
Printed in the United States of America
Second Printing

Bert Rodgers Schools of Real Estate, Inc. iii
14-Hour
Brokering/Lending
Continuing Education
Course
Bert Rodgers Schools
of Real Estate, Inc.
Founder
Bert Rodgers
President
Lori J. Rodgers
Administrative Vice President
William E. Giffard
Executive
Administrative Assistant
Kelli Finnigan
Website Coordinator
Alison Harner
Production Coordinator
Lisa Lacey
Production Support
Laraine Jansen
Instructor
Janine Spiegelman
Accountant
Aaron Pulone
Typesetting
Wild Dezign
Printing
Action Printing
Cover Design
Digital Ink Design Group
Table of Contents
Module One
Florida Mortgage Brokerage and Lending
Act Rules and Regulations 1
Recent Changes in Florida Statutes Regulating
Mortgage Brokerage and Mortgage Lending 2
Mortgage Brokerage License Law 3
Part I: General Provisions 4
Part II and III: Mortgage Brokers and
Mortgage Lenders 6
Part IV: Florida Fair Lending Act 6
Review Questions 11
Module Two
Real Estate Finance and Mortgages 13
Review Questions 30
Module Three
The Federal National Mortgage Association
(Fannie Mae) 33
Review Questions 46
Module Four
Fair Housing 49
Review Questions 57
Registration Form/Afﬁdavit 59
Florida Mortgage
17
: t 23Part II Real Estate
Part I: Real Estate Finance
Mor gages

iv Bert Rodgers Schools of Real Estate, Inc.
P.O. Box 4708, Sarasota, Florida 34230-4708
Tel. (941) 378-2900
Toll Free (800) 432-0320
Fax (941) 378-3883
Email: MBinfo@bertrodgers.com
Website: www.bertrodgers.com
200 East Gaines Street
Tallahassee, Florida 32399-0372
Tel. (850) 410-9805
(Initial license or license renewal questions)
Telephone Hours: 8:00 a.m. - 5:00 p.m. Monday through Friday
Fax (850) 410-9748
For additional information, visit the Department website:
D I R E C T O R Y
Florida Office of Financial Regulation
Division of Securities and Finance
www.ﬂofr.com/licensing/MBlist.htm

Bert Rodgers Schools of Real Estate, Inc. v
Welcome to Bert Rodgers Schools!
Online or Inside this Book …
Everything You Need to Complete Your Continuing Education Requirement.
CONTINUING EDUCATION
originators,
and
associates
are required to complete
fourteen (14) hours of continuing education every two
years. Four hours of the total 14 must cover the laws
in Chapter 494, F.S., and the rules in Chapter 69V-40,
F.A.C. Module 1 of the Bert Rodgers Schools course
meets this requirement.
IT’S EASY TO MEET YOUR REQUIREMENT
WITH BERT RODGERS SCHOOLS!
Study the course in this book, sent at no obligation,
or study online. No test is required! Complete the
optional review questions to measure your compre-
hension of the course material.
Correspondence. Simply complete the Registration
Form/Affidavit and submit it with your payment by
mail, or fax.
Online. Register and pay by credit card at
www.bertrodgers.com. Then complete and submit
the online Affidavit and print your official Certificate
of Completion.
NEED HELP?
Call our toll-free number and talk to a real person! We will answer your administrative, technical, and
instructional questions quickly and professionally. If you prefer, email us 24/7.
Administrative Support:
Weekdays 8:30-5:15
Technical Support:
Weekdays 7-9, Weekends 9-5
Toll Free: (800) 432-0320
Local: (941) 378-2900
Fax: (941) 378-3883
Website: www.bertrodgers.com
Email administrative inquiries:
MBinfo@bertrodgers.com
Email instructor inquiries:
MBinstructor@bertrodgers.com
HOW DO I RECEIVE MY CERTIFICATE OF
COMPLETION?
Mail: Use the enclosed envelope and send your
Registration Form/Affadavit and payment to us. We
will mail your certificate of completion the following
business day.
Fax: For even faster results, choose one of our con-
venient FaxBack Services and receive your certificate
same-day or next-day.
Online: For immediate results, submit your payment
and affidavit online, and print your official certificate!
Important Note: Do not send your certificate of comple-
tion or any other type of notice to the Department unless
otherwise requested. Retain your certificate of completion
for at least 4 years following the end of the renewal period.
SUMMARY
Keep this book as a valuable reference! You may study
the 14-hour course with the book or online. You can
Principal representatives, loan
mortgage brokers
always rely on Bert Rodgers Schools for quality,
convenience, and value in continuing education.
The deadline is August 31, 2006.

vi Bert Rodgers Schools of Real Estate, Inc.

Bert Rodgers Schools of Real Estate, Inc. vii
How to Complete Your
Continuing Education Requirement
Online at www.bertrodgers.com
Step 1: Study the 14-hour course in this book or online.
Step 2: Register and Pay for the course affidavit. Click on Register For Courses.
Choose a username and password and submit your credit card payment
securely.
Step 3: Enter your username and password and choose 14-Hour Course Including
Affidavit. Finish the course by submitting your name, date and the time in
hours to complete the course.
Step 4: Upon successful completion of your course affidavit, print your official
certificate of completion.
Correspondence
Step 1: Study the 14-hour course in this book.
Step 2: Complete the Registration Form/Affidavit including the Course Completion
Affidavit, Student Information, and Payment Method sections. If you choose an
optional FaxBack Service, complete this section too.
Step 3: Mail or fax the Registration Form/Affidavit to us and we mail your certificate
the next business day. To receive a copy of your certificate sooner, choose one
of our Priority FaxBack Services.
Standard Tuition
Your Registration Form/Affidavit is processed the same business day it is received, and your certificate
of completion is sent to you by first-class mail the next business day.
Priority FaxBack Services (optional)
• Same-Day FaxBack ($10 service fee*, credit cards only). Fax your Registration Form/
Affidavit to us any business day by 12p.m. est. We will fax your certificate of completion
to you by 4 p.m. the same day (continental United States only).
• Next-Day FaxBack ($7 service fee*, credit cards only). Fax your Registration Form/
Affidavit to us any business day by 5p.m. est. We will fax your certificate of completion to
you by 11 a.m. the following business day (continental United States only).
*Priority FaxBack Service is available in the continental United States for the fees listed. For fax services outside of the
continental United States, we charge an additional $10.
Priority FaxBack Service Notes
• To use the Priority FaxBack Service, payment must be made by credit card.
• Fax your Registration Form/Affidavit to us at (941) 378-3883—be sure to provide your fax number.
• Your certificate of completion will be faxed only if you pay for Priority FaxBack Service.
• Priority grading includes three attempts to fax your certificate of completion.

viii Bert Rodgers Schools of Real Estate, Inc.
Acknowledgments
Bert Rodgers Schools of Real Estate, Inc. expresses our gratitude and appreciation to the authors, and others
who have contributed to this mortgage brokering/lending distance learning program and the new edition of the
Mark Mazzuki of Digital Ink Design Group for his cover design.
Lori J. Rodgers
and the Bert Rodgers Staff
14-Hour Mortgage Brokering/Lending Continuing Education Course.
Bert Rodgers Schools would also like to thank Julie Wild of Wild Dezign for her typesetting expertise and
An additional thank you to our instructor
Janine Spiegelman.

© 2005 Bert Rodgers Schools of Real Estate, Inc. 1
LEARNING OBJECTIVES
After completing this module, you should be able to:
Florida Mortgage Brokerage and
Act Rules and Regulations
M O D U L E 1
1. Summarize the changes in the rules regulating
mortgage brokerage and mortgage lending.
2. Identify the educational requirements for licen-
sure in mortgage brokerage and lending.
3. Summarize the organizational structure of the
Florida Department of Financial Services, includ-
ing the Financial Services Commission and the
Office of Financial Regulations.
4. Explain the powers and duties of the Financial
Services Commission and the Office of Financial
Regulations.
5. Explain the penalties, which could be imposed
for a violation of Chapter 494, F.S.
6. Identify the prohibited practices pursuant to
Chapter 494.
7. Explain the purpose for the enactment of the
Florida Fair Lending Act.
8. Identify the types of transactions covered by the
9. Define a “high-cost home loan”.
10. Identify the acts prohibited by the Florida Fair
Lending Act.
11. Identify the disclosure requirements of the
12. Explain the enforcement and penalties of any
violation of the Florida Fair Lending Act.
The Department of Financial Services regulates
mortgage brokers (MB), mortgage brokerage busi-
nesses (MBB), mortgage lenders (ML), and cor-
respondent mortgage lenders (CL) by the use of
Florida Statutes (F.S.) and the Florida Administrative
Code (F.A.C.). Chapter 494, F.S., is known as the
Florida Mortgage Brokerage and Lending Act Rules and
Regulations. Chapter 494 originally became effective
in October 1991, and several significant amendments
have been made since 1991. Chapter 69V-40 of the
Florida Administrative Code (formerly Chapter
3D-40 F.A.C.) is called Rules Regulating Mortgage
Brokerage. Certain minor changes to Chapter 69V-
40 were made effective on August 2, 2002, and a few
minor amendments have been made through 2003
and 2004. The purpose of this module is to review
Florida mortgage brokerage rules and regulations.
In 2002, the Florida Legislature created the
Financial Services Commission (Commission), con-
sisting of the Governor and the elected Cabinet.
The Financial Services Commission serves as agency
head for the Office of Financial Regulation (OFR or
Office) and the Office of Insurance Regulation (OIR).
OFR and OIR are administratively housed within the
Department of Financial Services, headed by the Chief
Financial Officer. The Office of Financial Regulation
has offices located in Miami, Fort Lauderdale, West
Palm Beach, Tampa, Orlando, Jacksonville, Pensacola
and Fort Myers. The regional offices are primarily
responsible for conducting examinations to ensure
INTRODUCTION
Clay Rodgers graduated from the
University of Florida with a B.S.
degree in Business Administration,
majoring in Real Estate. He is
President of Rodgers Appraisal
Services, Inc., and has more than
20 years experience serving the
appraisal needs of Florida’s mort-
gage brokers and lenders.
Janine Spiegelman, BS, received
her degree from the University of
Miami. licensed Florida Mortgage
Broker
State of Florida, Department of
Banking and Finance (now known
as The Department of Financial
Services) as a Financial Examiner/
Analyst II.
A
, Janine worked for the

