3. +Course Outline
Day One:
Processor’s role within the mortgage industry, duties:
reviewing the loan application, pre-underwriting,
credit, title, escrow, appraisals, analyzing
documentation.
Day Two:
Secondary market, loan programs: Conventional, FHA,
VA, USDA. Fair Housing, Mortgage Fraud, and Federal
laws: SAFE,TILA, RESPA, ECOA, FCRA, Dodd
Frank/TRID.
Day Three:
Working up the file, troubleshooting, submitting to
underwriting, most common conditions, final
“processing” case studies and final exam.
3
4. +
Residential Mortgage
Loan Processing
Agenda DAY ONE
Introductions
Processor’s Role and Duties
Reviewing the Loan
Application
Analyzing Documentation
Verifications:
VOE, paystubs,W-2s
VOD, assets, bank
statements
Case Study
DFA and Ability to Repay
Credit
Title, Escrow
Appraisals
4
5. +
Introductions
Who are you
Where do you work
What do you do
Does your company require you to
do the early disclosures?
What do you want to learn during
this course?
5
6. + Learning Styles
Auditory-learns by listening
Visual-learns by processing images
Tactile-learns best when writing
Whole Body-learns best when entire
body is engaged
Emotional-learns best when complex
info can be tied to an emotion
Interesting learning styles:
can’t hear while writing or
verbal learner—must repeat verbally
what is being learned.
6
7. +
The Mortgage Machine
A mortgage is like a machine with many
moving parts.
Shout out all the different entities/different
jobs that are involved with creating a
mortgage loan….
7
9. + Different Ways of Originating Loans
Depository
Bank
Checking,
savings
CAN fund its
own loans
LOs are
“registered”
9
Mortgage Broker
No ck/svgs
Does NOT fund its
own loans
Pure middleman
For a fee, finds the
mortgage
money
LOs are licensed.
In WA state these
LOs owe
fiduciary duties
to clients
Non-Depository
Lender
Non-Bank Lender
No ck/svgs
CAN fund its own
loans via lines of
credit with
banks
LOs are licensed
10. + Section 2 Module 2.2
Residential Loan Application
Assignment:
Break into small groups and talk about sections
of the loan app:
What sections will loan originators leave blank?
What information will customer consider lying
about?
What questions might the customer refuse to
answer?
What new information can turn a pre-approval
into a decline?
10
11. + Section 2 Module 2.2
Income
Employment
Debts
Assets
Marital status
Child support paid
Child support received
ANY new information could turn an
approval into a decline
11
12. + Section 2 Module 2.2
Compare the date on sales contract to the date of loan
application.
Compare the source of funds for down payment to the
borrower’s assets.
Compare the value of the property with the value of the
borrower’s current home.
Compare the borrower's age to the number of years employed.
Compare the borrower's income to the type of employment.
Compare the borrower's use of credit to the borrower’s
employment and income.
Compare the borrower's assets to the borrower’s overall credit
score.
Compare the borrower's current residence status (rent or own)
and intended owner occupancy of property to be purchased.
12
14. +
FICO
A FICO score measures risk into the future.
Revolving accounts, credit cards are
unsecured. Important to see how our
borrower uses revolving, unsecured credit.
Goal: keep balances below 25% of credit
limit.
Even if making payments on time, if
balance is over 50% of limit, this will effect
score.
14
15. +
What makes up a FICO score?
Consistency in making on time
payments
Type of credit you have
How long you’ve been using credit
The amount of outstanding debt
Derogatory items (late payments)
Q: How does an inquiry effect the
score?
15
16. +
annualcreditreport.com
FICO and the Vantage Score—two most
commonly used credit scores
Score Model section
derogatory items are listed in order of
importance. Example: Joseph Testcase
Equifax
“Serious delinquency”
Codes at the bottom
B= Borrower, C= Co-borrower
16
17. + Chapter 7
Complete consumer discharge of debt
Chapter 13 BK – a consumer repayment program
7 years from the date the repayment plan was
complete.
If never completed, will be on for 10 years
Chapter 11
Self employed person’s BK
Other BK
10 years
IRS has 10 year statute of limitation on their tax
liens. Can re-file for a continuation of lien.
17
18. +
Can I order a credit report on
someone I’m dating?
No, because this is not one of the purposes for
ordering a credit report under the Fair Credit
Reporting Act.
If you open joint accounts w/spouse, those
accounts and their credit history are yours...for
better or for worse.
Two unmarried persons as long as they’re on
the same loan together, can have a combined
report. (instead of paying for two.)
18
19. +
How to improve score?
Verify the accuracy of the collections. Pay
them off.
Won’t see results for 6-12 months
Pay down credit card balances, and leave
accounts open.
If there’s a past due account…bring it
current!
19
20. +
Student loans
If paid on time, will help credit score
Uncollateralized, but considered a
“secured” loan
Balance to loan limit, not necessarily
important on a student loan.
20
22. +
Difference between…
Supplement
Updating a
particular
account. Perhaps
correcting an
error. Does not
effect the FICO
Rapid Re-Score
Process developed
and monitored by the
credit bureau based
on creditor
documentation stating
what can be changed,
updated, or deleted.
A permanent change
22
24. +
AVOID Credit Repair Companies
We are not allowed to share a consumer’s credit
report with a “credit repair” company
24
25. +
Can I give the consumer a copy of
his/her credit report?
YES.
Consumer may receive a copy of the credit report.
Be sure to give the consumer the CONSUMER’s
copy and not the lender’s copy.
WA State Law REQURES that we provide the
consumer of a copy of his/her credit report
promptly (within 5 days) upon receipt of a written
request from the borrower.
