Mortgage Loan Process

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 Overview
• LOS
• Various Modules in Loan Origination Process
• Mortgage Loan Professional
• Mortgage Loan Broker
• Other Modules

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 LOS
• Loan Origination System
• Loan application processing workflow
• Loan application is monitored from the time it is entered in the system.
• Tracked through various work steps of credit review and approval process.
Forms
1003 – Residential Loan Application
4506 – tax transcripts from IRS
1098 - Use Form 1098 to report mortgage interest of $600 or more received by you
during the year in the course of your trade or business
1008 - Lenders use this form to summarize key information utilized in the
comprehensive risk assessment of the mortgage loan and the final underwriting
decision.

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 Modules

• Application Origination Module

• Processing Module
• Underwriting Module
• Closing Module
• Funding Module

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 Application Module

• POS (Point of Sale)

• Basic information is gathered from the
customer.
• Two types of Leads-
 Inbound Lead-Customer calls in for plans
 Outbound Lead-Marketing sources
• 1003 Form is filled up, facilitated by
Account Executive.
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 Basic features of ARMs[edit]

• The most important basic features of ARMs are: [3]

• Initial interest rate. This is the beginning interest rate on an ARM.
• The adjustment period. This is the length of time that the interest rate or loan period on an ARM is scheduled to remain
unchanged. The rate is reset at the end of this period, and the monthly loan payment is recalculated.
• The index rate. Most lenders tie ARM interest rates changes to changes in an index rate. Lenders base ARM rates on a
variety of indices, the most common being rates on one-, three-, or five-year Treasury securities. Another common index is
the national or regional average cost of funds to savings and loan associations.
• The margin. This is the percentage points that lenders add to the index rate to determine the ARM's interest rate.
• Interest rate caps. These are the limits on how much the interest rate or the monthly payment can be changed at the end
of each adjustment period or over the life of the loan.
• Initial discounts. These are interest rate concessions, often used as promotional aids, offered the first year or more of a
loan. They reduce the interest rate below the prevailing rate (the index plus the margin).
• Negative amortization. This means the mortgage balance is increasing. This occurs whenever the monthly mortgage
payments are not large enough to pay all the interest due on the mortgage. This may be caused when the payment cap
contained in the ARM is low enough such that the principal plus interest payment is greater than the payment cap.
• Conversion. The agreement with the lender may have a clause that allows the buyer to convert the ARM to a fixed-rate
mortgage at designated times.
• Prepayment. Some agreements may require the buyer to pay special fees or penalties if the ARM is paid off early.
Prepayment terms are sometimes negotiable.
• It should be obvious that the choice of a home mortgage loan is complicated and time consuming. As a help to the buyer,
the Federal Reserve Board and the Federal Home Loan Bank Board have prepared a mortgage checklist.

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 Processing Module

• Core of LOS
• Four submodules-
 Documentation Hand-in
 Choosing the loan product
 Verifying third party vendor services
 Performing Credit checks

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 Documentation Hand-in

• The documents related to the assets held

previously
• Total debts that the customer has
•  The W2s which indicate the total gross income,
the total federal/state taxes etc.

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 Choosing the Loan Product

• Categories of Product
 Purchase Loan- For customers buying a new
home.
 Refinance- for customers who are looking for
lower interest rates or lower monthly
payments.
 80-20 Loan- make it possible for the borrower
to pay only 20% of the home value and the
remaining 80% is paid by the lender.
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Verifying third party vendor services
• Appraisal- Market Value or worth of the
equity ( home).
• Title- Title defines who is the owner of the
house. Title insurance is added to the
borrower. Clean title is required as the lender
wants to avoid complications.

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 Performing the credit checks
• Evaluation of credit reports.
• Two major factors-
 FICO score- Fair Isaac & Co. Based on three major
credit union scores (Equifax, TransUnion and
Experian). Higher score the better.
 Debt to income ratio- It’s the ratio between the
total debt to date and the yearly income. Gives an
idea about the credentials of the applicant. Lower
the ratio, lower the interest rate.

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 Underwriting Module

• The Loan Coordinator and the Managers work together to perform a

risk analysis based on the credit scores and other documents like the
pay stubs, bank statements etc. gathered in the processing stage.
• An approval is obtained from the managers or the authorities in case
the credit reports permit so whereas in some cases, the credit is
denied or more documentation is requested.

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 Closing Module

• After the customer fits into a loan product the closing documents are
generated which need to be signed by both the lender and the
borrower.
• The HUD1 statements are also generated at this time which provide
an itemized listing of the funds that were paid at the time of closing.
• The statement includes real state commissions, loan fees etc.
• The total defines the sellers net proceeds and the buyers net
payment at closing.

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 Funding Module

• After the authorization approves the loan

application, the funds are released to the
borrower and at this point, the LSS (Loan
Servicing System) takes control.

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Mortgage Professional

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Mortgage Broker

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 Other modules of MLP
• Packaging
• Shipping
• Data warehousing
• Servicing

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