2 Module 1
regulatory compliance by financial institutions and
financial service companies.
The Office examines and regulates all state-
authorized or state-chartered banks, credit unions,
trust companies, and foreign banking organizations to
ensure they operate in a safe and sound manner and
in compliance with applicable statutes and rules. It
reviews and processes new state financial institution
charter or license applications as well as applications
relating to existing state financial institutions.
The Office also regulates non-depository finan-
cial service companies and related industries, includ-
ing securities dealers and investment advisers, retail
installment sales businesses, consumer finance com-
panies, mortgage brokers and lenders, collection
agencies and money transmitters; protects consumers
from illegal financial activities; reviews all applications
to conduct business as a financial service company or
securities firm; reviews license applications for regu-
lated individuals; and imposes licensing restrictions
or denies licensure based on findings. The Office is
responsible for conducting financial investigations
into allegations of suspected illegal financial activities
within jurisdiction of the Office.
RECENT CHANGES IN FLORIDA STATUTES
REGULATING MORTGAGE BROKERAGE
AND MORTGAGE LENDING
This section discusses the more significant changes
in the rules regulating mortgage brokerage and
mortgage lending. The most significant change is
that all of Chapter 3D-40, F.A.C., Rules Regulating
Mortgage Brokerage, including Chapter 3D-40.001
through 3D-40.290, have been moved to a new chap-
ter entitled Chapter 69V-40, F.A.C. All references to
the Department of Banking and Finance have been
changed to the Financial Services Commission and
the Office of Financial Regulation, depending on the
specific division of responsibility between the new
departments. The following are some of the impor-
tant changes in these rules.
Books and Records
69V-40.170, F.A.C. was amended to substitute the
Office of Financial Regulation for all references to the
Department of Banking and Finance.
Application Procedure for Mortgage
Broker License
69V-49.031(1), F.A.C. provides that all applications
for licensure as a mortgage broker must be filed with
the OFR. The new address is:
Office of Financial Regulation
200 East Gaines Street
Tallahassee, Florida 32399-0375
The application form for Licensure as a Mortgage
Broker has been changed to OFR-MB-101, and is
available by mail from the OFR (69V-40.031(a),
F.A.C.). The fee, which must accompany the appli-
cant’s fingerprint card, has changed from $15.00 to
$23.00 (69V-40.031(c), F.A.C.). In the remainder
of this section, all references to the Department of
Banking and Finance have been changed to the Office
of Financial Regulation.
Brokerage Business License
All applications for licensure as a mortgage broker-
age business must now be filed with the OFR. (69V-
40.051, F.A.C.). The form that now must be used for
this application is OFR-MB-201, and can be obtained
by mail from the OFR or online. www.dbf.state.
fl.us/licensing/mbbapp.pdf
69V-40.051(2), F.A.C. regarding the fingerprint
cards and Biographical Summary, now provides as fol-
lows:
Each ultimate equitable owner of 10%
or greater interest, the chief executive offi-
cer and each director of an entity applying
for licensure as a mortgage brokerage busi-
ness, shall submit a completed fingerprint
card and Biographical Summary, Form OFR-
MBB-BIO-1 (revised 10/99), to the Office
of Financial Regulation along with a $23
nonrefundable processing fee. Form OFR-
MBB-BIO-1 is hereby incorporated by refer-
ence and available by mail from the Office of
Financial Regulation, 200 East Gaines Street,
Tallahassee, Florida 32399-0375.
All former references to the Department of
Banking and Finance have been changed in this sec-
tion to the Office of Financial Regulation.
Application Procedure for Change
in Ownership or Control of Saving
Clause Mortgage Lending
In 69V-40.100, F.A.C., all references to the
Department of Banking and Finance have been
changed to the Office of Financial Regulation. The
application for Change in Ownership or Control of
Saving Clause Mortgage Lending must use the new
form OFR-MLST. The form must be mailed to the
Office at the new address.
The same changes to the fingerprint card filing
and Biographical Summary that were made to the
other license application regulations, (i.e. new form
OFR-ML-BIO-1 and the new fee of $23), were also
made to this section.
NEW
NEW
NEW
NEW

Florida Mortgage Brokerage and Lending Act Rules and Regulations 3
Lender License
69V-40.200, F.A.C. has similarly been amended.
The new application form for licensure as a mort-
gage lender has changed to OFR-ML-222 and is to
be mailed to the Office at the new address. Further,
the surety bond must be submitted on new form
OFR-ML-444, Mortgage Brokerage and Mortgage
Lending Act Surety Bond. The completed finger-
print card and Biographical Summary, new form
OFR-ML-BIO-1, and the new nonrefundable, pro-
cessing fee of $23 must be submitted to the Office.
All references to the Department of Banking and
Finance have been changed to the Office of Financial
Regulation.
Mortgage Lender License, Mortgage
Lender License Pursuant to Saving
Clause, and Branch Office License
Renewal and Reactivation
69V-40.205, F.A.C. has also been amended. The new
form for renewal and reactivation of a mortgage lender
license is OFR-ML-R, and the new form for renewal
and reactivation of a mortgage lender license pursu-
ant to saving clause is OFR-ML-RS. The new form
for branch office renewal is OFR-ML-RB, Mortgage
Lender and Correspondent Mortgage Lender Branch
Office License Renewal and Reactivation Form. All
new forms must be filed with the Office.
Application Procedure for
Correspondent Mortgage Lender
License
69V-40.220, F.A.C. has been amended to change the
applicable forms, processing fees, and new references
to the Office of Financial Regulation. The new appli-
cation form for licensure as a correspondent mort-
gage lender is OFR-CL-333. The new surety bond
form is OFR-ML-444. The new fingerprint card and
Biographical Summary form is OFR-CL-BIO-1, and
the processing fee is now $23. All forms must be filed
with the Office.
Correspondent Mortgage Lender
License and Branch Office License
Renewal and Reactivation
applicable forms and new references to the Office
of Financial Regulation. The new renewal and reac-
tivation form for correspondent mortgage lender
license is form OFR-CL-R. The new surety bond
form is OFR-ML-444. The new Mortgage Lender
and Correspondent Mortgage Lender Branch Office
License Renewal and Reactivation form is OFR-ML-
RB. All forms must be filed with the Office.
Lender or Correspondent Mortgage
Lender Branch Office License
application form and new references to the Office
of Financial Regulation. The new application form
for mortgage lender branch office or correspondent
mortgage lender branch office license is OFR-ML-
222B. All forms must be filed with the Office.
Principal Representative
The regulations contained in 69V-40.242, F.A.C. have
also been amended to change the applicable form and
new references to the Office of Financial Regulation.
The new Principal Representative Designation form
is now OFR-ML/CL-PR. All forms must be filed
with the Office.
MORTGAGE BROKERAGE LICENSE LAW
Chapter 494, F.S., is now divided into five parts:
Part I, General Provisions (494.001-494.00295);
Part II, Mortgage Brokers (494.003-494.0043); Part
III, Mortgage Lenders (494.006-494.0077); Part IV,
Florida Fair Lending Act (494.0078-494.00797); and
Part V, Loans Under the Florida Uniform Land Sales
Practices Law (494.008).
NEW
NEW
NEW
NEW
NEW
NEW

4 Module 1
PART I: GENERAL PROVISIONS
(494.001-494.00295)
The Financial Services Commission
The Financial Services Commission serves as agency
head for the Office of Financial Regulation (OFR
or Office) and the Office of Insurance Regulation
(OIR). OFR and OIR are administratively housed
within the Department of Financial Services, headed
by the Chief Financial Officer. The Office examines
and regulates all state-authorized or state-chartered
banks, credit unions, trust companies, and foreign
banking organizations to ensure they operate in a safe
and sound manner and in compliance with applicable
statutes and rules. The Office also regulates non-
depository financial service companies and related
industries, including securities dealers and investment
advisers, retail installment sales businesses, consumer
finance companies, mortgage brokers and lenders,
collection agencies and money transmitters; protects
consumers from illegal financial activities; reviews all
applications to conduct business as a financial service
company or securities firm; reviews license applica-
tions for regulated individuals; and imposes licensing
restrictions or denies licensure based on findings. The
Office is responsible for conducting financial investi-
gations into allegations of suspected illegal financial
activities within its jurisdiction.
Powers and Duties of the Commission and
Office
The Office of Financial Regulation is responsible for
the administration and enforcement of the Florida
Statutes regulating both mortgage brokers and
mortgage lenders (494.003-494.0077 F.S), while the
Financial Services Commission has authority to adopt
rules pursuant to 120.563(1) F.S and 120.54 F.S to
implement 494.001-494.0077 F.S. The Commission
may adopt rules to allow electronic submission of any
forms, documents, or fees required by Chapter 494.
The Commission may also adopt rules to accept cer-
tification of compliance with requirements of Chapter
494 in lieu of requiring submission of documents.
The Office:
• has the power to issue and to serve subpoenas
and subpoenas duces tecum to compel the atten-
dance of witnesses and the production of all
books, accounts, records, and other documents
and materials relevant to an examination or
investigation.
• may conduct an investigation of any person
whenever the office has reason to believe, either
upon complaint or otherwise, that any violation
of 494.001-494.0077 F.S. has been committed
or is about to be committed, and may, at inter-
mittent periods, conduct examinations of any
licensee or other person under the provisions of
494.001-494.0077 F.S.
• may bring action through its own counsel in the
name and on behalf of the state against any per-
son who has violated or is about to violate any
provision of 494.001-494.0077 F.S. or any rule
of the commission or order of the office issued
under 494.001-494.0077 F.S. to enjoin the per-
son from continuing in or engaging in any act
in furtherance of the violation.
• has the power to issue and serve upon any per-
son an order to cease and desist and to take
corrective action whenever it has reason to
believe the person is violating, has violated, or
is about to violate any provision of 494.001-
494.0077 F.S., any rule or order issued under
494.001-494.0077 F.S., or any written agree-
ment between the person and the Office. All
procedural matters relating to issuance and
enforcement of such a cease and desist order are
governed by the Administrative Procedure Act.
Note: The four provisions listed above are used for regu-
lation of the Florida Fair Lending Act, under Section
494.00795, reviewed in section IV of this book.
• has the power to order the refund of any fee
directly or indirectly assessed and charged on a
mortgage loan transaction which is unauthor-
ized or exceeds the maximum fee specifically
authorized in 494.001-494.0077 F.S.
• may prohibit the association by a mortgage
broker business, or the employment by a mort-
gage lender or correspondent mortgage lender,
of any person who has engaged in a pattern of
misconduct while an associate of a mortgage
brokerage business or an employee of a mort-
gage lender or correspondent mortgage lender.
• or its duly authorized representative, has the
power to administer oaths and affirmations to
any person.
Penalties
Whoever knowingly violates any provision of
494.0041(2)(e), (f), or (g); 494.0072 (2)(e), (f), or (g);
or 494.0025 (1), (2), (3), (4), or (5), is guilty of a felony
of the third degree, except that any person convicted
of a violation of any provision of 494.001-494.0077
F.S., in which violation the total value of money and