Copy of: Credit, title, appraisal
25
26. +
Can we share credit reports with
third parties?
Mortgage brokers and lenders routinely
share credit reports with third
parties….example: Mortgage broker is
brokering the loan to a lender. This is
acceptable.
Mortgage broker or lender cannot share
credit report with someone like the Realtor
26
27. +Section 3 Loan Processor Duties
Loan Processing
As documents are received, processors
compare the information verified to the
original loan application and consult the
credit underwriting guidelines.
A processor is a liaison between the
originator, the borrower, the Realtor,
underwriting and management.
27
28. +
Government Watch Lists
U.S. General Services Administration (GSA) Excluded Parties
List (EPL)
http://www.sam.gov
HUD Limited Denial of Participation List (LDP List)
https://portal.hud.gov/hudportal/HUD?
src=/topics/limited_denials_of_participation
Federal Housing Finance Agency’s (FHFA) Suspended
Counterparty Program (SCP) list.
https://www.fhfa.gov/SupervisionRegulation/LegalDocumen
ts/Pages/SuspendedCounterpartyProgram.aspx
28
29. +
Analyzing the VOE and W-2
Review your case study
Talk about it with your group
Present your case to the rest of the class
Ackerman
Lioce
Robertson
29
30. + Section 3 Module 3.2 Verifying Income
The Work Number
https://www.theworknumber.com
30
31. +
Section 3 Module 3.3 Paystubs
Paystubs must:
Clearly identify the borrower.
Clearly identify the gross earnings for current pay period and
year to date.
Show time period covered.
Cover the most recent 30-day period.
When reviewing an applicant's pay stubs, look for the following:
The current rate of pay should coincide with the application.
Year-to-date earnings should be consistent with the income
used to qualify the borrower.
31
32. +
Section 3 Module 3.3 W-2s
When reviewing the applicant'sW-2s, look for the
following:
Income that supports the income used to qualify or a
combination of W-2s that support the income used to qualify.
Any major decrease or increase from the current income
should be explained by the borrower.
W-2s that cover a full two years.
W-2s that have even dollar tax withholding figures, indicating
the possibility of fraud.
32
33. +
Section 3 Module 3.4 VOEs
The Verification of Employment:
Confirms the applicant's employment status and income.
Should be sent individually to each firm that employed the
applicant in the past two years.
If the applicant has been employed at the same place (not
necessarily in the same job) for at least two years, only one
VOE is required.
Should be directed to the personnel or human resources
department.
Must be signed by the applicant in order for the employer(s)
to release the requested information.
33
34. +
Section 3.5 Analyzing the VOE
Current gross pay
Income may be calculated based on an annual, monthly,
weekly, hourly, or bi-weekly basis.Whatever the case, the
income reported on the document must be converted to a
monthly figure when preparing the application for
submission to the underwriter.
Annual salary divided by 12 (months) = monthly income
Example:
Joan Jett is paid $100,000 annually.
100,000 divided by 12 = ________________ per month
34
35. +
Section 3.5 Analyzing the VOE
Hourly:
Hourly rate x number of hours worked per week x 52
(weeks) divided by 12 (months) = monthly income
Example:
Karen Carpenter is paid $96 dollars per hour.
96 x 40 = ________ x 52 weeks/year = ________
divided by 12 =________ /month
35
36. +
Section 3.5 Analyzing the VOE
Weekly:
Weekly salary x 52 (weeks) divided by 12 (months)
= monthly income
Example:
Courtney Barnett is paid $5000 dollars per week
5000 x 52 = _______ divided by 12 =_________ /month
36
37. +
Section 3.5 Analyzing the VOE
Semi-monthly:
Semi-monthly salary x 2 = monthly income
Example:
Kim Deal is paid $4500 dollars, twice per month.
4500 x 2 = __________ /month
37
38. + Section 3 Analyzing the VOE
Bi-weekly salary x 26* (pay periods) divided by
12 (months) = monthly income
*The processor must determine if the borrower is
paid twice a month (which would be 24 pay
periods) or every two weeks (which would be 26
pay periods).
Example:
Danielle Haim is paid $3250 bi-weekly salary.
3250 x 26 = _______ divided by 12 =_______/month
38
39. + Section 3 Module 3.6 Tax Returns
Consistency of income, address, and other information
Information on the return matches information
provided on the loan application
Undisclosed businesses or partnerships, rental
properties, alimony, or student loans
Copies of all pages, including all schedules, and
signatures
Unreimbursed business expenses not disclosed on the
loan application
Independent contractor; commission, bonus, or part-
time income; net rental income; or interest and
dividend income
39
40. +
Section 3 Module 3.7 Misc Income
The processor should verify:
The amount and frequency of the income
The duration of the income must continue for at least
three years from the date of the mortgage
application in order to be considered
That the income is actually being received
A processor’s job is to gather documentation to
prove income has been stable, and will continue.
40
41. + Section 3 Module 3.8
Self Employed
Self-employed borrowers are typically required
to supply some or all of the following:
Signed individual federal income tax returns,
including all schedules, for the most recent two
years.
Copies of signed federal business income tax
returns for the last two years, including
schedules, if the business is a corporation, an S-
corporation, or a partnership.
A signed year-to-date profit and loss statement.
In some cases, a signed balance sheet.
41
42. +
Section 3 Module 3.10 VOD
Evidence that the borrower has sufficient funds to close
the loan and meet any reserve requirements.
The current balance should not be significantly higher
than the average balance unless the source of funds has
been explained and documented, such as gift funds or
funds derived from the sale of a present home.
