1. Chapter 12
Closing and Insurance

2. Learning Objectives
12-1
List the information required to complete a standard settlement statement
Name and describe the four principal types of mortgage default insurance that protect lenders against losses that result from borrower default and subsequent foreclosure
Describe the similarities and differences of the FHA and VA insurance programs

3. 12-1
Objectives Con’t
Compare private mortgage insurance programs to the government programs
Define title insurance and indicate what losses it is intended to cover

4. Closing Analysis of the borrower’s financial position
12-2
Closing
Analysis of the borrower’s financial position
Disclosure of information required by RESPA, Regulation Z, and ECOA
Lender is concerned with borrower’s ability to make the down payment and the monthly payments

5. Submission for Insurance
12-3
Submission for Insurance
Most loans have default insurance
FHA/VA have a common form
FHA Direct Endorsement Program
Lender performs the underwriting process
Insurer (e.g. FHA) issues a mortgage insurance certificate

6. Transforming Title Promissory note is borrower’s promise to repay
12-4
Transforming Title
Promissory note is borrower’s promise to repay
Mortgage or Deed of Trust is the security instrument
Deed conveys title
Settlement statement is a record of actions and costs
Recording of the deed
Payment of mortgage insurance

7. Mortgage Default Insurance
12-5
Mortgage Default Insurance
Partial versus full coverage
Co-insurance: loans up to a certain portion are covered
Self-insurance: lenders absorb the default risk themselves
Cost is borne by the borrower (FHA or PMI) or by the federal government (VA)

8. VA Insurance Created by Serviceman’s Readjustment Act of 1944
12-6
Created by Serviceman’s Readjustment Act of 1944
Guarantee program for eligible veterans and their immediate families
Must by primary residence
VA guarantees a portion of the loan to the lender
No protection for borrower
Eligibility
Funding fee various with down payment
VA offers fixed-rate, adjustable rate, and graduated payment loans

9. FHA Insurance FHA created in 1934 to provide mortgage insurance
12-7
FHA created in 1934 to provide mortgage insurance
FHA insures full amount of loan for one-to-four family properties
Interest rate and discount points are negotiable
Loan limits vary depending on housing cost for a given area
Credit Check is required for a loan assumption

10. FHA Insurance Con’t Loan-to-value ratios can be up to 97 to 98 percent
12-7
FHA Insurance Con’t
Loan-to-value ratios can be up to 97 to 98 percent
Mortgage Insurance Premium is an up front premium plus an annual premium paid monthly
Premium can be canceled at some future date in some cases

11. Private Mortgage Insurance(PMI)
12-8
Provided by private companies to protect lenders
Insures conventional loans against default
Insures a portion of the loan
Co-insurance factor provides incentives to lenders to minimize losses
Premium is an up front fee plus an annual fee

12. PMI Con’t Borrower can cancel PMI when LTV reaches 80%
12-8
PMI Con’t
Borrower can cancel PMI when LTV reaches 80%
PMI is automatically cancelled when LTV ratio reaches 78%

13. 12-9
Title Insurance
Insures against the risk that clear title may not be transferred
Title abstract shows the title history of a property
Title search reviews each title transfer of the property
Title company conducts a title search and issues a title insurance policy
Lender’s policy versus an owner’s policy