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Residential Mortgage Lending: Principles and Practices, 6e Chapter 18 Strategies for Generating Residential Loans

© 2012 Cengage Learning Objectives After completing this chapter, you should be able to: – Identify the requirements for successful mortgage lending – Describe the importance of the origination function and what it consists of – Explain the reasons for some of the recent developments in serving the public in the requests for mortgage loans – Identify those attributes which attract customers to mortgage lenders – Distinguish between the retail and wholesale methods of loan origination – Explain the advantages and disadvantages of the retail and wholesale methods – Understand some of the expenses associated with the origination function.

© 2012 Cengage Learning Measuring Customer Satisfaction ● Application/approval process ● Closing process ● Loan officer/representative or banker ● Problem resolution

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Attracting Consumers 1.Referral by real estate sales agents 2.Low interest rates on loans 3.Good company reputation 4.Friendliness of loan officers 5.Previous experience with company/institution 6.Recognition of company/institution name 7.Availability of various loan products 8.Convenience of home or office application

© 2012 Cengage Learning Successful Mortgage Lending Operation Requirements ● Trained personnel ● Program offerings ● Competitive pricing ● Targeted marketing ● Loan demand ● Effective origination channel(s)

© 2012 Cengage Learning Methods of Origination Retail loan origination Wholesale loan origination Combination of retail and wholesale

© 2012 Cengage Learning Retail Lenders Completes application with borrower Verifies all employment, income, and deposits Orders appraisal Obtains a credit report Prepares loan for underwriting/automated underwriting Underwrites the loan application Approves or rejects the loan application Closes and funds approved loan Portfolios or warehouses/sells loan

© 2012 Cengage Learning WHOLESALE LOAN ORIGINATION ● Greater volatility in mortgage interest rates ● Massive annual swings in one- to four-family mortgage originations from year to year, exceeding $1 trillion ● Increased geographical variations in real estate market and origination volume

© 2012 Cengage Learning WHOLESALE LOAN ORIGINATION ● New, dynamic origination competition from traditional and nontraditional lenders ● Cheaper and more sophisticated technological support for mortgage lending ● Large variations in mortgage servicing right pricing

© 2012 Cengage Learning INTERNET LENDING In this computer and Internet era, it is not surprising that the use of the Internet for residential mortgage originations is rapidly growing. In addition to using the PC and Internet to underwrite, appraise, and obtain credit reports, many mortgage lenders are now using the Net to originate loans.

© 2012 Cengage Learning What Do You Think? Discuss the six keys for a successful lending operation. Identify the various methods of loan origination. Discuss the pros and cons of each method.

© 2012 Cengage Learning What Do You Think? What functions are normally performed by a retail loan originator? What features or attributes attract consumers to a particular mortgage lender?

© 2012 Cengage Learning What Do You Think? Many mortgage lenders compensate their originators by commission – what is the typical commission for a loan officer – how is it calculated? How do mortgage originators offset their expenses in producing a residential mortgage loan? What are the expenses in originating a residential loan?

© 2012 Cengage Learning Check Your Understanding 1.In today’s market place, all a lender has to do is advertise that it is offering mortgages and it will get all of the business it can handle. 2.The largest originator of residential mortgages over the past couple of years was thrifts. 3.The realtor is considered among the most important factors in a borrowers selection of a mortgage lender. 4.The retail method of loan origination is the traditional method familiar to most borrowers. 5.A commissioned loan agent generally earns a 50 basis points commission.

© 2012 Cengage Learning Check Your Understanding 6.Loan demand is driven more by demographic issues than interest rates. 7.The average percentage of yearly originations that are refinancing is about 50 percent. 8.One point equals one percent of the mortgage amount. 9.Table funding occurs when a broker closes a mortgage loan with funds belonging to an acquiring lender. 10.Yield spread premiums are illegal under RESPA.