Newly opened accounts should be questioned as to the
source of funds used to open the account. Possibly the
borrower closed one account and opened another. A
copy of the last statement on the closed account would
provide sufficient proof for the source of funds.
42
43. +
Residential Mortgage
Loan Processing
Agenda DAY ONE
Introductions
Processor’s Role and
Duties
Reviewing the Loan
Application
Analyzing Documentation
Verifications:
VOE, paystubs,W-2s
VOD, assets, bank
statements
Underwriting
Case Study
DFA and Ability to Repay
Credit
Title, Escrow
Appraisals
43
44. +
Residential Mortgage
Loan Processing
Agenda DAY TWO
Q from Day One?
Gift Funds
Escrow
Underwriting
Appraisals
HOAs
Secondary Market
Loan Programs
Additional Documentation
Fair Housing
Fraud
Federal Laws
44
45. +
Section 3 Module 3.12 GIFTS
The processor must verify three things when
documenting gift funds as an asset:
A gift letter from the donor
Donor’s ability to give (60 days' bank
statements with source of any large deposits
to show funds were not borrowed and filtered
through the donor's account)
That the funds were transferred and
deposited into the recipient's account (bank
statement or verification of deposit.)
45
46. + Section 4 Module 4.2
Qualifying the Applicant
The Four Cs
Character = credit history
Capacity = income
Capital = where is the cash for the down
payment coming from?
Collateral = how much is the house worth?
46
47. +
Capacity
FIRST RATIO
PITI
Principal, Interest,Taxes, Insurance
plus home owner’s assoc dues, if
applicable
Divided by
Total gross monthly income
= __________%
SECOND RATIO
PITI plus all other monthly revolving
debt
Divided by
Total gross monthly income
= __________%
47
49. + Module 4.3 Case Study: Dennis and Kip
Dennis is applying to refinance his home he
purchased located in the Ballard neighborhood of
Seattle.When Dennis purchased the home a few
years ago, he bought it “for sale by owner” and the
seller is carrying the note. Dennis is a full-time
employee of a fisherman’s cooperative located in
Copper River, Alaska. Dennis travels the globe
year-round, pre-selling Copper River Salmon. As
such, he has a housemate, Kip, who resides in the
home for very minimal rent, and takes care of
Dennis’ home maintenance, bill-paying, pets,
landscaping, and so forth.
What concerns do you have about Dennis’ income
and credit?
49
50. +Section 4 Module 4.4
Ability to Repay Rule under Dodd Frank Act
Eight factors:
1.Current income and assets
2.Current employment
3.Monthly mortgage payment
4.Monthly payment on simultaneous loans
5.Property taxes, fire/flood insurance, HOA dues
6.Debts including alimony or child support
7.Monthly total DTI ratio
8.Credit history
Underwriters CAN consider other factors
50
51. +
Section 5 Credit Reports
Special Guest Speaker
Mike Olden
Vice President, Sales and Education
American Reporting Company
425-563-1978
425-890-4985
MikeO@arcreports.com
51
52. +
Section 6 Title Insurance
What does it mean when we say we hold
title to something?
Is there a document called “title” that we
get when we buy a home?
Can we do anything we want with and to
our home and land?
How deep into the ground and how high
up do our property rights extend?
52
53. +
Section 7 Escrow
What is escrow?
A neutral third party holds money
and/or documents on behalf of a
buyer and seller, or lender.
Money and documents are
transferred or distributed by an
escrow agent appointed to
coordinate the closing activities
according to the escrow instructions.
53
54. + Escrow Issues That Could Delay Closing
1.Scheduling the closing for month-end.
2.Escrow holdbacks s/b concise & approved by the
lender.
3.Problems contacting the homeowners association.
4.Appraisal/inspection clearance.
5.Unpaid and undisclosed seller debts.
6.Pending divorce
7.Seller credits to buyer
8.Seller agrees to pay X toward buyer’s closing costs
and buyer’s closing costs come to less than X.
9.Marital status questions
10.Out of state buyer
11.Power of attorney issues
54
56. +
Section 9 The Secondary Market
Fannie Mae
Freddie Mac
FHA
VA
USDA
56
57. +
Section 9 Module 9.2 FHA
FHA = Federal Housing Administration
FHA provides mortgage insurance on low down payment
loans made by FHA-approved lenders
U.S. Department of Housing and Urban Development was
created through the US Housing Act of 1937. HUD does
lots of things:
57
58. + Section 9 Module 9.2 FHA
What does HUD do?
Provides opportunities for homeownership
Provides housing assistance for low income persons
Helps to rehabilitate and maintain affordable housing
Enforces Fair Housing laws
Helps the homeless
Spurs economic growth in distressed neighborhoods
59. +
Section 9 Module 9.2
Insuring and Endorsement
When an FHA loan closes, the lender collects and
remits an up front MIP directly to HUD via wire
transfer.
Then the lender sends the original loan file (aka
case binder) to the FHA HOC for review.
If the paperwork is in order, HUD transmits an
electronic MIC (mortgage insurance certificate.)