property unlawfully obtained exceeded $50,000 and
there were five or more victims, is guilty of a felony
of the first degree. Each such violation constitutes a
separate offense. In addition, if a mortgage transac-
tion is made in violation of any provision of 494.001-
494.0077 F.S., the person making the transaction and
every licensee, director, or officer who participated in
making the transaction are jointly and severally liable
to every party to the transaction in an action for dam-
ages incurred by the party or parties. However, a per-
son is not liable under this section upon a showing
that such person’s licensees, officers, and directors who
participated in making the transaction, if any, acted in
good faith and without knowledge and, with the exer-
cise of due diligence, could not have known of the act
committed in violation of 494.001-494.0077 F.S.
Prohibited Practices
Section 494.0025 F.S. provides that it is unlawful for
any person:
To act as a mortgage lender in this state without a cur-
rent, active license issued by the office pursuant to
494.001-494.0077, F.S.
To act as a correspondent mortgage lender in this
state without a current, active license issued by
the office pursuant to 494.006-494.0077, F.S.
To act as a mortgage broker in this state without a
current, active license issued by the office pursu-
ant to 494.003-494.0043, F.S.
In any practice or transaction or course of business
relating to the sale, purchase, negotiation, pro-
motion, advertisement, or hypothecation of mort-
gage transactions, directly or indirectly:
• To knowingly or willingly employ any device,
scheme, or artifice to defraud;
• To engage in any transaction, practice, or course
of business which operates as a fraud upon any
person in connection with the purchase or sale
of any mortgage loan; or
• To obtain property by fraud, willful misrepre-
sentation of a future act, or false promise.
In any matter within the jurisdiction of the office, to
knowingly and willfully falsify, conceal, or cover
up by a trick, scheme, or device a material fact,
make any false or fraudulent statement or rep-
resentation, or make or use any false writing or
document, knowing the same to contain any false
or fraudulent statement or entry.
To violate 655.922(2) F.S., subject to 494.001-
494.0077 F.S.
Who is required to be licensed under 494.006 F.S.-
494.0077 F.S., to fail to report to the office the
failure to meet the net worth requirements of
494.0061 F.S., 494.0062 F.S., or 494.0065 F.S.
within 48 hours after the person’s knowledge of
such failure or within 48 hours after the person
should have known of such failure.
To pay a fee or commission in any mortgage loan
transaction to any person or entity other than a
mortgage brokerage business, mortgage lender,
or correspondent mortgage lender, operating
under an active license, or a person exempt from
licensure under this chapter.
To record a mortgage brokerage agreement or any
other document, not rendered by a court of com-
petent jurisdiction, which purports to enforce the
terms of the mortgage brokerage agreement.
To use the name or logo of a financial institution, as
defined in 655.005(1), F.S., or its affiliates or sub-
sidiaries when marketing or soliciting existing or
prospective customers if such marketing materials
are used without the written consent of the finan-
cial institution and in a manner that would lead a
reasonable person to believe that the material or
solicitation originated from, was endorsed by, or
is related to or the responsibility of the financial
institution or its affiliates or subsidiaries.

6 Module 1
PART II AND III: MORTGAGE BROKERS
AND MORTGAGE LENDERS
The only relevant changes made to 494.003-494.797, F.S. were the substitution of the Financial Services
Commission or the Office of Financial Regulation in place of the Department of Banking and Finance.
PART IV: FLORIDA FAIR LENDING ACT
ABUSIVE MORTGAGE LENDING
In 494.0078, F.S. the Florida Legislature found
that:
“abusive mortgage lending has become
a problem in this state even though most
high-cost home loans do not involve abusive
mortgage practices. One of the most com-
mon forms of abusive lending is the making
of loans that are equity-based rather than
income-based. The financing of points and
fees in these loans provides immediate income
to the originator and encourages creditors to
repeatedly refinance home loans. As long as
there is sufficient equity in the home, an abu-
sive creditor benefits even if the borrower is
unable to make the payments and is forced to
refinance. The financing of high points and
fees causes the loss of equity in each refinanc-
ing and often leads to foreclosure.
Abusive lending has threatened the viabil-
ity of many communities and caused decreases
in home ownership. While the marketplace
appears to operate effectively for conven-
tional mortgages, too many homeowners find
themselves victims of overreaching creditors
who provide loans with unnecessarily high
costs and terms that are unnecessary to secure
repayment of the loan. The Legislature finds
that as competition and self-regulation have
not eliminated the abusive terms from home-
secured loans, the consumer protection pro-
visions of this act are necessary to encourage
fair lending.”
DEFINITIONS
Section 494.0079, F.S. sets forth the following defini-
tions.
Affliate: Any company that controls, is controlled by,
or is in common control with another company, as set
forth in 12 U.S.C. 1841 et seq. and the regulations
adopted thereunder.
Annual percentage rate: The annual percentage
rate for the loan calculated according to the provi-
sions of 15 U.S.C. 1606 and the regulations adopted
thereunder by the Federal Reserve Board.
Borrower: Any natural person obligated to repay a
loan, including, but not limited to, a coborrower,
cosignor, or guarantor.
Bridge loan: A loan with a maturity of less than 18
months that only requires the payment of interest
until such time as the entire unpaid balance is due and
payable.
Commission: The Financial Services Commission.
Office: The Office of Financial Regulation of the
commission.
Lender: Any person who makes a high-cost home
loan or acts as a mortgage broker or lender, finance
company, or retail installment seller with respect to a
high-cost home loan, but shall not include any entity
chartered by the United States Congress when engag-
ing in secondary market mortgage transactions as an
assignee or otherwise.
Residential mortgage transaction: A transaction
in which a mortgage, deed of trust, purchase money
security interest arising under an installment sales
contract, or equivalent consensual security interest is
created or retained against the consumer’s dwelling to
finance the acquisition or initial construction of such
dwelling. 15 U.S.C. 1602(w)
HIGH-COST HOME LOANS
Definition
The provisions of the Florida Fair Lending Act deal
primarily with high-cost home loans. High-cost home
loans are defined by 15 U.S.C. 1602(aa), which pro-
vides in pertinent part as follows:
(1) A mortgage referred to in this subsection

means a consumer credit transaction that is
secured by the consumer’s principal dwelling,
other than a residential mortgage transaction,
a reverse mortgage transaction, or a transac-
tion under an open end credit plan, if:
(A) the annual percentage rate at consum-
mation of the transaction will exceed by
more than 10 percentage points the yield
on Treasury securities having comparable
periods of maturity on the fifteenth day
of the month immediately preceding the
month in which the application for the
extension of credit is received by the cred-
itor; or
(B) the total points and fees payable by the
consumer at or before closing will exceed
the greater of:
(i) 8 percent of the total loan amount; or
(2) (A) After the 2-year period beginning on the
effective date of the regulations promul-
gated under section 155 of the Riegle
Community Development and Regulatory
Improvement Act of 1994, and no more
frequently than biennially after the first
increase or decrease under this sub-
paragraph, the Board may by regulation
increase or decrease the number of per-
centage points specified in paragraph
(1)(A), if the Board determines that the
increase or decrease is:
(i) consistent with the consumer protec-
tions against abusive lending provided
by the amendments made by subtitle
B of title I of the Riegle Community
Development and Regulatory
Improvement Act of 1994; and
(ii) warranted by the need for credit.
(B) An increase or decrease under subpara-
graph
(A) may not result in the number of percent-
age points referred to in subparagraph (A)
being:
(i) less that 8 percentage points; or
(ii) greater than 12 percentage points.
(C) In determining whether to increase or
decrease the number of percentage points
referred to in subparagraph (A), the Board
shall consult with representatives of con-
sumers, including low-income consumers,
and lenders.
(3) The amount specified in paragraph (1)(B)(ii)
shall be adjusted annually on January 1 by the
annual percentage change in the Consumer
Price Index, as reported on June 1 of the year
preceding such adjustment.
(4) For purposes of paragraph (1)(B), points and
fees shall include:
(A) all items included in the finance charge,
except interest or the time-price differen-
tial;
(B) all compensation paid to mortgage bro-
kers;
(C) each of the charges listed in section1605(e)
of this title (except an escrow for future
payment of taxes), unless:
(i) the charge is reasonable;
(ii) the creditor receives no direct or indi-
rect compensation; and
(iii) the charge is paid to a third party
unaffiliated with the creditor; and
(D) such other charges as the Board deter-
mines to be appropriate.
PROHIBITED ACTS
Section 494.00791,F.S. provides for prohibited acts
involving high-cost loans.
Prepayment Penalties
A high-cost home loan may not contain terms that
require a borrower to pay a prepayment penalty for
paying all or part of the loan principal before the date
on which the payment is due.
Notwithstanding paragraph (a), a lender making
a high-cost home loan may include in the loan con-
tract a prepayment fee or penalty, for up to the first 36
months after the date of consummation of the loan,
if:
• The borrower has also been offered a choice of
another product without a prepayment penalty.
• The borrower has been given, at least 3 business
days prior to the loan consummation, a written
disclosure of the terms of the prepayment fee or
penalty by the lender, including the benefit the
borrower will receive for accepting the prepay-
ment fee or penalty through either a reduced
interest rate on the loan or reduced points or
fees.
Default Interest Rate
A high-cost home loan may not provide for a higher
interest rate after default on the loan. However, this
prohibition does not apply to interest rate changes in
a variable rate loan otherwise consistent with the pro-
visions of the loan documents, provided the change in
interest rate is not triggered by a default or the accel-
eration of the interest rate.
Balloon Payments
A high-cost home loan having a term of less than 10
years may not contain terms under which the aggre-
(ii) $5 .28

