MORTGAGE LENDING Overview and Terms

MORTGAGE LENDING Overview and Terms

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Objective

• By the end of this course, participants will be able to summarize fundamental aspects of the mortgage industry and the associated terminology, creating a foundation for continued learning and professional development at Panorama Mortgage Group.

Introduction to Mortgage Lending

Learn what a mortgage is, key terms, and how mortgage lending works.

Modules

Types of Mortgages

Learn the key concepts, process steps, and roles involved in the mortgage lifecycle to build a solid foundation in mortgage lending

Identify mortgage types, residential vs. commercial loans, and basic qualification criteria.

Mortgage Lifecycle

Understand the main stages of the mortgage lifecycle and their correct order.

The Mortgage Process

Break down the process from application to closing step by step.

Modules

Roles and Responsibilities

Learn the key concepts, process steps, and roles involved in the mortgage lifecycle to build a solid foundation in mortgage lending

Recognize the key roles in the mortgage process and their responsibilities.

Introduction to Mortgage Lending

Mortgage Definition

A mortgage is a type of loan that is used to purchase a property. The property serves as collateral for the loan, which means that if the borrower fails to make payments, the lender has the right to seize the property

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Introduction to Mortgage Lending

Mortgage Lending Overview

Mortgage lending is the process of providing loans to individuals or businesses to purchase or refinance a property, with that underlying property serving as collateral. Mortgage lenders evaluate the borrower's creditworthiness, income, and other factors to determine whether to approve the loan

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Types of Mortgage

Types of mortgages

Residential

Loans to individuals to purchase or refinance a home or other residential property.

Commercial

Loans to businesses to purchase or refinance commercial properties such as office buildings, retail centers, and apartment buildings.

Mortgage Lyfecycle

Mortgage Lending Lifecycle Overview

The mortgage lending lifecycle, also known as the mortgage loan process, is the series of steps involved in securing a mortgage loan for a borrower. The mortgage lending lifecycle typically includes the following steps:

Mortgage Lifecycle

Mortgage Lending Lifecycle Overview

Origination

Processing

The borrower submits an application to get a pre-approval letter from a Loan Officer.

After the contract is executed, the processor ensures the file is fully documented.

Underwriting

Closing

The underwriter reviews the file and approves or denies it.

The buyer, seller, and closing agent coordinate to close on the transaction.

Warehousing

Delivery

The note is warehoused by the holder.

The note is delivered to the investor.

Servicing

Secondary Market

Servicers collect mortgage payments from the homeowners, sometimes including taxes and insurance.

Lenders and investors buy and sell mortgages and servicing rights.

Mortgage Process

The Process from Application to Closing

1. Origination: The origination process includes the submittal of the loan application, pre-approval, getting the executed contract, and issuing the initial disclosures.

Pre-Approval

Loan Application

The lender reviews the borrowers’ application and credit report to determine their ability to repay the loan.

To kick off the mortgage origination process, the borrower submits a loan application, which includes information about their income, assets, debts, and credit history.

Initial Disclosures

Executed Contract

When the borrower provides the executed contract to the lender, the lender provides the initial disclosures, which include the loan estimate.

When the borrower gets their pre-approval letter, they go house hunting until they find a property they like and sign a purchase contract for that property.

Mortgage Process

The Process from Application to Closing

2. Processing: After initial disclosures are sent, the lender collects documents and information required to verify the borrower’s creditworthiness and ability to repay the mortgage. These include documents validating a person’s credit, capital, capacity, and collateral, which are often referred to as the Four Cs. During this process, the lender will also check the borrower's credit history, credit score, and debt-to-income ratio.

3. Underwriting: Once all necessary documents are gathered and verified, the underwriter reviews the file to ensure the borrower’s creditworthiness and risk of default. If they are acceptable to the underwriter, the underwriter will issue an approval or conditional approval. A conditional approval requires the collection of additional documents and information before issuing a final approval.

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Roles and Responsabilities

Roles in the mortgage lyfecycle

The mortgage lending process involves several roles and responsibilities. Here is a detailed list of the various people you would encounter in the mortgage lending process:

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Roles and Responsabilities

Roles in the Mortgage Lifecycle

Loan Processor

Underwriter

Title Company

Appraiser

Escrow Officer

Closers

Funder

Mortgage Servicer

Roles and Responsabilities

What is a mortgage broker

Mortgage brokers are the matchmakers of the home-buying process. They work on the homebuyer’s behalf and shop multiple lenders to find the rates and terms that meet their clients’ needs. Mortgage brokers usually rely on their relationships with wholesale lenders.