60. +
Section 9 Module 9.2
GNMA = Government National Mortgage
Association
Ginnie Mae is not a lender nor does it buy or sell
mortgages. GNMA guarantees Residential
Mortgage Backed Securities that are backed by
pools of FHA loans
GNMAs are backed by the federal government
61. +
Section 9 Module 9.2
Only an FHA-approved lender can originate FHA
loans
Property Types: 1 to 4 unit properties
Purchases up to 96.5% LTV
Borrower Contributions
3.5% cash investment
100% gift acceptable
62. +
Section 9 Module 9.2
1 to 4 family property
(Reserves are not required on 1 & 2 unit
properties)
Also avail for condos and manufactured housing
FHA loans are fully assumable
No income limitations
Owner Occupied
63. +
Section 9 Module 9.2
FHA Home Mortgage Insurance Programs:
203b Single Family
234c Condo
203h Disaster Victims
255 HECM
203k Rehab
EEM Energy Efficient Mortgage
64. +
Section 9 Module 9.2
Roles
Loan originator satisfies the processor
Processor satisfies the underwriter
Underwriter satisfies management
Management satisfies FHA
Role of the underwriter is to build a defensible position
FHA satisfies minimum risk for FHA
Lenders set minimum risk for themselves
FHA might say yes but your lender might say no.
65. +
Section 9 Module 9.2
Social Security Number
Handbook 4155.1 paragraph 3-1C
HUD/FHA require all lenders to ensure that each FHA
borrower, co-borrower and co-signer has their own valid
Social Security Number as issued by the Social Security
Administration
Verification also through FHA Connection
66. + Section 9 Module 9.2
U.S. Citizenship Not Required
FHA will insure mortgages made to lawful permanent
and non-permanent resident aliens
Permanent resident alien:
Must have evidence of permanent resident status
Have a valid social security number
Non-permanent resident alien
Property must be their principal residence
Must be eligible to work in the U.S.
Have a valid social security number
Have likelihood of continued lawful status
67. +
Section 9 Module 9.2
Documentation acceptable to verify social security
number includes:
Paystub
Valid tax return
Copy of SSN card
Driver’s license
Medical information
Service provider with access to SSA
68. +
Section 9 Module 9.2
FHA Underwriting
TOTAL Scorecard Factors:
Credit FICO score
Monthly housing expense ratio
Number of monthly payments in reserve
Loan to value ratio
Loan term
These are the five biggest risk factors and the only
things TOTAL looks at.
Accept or Refer
69. +
Section 9 Module 9.2
FHA Underwriting:
What must an FHA borrower possess?
Decent and reasonable credit history
Perfect credit is not a requirement.
Stable, reliable, and sufficient income
Verified funds to close
Sufficient security for the loan
70. +
Section 9 Module 9.2
The Four Cs of Underwriting:
Character
Credit
Capacity
Income
Collateral
Value
Capital
Liquid assets
Does the borrower
have the ability and
willingness to repay
the loan?
71. +
Section 9 Module 9.3
VA = Veteran’s Administration
See course book
USDA = U.S. Department of Agriculture. Rural Loans
See course book
71
Section 9 Module 9.4
72. +
Section 9 Module 9.5
additional documentation
Break into small groups and come up with a list of
any additional documentation needed from the
borrower, assuming the loan originator has already
asked the borrower for the usual paperwork.
72
73. +
Section 10
Fair Housing
1968 Civil Rights Act
1968 Fair Housing Act
~
Protected Classes:
Race
Color
Religion (Creed)
Sex
National Origin
Familial Status
Sexual orientation added in 2012
(lending only)
Disability
73
Intent v. Effect
Realtors and lenders
have great power to
affect neighborhoods
74. +
Washington State
additional protected classes:
LGBTQ
lesbian, gay, bisexual, transgender, queer
Honorably discharged military veteran
Use of a service animal
74
75. + Section 10 Fair Lending
In Mortgage Lending: No one may take any of the
following actions based on race, color, national origin,
religion, sex, familial status or handicap (disability):
Refuse to make a mortgage loan
Refuse to provide information regarding loans
Impose different terms or conditions on a loan, such as
different interest rates, points, or fees
Discriminate in appraising property
Refuse to purchase a loan or
Set different terms or conditions for purchasing a loan
75
76. +
Section 10 Case Studies
Glenn and Maggie: Maternity leave
Herschel: Disability income
Daryl and Carol: Native American land
Enid: Zip code mailer
76
Fair Housing/Fair Lending http://www.hud.gov/offices/fheo/lending/index.cfm
77. +
Section 11 Module 11.1
Fraud for Housing, or fraud for property, is
perpetrated by borrowers and/or one or more
industry professionals when they misrepresent
information on the loan application.This type of
fraud does not usually result in significant losses to
a financial institution.
77
FBI
US Department of Justice
Financial Crimes Report to the Public 2010-2011
http://www.fbi.gov/stats-services/publications/financial-crimes-report-2010-2011
78. +
Section 11 Module 11.2
Fraud for profit consists of systematic transactions by
industry professionals who are attempting to steal a
significant amount of the funds associated with one or
more mortgage transactions.This type of fraud usually
involves multiple parties in various disciplines within the
mortgage industry, such as mortgage originators,
appraisers, real estate brokers, escrow closers, builders
and title companies. Fraud for profit usually results in
significant—if not catastrophic—losses to financial entities
involved in mortgage loan transactions and it is of major
concern to the mortgage industry
78
FBI
US Department of Justice
Financial Crimes Report to the Public 2010-2011
http://www.fbi.gov/stats-services/publications/financial-crimes-report-2010-2011
79. +
Section 11 Module 11.2
Property Flipping
Silent Second
Straw Borrowers
Identity Theft
Appraisal Fraud
Foreclosure Rescue
Equity Skimming
Loan Mod Scams
Short Sale Fraud
79
FBI
US Department of Justice
Financial Crimes Report to the Public 2010-2011
http://www.fbi.gov/stats-services/publications/financial-crimes-report-2010-2011
81. +
Section 11 Module 11.1
Fraud Case Studies
Darlene
Elliot
Angela
Tyrell and Joanna
81
82. +Section 12
SAFE Mortgage Licensing Act
The SAFE Act of 2008
SAFE = Secure and Fair Enforcement Act
Passed in order to increase uniformity, reduce
regulatory burden, enhance consumer protection, and
reduce fraud. Establishes the Nationwide Mortgage
Licensing System and Registry.