8 Module 1
gate amount of the regular periodic payments would
not fully amortize the outstanding principal balance.
However, this prohibition does not apply when the
payment schedule is adjusted to account for the sea-
sonal or irregular income of the borrower or if the
loan is a bridge loan.
Negative Amortization
A high-cost home loan may not contain terms under
which the outstanding principal balance will increase
at any time over the course of the loan because the
regular periodic payments do not cover the full
amount of the interest due.
Prepaid Payments
A high-cost home loan may not include terms under
which more than two periodic payments required
under the loan are consolidated and paid in advance
from the loan proceeds provided to the borrower.
Extending Credit Without Regard to the
Payment Ability of the Borrower
A lender making a high-cost home loan shall not
engage in any pattern or practice of extending high-
cost home loans to borrowers based upon the bor-
rowers’ collateral without regard to the borrowers’
ability to repay the loan, including the borrowers’
current and expected income, current obligations, and
employment.
Payments to a Home Contractor
A lender shall not make any payments to a contractor
under a home improvement contract from amounts of
a high-cost home loan other than:
• in the form of an instrument that is payable to
the borrower or jointly to the borrower and the
contractor; or
• at the election of the borrower by a third-party
escrow agent in accordance with terms estab-
lished in a written agreement signed by the bor-
rower, the lender, and the contractor prior to
the date of payment.
Due-On-Demand Clause
A high-cost home loan may not contain a provision
that permits the lender, in its sole discretion, to call or
accelerate the indebtedness. This provision does not
prohibit acceleration of the loan due to the borrower’s
failure to abide by the terms of the loan, or due to
fraud or material misrepresentation by the consumer
in connection with the loan.
Refinancing Within an 18-Month Period
A lender, its affiliate, or an assignee shall not refinance
any high-cost home loan to the same borrower within
the first 18 months of the loan when the refinancing
does not have a reasonable benefit to the borrower
considering all of the circumstances, including, but
not limited to, the terms of both the new and refi-
nanced loans, the cost of the new loan, and the bor-
rower’s circumstances.
A lender or assignee shall not engage in acts or
practices to evade this requirement, including a pat-
tern or practice of arranging for the refinancing of the
lender’s or assignee’s own loans by affiliated or unaffil-
iated lenders or modifying a loan agreement, whether
or not the existing loan is satisfied and replaced by the
new loan, and charging a fee.
Open-Ended Loans
A lender shall not make any loan as an open-ended
loan in order to evade the provisions of this act unless
such open-ended loans meet the definition in 12
C.F.R. s. 226.2(a)(20).
Recommendation of Default
A lender shall not recommend or encourage default
on an existing loan or other debt prior to and in con-
nection with the closing or planned closing of a high-
cost home loan that refinances all or any portion of
such existing loan or debt.
Prohibited Door-To-Door Loans
A high-cost home loan may not be made as a direct
result of a potential or future lender or its representa-
tive offering or selling a high-cost home loan at the
residence of a potential borrower without a prear-
ranged appointment with the potential borrower or
the expressed invitation of the potential borrower.
This subsection does not apply to mail solicitations
that may be received by the potential borrower.
Late Payment Fees
A lender may not charge a late payment fee for a
high-cost home loan except as provided in 494.0079
(13)(a)(b)(c), F.S.:
A late payment fee:
• may not be in excess of 5 percent of the amount
of the payment past due.
• may only be assessed for a payment past due for
15 days or more.
• may not be charged more than once with respect
to a single late payment. If a late payment fee
is deducted from a payment made on the loan
and such deduction causes a subsequent default

on a subsequent payment, no late payment fee
may be imposed for such default. If a late pay-
ment fee has been imposed once with respect
to a particular late payment, no such fee shall
be imposed with respect to any future payment
which would have been timely and sufficient,
but for the previous default.
Modification or Deferral Fees
A lender may not charge a borrower any fees or other
charges to modify, renew, extend, or amend a high-
cost home loan or to defer any payment due under the
terms of a high-cost home loan on a minimum of one
modification, renewal, extension, or deferral per each
12 months of the length of the loan.
HIGH-COST LOAN DISCLOSURES
Section 494.00792, F.S. provides for required disclo-
sures for high-cost home loans.
A lender making a high-cost home loan shall pro-
vide a notice to a borrower. (The required notice is
found in Figure 1.1.)
Annual Percentage Rate
A lender making a high-cost home loan shall disclose:
• In the case of a fixed mortgage, the annual
percentage rate and the amount of the regular
monthly payment.
• In the case of any other credit transaction, the
annual percentage rate, the amount of the reg-
ular monthly payment and the amount of any
balloon payment permitted under this section,
a statement that the interest rate and monthly
payment may increase, and the amount of the
maximum monthly payment based upon the
maximum interest rate allowed pursuant to law.
Notice to Purchasers and Assignees
All high-cost home loans shall contain the following
notice:
Notice: This is a mortgage subject to the
provisions of the Florida Fair Lending Act.
Purchasers and assignees of this mortgage
could be liable for all claims and defenses with
respect to the mortgage which the borrower
could assert against the creditor.
Timing of Disclosure
The disclosure required by this subsection shall be
given not less than 3 business days prior to the con-
summation of the high-cost home loan.
New disclosures are required when, after disclo-
sure is made, the lender making the high-cost home
loan changes the terms of the extension of credit,
including if such changes make the original disclo-
sures inaccurate, unless new disclosures are provided
that meet the requirements of this section.
A lender may provide new disclosures pursuant to
paragraph (b) by telephone, if:
1. The change is initiated by the borrower.
2. At the consummation of the high-cost home
loan:
Figure 1.1: Required Disclosure for High-Cost Home Loans
In addition to other disclosures required by law, the following notice in conspicuous type, must be given to
the borrower.
Notice to borrower.
If you obtain this high-cost home loan, the lender will have a mortgage on your home. You could lose your
home and any money you have put into it if you do not meet your obligations under the loan. Mortgage loan
rates and closing costs and fees vary based on many factors, including your particular credit and financial
circumstances, your employment history, the loan-to-value requested, and the type of property that will
secure your loan. The loan rate and fees could also vary based upon which lender or broker you select. As a
borrower, you should shop around and compare loan rates and fees. You should also consider consulting a
qualified independent credit counselor or other experienced financial adviser regarding the rates, fees, and
provisions of this mortgage loan before you proceed. You should contact the United States Department of
Housing and Urban Development for a list of credit counselors available in your area. You are not required
to complete this agreement merely because you have received these disclosures or have signed a loan appli-
cation. Borrowing for the purpose of debt consolidation can be an appropriate financial management tool.
However, if you continue to incur significant new credit card charges or other debts after this high-cost
home loan is closed and then experience financial difficulties, you could lose your home and any equity
you have in it if you do not meet your mortgage loan obligations. Remember that property taxes and hom-
eowners’ insurance are your responsibility. Not all lenders provide escrow services for these payments.
You should ask your lender about these services. Also, your payments on existing debts contribute to your
credit rating. You should not accept any advice to ignore your regular payments to your existing creditors.
(Chapter 494.00792 F.S.)

10 Module 1
• The lender provides the disclosures in writ-
ing to the borrower.
• The lender and the borrower certify in writ-
ing that the new disclosures were provided
by telephone no later than 3 days prior to the
consummation of the high-cost home loan.
A creditor must disclose to any high-cost home
loan borrower the rights of the borrower to rescind
the high-cost home loan within 3 business days pursu-
ant to 15 U.S.C. s. 1635(a) and shall provide appro-
priate forms for the borrower to exercise his or her
right to rescission. The notice, forms, and provisions
thereof must be in accordance with the requirements
of 15 U.S.C. s. 1635(a).
REGULATION OF THE FLORIDA FAIR
LENDING ACT
The Office of Financial Regulation and the Financial
Services Commission is responsible for the adminis-
tration and enforcement of The Florida Fair Lending
Act. Duties include investigations, examinations,
injunctions, and orders.
Powers and Duties of the Commission and
Office
In addition to the provisions listed within the Powers
and Duties of The Commission and Office in Part I of
this module, section 494.00795, F.S. provides:
• Any person having reason to believe that a pro-
vision of this act has been violated may file a
written complaint with the office setting forth
the details of the alleged violation.
• The office may conduct examinations of any
person to determine compliance with this act.
• Whenever the office finds a person in violation
of this act, it may enter an order imposing a fine
in an amount not exceeding $5,000 for each
count or separate offense, provided that the
aggregate fine for all violations of this act that
could have been asserted at the time of the order
imposing the fine shall not exceed $500,000.
• Any violation of this act shall also be deemed
to be a violation of chapter 494, chapter 516,
chapter 520, chapter 655, chapter 657, chapter
658, chapter 660, chapter 663, chapter 665, or
chapter 667. The commission may adopt rules
to enforce this subsection.
Enforcement of the Florida Fair Lending Act
Section 494.00796 F.S. provides:
• Any person or the agent, officer, or other rep-
resentative of any person committing a mate-
rial violation of the provisions of this act shall
forfeit the entire interest charged in the high-
cost home loan or contracted to be charged or
received, and only the principal sum of such
high-cost home loan can be enforced in any
court in this state, either at law or in equity.
• A creditor in a home loan who, when acting in
good faith, fails to comply with the provisions of
this act shall not be deemed to have violated this
act if the creditor establishes that within 60 days
after receiving any notice from the borrower
of the compliance failure, which compliance
failure was not intentional and resulted from
a bona fide error notwithstanding the mainte-
nance of procedures reasonably adapted to avoid
such errors, the borrower has been notified of
the compliance failure, appropriate restitution
has been made to the borrower, and appropri-
ate adjustments are made to the loan. Bona fide
errors shall include, but not be limited to, cleri-
cal, calculation, computer malfunction and pro-
gramming, and printing errors. An error of legal
judgment with respect to a person’s obligations
under this section is not a bona fide error.
• The remedies provided in this section are cumu-
lative.
CONCLUSION
In conclusion, it is important to be aware of current
rules and regulations governing the mortgage lend-
ing business and the extent to which they affect daily
practice. These rules and regulations apply to a wide
range of topics, including licensure requirements,
continuing education requirements, and penalties for
violations of the rules. The Department of Financial
Services is responsible for regulating the activities of
mortgage brokers, mortgage brokerage businesses,
mortgage lenders, and correspondent mortgage lend-
ers by the use of Florida Statutes and the Florida
Administrative Code and, when necessary, for impos-
ing penalties on licensees found to be in violation.

