Loan origination

From Wikipedia, the free encyclopedia

Loan orgination is the process by which a lender obtains new loans.

This includes:

• qualifying borrowers
• appraising collateral
• processing documents/ loan underwriting
• funding of the loan
• recording the debt onto title

This also includes collection of a loan origination fee.

Contents 1 Qualifying Borrowers 2 Appraising Collateral 3 Processing Documents/ Loan Underwriting 4 Funding of Loan 5 Recording the debt onto the property's title 6 External links

[edit] Qualifying Borrowers

The mortgage business consists of a few people: the borrower, the lender, and sometimes the mortgage broker. 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 620 for SISA/SIVA loans and 600 for Full Doc loans. Depending on the borrower's credit scores are; the lender can assess the risk they may take. 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 in to their mortgage (secured debt.) They seek to payoff 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 "Debt-to-income ratio" or simply DTI. If the borrower has excessive debt that he/she wishes to payoff, and that ratio from those debts exceeed a limit of DTI, then the borrower has to either payoff a few debts in a later time and payoff just the outstanding debt. When the borrower refinances his/her loan, they can payoff the remainder of the debt. Example: if the borrower owes $1,500 in credit cards and makes $3,000 in a month: his DTI ratio would be - 50%. But if the borrower owes $1,500 and makes $2,000 in a month: his DTI ratio would be - 75%. This ratio is seen by many lenders as high and too risky a person to lend to and may or may not be able to afford the mortgage. So that covers qualification, now onto appraising collateral.

[edit] Appraising Collateral

The next step is to have a Real Estate appraiser 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 frauds like "equity striping" and money embezelment. The amount that the appraiser from either the borrower's side or the lender's side is the amount that the borrower can loan up to. This amount is divded by the debt that the borrower wants to payoff plus other disbursments (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 Loan to value ratio or simply LTV. 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 most likely not put a restriction on the borrower's LTV. LTV for loans may or may not exceed 100% depending on many factors. 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 Appraisal is written in the format compliant to FNMA Form 1004. The 1004 is the standard appraisal form used by appraisers nationwide.

[edit] Processing Documents/ Loan Underwriting

Underwriter is a person who underwrites the loan and processor is the one who process the loan documents. Underwriter takes 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 and disburse it to underwriter

[edit] Funding of Loan

[edit] Recording the debt onto the property's title

[edit] External links

- resources for borrowers on mortgages
- resources for mortgage brokers