82
83. +
Section 12 SAFE Act
“Registered Loan Originator”
An employee of:
a depository institution;
a subsidiary that is:
owned and controlled by a depository
institution AND
regulated by a federal banking agency OR an
institution regulated by the Farm Credit Admin
83
84. +
Section 12 SAFE Act
State or Federally Chartered Depository
Banks:
LOs are exempt from testing and education.
NOT exempt from“registration.”
Register with the Nationwide Mortgage Licensing System
(NMLS) and will be given a unique identifier.
“Registered” LOs
84
85. +
Section 12 SAFE Act
Issuance of a License:
Never revoked
No felony last 7 years
No felony at any time re fraud, dishonesty, breach of trust,
money laundering
Financial responsibility
Pre-licensing education
Written test
Net worth and surety bond
85
86. +
Section 12 SAFE Act
LO exam:
75% to pass
Can retake 3 X at 30 day intervals
If fail 3 X, must wait 6 months
5 year lapse in license: must retake the test
86
87. +
Section 10 SAFE Act
Continuing Ed
3 hours Federal Law
2 hours Ethics, Consumer Protection, Fraud, Fair
Housing
2 hours Non Traditional Lending
1 hour Undefined
No carry-overs
Can’t take the same class each year.
87
88. +Section 13
CFPB =
Consumer Financial Protection Bureau
All federal laws governing mortgage
lending are now regulated by the CFPB with
one exception:
Fair Housing stays with HUD
Each state also regulates it’s own state laws
governing mortgage lending. State laws can
be tougher than federal law.
88
89. +The Main Fed Law Acronyms
TILA
Truth in Lending Act
MDIA
Mortgage Disclosure Improvement
Act
RESPA
Real Estate Settlement
And Procedures Act
TRID
TILA/RESPA Integrated Disclosure
ECOA
Equal Credit Opportunity Act
FCRA
Fair Credit Reporting Act
89
90. +
Federal
Laws
The laws shown in
blue were passed
during the late
1960s/early 1970s
and notice that we
are currently living
through another wave
of consumer
protection laws
directed at the
mortgage lending
industry.
Truth in Lending Act
2009 Changes to TILA = MDIA
2011 FRB Rule on LO Comp
R.E. Settlement and Proc. Act
2010 Dodd Frank Act
2015 TRID
Equal Credit Opportunity Act
Fair Credit Reporting Act
Fair Housing
Other Fed Laws
2008 SAFE Act
2010 Dodd Frank Act
2015 TILA/RESPA Integrated Discl.
90
91. +
Purpose:To promote informed use of credit.
Gives consumers the right to cancel some
transactions
(owner occupied refi)
Imposes cost limits on home equity loans
Regulates variable rate loans
CHARM Booklet required on ARM loans
Early disclosures:
3 days from date of application, final disclosure
at settlement
91
Section 14 Truth in Lending Act
92. +
Annual Percentage Rate/APR
“the cost of the loan expressed in the form of a rate
annualized over one year.”
Loan amount, closing costs, note rate, loan term.
APR was designed as a shopping tool for consumers.
APR is always quoted when we quote a note rate.
We are allowed to use a sample APR for advertising.
Tolerances
92
Section 14 Truth in Lending Act
93. +APR Tolerances…Can we make a mistake
and still be in compliance? Yes:
Example:
|___________|__________ APR 7.75__________|___________|
.25 .125 .125 .25
93
ARM FRM FRM ARM
ARM = Adjustable Rate Mortgage
FRM = Fixed Rate Mortgage
94. +
Section 14 Truth in Lending Act
A closer look at APR
(Annual Percentage Rate)
Common consumer question:
What costs are included when calculating APR?
At a typical mortgage company, software systems
are already programmed to do this for LOs. However,
customers ask questions about the TILA disclosure
forms and regulators expect licensees to know how
to answer basic questions about the information
contained in the TILA disclosure form.
94
95. +
Included
Prepaid interest
Mortgage insurance premiums
Wire transfer fees
Recording fees
Loan origination fee
UW, proc, admin
Mortgage broker fee
Escrow (closing fee)
Discount points
Pest inspection (VA only when prop is
located in mod to high probability of area of
pest infestation and lender is paying for it.
Flood Ins. premiums
95
Hazard Insurance
(IF obtained from a
neutral company)
Seller paid discount points
Document prep fee
Title insurance (lender
policy)
Notary fee
Appraisal
Credit report
Impounds for taxes & ins
Flood Hazard Check
Excluded
96. +
Section 16 Truth in Lending Act
A closer look at APR (Annual Percentage Rate)
Tip: How to remember which costs are included/excluded
when calculating APR:
Costs included
These are costs that
benefit the lender or
costs that the lender
requires in order to
obtain a loan.
96
Costs excluded
These are costs
that are paid to
and benefit third
parties other than
the lender.
Truth in Lending Act
http://www.fdic.gov/regulations/laws/rules/6500-200.html
97. +
Rescission: on an owner occupied refinance,
the borrower has 3 days after signing the
final loan documents to cancel and receive a
full refund from the lender. LOs must refund
any money collected for third party services,
even if spent.
For TILA RESCISSION purposes, business
days include Saturday (full 24 hours.)
Can the 3 day right of rescission ever be
waived?
