Chapter 4 — Further Reading

Tier 1 — Verified canonical

Regulation Z (12 CFR Part 1026), and in particular:

  • §1026.4 — the finance charge, including the list of real-estate-related fees excluded when bona fide and reasonable. This is the authority for §4.8's included/excluded table. Read the section itself; it is short and the exclusions are not what you would guess.
  • §1026.22 and Appendix J — the APR computation and its accuracy tolerances. You will not compute an APR by hand in practice, but knowing that the tolerance exists explains why a re-disclosure triggers on some changes and not others (Chapter 22).
  • §1026.43 — Ability-to-Repay and Qualified Mortgage, including the current General QM definition. This is the authority behind Case Study 1.

The CFPB's Ability-to-Repay and Qualified Mortgage rule materials, including the small-entity compliance guide and the executive summaries of the December 2020 General QM Final Rule and the Seasoned QM rule. This is where to verify the current price-based threshold — the values are set by loan size and have been amended. Do not rely on Case Study 1's description for a current figure.

The Homeowners Protection Act. The authority for the 80%-request / 78%-automatic mortgage insurance rules in §4.4. Note carefully that it governs borrower-paid private mortgage insurance on conventional loans — FHA's MIP is governed separately by HUD (Chapter 16), and the exam tests the distinction.

The Fannie Mae Selling Guide and Freddie Mac Seller/Servicer Guide, sections on debt-to-income ratios, monthly obligations, and the treatment of specific debt types. This is the authority for what actually counts in the ratio and for the exclusion conventions referenced in §4.5. Free and public.

The Loan Estimate and Closing Disclosure forms themselves. Every figure in §4.3, §4.8, and §4.9 appears on one of them. Get a blank set and find each one — the interest rate, the APR, the Total Interest Percentage, the Total of Payments, the estimated escrow, the prepaid interest line, the cash to close. An hour with a blank CD is worth more than re-reading this chapter.

Tier 2 — Attributed, specifics unverified

Debt-to-income thresholds by program. The "43%," "45%," "31/43," "41%," and "29/41" figures in §4.5 are all real numbers that appear in real guidance, and none of them functions as a hard cap in the way it is usually quoted. Verify against the current agency guide, the current HUD handbook, the VA lender's handbook, or the USDA handbook — and against your employer's overlays, which are frequently the binding constraint and are not published anywhere public.

Mortgage insurance rate factors. The 0.58% used throughout for the Linden Street file, and the 0.42%, 0.32%, and 0.40% used in examples and exercises, are illustrative. Real factors are published by the mortgage insurers, vary by LTV, credit score, coverage level, loan term, and product, and change. Get a current rate card from any MI provider — they are freely available to lenders — and notice how much structure there is that a single factor hides.

Property tax rates and assessment practice. The 1.20%-of-price figure on this file is a modeling convenience. Real rates vary by an order of magnitude across the country, and whether a sale triggers reassessment — the §4.3 trap — is entirely a matter of state and local law.

The ten-month rule. The convention permitting exclusion of a nearly-paid installment debt is real and the ten-payment figure is the common one, but the conditions attached to it vary by agency and program. Verify before relying on it in a live file.

Payment-per-\$1,000 factors. The table in §4.10 is computed and correct for the rates shown. The "real payment vs. interest-only" percentages are likewise computed. Both are arithmetic, not guidance.

Average prime offer rate (APOR). Published by the CFPB and used as the reference for the price-based QM test and for higher-priced mortgage loan determinations (Chapter 24). Real, published, and updated — never quote a threshold from memory.

Tier 3 — Illustrative / constructed

  • The Linden Street file in its entirety — every figure derived in this chapter. Internally consistent and checked; not a real transaction. Note especially the rounding basis: the book uses the servicer method (interest rounded to the cent monthly), which is why the schedule overshoots zero by \$3.07 at month 360.
  • The Cypress Court low-appraisal example in §4.4 — \$540,000 contract, \$505,000 value, \$28,000 gap.
  • The Harlow Street CLTV example in §4.4 — FHA base loan 96.50% LTV, CLTV 101.15% with the DPA second. Illustrative FHA factors; verify current figures with HUD.
  • The rate/point grid in §4.7 — constructed, modeled on the structure of a real rate sheet, not on current pricing. Chapter 29 explains where such a grid comes from.
  • The \$420,000 phone estimate in §4.10 and every exercise scenario.

If you read only one thing

Regulation Z §1026.4(c)(7). It is about a paragraph long and it lists the real-estate-related fees excluded from the finance charge. Read it once and the APR stops being mysterious — you will understand exactly why the appraisal and the title insurance are out while the tax service fee is in, and you will be able to answer the "why is my APR higher?" question from the actual rule rather than from a summary.

Then, separately: get a blank Closing Disclosure and find all seven figures from this chapter on it. That is the exercise that makes the arithmetic real.