Underwriting/Types of Loans… Loan Type Open End, Closed End Guaranteed (SBA), Insured (Title I) Secured/Collateral (Real Estate, Chattel) Unsecured/No Collateral/Personal Loan Variable (ARM) or Fixed Rate Payment Options Interest Only Principal and Interest
Underwriting Ratios… Debt to Income Ratio (DTI) =Monthly Debt/Monthly Income ($2,000/$4,000=50%) (40-45% normal range for approval) Debts ($2,000) Housing Expense (Either PITI-Principal, interest, taxes & insurance or Rent payment) Other Payments (car loan, home equity, credit cards, etc.) Income ($4,000) verifiable sources from paystubs or tax returns
Underwriting Ratios… Loan to Value Ratio (LTV) =Loan Amount /Value of collateral ($8,000/$10,000=80% LTV) Value of collateral may be determine by NADA/Blue book value or purchase and sales agreement for new items Value for real estate is usually a tax assessment or real estate appraisal
Underwriting Terms Assets (savings, CD, house, car Liabilities (debts you owe for loans, credit cards and collections) Public Records & Collections (items in collection such as medical, utilities, telephone or records of bankruptcy, foreclosure, lawsuits, IRS/tax liens, etc.) Charge-offs –money owed that the lender has “charged-off” their books due to late payments. (stays on credit report for at least 7 years)
Underwriting Terms… Credit Report (A record of your payment history with banks, credit unions, finance companies and other financial institutions, updated monthly) Credit Bureaus (TransUnion, Experian, Equifax, First Advantage CredCo) What’s in your credit report: Tradelines, public records, identifying information, credit inquiries
Your Credit Score… FICO Scores (350- 850*) are calculated from data in your credit report based on 5 areas. % reflects how important each of the categories is in determining your FICO score.
Closing terms… Loan Closing-when borrowers sign the Note and security agreements and other documents covering terms of the loan. TIL/Reg Z Disclosures-A standard Truth In lending Form with 4 “boxes” that allow borrowers to compare costs of credit (APR, Finance Charge, Loan Amount, Total Cost)
Loan Terms… Principal (The amount you are borrowing) Finance charges (Costs to get this loan such as interest, recording and filing fees, points, underwriting and credit investigation fees) Term (how many months your loan payments will last for…i.e. 36 months)
Post Closing-Collections Loan Modification, restructured loan, deferment- describes options to change the original rate, term or payment for a loan in order to allow the borrower to become or stay current on a loan. Senior/subordinate debt, 1 st or 2 nd position on a loan (the order in which a money will be applied to loans when the collateral is sold.) Write-off, charge-off, lender no longer considers the loan an asset and expenses the loan amount as a loss. Loan Loss Reserve- a fund set aside at the bank/credit union to cover anticipated loan charge-offs based on historical losses for this type of loan.
Collections-bankruptcy… Chapter 7 (individual) and 9 (partnership or business) – Sometimes known as “liquidation bankruptcy”, the focus is on the sale of non-exempt property and the distribution of the proceeds to creditors; Chapter 11 (individual) and 13 (partnership or corporation) – Reorganization bankruptcy- debtor usually proposes a plan of reorganization to pay creditors over time. Business or individuals can also seek relief. Allows a debtor to keep property and pay debts over time, usually three to five years.
Lender/Servicer Terms… Servicer-the financial institution/lender who underwrites, closes, handles payments and collects on your loans. Rescue payments made by AFP or Telework lenders for borrower. May be added to the loan or granted to borrower based on the program Interest buy downs-money paid to the lender to subsidize interest/lower the rate to the borrower (i.e. loan rate is 8% and buy down is 6%, borrower’s rate is 2%. 6% is paid to the lender up front to reduce the loan rate.)
Other questions? What other terms have you heard? Any further questions?