97
Section 14 Truth in Lending Act
98. +
Section 14 TILA
Case Study:What is the first business day on
which funds may be disbursed if:
Signing date: Thurs, May 2
1st
bus. day: Fri, May 3
2nd
bus. day: Sat, May 4
Sun, May 5
3rd
bus. day: Mon, May 6
The loan can fund on Tuesday May 7th
98
99. +
Section 15
Truth In Lending 2009 Amendments
Mortgage Disclosure Improvement Act
MDIA
99
100. +
Section 16 RESPA
Early Disclosure Package
Within 3 days of the date on the loan application, we send the
early disclosures to our borrowers.
The Loan Estimate
If Adjustable Rate Mortgage, the CHARM Booklet
If HOEPA, the extra required HOEPA disclosures
If purchase-money loan,Your Home Loan Toolkit.
Any other disclosures required by state and federal law.
100
101. + 101
Section 16 RESPA
Purpose
Timely disclosure of settlement costs
Prohibits seller-directed title insurance
Forbids kickbacks (Section 8. See next slide)
Disclosure of Affiliated Business Arrangements
Disclosure of potential loan servicing charges
Your Home Loan Toolkit
Lender required use agreements
102. + 102
Section 16
Real Estate Settlement and Procedures Act
RESPA
Applies to all federally related loans; sale or
refi, primary market loans only.
Exemptions: 25 acres or more, temporary
financing, assumptions with lender approval,
conversions (contract to deed), secondary
market transactions, vacant property.
Which entities must comply?
103. + 103
RESPA
Which entities must comply?
Lenders (banks, brokers, etc.)
Real estate agents/Realtors
Title and XO
Appraisers
Home inspectors
Mortgage insurance companies
Credit reporting agencies
Flood hazard check companies
Attorneys
Hazard insurance companies
Home warranty companies
Builders
104. +
Section 8 Referral Fees
Prohibits the giving or taking of a fee or
other thing of value for a referral involving a
federally related loan
Un-earned fee (also called a kickback)
A fee we receive but we have performed no
work in exchange for receiving the fee.
104
Section 16 RESPA
105. +
Section 16 RESPA
Violations of Section 8's anti-kickback, referral fees and
unearned fees provisions of RESPA are subject to
criminal and civil penalties.
In a criminal case a person who violates Section 8 may be
fined up to $10,000 and imprisoned up to one year.
In a private law suit a person who violates Section 8 may
be liable to the person charged for the settlement service
an amount equal to three times the amount of the charge
paid for the service.
105
106. +TILA/RESPA Definition of “an Application”
Financial Data
Borrower’s Name
Social Security Number
Income
Estimated value
Loan Amount
…..
Prop address (will have this if refi, might not
have this right away if borrower is still house-
shopping.)
…..
106
107. +
LE --- (loan estimate)------Ellie
CD ---- (closing disclosure)-------Seedy
“CD” means something different to Realtors:
Commission Disbursement
107
Part of the Dodd Frank Act
Went into effect Oct 3, 2015
TRID
TILA RESPA Integrated Disclosure Rule
108. + 108
Section 17
TILA RESPA Integrated Disclosure Rule
Intent To Proceed
Imposing fees on a consumer before the consumer has
received the Loan Estimate and indicated an “intent to
proceed” with the transaction.
A consumer may indicate intent to proceed in any manner
the consumer chooses, unless a particular manner of
communication is required by the creditor.
A consumer’s silence is not indicative of intent to
proceed. A creditor must document this communication to
satisfy the record retention requirements.
109. + Section 17
TILA RESPA Integrated Disclosure Rule
Rule regarding “worksheets”
There are other restrictions on the form of this statement to
assure it is not confused with the Loan Estimate:
Must be in font size no smaller than 12-point font.
May not have headings, content, and format
substantially similar to the Loan Estimate or the
Closing Disclosure.
110. +
For these other purposes, business day means all calendar days
except Sundays and the legal public holidays
…such as New Year’s Day, the Birthday of Martin Luther King, Jr.,
Washington’s Birthday, Memorial Day, Independence Day, Labor
Day, Columbus Day,Veterans Day,Thanksgiving Day, and
Christmas Day.
110
Section 17
TILA RESPA Integrated Disclosure Rule
Business Day Definition
112. + 761.78 x 360 = 274,240.80
P & I x the loan term = 274,240.80
274,240.80 -162,000 minus loan amount
=112,240.80 all the interest
Interest div by loan amount =
112,240.80 div by 162,000 = 69.28%
Interest plus interim (daily) interest =
112,240.80 + 262 = 112,502.80
112,502.80 div by 162,000 = 69.45%
112
113. +
LE --- (loan estimate)------Ellie
CD ---- (closing disclosure)-------Seedy
“CD” means something different to Realtors:
Commission Disbursement
113
Part of the Dodd Frank Act
Went into effect Oct 3, 2015
TRID
TILA RESPA Integrated Disclosure Rule
114. + 114
Section 18 Equal Credit Opportunity Act
It is a violation to discourage an applicant from
making an application for credit on a prohibited
basis.
Cannot ask an applicant if he or she receives
alimony, child support. The applicant may
volunteer such information.
You must ask if he or she PAYS (or is obligated
to pay) alimony or child support.
Unmarried…
ECOA requires the lender to provide a copy of
the appraisal report.
Application need not be in writing for this act to
apply.
Can we ask questions NOT related to
creditworthiness?
Adverse Action Form
Equal Credit Opportunity Act
http://www.fdic.gov/regulations/laws/rules/6500-1200.html
115. +
ECOA comparison to
Race
Color
Religion
Sex
National Origin
Marital Status
Income from Public
Assistance
Age
Whether an applicant
has exercised his or
Her rights under this
Act.
