614:(LTV) ratio. This ratio determines the type of loan and risk the lender is put up against. For example: if the borrower's house appraises for $ 415,000 and they wish to refinance for the amount of $ 373,500 – the LTV ratio would be 90%. The lender also may put a limit to how much the LTV can be – for example, if the borrower's credit is bad, the lender may limit the LTV that the borrower can loan. However, if the borrower's credit is in Good condition, then the lender will most likely not put a restriction on the borrower's LTV. LTV for loans may or may not exceed 100% depending on many factors.
467:. The people that originate the loans are usually the mortgage broker or the lender. Depending if the borrower has credit worthiness, then he/she can be qualified for a loan. The norm qualifying FICO score is not a static number. Lender guidelines and mitigating factors determine this number. Recent changes in the market and industry have made stated-income and stated-asset loans a thing of the past and full income and asset documentation is now required from the majority of Fannie Mae and Freddie Mac backed mortgage securities.
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lender's side is the amount that the borrower can loan up to. This amount is divided by the debt that the borrower wants to pay off plus other disbursements (i.e. cash-out, 1st mortgage, 2nd mortgage, etc.) and the appraised value (if a refinance) or purchase price (if a purchase) {which ever amount is lower} and converted into yet another ratio called the
475:" (DTI). If the borrower has excessive debt that he/she wishes to pay off, and that ratio from those debts exceeds a limit of DTI, then the borrower has to either pay off a few debts in a later time and pay off just the outstanding debt. When the borrower refinances his/her loan, they can pay off the remainder of the debt.
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An underwriter is a person who evaluates the loan documentation and determines whether or not the loan complies with the guidelines of the particular mortgage program. It is the underwriter's responsibility to assess the risk of the loan and decide to approve or decline the loan. A processor is the
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appraise the borrower's property that he wishes to have the loan against. This is done to prevent fraud of any kind by either the borrower or the mortgage broker. This prevents fraud like "equity stripping" and money embezzlement. The amount that the appraiser from either the borrower's side or the
508:
This is an older approach, and most financial institutions no longer use this approach because it causes low risk customers to pay a higher than market rate, while high risk customers get a better rate than they might otherwise get, causing the financial institution to get a lower rate of return on
478:
Example: If the borrower owes $ 1,500 in credit card payments and has a gross monthly income of $ 3,000, his DTI ratio would be 50%. But if the borrower owes $ 1,500 in payments and has a gross monthly income of $ 2,000, his DTI ratio would be 75%. Both a 50% and 75% DTI ratio would be too high for
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Applications for loans may be made through several different channels and the length of the application process, from initial application to funding, means that different organizations may use various channels for customer interactions over time. In general, loan applications may be split into five
444:
Prequalify (auto-decision) the application and return a quick response to the applicant. Typically this would be approved subject to stipulations, referred to the financial institution, declined (many financial institutions (FIs) shy away from this preferring to refer any application that can't be
311:
Retail loans and mortgages are typically highly competitive products that may not offer a large margin to their providers, but through high volume sales can be highly profitable. The business model of the individual financial institution and the products they offer therefore affect the decision of
617:
The appraisal would take place on location of the borrower's property. The appraiser may take pictures of the house from many angles and will take notes on how the property looks. He/she will type up an appraisal and submit it to the lender or broker (depending on who ordered the appraisal.) The
364:
A major complexity for the branch origination channel is making the process simple enough that sales agents can be easily trained to handle many different products, while ensuring that the many due diligence and disclosure requirements of the financial and banking regulators regionally are met.
470:
Not only does one's credit score affect their qualification, the fact of the matter also lies in the question, "Can I (the borrower) afford this mortgage?" In most cases the borrower can afford their mortgage. However, some borrowers seek to incorporate their unsecured debt into their mortgage
360:
Dependent on the institution and product being offered, the application may be completed on a paper application form, or directly into an online application through the agent's desktop system. In either case, this phase of application is mostly concerned with the accurate capture of customer's
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The appeal to customers of the loan offered directly in branches is the often long-standing relationship that a customer may have with the institution, the appearance of trustworthiness this type of institution has, and the perception that holding a larger portfolio of products with a single
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Document
Preparation or Doc Prep is the process of arranging and preparing the borrowers closing contracts. These documents vary from industry to industry but generally contain a note, disclosures, and other documents describing and detailing the agreement between the borrower and lender.
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organization may lead to better terms. From a bank's standpoint, cross-selling products to current customers offers an effective marketing opportunity, and agents in branches may be trained to handle the sale of many different types of financial products.
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most lenders, as a DTI ratio of 43% is generally the cutoff for conventional mortgages. All other factors aside, the higher the DTI ratio, the less likely the borrower will be able to afford a monthly payment, hence the more risky it is for the lender.
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details, and does not incorporate any of the background decisioning work required to assess the suitability of the customer and the risk of default, or the due diligence that must be performed to mitigate risk of fraud and money laundering activities.
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covers everything after disbursing the funds until the loan is fully paid off. Loan origination is a specialized version of new account opening for financial services organizations. Certain people and organizations specialize in loan origination.
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In a branch, customers typically sit with a sales agent who will assist the customer in completing the application form, selecting appropriate product options (such as payment terms and rates), collecting required documentation
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one who gathers and submits the loan documents to the underwriter. Underwriters take at least 48 hours to underwrite the loan and after the borrower signs the package it takes 24 hours for a processor to process the documents.
471:(secured debt). They seek to pay off the debt that is outstanding in amount. These debts are called "liabilities", these liabilities are calculated into a ratio that lenders use to calculate risk. This ratio is called the "
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is often used to offer a slightly better rate to customers that have a substantial business relationship with the financial institution. This is often a price improvement offered on top of the otherwise computed
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Exactly what is needed varies by loan type. The application should not ask for data the applicant doesn't absolutely have to provide to get to a prequalification decision for the loan type(s) they seek.