R E V I E W Q U E S T I O N S — M O D U L E O N E
Following are review questions. While you are not required to answer these questions to complete the 14-hour
course, they are intended to help you evaluate your comprehension of the material. Choose the best response to
each review question. The answers to the review questions are found at the end of each section.
Transfer your answers to the space provided on the Answer Sheet.
1. The Financial Services Commission serves as agency head for which of the following?
a. Office of Financial Regulation (OFR or Office)
b. Office of Insurance Regulation (OIR)
c. both the Office of Financial Regulation and the Office of Insurance Regulation
d. neither the Office of Financial Regulation and the Office of Insurance Regulation
2. Which of the following is now responsible for the administration and enforcement of the Florida Statutes
regulating both mortgage brokers and mortgage lenders?
a. Department of Banking and Finance
b. Office of Financial Regulation
c. Financial Services Commission
d. Division of Securities and Finance
3. Which of the following has the authority to adopt rules to implement the provisions of Chapter 494 F.S.?
4. Which of the following has the authority to conduct investigations of any person who has allegedly
violated the provisions of Chapter 494 F.S.?
5. A violation of any provision of 494.001-494.0077 in which violation the total value of money and property
unlawfully obtained exceeded $50,000 and there were five or more victims, is guilty of a:
a. misdemeanor of the second degree.
b. misdemeanor of the first degree.
c. felony of the second degree.
d. felony of the first degree.
6. Pursuant to the Florida Fair Lending Act, one of the most common forms of abusive lending is the
making of loans that are:
a. equity-based rather than income-based.
b. income-based rather than equity-based.
c. value-based rather than equity-based.
d. value-based rather than income-based.
7. The Florida Fair Lending Act deals primarily with what type of loans?
a. no-cost home loans
b. high-cost loans
c. high-cost home loans
d. any loan in which discount points are charged to the borrower

8. A mortgage referred to in the Florida Fair Lending Act means a consumer credit transaction that is
secured by:
a. the consumer’s principal dwelling, other than a residential mortgage transaction.
b. any real property owned by the consumer.
c. any property owned by the consumer, other than the consumer’s principal dwelling.
d. the consumer’s principal dwelling, including a residential mortgage transaction.
9. For purposes of the Florida Fair Lending Act, a “residential mortgage transaction” means any transaction
in which a mortgage, deed of trust, purchase money security interest arising under an installment sales
contract, or equivalent consensual security interest is created or retained against the consumer’s dwelling
to ﬁnance:
a. the construction of additions to the dwelling.
b. any improvements made to the dwelling.
c. an equity line-of-credit loan.
d. the acquisition or initial construction of the dwelling.
10. The Florida Fair Lending Act prohibits all of the following acts except:
a. a home loan in which a higher rate of interest is charged after default on the loan.
b. a home loan in which the outstanding principal balance will increase at any time over the course of the loan
because the regular periodic payments do not cover the full amount of the interest due.
c. a home loan which contains a prepayment clause allowing the borrower to prepay the outstanding principal
balance before maturity, without a penalty.
d. a home loan which was based upon the borrower’s collateral without regard to the borrower’s current and
expected income, current obligations, and employment.
11. The special disclosures required by the Florida Fair Lending Act must be provided to the borrower:
a. not less than 3 days prior to the consummation of the high-cost home loan.
b. not less than 5 days prior to the consummation of the high-cost home loan.
c. not less than 3 business days prior to the consummation of the high-cost home loan.
d. not less than 5 business days prior to the consummation of the high-cost home loan.
12. What portion of the interest charged in a high-cost home loan must be forfeited by the person or the
agent, ofﬁcer, or other representative of any person committing a material violation of the provisions of
the Florida Fair Lending Act?
a. 25%
b. 75%
c. 100%
d. none
ANSWERS:
1)c.2)b.3)c.4)b.5)d.6)a.7)c.8)a.9)d.10)c.11)c.12)c.
12 Module 1
Transfer your answers to the space provided on the Answer Sheet.

© 2005 Bert Rodgers Schools of Real Estate, Inc. 13
LEARNING OBJECTIVES
After completing this module, you should be able to:
Real Estate
Finance and Mortgages
M O D U L E 2
1. Identify the mortgage programs available to the
real estate industry.
2. Know how the Federal Truth in Lending Act
(TILA), Real Estate Settlement Procedures Act
(RESPA), and the Equal Credit Opportunity Act
(ECOA) apply to real estate and mortgage trans-
actions.
3. Know the basic concepts of the mortgage amorti-
zation process.
4. Be familiar with basic guidelines for qualifying
for a real estate mortgage, the mortgage applica-
tion process, and the tax benefits of home own-
ership.
GLOSSARY AND ACRONYMS
Many names used in real estate finance are referenced
by acronyms. Also many financial terms often require
more precise definitions than are normally used in
everyday conversation. These acronyms and terms
are defined at the beginning of this module to assist
in fully understanding the material presented. This
list is not all-inclusive, but does cover material used
in this module. Prior to studying the course material,
it is suggested that the reader review the glossary.
Americans With Disabilities Act (ADA): The act
to eliminate discrimination against individuals with
disabilities and allow them to enter the economic and
social mainstream of society. Effective 1/26/1992
Annual Percentage Rate (APR): The yearly interest
rate that reflects the actual cost of the mortgage. It
includes points and other costs paid by the borrower,
almost always higher than the rate advertised, and
must be disclosed to the borrower. The APR allows
a borrower to make a direct comparison of different
mortgages.
Appraisal: This is an estimate of value of the property
in question. It is made by a professional appraiser, and
is usually the amount the lender will use to determine
a mortgage amount.
Closing costs: All the charges associated with plac-
ing a mortgage. They can include origination fees,
discount points, appraisal fee, title search and insur-
ance, survey, recording fees, cost of credit reports,
search fees and special delivery costs. Closing, or
settlement costs, may add 3% to 6% to the mort-
gage amount.
Community Home Buyers Program (CHBP): A
program designed to give credit worthy buyers the
opportunity to purchase a home if they earn up to
115% of an area’s median income. Generally more
flexible than other mortgages and requires a down
payment as low as 5% of the mortgage.
Community Reinvestment Act (CRA): Directs
lenders to work with community groups and local
government officials to identify the credit needs of
the community. A CRA sign is required in the lobby
of the lender.
Robert K. Strickland CCIM, GRI is a Certified Commercial Investment Member
(CCIM) recognized as a professional in commercial real estate brokerage, valuation, and
investment analysis. He is a state-licensed real estate instructor. A graduate of the U.S.
Military Academy at West Point, Bob is a retired USAF Colonel serving on 160 combat
missions in jet fighters in SEA.

14 Module 2
Consumer Credit Protection Act (TILA): A lender
must disclose finance costs to the borrower with a
Truth-In-Lending disclosure within three business
days of the loan application. The TILA is to ensure the
meaningful disclosure of credit and terms to poten-
tial borrowers. It lists the APR, the finance charge,
and any other costs of making the loan. Regulation
Z enforces TILA through regulation of advertising
credit availability by the advertiser and the creditor.
For closed-end consumer credit advertisements, the
entire opportunity must be described; the sales price,
the amount or percentage of down payment, terms of
repayment, APR, and any other facts that will affect
the borrower’s loan if any of the specifics are given.
For example, if the APR is stated “8.75% APR”, the
remaining terms must be stated. However, if only
general terms like “no down payment”, are used, it is
not necessary to disclose any other terms of the credit
offering.
Conventional mortgages: Mortgages not insured or
guaranteed by FHA or the VA.
Credit score: A numerical measurement based on an
analysis of the borrower’s credit report that reflects
the management of credit by the borrower. For infor-
mation used by the three major credit bureaus, con-
tact them at:
Equifax, 800-525-6285 www.equifax.com;
Experian, 888-397-3742 www.experian.com;
TransUnion, 800-680-7289 www.transunion.com.
Debt ratio: This is a term used by Lenders to com-
pare the total monthly income to the total monthly
obligations of a borrower. Debts included are monthly
housing expenses, all monthly installment debts with
more than 10 months to run, child support or alimony,
all revolving credit, and any negative cash flows from
investment properties. For conventional mortgages,
this ratio is calculated by dividing the total monthly
obligations by the stable gross monthly income. It
should not exceed 36%, but FHA allows up to 41%.
Department of Housing and Urban Development
(HUD): A Federal Agency that provides a number of
guidelines and safeguards in the housing market for
lenders, buyers, sellers, and tenants. HUD is involved
lenders should be aware of the latest changes to HUD-
enforced programs, particularly in the area of Civil
can provide a wealth of useful information on
various HUD programs.
Department of Veterans Affairs (VA): Guarantees
real estate loans to qualified veterans, who may finance
up to 100% of the purchase price of a home. Lenders
in the private sector provide the funds and must qual-
ify to participate in the VA programs. More infor-
mation on VA mortgages and homes available in the
program may be found at www.vahomes.org/sp/.
Down Payment Assistance Programs (DAPs).:
Programs designed to contribute funds necessary to
close the purchase of a home. These programs come
in many shapes and sizes, and may include outright
grants to certain low-income buyers.
Energy Efficient Mortgage (EEM): Energy mort-
gages offer special financing for homes that are desig-
nated energy efficient or can be made energy efficient.
An official home energy rating or Home Energy
Rating System (HERS) report is required to secure an
EEM.
Equity: The value of the home minus all mortgages.
Escrow: Usually a third party (such as a title com-
pany or an attorney) account designated to hold funds
deposited as “good faith money” during the sale nego-
tiations. Escrow can also be defined as the funds col-
lected by lenders in addition to mortgage payments,
to pay taxes and insurance with low loan to value ratio
mortgages (below 80/20 LTV).
Equal Credit Opportunity Act (ECOA): Prohibits
discrimination and promotes the availability of credit
to all credit worthy applicants regardless of race,
color, religion, national origin, sex, marital status, age,
receipt of public funds assistance, or good faith exer-
cise of any rights under the Consumer Credit Protection
Act.
Each borrower must be evaluated under the same
underwriting standards, and must be notified in writ-
ing within 30 days of the loan decision. Verbal denials
are prohibited.
Fair Housing Act: Prohibits lenders from discrimi-
nation based on a borrower’s race, national origin,
color, religion, sex, handicap, or familial status. Note
that individuals infected with AIDS, or are HIV
positive must receive the same protection as other
protected groups. All applicants must be reviewed
on the same underwriting standards, and all proper-
ties must be appraised so that the age or location of
the property does not discriminate in the estimate of
reviewed periodically to insure compliance. Although
Public are Federal Laws and guidelines, each State
has parallel laws and guidelines that will apply in the
mortgage marketplace as well. Check www.fairhous-
Federal Home Loan Mortgage Corporation
(FHLMC, Freddie Mac): A secondary mortgage
market entity that purchases conventional mortgages
from the primary lenders.
HUD and homes and communities involved with the
Rights.The web site at www.hud.gov/homes/index.
in a number of programs affecting real estate, and
cfm
value. Lending practices of all lending institutions are
this act and many others affecting lenders and the
ing.com and HUD Resources for more information.