115
Fair Housing
Race
Color
Religion (Creed)
Sex
National Origin
Familial Status
Sexual orientation
added in 2012 as a
protected class in all
50 states to Fair
Lending rules
Disability
116. + 116
Section18
Equal Credit Opportunity Act ECOA
Marital Status
1. Unmarried =
Single
Divorced
Widowed
2. Married
3. Separated
117. + 117
Dodd Frank Changes to ECOA
(1) Creditors are required to notify applicants within three business
days of receiving an application of their right to receive a copy
of appraisals developed.
(2) Creditors are required to provide applicants a copy of each
appraisal and other written valuation promptly upon its
completion or three business days before consummation or
account opening.
(3) Creditors are prohibited from charging for the copy of
appraisals and other written
valuations, but are permitted to charge applicants reasonable
fees for the costs of appraisals or other written valuations unless
applicable law provides otherwise.
118. + 118
Section 19 Home Mortgage Disclosure Act
HMDA
Race
Ethnicity
Gender
If applicant refuses to provide, and the
applicant is face to face, we are required to
check the boxes based on visual observation
119. + 119
Passed to ensure consumers have access to credit
information used by lenders and others so that
remedial steps could be taken when incorrect
or outdated information remained in their file.
Purpose of a credit report:
Insurance, licensing, instruction from
consumer, extension of credit, employment,
response to a court order, potential investor
risk, other legitimate business needs.
Credit reports are deemed privileged info.
A CRA has 30 days to respond to a disputed item
Adverse Action: Name, address and phone
number of the CRA, reason, and info on how to
obtain a free copy of their report.
Section 20
Fair Credit Reporting Act FCRA
121. + Loan Originators bring in the deals…some have a
heartbeat but might not close.
No company earns any money unless loans close!
Super important to determine as early as possible
which loans are viable.
What do processors do all day?
“Specific, time-oriented tasks”
“I help people achieve homeownership”
“I help people achieve financial goals”
“The house is psychologically symbolic of the
self.”-Jillayne
121
122. +
There are specific WA State rules about when an LO leaves
one company and moves to another company. Remind me to
tell you what they are later.
Loan Originators taking A COMPLETE LOAN APPLICATION
is very important. But this is not necessarily what happens
every day.
Processors must have great communication skills! If your
skills aren’t great, then that’s okay! You’ll have many chances
to improve your skills
How to minimize conditions?
A complete 1003 (loan application)
Processor who drives the communication between LO, client,
Realtors, management, underwriting, and so forth.YOU are the
center of the mortgage machine!
122
123. + How to keep organized: Some sort of system that will
alert you what’s needed on each day.
Problem with relying on computer systems is that
sometimes the alert won’t show up unless you’re IN the
file!
Idea: use a spreadsheet system that shows loans in
process, what documentation is missing, time deadlines,
etc.
Processor’s job is to be detailed and organized.The
world needs processors.
Speed and accuracy…with empathy
Note: Lots of ppl in the mortgage industry golf….so they
can golf with Realtors…and drink…drunk Realtors are
no fun…if you’re a woman.
123
124. + Play the course…plan ahead.
Don’t rush…don’t confuse rushing with efficiency.
Balance. If you have too much going on, ask for help.This
is not a sign of weakness, it’s a sign of intelligence
Prioritizing by reverse-engineering every file. Start from
the closing date and work backwards from that date.
LOs will push you. Idea: Once a week sit down with each
LO and go over his/her pipeline. Set realistic expectations
and then LO can make the phone call to client and
Realtors.
Better to be up front and communicate than over-promise,
rush and end up with mistakes. Rushing….could end up
missing details.
124
125. + Commonly missed items.
Consider the loan application: Does the documentation back
up what the borrower(s) stated on the loan app?
AUS = Automated Underwriting System
(example: Fannie Mae Desktop Underwriting.Your computer
software has an AUS embedded in the software)
4506-T
Verify the identity of the borrower.
Sometimes borrower might accidentally transpose two
numbers. Small error like this can take time at the end to
correct.
Processor updates the loan application within the software as
changes are discovered.
Read the guidelines of the loan program.
125
126. +
Asking for letters of explanation
Customer asks:“Why do you want to know?”
Set expectations in advance.
“How long has it been since you’ve gone through the
mortgage process? There has been many changes over
the past 8-10 years that require more documentation.
This is for your protection, and for the protection of the
investor in your mortgage loan.”
Use a tone of voice that communicates empathy.
Refi with cash out:“We are taking a 30 year lien position
on your home.You’re pledging your home as collateral.
We ask ALL our clients this question on a cash out refi.”
126
127. + Occupancy.“It’s a big one.”
Mortgage brokers have business contracts with
wholesale lenders! Wholesale lender reps would coach
mortgage brokers/LOs to lie about occupancy from,
say, 1997 through 2007.
It’s better if the processor can uncover an occupancy
issue instead of having it caught in UW.
Data Verify…Fraud Guard
https://www.dataverify.com/content/
http://www.firstam.com/mortgagesolutions/solutions/fr
aud-verification/fraudguard.html
127
128. + Many different addresses on documentation?
Where do you live?
Asked for tax returns
Result was borrower owns 5 different properties with losses
reported to the IRS on rentals.
The borrower’s story can and does change from application to
approval
______
If processor is not sure about something, work with the LO. If
you’re not satisfied, go to your manager. If manager pushes
you to submit it? Talk to underwriter.You’re trying to avoid
delays, by solving problems up front.