Most adults are at least loosely familiar with the retail lending process. Retail lenders handle the loan in-house and work directly with prospective homebuyers to complete the transaction. They also only offer products available from their own institution. The standard process includes applying with the lender (often a bank or credit union), and if the homebuyer is approved, the lender cuts a check, and the buyer begins paying the same lender back.

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Roles and Responsabilities

Broker Relationship with PMG

Every new Broker with PMG is required to complete a Mortgage Loan Originator (MLO) Agreement. What is an MLO Agreement? MLO stands for Mortgage Loan Originator. An MLO is a professional who works with borrowers to help them secure a mortgage and understand all the terms and conditions associated with the loan. MLOs guide borrowers through the different steps of getting a mortgage, including answering questions, collecting documents, and verifying information. The mortgage origination agreement is a contract between the borrower and a mortgage lender that includes the terms and conditions relating to the origination and sale of mortgage loans.

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Roles and Responsabilities

Registered MLO will work for a Bank or Credit Union and only be required to register with the NMLS and obtain a unique identifier. There are some people in the mortgage process who are generally not included in the definition of an MLO, including:

• Loan Processors
• Underwriters
• Real Estate Professionals, and
• People who sell Timeshares only

There is one situation where a loan processor or underwriter would have to be licensed. If the loan processor or underwriter are working as an independent contractor, they are required to be licensed as an MLO. Independent contractors are usually 1099 employees who are not under the direct supervision of the company.

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Roles and Responsabilities

The role of secondary market investors

A secondary market investor is a company or entity that purchases mortgages from lenders or aggregators and holds them as part of their investment portfolio. These investors are typically large institutional investors, such as hedge funds, pension funds, or government-sponsored entities (GSEs) like Fannie Mae or Freddie Mac.

The role of a mortgage secondary market investor is to provide liquidity to the primary mortgage market by purchasing mortgages from lenders, freeing up capital for lenders to originate more mortgages.

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Thank You!

If you have any question, this is the time to express them.

Pre-Approval

If the borrower meets the lender's criteria, the lender will issue a pre-approval letter indicating the maximum loan amount for which the borrower is pre-approved.

The MLO is required to follow the Secure and Fair Enforcement for Mortgage Licensing Act also known as SAFE Act. There are two main types of MLOs Registered and Licensed. A Licensed MLO is required to obtain a license in each state where they intend to originate loans. They are also required to obtain a unique identifier through the Nationwide Multistate Licensing System and Registry (NMLS). The MLO will think of the unique identifier as their mortgage social security number, whether they’re licensed or registered, the unique identifier is unique to the individual and it will follow the individual through their career.The MLO must also pass an exam, attend pre-licensing education and pass criminal and credit checks before the state approves or denies their application. Once approved they are required to renew licenses yearly and continue to attend specific education

Commercial

The loans are typically for a term of 5-20 years and may be fixed-rate or adjustable-rate. In some cases, may have a balloon payment at the end of the term, which means that the borrower must pay off the remaining balance in full.

Closers:

• The mortgage closers are responsible for reviewing that all closing costs and fees are accurately calculated and collected, and that the loan is closed in compliance with all applicable laws and regulations. Closers prepare the Closing Disclosure and send it to the borrower at least three days prior to the loan closing.

Roles in the mortgage lifecycle

• Mortgage Loan Officer: A mortgage loan officer is a professional who works for a lender or mortgage company and assists borrowers with obtaining a mortgage loan. They are typically the first point of contact for borrowers seeking a mortgage and guide them through the mortgage process.
• Disclosures Desk: The mortgage disclosures desk roles involve preparing and delivering the various disclosures required by law during the mortgage lending process. Disclosures are documents that provide information to borrowers about the terms of their mortgage loan, including interest rates, fees, and other costs.

Wholesale lenders are different in that they don’t work directly with homebuyers. Instead, they offer their home loans through third-party clients like mortgage brokers and correspondent lenders. Armed with this info, the standard process includes: the broker shops around to find the best mortgage terms and rates for their clients. The wholesale lender then underwrites and funds the loan. The more loan products a mortgage professional has at their disposal, the more likely it is they’ll find one that’s perfect for their client. Wholesale mortgage brokers have access to multiple lenders and their respective loan products, so finding one that truly works is much easier. Basically, Mortgage Brokers are like a matchmaking service: They match the borrower with a lender. The Broker will review the borrower(s) personal financial information and look over an array of lenders and try to match with one who will give the best rate and terms. A Mortgage Broker typically will have lots of lenders to match the borrower with; a disadvantage is that once the match is made, the broker will depend on the Mortgage Lender to complete the process but will remain the borrower(s) point of contact.