Federal Housing Administration (FHA): A fed-
eral agency that helps people become homeowners
by providing special insurance, lower down payments
and more flexible qualifying standards for mortgages
granted by qualified lenders. There are numerous
programs available from the FHA. A recent and very
beneficial addition to the paperwork required is the
FHA Home Inspection Notice Form, which puts the
Buyer on notice that a home inspection, while not
required, is a very prudent step prior to purchase.
Federal National Mortgage Association (FNMA
Fannie Mae): A secondary market entity that pur-
chases conventional mortgages from primary lenders.
Fixed rate mortgage: A mortgage that has an inter-
est rate that does not change (fixed) for the life of the
mortgage. Also monthly payments generally do not
change.
Government National Mortgage Association
(GNMA, Ginnie Mae): A secondary mortgage mar-
ket entity that purchases FHA and VA mortgages
from primary lenders.
Home Mortgage Disclosure Act (HMDA): Lenders
must maintain records by census tract of borrowers to
whom they are making loans in their community. An
HMDA notice must be posted in the lender’s lobby
advising the public of the availability of these records.
Home Energy Rating System (HERS): An evalua-
tion to determine the costs of energy improvements
as compared to the energy savings.
Housing payment: P & I, insurance, taxes and if
applicable, PMI, homeowners association dues, and
other secondary mortgage payments.
Housing ratio: A measure of the percentage of the
borrower’s stable monthly gross income which is used
to pay PITI, other mortgage insurance, homeowner’s
dues, and any secondary financing as compared to the
gross income: housing payment divided by stable gross
monthly income should not exceed 28% for conven-
Interest: The cost of borrowed money, paid to the
lender.
Lead-based paint disclosure rule: The lead-based
paint disclosure for all homes built prior to 1978
became mandatory is 1996. It is designed to protect
children from lead poisoning and must be given to all
buyers or tenants prior to any offer to sell or lease.
In addition to providing the pamphlet, “Protect Your
Family from Lead in Your Home”, the disclosure
explains the lead-base paint hazard and provides a
record of lead-based paint on the property if available,
offers an inspection opportunity and puts a notice in
any contract for sale or lease of a qualifying property.
Loan to Value Ratio (LTV): The ratio of borrowed
money to the value of the property. For example, if
the purchase price is $100,000 and the loan is $80,000,
the LTV is 80/20 or 80% of the purchase price is
financed.
Loan discount points (points): Points represent
additional fees paid to the lender to add additional
profit to the mortgage, or to lower a long-term inter-
est rate based on the market. (More points paid up
front give the lender an incentive to provide a lower a
long term rate.) Each point represents 1% of the loan
amount. Two points on a $100,000 loan is $2000, but
each point paid changes the loan percentage amount
by 1/8%. An 8% mortgage with one point would
actually be 8.125 % over the life of the loan.
Mortgage Insurance Premium (MIP): This refers
to the mortgage insurance premium charged by FHA
Lenders as part of the up front costs of a mortgage
and the monthly MIP charged as part of the PITI. On
an FHA loan, the MIP is always higher than a con-
ventional mortgage, as FHA charges 1.5% of the pur-
chase price up front and a renewal premium of .5%
annually. Conventional lenders can be as low as .5%
up front, and .3% annually.
Nehemiah Program: The largest down payment
assistance program in the US. The down payment
provided is usually 1% to 6% of the loan amount.
Negative amortization: A repayment of the loan that
does not cover the full amount of the interest owed,
which results in an increasing principal amount dur-
ing the life of the loan.
Non-recourse loan: A loan that does not require a
personal guarantee from the borrower.
Origination fee: The fee charged by the lender for
services performed in processing the initial applica-
tion for the loan.
Portfolio loan: In order to maintain liquidity, most
lenders sell most of the loans they make to buyers,
(FNMA, GNMA, or FHLMC), in the secondary
market. At times however, a lender may choose to
make a loan, then retain it in its own portfolio. When
a lender retains a loan, it is described as a portfolio
loan. Reasons vary from property type to terms and
conditions of the mortgage.
Prepaids: Any funds paid prior to closing that reduce
the amount required at closing, such as appraisal fees,
attorney fees, insurance, or interest.
Prepaid interest: Interim interest paid at closing that
accrues on the mortgage between the closing date and
the payment date of the first mortgage payment.
Prepayment penalties: Lenders sometimes place
mortgages with attractive benefits that may change
tional loans. FHA may allow up to 31%.

16 Module 2
depending on the financial climate. To continue to
receive these benefits, a lender may put in a prepay-
ment penalty to offset the loss of these benefits if the
borrower pays the mortgage off before the due date.
For example if a lender sets a rate near the top of the
market, then the market falls significantly, it would
be to the borrowers advantage to refinance, but the
lender would lose the better rate. To recover the lost
interest, the lender might require a cash payment in
addition to the payoff amount.
Principal: The actual amount of the mortgage or
the amount remaining after payment begins- the face
amount of the loan.
PITI (principal, interest, taxes and insurance):
Acronym for the individual parts of a typical monthly
mortgage payment where taxes and insurance are
escrowed.
Private Mortgage Insurance (PMI): A mortgage
insurance policy required by the lender that covers
the top end of the mortgage, i.e. the loan amount over
80% of the purchase price. It is generally required on
all mortgages that have an LTV of less than 80/20.
The policy insures the lender against losses where the
borrower has less than 20% equity. If a borrower is
required to have PMI at the beginning of a mortgage,
it can generally be dropped at the request of the bor-
rower once the equity reaches 20%. When the equity
reaches 22%, the lender must remove the PMI.
Real Estate Settlement Procedures Act (RESPA):
Under RESPA, lenders must make full disclosure of
the estimated closing costs associated with the loan
the borrower is applying for within three business
days of the application. The lender must also provide
the HUD booklet, “Settlement Costs and You”, and
a Uniform Settlement Statement must be prepared at
closing listing all the costs associated with the loan.
Reverse mortgages: This is a special type of mort-
gage that allows senior citizens to use the equity in
their home as a source of income. Rather than mak-
ing monthly payments, a lender will make monthly
payments to the owners and increase the mortgage
amount. Fannie Mae has a similar program for home
purchases called the “Home Keeper”. The buyers
must have a substantial cash down payment but will
have no monthly payments. A typical scenario for
this type of mortgage would look like this: Purchase
price $158,000, down payment – $64,000. The lender
will hold the $94,000 balance as a first mortgage and
require no monthly payment. A danger is that the
homeowner will run out of equity. In both cases the
lender owns the home less any equity remaining when
the final settlement is made.
Self-employed borrowers. If a borrower has 25%
or more ownership in a business and is not otherwise
employed, he will be required to provide a 2-year self
employment record to insure he has a stable employ-
ment record before a lender will consider his mort-
gage application.
Stable monthly income: This is the verified gross
monthly income from all primary sources of employ-
ment. Part time employment, commissions, bonuses,
and overtime will not be considered if appropriate
verification cannot be provided to show they will con-
tinue.
Title insurance: An insurance policy purchased from
a Title Company that insures against errors in title
search, and essentially guarantees that the title on the
property insured has no outstanding recorded claims
against it. Certain unrecorded claims may be covered.
Variable Rate Mortgage (VRM) - Adjustable
Rate Mortgage (ARM): The rate on a VRM/ARM
is adjusted periodically to reflect the current market.
The rate goes up or down as the market rates change.
There is a relatively new program called a two-step
mortgage that allows the borrower to take advantage
of lower initial rates of an ARM, and then adjust to a
fixed rate in the fifth or seventh year of the mortgage.
There are also a wide variety of other ARM’s available
in the market

