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Chapter 13 Loan Origination, Processing, and Closing © OnCourse Learning
Chapter 13 Learning Objectives Understand the steps involved in processing of a loan application and closing a mortgage Understand the operation of mortgage bankers © OnCourse Learning 2
Loan Processing Involves several steps including property appraisal, analysis of application, submission for credit approval, and closing the loan Appraisal – Three stages Ordering the appraisal; since 1995 Uniform Residential Appraisal Report used for nearly all loans Monitoring the appraisal Evaluating the appraisal © OnCourse Learning 3
Loan Processing Appraisal valuation section – generally accepted appraisal standards require the use of three approaches for determination of value: Market Approach Cost Approach Income Approach Appraisal reconciliation phase – arriving at final estimate for value 4 © OnCourse Learning
Loan Processing - Analysis of Application Complete analysis of the financial position of the borrower and the disclosure of information required by the Real Estate Settlement Procedure, Regulation Z and the ECOA RESPA requires lenders to: Provide, in advance, general information on the settlement costs Provide within 3 days after receiving the application estimated closing costs and monthly payments Provide within 3 days after receiving the application good-faith estimate of the cost of the loan over its term, including APR The lender verifies the credit standing of the applicant 5 © OnCourse Learning
Loan Processing – Submission of Insurance Applying for Mortgage Insurance FHA, VA, or PMI Common form for submission for FHA and VA Mortgage insurance is in addition to homeowners insurance Paid along with homeowners insurance May be paid by the borrower or through escrow 6 © OnCourse Learning
Loan Processing – Submission of Insurance Many lenders participate in FHA’s direct endorsement program The lender performs the underwriting process A lender that is a direct endorser is essentially an agent of the FHA Saves processing time If the application for insurance is accepted FHA issues mortgage insurance certificate 7 © OnCourse Learning
Loan Processing – Submission of Insurance For FHA approval, lender submits a package containing: 1.Mortgage Credit Analysis Worksheet 2.Application for commitment of insurance 3.Copy of sales contract 4.All verifications of deposits 5.All verifications of employment 6.Credit reports 7.Verification of indebtedness 8.Other documents 8 © OnCourse Learning
Loan Closing Two distinct transactions: Transferring title Signing documents (e.g. promissory note) Standard mortgage or deed-of-trust form for FNMA and FHLMC; similar form for FHA and VA Mortgage or deed-of-trust includes same information as the note and also provide description of the property Settlement statement – record of what went on at the closing Truth-in-lending disclosure must be given to the borrower and must include major financial terms © OnCourse Learning 9
Loan Closing Disbursement Lender may give separate checks to the closing agent payable to each party (title company, mortgage insurer, real estate agent, etc.) Lender gives one check to the closing agent for the full amount of the loan Recording Gives public notice that the buyer is the new owner of the property and the mortgage has a lien on the property Serves as a protection of the owner/lender against others that may claim to have a valid deed Mortgage insurance payment 10 © OnCourse Learning
Mortgage Banking The origination, servicing, and the sale of mortgage loans by a firm or a individual Mortgage bankers: Non-depository institutions Do not hold loans in portfolio Retain servicing rights © OnCourse Learning 11
Mortgage Brokers Alternative to mortgage bankers Licensed companies that offer mortgages from variety of lenders Can provide borrowers with their best loan options 12 © OnCourse Learning
Mortgage Banking – Sources of Funds Two principal sources of funds: Commercial paper – short term (180 to 720 days) obligation with rate approx. equal to the prime rate Warehousing loans – short term loans from commercial banks; structured as line of credit; mortgage loans used as collateral 13 © OnCourse Learning
Mortgage Banking - Revenues Four main sources for revenues Origination fee – 1% of the amount of mortgage Servicing fee – 0.25 – 0.5% of the outstanding mortgage balance Warehousing rate difference – Income from the differential between the rate on the mortgage loan and the rate on credit line Marketing rate difference – The difference between the amount originated and the amount received from the sale 14 © OnCourse Learning
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