Secondary market investors make money by charging a fee for purchasing mortgages or by holding them and earning interest on the underlying mortgage payments.Secondary market investors may also package mortgages together into mortgage-backed securities (MBS) and sell them to other investors. These securities are backed by the underlying mortgages and their cash flows, and their value is determined by the performance of the underlying mortgages.

Underwriting

Underwriters are responsible for reviewing and analyzing loan applications to determine if the borrower meets the lender's requirements for approval. They assess a borrower's creditworthiness, employment history, income, debt-to-income ratio, and other financial factors to evaluate their ability to repay the loan. They also review the appraisal, title report, and other documentation to confirm that the property is suitable for financing and that the lender's interests are protected

Residential

• The loans are typically for a term of 15-30 years and may be fixed-rate or adjustable-rate.
• Is heavily regulated, and lenders must comply with a range of federal and state laws and regulations

Mortgage Servicer

• The mortgage servicer is responsible for the ongoing management of a mortgage loan after it has been originated and closed. This includes collecting monthly payments, managing escrow accounts, and handling any delinquencies or defaults. The mortgage servicer also acts as the primary point of contact for the borrower in regard to their loan

Mortgage brokers receive a fee for their services, usually based on a fixed percentage of the loan amount. Brokers can be paid directly by the customer or by the lender — but never by both parties. Broker compensation must be disclosed on the loan estimate and closing disclosure forms during the mortgage process. Federal law is crystal clear about how a loan originator can be paid, and brokers must follow stringent compensation guidelines, including:

• The commission percentage can’t be hiked based on the terms of the loan or loan type.
• A broker can’t be paid extra by charging a higher interest rate.
• A broker can’t be paid for referring a borrower to an affiliate (such as a title company).
• A broker can’t steer a consumer into a loan just to receive a higher commission

4.Closing: After a loan is approved, the borrower and the lender complete the transaction and finalize the loan. The closing is scheduled, the closing disclosures are reviewed, and the loan documents are signed before the loan is funded and the closing costs are paid. At the end of closing, the deed is recorded, and the keys are handed to the borrower

Did youknow that...

To qualify for a residential mortgage loan, borrowers must typically have a good credit score, a stable income, and a down payment of at least 3-20% of the purchase price. The lender will also assess the borrower's debt-to-income ratio, which is the amount of debt the borrower has compared to their income.

Initial Disclosures

The loan estimate outlines the estimated loan terms, interest rate, monthly payment, closing costs, and other details related to the loan.

Appraiser

• A mortgage appraiser is a licensed professional who provides an unbiased estimate of the value of a property. During the appraisal process, the appraiser will typically visit the property and inspect both the interior and exterior. The appraiser will then compare the property to similar properties in the area to determine its market value.

Escrow Officer:

The escrow officer coordinates the final steps of the mortgage closing process, including the collection and disbursement of funds, the recording of the mortgage and other necessary documents with the appropriate government agencies, and the transfer of ownership of the property. In some states, the attorney takes the role of escrow officer as a neutral third party responsible for facilitating the closing process and ensuring the proper handling of funds and documents.

Title Company

• The title company conducts a title search to ensure that there are no liens or other encumbrances on the property and provides title insurance to protect the lender and the borrower against any title defects.

Loan Processor

• A mortgage loan processor is responsible for gathering and verifying all the documentation and information needed to process a mortgage loan application. This includes reviewing the loan application and all related financial documents, such as pay stubs, bank statements, tax returns, and credit reports. The processor will also work with other parties involved in the loan process, such as the loan officer, underwriter, and appraiser, to ensure that all requirements are met and that the loan application moves smoothly through the process.

How Mortgages Work

• Individuals and businesses use mortgages to buy real estate without paying the entire purchase price upfront. The borrower repays the loan plus interest over a specified number of years until they own the property free and clear. Most traditional mortgages are fully amortized. This means that the regular payment amount will stay the same, but different proportions of principal vs. interest will be paid over the life of the loan with each payment. Typical mortgage terms are for 15 or 30 years, but some mortgages can run for longer terms.

• Mortgages are also known as liens against property or claims on property. If the borrower stops paying the mortgage, the lender can foreclose on the property.

Funders

• The mortgage funder is responsible for verifying that all documents required for loan approval have been completed and that the loan is ready to be funded. The funder then arranges for the disbursement of funds to the title company or closing agent to complete the transaction.