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processes that application. Origination generally includes all the steps from taking a loan application up to disbursal of funds (or declining the application). For mortgages, there is a specific
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Lending is a highly regulated business, at both the
Federal and State levels. Some of the main regulations that apply to lending are listed here. For more details, see
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Web forms filled out and saved by the applicant on the web site, that are then sent to or retrieved (securely, presumably) by the financial institution
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Many of the early solutions had a lot of the same problems as general forms (bad work flows, trying to handle all manner of loan types in one form)
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organizations offering loans through the face to face channel have a long-term investment in 'brick and mortar' branches. Typically these are:
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Pricing policy varies a great deal. While one probably can't influence the pricing policy of a given financial institution, one can:
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articles. Steps involved in originating a loan vary by loan type, various kinds of loan risk, regulator, lender policy etc.
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Many back-office functions of loan origination continue from this point and are described in the
Processing section below.
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Self-service web applications are taken in a variety of ways, and the state of this business has evolved over time
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Make it easy, quick, and friendly for the applicant (so they actually complete the application and don't abandon)
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The application should pre-fill demographic data if the applicant is an existing client and has logged in.
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Many of the customer identification and due diligence requirements of loan origination are common to
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Print and fax applications or pre-qualification forms. Some financial institutions still use these.
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Pricing is often done in one of these ways. Follow the internal links for more details:
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compliance requirements must be met at this stage), selecting add-on products (such as
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Wizard-style applications that are very intuitive and don't ask superfluous questions
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There are many different types of loans. For more information on loan types, see the
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Ask for a better rate – some financial institutions will respond to this, some won't
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Form fill on the web, print, and send to the financial institution (not much better)
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True web applications with interfaces to a loan origination system on the back end
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The following sections describe the specific requirements of loans and mortgages.
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Price match – many financial institutions will match a rate for a current customer
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business consists of a few people: the borrower, the lender, and sometimes the
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Print, write or type data into the form, send it to the financial institution
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622:. The 1004 is the standard appraisal form used by appraisers nationwide.
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With this approach, pricing is based on various risk factors including
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and other mortgage originator companies serve as a prominent example.
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Pricing, including risk-based pricing and relationship-based pricing
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deal primarily with the United States and do not represent a
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813:"Seven factors that determine your mortgage interest rate"
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Present required disclosures, comply with various lending
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357:), and eventually signing a completed application.
90:. Unsourced material may be challenged and removed.
417:Be compliant with security requirements (such as
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618:Appraisal is written in the format compliant to
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526:, loan term (expected length, usually in months)
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316:Agent assisted (branch-based) loan application
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175:The examples and perspective in this article
793:What Affects My Loan Interest Rate (article)
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406:Jobs the online application should perform:
53:Learn how and when to remove these messages
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763:Loan types are covered to a degree in the
231:Learn how and when to remove this message
213:Learn how and when to remove this message
150:Learn how and when to remove this message
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312:which application model they will offer
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843:Mortgage industry of the United States
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626:Processing documents/loan underwriting
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540:Loan specific compliance requirements
424:Collect the necessary applicant data
301:Broker sale (third-party sales agent)
817:Consumer Financial Protection Bureau
811:Shea –, Nicole (29 September 2017).
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88:adding citations to reliable sources
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509:the loan than the risk might imply.
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34:This article has multiple issues.
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75:needs additional citations for
42:or discuss these issues on the
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707:Other related topics include:
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555:Cross selling, add-on selling
548:of other financial products.
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372:Self-service loan application
701:Home Mortgage Disclosure Act
695:Equal Credit Opportunity Act
660:Decide the Mode of Payment:
506:Everyone pays the same rate.
445:automatically pre-approved.)
355:payment protection insurance
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602:The next step is to have a
419:Multi-Factor Authentication
189:, discuss the issue on the
16:Beginning of a loan process
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531:Relationship based pricing
246:is the process by which a
455:Decisions and credit risk
640:Mortgage underwriting
598:Appraising collateral
320:The typical types of
689:Truth in lending act
631:Document preparation
473:debt-to-income ratio
295:Agent (branch-based)
260:mortgage origination
195:create a new article
187:improve this article
84:improve this article
546:new account opening
421:) where applicable.
351:new account opening
286:Application process
798:2008-01-19 at the
697:(aka Regulation B)
691:(aka Regulation Z)
657:Disbursal of funds
514:Risk-based pricing
339:Building societies
322:financial services
307:Online Application
250:applies for a new
99:"Loan origination"
758:& remarketing
712:Predatory lending
566:debt cancellation
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562:Credit insurance
291:distinct types:
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620:FNMA Form 1004
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140:December 2007
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95:Find sources:
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82:Please help
77:verification
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36:Please help
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604:Real Estate
587:Refinancing
491:Shop around
412:regulations
837:Categories
822:2021-09-25
777:References
753:Collateral
676:Regulation
577:Up-selling
450:Processing
203:April 2019
110:newspapers
39:improve it
771:e-Lending
744:reporting
607:appraiser
262:process.
191:talk page
45:talk page
796:Archived
728:See also
461:mortgage
254:, and a
248:borrower
185:You may
767:article
654:Booking
570:Credit
560:Add-on
124:scholar
703:(HMDA)
669:Cheque
564:&
256:lender
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848:Loans
717:Usury
535:rate.
329:Banks
193:, or
131:JSTOR
117:books
765:Loan
663:Cash
459:The
278:and
276:loan
252:loan
103:news
86:by
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