In the early years of this country, home buying was
a very simple process. A person saved his money and
at some point he accumulated enough cash to buy a
home. This process, while simple for the frugal saver,
did not offer enough opportunity for the average
person. Circumstances varied with every family and
demand increased to the point where conventional
lenders (banks, then S & L’s) began to offer interest
only loans so that a borrower paid only the interest
monthly or annually until the balance or “the bal-
loon” came due. Unfortunately many families could
not control their income to the point where they
were able to accumulate the cash to pay the principal
outstanding when the note came due. This was par-
ticularly true in the Depression era, 1929-1934, when
literally thousands lost their homes and farms. When
President Franklin D. Roosevelt came into office in
1932, he realized that home ownership was a key fac-
tor in creating a strong national economy, as well as
helping people recover their personal wealth and their
self-esteem.
In 1934 President Roosevelt created the Federal
Housing Administration (FHA) to help provide
adequate home financing and to encourage new
construction of housing. It was not a true financing
program, but an insurance program to indemnify
conventional lenders against losses and share some of
the risk in the event of default by the buyer. It was
also the first time that lenders began to offer amortiz-
ing loans. Since that time mortgage lending has gone
through an incredibly evolutionary process, generated
not only by economic conditions, but also by the on-
going process of government involvement to protect
the borrower population. It has also become very
obvious that licensees need to be very knowledgeable
of the mortgage process, particularly since the major-
ity of the home buying population today still requires
a mortgage to own a home.
Before discussing the types of mortgages avail-
able, you should remember that all mortgages have
two main documents, the actual mortgage and the
note. The mortgage pledges the property as collateral
for the debt, and the note is a promise to repay from
the borrower. Depending on the ownership entity, the
note may be signed by only one party or by all par-
ties who are bound in the purchase. A non-recourse
note indicates that the party signing will not be held
personally liable for repayment. In most residen-
tial purchases, the note will be a recourse loan, i.e.,
the borrower will be held personally responsible for
repayment. Today there are two types of mortgages
available for most residential purchases — conven-
tional and Government insured/guaranteed.
CONVENTIONAL MORTGAGES
Conventional mortgages are available from creditors
who regularly extend consumer credit that is subject
to a finance charge, or payable by written agreement
in more than four installments. Banks, savings and
loan institutions, mortgage companies, and individu-
als make up this category of lenders and the loans
may be insured or uninsured depending on the down
payment, financial strength of the borrowers, and
the quality and location of the property. If a down
payment is less than 20% of the purchase price, the
lender will generally require private mortgage insur-
ance (PMI) to cover his risk above 80% of the value
limit on single family loans if they are to be sold to
Freddie Mac or Fannie Mae. There are as many loan
programs as lenders in this segment of the market, but
the basic categories are: fixed rate loans with terms up
to 30 years, many varieties of ARMs, and interest only
loans with balloon payments. Traditionally, conven-
tional mortgages required a fairly stringent qualify-
ing standard, 20% down payment and were amortized
over thirty years. New products in the market greatly
expand the types of loans now offered from conven-
tional lenders.
Since it is almost impossible for a lender to hold
every mortgage it makes in its own portfolio, the
Government found it necessary to establish a sec-
ondary market to buy the loans from these primary
lenders to keep a ready supply of cash in market.
To implement a viable secondary marketplace, the
Federal Government created FNMA, or Fannie Mae,
and FHLMC, or Freddie Mac, to buy these loans and
keep the primary lenders solvent. Further, to insure
quality and a standardized product, it was necessary to
create a wide variety of rules and regulations govern-
ing initial qualifications for borrowers, loan approval
and processing procedures, and minimum property
standards. Other guidelines to match these mortgages
to other laws governing banking standards, civil rights
laws and environmental regulations were required as
well.
FHA MORTGAGES
FHA mortgages are mortgages granted by FHA
qualified lenders (HUD approved). The loans are
insured by the FHA, which removes much of the risk
of default from the primary lender. Since 1934, FHA
has been supplying Americans of modest means with
an opportunity for home ownership, either as a new
purchase or to refinance an existing mortgage. These
PART I: REAL ESTATE FINANCE
home, in an unlimited amount, there is a $ , 04 0017
of the home. While a lender may match a loan to the

18 Module 2
loans generally offer lower down payments and easier
buyer qualifying standards, but the home as well as
the buyer must qualify. There are a number of spe-
cific requirements for FHA properties that will be
investigated by the Lender to make sure the home
qualifies under FHA standards. A typical example is
the requirement for the roof to have a certain amount
of economic life remaining. Make sure the applicant
understands that these requirements are for his pro-
tection, but may complicate a purchase if the home
does not initially qualify for the FHA loan. Eligible
properties include one to four unit houses and condo-
miniums. Under the single-family construction pro-
gram, FHA assists builders in obtaining construction
financing by allowing buyers to be approved prior to
the start of construction.
In the past few years conventional lenders have
modified their loans to resemble FHA loans, but there
are still some major differences. For first time home-
buyers, the minimum FHA cash down payment is 3%
of the value of the home, but part of this can be used
for closing costs. Conventional lenders also offer a
3% down payment loan, but it must be used for the
purchase price only. Qualifying standards are more
reduced waiting times after a bankruptcy or foreclo-
sure. FHA loans include higher payment to income
ratio. Conventional lenders require a range of 25%-
is also higher with FHA loans. Total debt payment
including debts with more than 10 months remain-
tional lenders use 36% as a limit. Single family loan
Some geographic areas may be higher as some coun-
ties in Florida and for example, Alaska, Guam and
tend to be similar, but a
recent analysis of national
are about .2 percentage points higher than
conventional rates. FHA does insure ARM’s under
several of its programs (Sections 203b, 234c, and 203k).
Probably the biggest difference is in the payment
of the mortgage insurance premium (MIP). FHA
requires an up-front payment of 1.5% of the purchase
price, but it can be added to the loan. If the mortgage
collect the premium monthly. GNMA buys FHA
insured loans in the secondary market to keep the pri-
mary lenders solvent. Generally, FHA mortgages can
be reassigned to qualified borrowers, but conventional
The FHA market tends to be most active in areas
of lower priced homes. Many lenders specialize in this
market and because of the many and changing rules
for FHA loans, it is necessary to keep good lines of
communication open with loan officers who specialize
in FHA mortgages, including property qualifications.
Down payment assistance programs (DAPS) are loan
programs designed to assist first time homebuyers.
Nehemiah, Hart, Neighborhood Gold, CHDAP, and
CHAFA are examples of programs for down payment
assistance.
As part of the FHA package, HUD now offers
homeowners age 62 and older a Reverse Mortgage
Program. If the homeowner has paid off his home
mortgage or has only a small balance remaining, he
may borrow against the equity in his home. He can
receive the payments as a lump sum, monthly, or as
a line of credit. Unlike ordinary home equity loans,
a HUD reverse mortgage does not have to be repaid
as long as the borrower lives in the home. The loan is
recovered at sale of the home. The home’s value, age
of the borrower and the interest rate determine the
amount of the loan. The older the borrower is, the
greater the LTV. There are no income or asset limi-
tations on a reverse mortgage, but the total amount
is generally capped by the FHA maximum mortgage
limit for the area. Even with FHA MIP, the HUD
reverse mortgage program is generally less expensive
than a loan from a conventional lender.
FHA has an energy efficient mortgage program
that allows borrowers to be eligible for up to 97%
financing including closing costs for including energy
efficient components in the improvements to an exist-
ing home or in new construction. The improvements
must be cost effective in that the cost is less than the
total present value of the energy saved over the useful
life of the energy improvement. The cost as compared
to the savings is determined by a home energy rating
system (HERS).
A final point — if you are dealing with a buyer
who has paid off an FHA mortgage in the past, he
may have money owed to him. About 100,000 FHA
borrowers, or 1 in 10, left money in their escrow
accounts when they paid off the loan. The average
amount was $700 so it would be worthwhile to have
the buyer check the status of any previous FHA loans.
Call 800-697-6967, or write: HUD, PO Box 23669,
Washington, DC, 20026-3699.
VA MORTGAGES
The Veterans Administration was an outgrowth of
World War II, when hundreds of veterans were return-
ing to civilian life after service during the war. Most
came back with few marketable skills and even less
money, but they were ready to get on with their lives
and looked to the Federal Government for help. Thus
as well. Conventional lenders that require insurance,
loans are rarely assumable. Go to the FHA Connect-
ion.at www.hud.gov/offices/hsg/connect.cfm
credit checks and
28%. FHA allows as much as 31%. The debt burden
amounts are greatly reduced in the FHA programs.
Hawaii. Interest rates
rates indicated FHA rates
is longer than15years, an annual premium is required
lenient as well, with alternative
ing can be as much as 43% of income while conven-

