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The upfront premium charged on an FHA mortgage is an example of government mortgage insurance. This upfront mortgage insurance premium (UFMIP) is required for FHA loans and protects the lender (creditor) in the event of borrower default. FHA loans are insured by the Federal Housing Administration (FHA), a government agency.

Private mortgage insurance (D) is used for conventional loans, while optional credit life insurance (A) and force-placed hazard insurance (B) are unrelated to FHA loans.

Prepayment penalties can be used as a tool for predatory lending or steering, especially if borrowers are not made aware of them or if such penalties are used to discourage refinancing or early payoff, which may not be in the borrower’s best interest.

“Certain loan terms such as prepayment penalties… may be considered predatory when they are not adequately disclosed or when used to lock borrowers into unfavorable loans.”

— CFPB, Protecting Consumers from Predatory Lending Practices

Cash-out and lowered interest rates are not inherently predatory, and a fixed interest rate is generally a consumer-friendly feature.

To verify a borrower's income for the ability-to-repay (ATR) requirements, lenders must rely on verified documentation, such as:

Electronic paystubs

W-2 forms

Tax returns

An electronic paystub is acceptable as it provides detailed proof of the borrower's income, including salary, deductions, and other compensation.

Items like a check register (B), the income stated on the loan application (C), or a borrower’s attestation (D) without documentation are not considered valid forms of income verification.

Under the SAFE Act, administrative and clerical duties may be performed by an individual (including a third-party underwriter) if performed at the direction and supervision of a licensed MLO. Origination activities must be done only by licensed MLOs, and company or MLO licensing is state-specific.

“Administrative or clerical tasks performed at the direction and subject to the supervision and instruction of a licensed mortgage loan originator do not require licensure.”

— SAFE Act, 12 U.S.C. § 5102(4)(C)