128
129. + Another name on a bank account?
Assets
If there’s another name on the bank account, that person
must provide a letter that says that our customer has 100%
access to the funds in that account.
Example: Mother is on the account with our borrower
Don’t submit the file to underwriting without conditions that
you know she’s going to ask for.
Cash to close. Did earnest money check clear the bank yet?
Check the date on the bank statement.
No missing pages on the bank statements.
No gaps in your trail of bank statements
129
130. + Taxes
IRS Tax Transcripts might show other employers
Paystubs. Need a full 30 days worth of paystubs! If someone
is paid bi-weekly (every two weeks) you might need one
more paystub for the underwriter. Underwriter will need
paystub to show YTD income
A second job. Not needed to qualify. Likely, UW will want you
to document it as what we’ll do is use it as a “compensating
factor” when asking for loan approval.
Borrower works for a family member? Expect additional
documentation due to the conflict of interest. If borrower
ends up owning 25% of the business or more, we will need
tax returns on the business!
Your Mortgage Insurance Company rep can steer you toward
great online classes for analyzing tax returns. Fannie Mae
130
131. + Borrowers lying about how many dependents they have…
Child support owed?
Some loan programs like VA look at child care expenses as
a debt
Ages of the kid…If child is 17, then child support might
end very soon. A great compensating factor
Other properties owned
Look at the Schedule E worksheet on the tax returns. Investors
have expenses when managing rental properties
Appraisals: Look for hazards! Remember, the underwriter
will completely underwrite the appraisal as well as the
borrower’s credit documents. Hot water tank “strap”
131
132. +
“Do the task that will take the longest
to get back…first!
132
133. + Hazard Insurance!
This can delay closing if they don’t get a homeowner’s
insurance policy set up EARLY.
It’s up to us! Production! To get the homebuyer going on this
task as soon as possible
Make sure there’s at least 12 months on the policy and that
the correct address is on the insurance binder.
WA State has laws about demanding that the collateral be
‘over-insured.’
Look at appraisal:Total Cost New (total cost to rebuild this
house from nothing) That’s what we need it to be insured for.
Correct loss payee and loan number
133
134. + Squad Goals
Show the underwriter HOW you calculate everything.
KNOW your (loan program) guidelines
Refer to the AUS findings and guidelines. Know the
guidelines of the lender to which you’re brokering loans.
Ask for in-house lunch and learns with the wholesale lender
reps and your own in-house underwriting dept.
Silos can develop at some companies, example:
Underwriters do not talk to anyone.
Relationships between LOs, Processors, UW, Management are
what drives this business.
Don’t like your LO interrupting you? Send them a daily
snapshot of what you’re working on Pro-actively
communicate!
134
135. +
Mortgage brokers sign contracts with wholesale
lenders.Wholesale lenders are the ones who
FUND the loan.
“Wholesale Lender Rep, or “Account Manager” is a
person who can definitely help you learn their
company’s product guidelines, for those of you
who are allowed to broker loans to other
companies.
Almost all wholesale lenders went bankrupt
between 2007 and 2010.
Note:You are not paid enough to be yelled at by a
Realtor.
135
136. +
Checklists don’t make great files. Great
communication between LO and processor make
great loan files.
Checklists can help!
Your compliance department at your company is
your friend!
136
137. +
Compensating Factors
Most common compensating factors to put in cover letter to
underwriter
Income that’s not being used to qualify. Bonus, commission,
etc.
Spouse with bad credit (but other special talents) who is not
on the loan but has income!
Assets…not needed to qualify but definitely will strengthen
the file.
Credit is meh, but has always been paying mortgage as
agreed
Magnify the compensating factors balanced with
transparency about the not so good parts of the file
137
138. +
Common conditions
Large deposit, other owners on accounts
Gaps in employment
Appraisal---missing any repairs “subject
to”
CO2 detectors, and water heater straps
Borrower’s info has been consistent
throughout the file
138
139. +
Change of Circumstances after UW
Communicate quickly to all.Who will be doing
this? Processor or LO?
Change of Circumstances could require re-
disclosing the Loan Estimate!
Now we have to go BACK to underwriting before
we can receive a “clear to close”
Re-Run your AUS if there’s a program change bc
new conditions could come up.
Does the interest rate in which the borrower has
locked, need to be extended? This is the
responsibility of the LO.
139
140. +
Do the thing that takes the most time…FIRST.
Keep track of surprise conditions that made your day
hell, so that you never forget them.
Collaborate with other processors at your firm.
If you don’t know a loan program, ask for help! Keep a
list of people to call who will help you on various topics!
Handling multiple, high-strung LOs:
Send out an email “snapshot” each morning with what you’re
working on.
Let them know the turn-around times of the various departments
at your company: Underwriting, funding.
Provide an estimate of the time X will be complete
Set expectations with everyone including the LO
Be gentle but firm. Negotiate what you can. Ask your boss, how
much push-back you can give to the LO who pushes you to submit
without proper documentation.
140
141. +
Section 21
File Review and Submission
Reviewing the loan package
Income and employment
Source of funds
Compensating factors
141
146. +
Section 26
Case Studies
1. Elizabeth purchasing w/20% down…
2. Tatyana and Vladislav owner occupied refi…
3. Javier has three sources of income…
4. Binh is newly employed in the tech industry…
146
148. +
Section 28 Close
Evaluation forms
Please write a narrative description about
your experience in class.
End-of-course completion certificates
148
149. + 149
Jillayne Schlicke
CE Forward, Inc.
National Assoc of Mortgage Fiduciaries
206-931-2241
jillayne@ceforward.com
CEForward.com