the VA, now the Department of Veterans Affairs, was
formed to assist in a number of ways from education
to mortgages. A VA loan is a real estate loan guaran-
teed by the Department of Veterans Affairs. Funds for
these loans are provided by private sector VA qualified
primary Lenders. They are available only to qualified
veterans and can be up to 100% of the purchase price
of the home. The VA is very strict in determining
who is qualified for a VA loan, and these qualifications
change as national events change military manpower
requirements. The current service dates for eligible
veterans with at least 90 days service:
• WW II – 9/16/1940 to 7/25/1947
• Korea – 6/27/1950 to 1/31/1955
• Vietnam – 8/5/1964 to 5/7/1975
• Persian Gulf – after 7/2/1990
• Gulf War – 8/2/1990 to Undetermined
and officer service after 10/16/1981.
Members of Selected Reserves and National Guard
are eligible after six years of service regardless of status-
active or discharged.
Based on current overseas assignments,
there will be a number of new military personnel
eligible. Go to www.homeloans.va.gov/elig2.htm
for the latest information.
VA financing covers houses, town houses or con-
dominiums in a VA approved project, new construc-
tion, home improvement and energy improvement
loans, refinancing of existing home loans and pur-
chase of a manufactured home and/or lot. A certificate
of eligibility is required as first step toward getting a
VA loan. At that time the service record of the apply-
ing veteran will be evaluated to determine eligibility.
Another point that could further assist veterans in
using VA loans is the loan entitlement amount. A VA
loan is a guaranteed loan, thus the VA simply provides
an entitlement amount, which is in effect a down pay-
ment amount from the veteran. Since the early years
of VA loans this entitlement amount has increased,
or in many cases, the loan associated with the entitle-
ment has been paid off the current maximum guar-
anteed loan is $60,000 but for loans in excess of
$144,000, the limit is 25% of the FHMLC conform-
limit on the size of a VA guaranteed loan, provided
the Veteran is qualified for the loan from a credit and
income standpoint. Lenders, however, will usually
limit the maximum amount to 4 times the amount of
the Veteran’s available entitlement plus any downpay-
are now
available under the VA.
Should a Veteran have a bankruptcy, the VA credit
standards follow these guidelines:
a. less than 3 years – loan not available unless sig-
nificant credit re-established.
b. 3 to 5 years – some consideration, but accept-
able if reasonable credit re-established.
c. Over 5 years – may be disregarded.
Any VA loan can be prepaid without penalty.
To check on the status of any current entitlement
or restoration of entitlement, a veteran can contact
the nearest VA office and complete Form 26-1880.
One unique feature of a VA loan is the requirement
for the veteran to pay a “funding fee”. The purpose
of the funding fee is to help the government offset the
cost of any foreclosure. To encourage a larger down
payment, the funding fee is calculated as a percentage
Disabled veterans do not pay funding fees. Speciality
Adapted Housing grants up to $50,000 are available
to veterans with service connected disabilities who
have lost the use of both arms.
Regulations and documentation for a VA loan
application can be voluminous; therefore the licensee
would be well served to maintain close contact with
a loan officer from a VA qualified lender who spe-
cializes in VA mortgages. GNMA buys these loans
in the secondary market to keep the primary lenders
solvent.
COMPARISON OF THE THREE LOAN
PROGRAMS
As a quick comparison of the three types of
loan programs, Ginnie Mae allows you to pre-
pare a chart. (www.ginniemae.gov/ypth/index.
asp?Section=YPTH) While there are a wide vari-
ety of loan products available in the market place, this
table compares only the basic loan for each program.
For example, the house under consideration meets
the criteria for each program and is offered for sale at
$175,000. Mortgage available is a 30 year term, fixed
rate at 6.5%. Monthly housing costs less mortgage
payment are set at $386. Cash required at closing was
estimated up front with the program calculating any
overages.
As you can see in Table 2.1 (page 20), there is a
vast difference in cash required. The conventional
mortgage has a lower monthly payment, but the down
payment will require a lot more cash. Also note that
the VA purchase ends up with a larger mortgage than
the cost of the house. This will have a definite impact
when the time comes to sell. Also timing may be a fac-
tor, as the VA and FHA loans may take longer to close
because of the additional paperwork. For a rent versus
buy comparison, go to http://www.ginniemae.gov/
• 181days continuous active duty for peacetime service
• 2 years service for enlisted service after 9/7/1980
ing loan limit of $417,000, or $104,250. There is no
ment. Adjustable rate and hybrid ARMs
of the purchase price up to a maximum of 3.3% of the
loan amount, www.warm -7.html.s.vba.va.gov/pam26

20 Module 2
rent_vs_buy/rent_vs_buy_calc.asp?.
FEDERAL TRUTH IN LENDING ACT (TILA)
(15 U.S.C. 1601 et seq.)
The purpose of the TILA is to assure that consum-
ers are fully informed of the terms and cost of credit
in typical consumer credit transactions which include
home mortgages, home equity loans and home
improvement loans as well as other types of credit such
as credit cards, auto purchases, store credit and install-
ment loans. The Board of Governors of the Federal
Reserve System is authorized to administer and imple-
ment TILA rules and regulations regarding consumer
credit. Regulation Z, published by the Board, requires
a very specific explanation and description of the cost
of credit both in dollars and percentage rates. It also
includes some very specific requirements when adver-
tising credit for the above listed loans.
TERMS
Before a consumer or homebuyer enters into an
installment credit contract, the consumer must be
given the following information in a format that is
easy to understand.
Total sale price: This number must include the
offered price, down payment, or trade-in, and any
interest or other charges.
Amount financed: The borrowed amount plus the
cost of any extended warranties.
Finance charges: A dollar amount of the cost of credit
such as interest, credit life insurance, loan origination
fees, discount, etc. It does not include credit applica-
tion fee, title work, cost of credit report, application
fees, attorney’s fees, or escrow payments.
Annual percentage rate (APR): The APR is the cost
of credit as expressed as an annual percentage rate. It
is calculated by including all the costs of the loan into
a new annual rate. It is almost always higher than the
initial quoted, or base rate and represents a uniform
true cost of credit which can then be compared to
other purchase options, so the consumer can shop for
the best credit terms.
Total amount of payments: This figure is a total
amount that will be paid over the life of the loan. It is
the total of the interest and the principal and is calcu-
lated by multiplying the monthly P & I by the num-
ber of payments.
Payment schedule: A statement which sets forth the
monthly payment amount and the payment due date.
In addition to the above information, lenders are
required to disclose late payment penalties and when
they apply, any prepayment penalties, variable interest
rates, and if the lender is being given a security inter-
est in the property or merchandise being financed.
There is a three-day “cooling off” period for refinanc-
ing principal residences.
REGULATION Z
Under Regulation Z, advertisers and lenders must
also clearly state the exact terms of any credit being
offered in order for the consumer to be able to make
direct comparisons of various credit opportunities.
While consumer credit is divided into open-end and
closed end categories, real estate lending is consid-
ered closed-end, and is credit extended for personal,
family or household purposes, but does not include
business and agricultural loan or loans over $25,000
that are not secured by real property. It is tradition-
ally extended by a creditor that regularly extends con-
Table 2.1: Comparison of FHA, VA and Conventional Loans
LOAN A
FHA
LOAN B
VA
LOAN C
CONV
Sale Price $175,000 $175,000 $175,000
Loan Amount $148,750
Monthly Mtge. Payment
Monthly Expense $ 386 $ 386 $ 386
Total Monthly Cost
Downpayment $ 0 $ 26,250
Closing Costs $ 6,112
Total Cash $ 32,362
Source: http://www.ginniemae.gov/2_prequal/le_intro_quesitons.asp
$173,569
$ 1,365
$ 1,752
$ 5,250
$ 1,736
$ 6,986
$178,588
$ 1,326
$ 1,712
$ 6,723
$
$ 1,242
$ 1,629
0

sumer credit subject to a finance charge and meets
other conditions usually associated with real estate
lending or general consumer credit. If an advertise-
ment promotes closed-end credit through a creditor,
both the advertiser and the creditor must comply with
the requirements of Regulation Z. Seller financing
usually does not meet the definition of a creditor, and
does not have to comply with Regulation Z.
There are some other advertising rules that apply
under the Federal guidelines that must be considered
when advertising properties that fall under HUD
guidelines. Under Part 109 of the Federal Fair Housing
Act, HUD publishes an outline of phrases, symbols,
words, and visual aids that may convey discrimina-
tory preferences or limitations. For example, words
that imply blindness, deafness, mental illness, physical
handicap, etc. or, words like “restricted”, “exclusive”,
“private”, “integrated” and similar terms that indi-
cate one race, a language other than English or other
national origin indicators should be avoided. Even
advertising property as ‘distressed, needs repairs, etc.”
may be discriminatory under some conditions. To get
a current list of words and phrases that are considered
discriminatory, go to www.fairhousing.com/
There are some very specific financial disclosures
that are required under Regulation Z if certain finan-
cial terms are used in an ad. Similarly, other terms
do not trigger the full disclosure requirement under
the Regulation. For example if the terms “No down
payment, easy monthly payments, no closing costs,
or financing available” or similar non-specific words
are used, there are no further disclosures required.
If, however, specific terms such as “ 10% down, 95%
financing, or low 7.5% mortgage, etc.” are used, the
remaining details of the financing opportunity must
be disclosed – “sales price $125,000, monthly payment
$578 P & I, APR-8.5%, mortgage amortized over
30 years” etc. In summary, all details of the offered
financing must be disclosed – monthly payment in
either PI, PIT or PITI, down payment in percent if
price is given or amount, APR, and term of the loan
in order for the consumer to compare credit offerings
and make knowledgeable decisions.
The variety of loan products in the market today
including ARM/VRMs, buydowns, and other special
features of mortgages make it imperative that credi-
tors and advertisers fully understand the requirements
for advertising financial opportunities in Regulation Z
and how they apply to the product offered, and then
comply accordingly. There are significant penalties
for violation of these rules, both civil and criminal.
REAL ESTATE SETTLEMENT PROCEDURES
ACT (RESPA)
12 U.S.C. 2601
RESPA is one of a number of federal consumer pro-
tection statutes that are designed to make consumers
more knowledgeable about real estate transactions,
and to reduce the cost of real estate settlement ser-
vices. RESPA was first passed in 1974 and its primary
purposes were to help consumers become better shop-
pers for settlement services and to eliminate kickbacks
and referral fees that increased the costs of real estate
settlement services. HUD is responsible for enforcing
RESPA, and it covers several types of loans on one to
four family residential properties. Specifically, home
purchase loans, mortgage assumptions, refinancing,
property improvement, and equity lines of credit fall
under RESPA.
At the time of application or within three days,
lenders and mortgage brokers must provide potential
borrowers the following information:
• The Special Information Booklet, “Settlement
Costs and You”, which provides the borrower
with consumer information on real estate ser-
vices to be provided in the purchase transac-
tions only.
• A good faith estimate (GFE) of the settlement
(or closing) costs for the transaction. Actual
charges may differ.
• A Mortgage Servicing Disclosure Statement as
to the lender’s intent to sell or hold the mort-
gage.
• Information on how to submit a complaint and
complaint resolution.
If the lender intends to refer the potential bor-
rower to another service provider, the borrower must
be given an Affiliated Business Arrangement (AfBA)
disclosure that describes the business arrangement
with the original lender and the fees to be charged.
As the transaction proceeds toward closing, the
a HUD-1 Settlement Statement.This is astandard-
ized form that clearly shows all charges imposed on
the borrower and the seller in connection with the
settlement. One day prior to closing the lender or
closing agent must provide the borrower a copy of
the completed HUD-1 closing statement, using infor-
mation available at that time. At the time of closing,
the lender also provides the borrower with an Initial
Escrow Statement showing the escrow payment and
the amount to be deposited at closing for the escrow
account. After closing the lender must provide an
escrow statement annually and the borrower must
be notified (by a Servicing Transfer Statement) if the
lender sells or assigns the servicing and/or the mort-
gage to another party.
There are several other sections of the RESPA
that licensees need to understand:
Section 6. Borrowers who have problems with
closing agent prepares asettlement statement described
as

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