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Mortgage loan origination chap 6 by dr sam ruturi
- 2. CENTRE FOR HOUSINGFINANCE, MONEY AND BANKING CERTIFIED MORTGAGE BANKERS DIPLOMA CHAPTER 6 (SIX): LOAN ORGINATION MORTGAGE BANKING SCHOOL OF SOUTHERN AFRICA 6th Floor, Throgmorton House, Julius Nyerere Way & Sam Machel Avenue, Harare. Zimbabwe www.mbssa.net; [email protected] [email protected] Telephone 263-4 750447 / 48 MBSSA MORTGAGE BANKING SCHOOL OF SOUTHERN AFRICA Facilitator: Dr Sam RUTURI [email protected] or [email protected] : LOAN ORIGINATION
- 3. INTRODUCTION – PROCESSINGRESIDENTIAL MORTGAGE LOANS LOAN ORIGINATION MARKETING INTERVIEWS APPLICATION DATA CAPTURE LOAN PROCESSING LOAN FILE SETUP VERIFICATIONS: EMPLOYMENT CREDIT CLEARING PROPERTY VALUATION LOAN UNDERWRITING PROPERTY LOAN TO VALUE BORROWER’S INCOME RATIO BACK-END RATIOS FRONT-END RATIOs LOAN REGISTRATION INSTRUCTION TO CONVEYANCER LIFE ASSURERS HOC INSURERS REGISTRATIONS BOND, PROPERTY TRANSFER LOAN SERVICING LOAN COLLECTIONS DELINQUENCY & FORECLOSURE PREMIUM RENEWAL PROPERTY INSPECTION & REVALUATION PROCESSING RESIDENTIAL MORTGAGE LOANS
- 4. LEARNING OUTCOMES: LOANORIGINATION Define mortgage loan origination Determine the various methods used to generate mortgage business Determine the responsibilities of mortgage loan originators State and describe the different types of mortgage loan programs Determine the rationale for waving a standard or uniform loan application program.
- 5. CHAPTER SIX –LOAN ORIGINATION Loan Origination Loan origination is the creation of mortgages. Loan Processing is the process of collecting of documentations and verifications to support information provided. Loan Underwriting Underwriting is the evaluation of loan documentation to facilitate the decision making process of either approving or decline the loan application. Loan registration If a loan is granted and accepted by the applicant, the society Instructs its attorneys to draw up the necessary documents. Loan Servicing / Administration This is the collection of monthly instalments, management of delinquencies and default, insurance renewals of both property and life covers, deceased and insolvent estate administration, cancellation of mortgage bonds and management of properties in possession. Underwriting a Residential mortgage loan After submission the loan application is subjected to rigorous checks and verifications in order to determine the suitability of the borrower as a good credit risk and the property as good collateral security for the loan.
- 6. RESIDENTIAL MORTGAGE UNDERWRITINGPROCESS 5Cs OF CREDIT UNDERWRITING GUIDELINES IS THE PROCESS OF ARRIVING AT A DECISION TO APPROVE OR REJECT A LOAN APPLICATION COLLATERAL PROPERTY AS GOOD SECURITY FOR DEBT IS THE PROPERTY OFFERED AS SECURITY WELL LOCATED OF GOOD APPEAL AESTHETICALLY CAPITAL LOAN-TO VALUE RATIO IS THE DOWN-PAYMENT / DEPOSIT. IS THEE PROPERTY CORRECTLY PRICED VIS-A-VIZ VALUE TO THE LOAN BEING APPLIED FOR. BORROWER AS GOOD CREDIT RISK IS THERE ABILITY OF BORROWER TO PAY DEBT? IS THERE BORROWER WILLINGNESS TO PAY DEBT? CAPACITY FRONT-END RATIO RATIO OF INCOME WHICH GOES TOWARDS SERVICING MORTGAGE DEBT. CHARACTER BACK-END RATIO RATIO OF INCOME WHICH GOES TOWARDS PAYING OTHER HOUSEHOLD DEBTS. CONDITION ECONOMIC, LEGAL & SOCIAL CONDITIONS ARE ECONOMIC CONDITIONS FAVOURABLE FOR THE BORROWER TO AFFORD TIMELY PAYMENTS FOR THE LOAN.
- 7. INTRODUCTION – PROCESSINGRESIDENTIAL MORTGAGE LOANS Capacity refers to the applicant’s ability to make monthly housing payments and other financial resources such as money at the bank. Character refers to the applicant’s motivation to make monthly mortgage payments. Capital refers to the liquid assets the borrower has available to make the down payment on the loan, meet loan transfer. Collateral refers to the underwriter’s evaluation of the subject property using a professionally prepared appraisal. Condition refers to the prevailing economic climate which determines the preparedness of a borrower to make timely payment towards the loan.
- 8. Generating Mortgage BankingBusiness Mortgage Banking Loan Programs Completion Of The Loan Application Qualities And Responsibilities Of The Loan Originator Regulatory Compliance Application Follow-up LOAN ORIGINATION
- 9. MARKETING – GENERATINGMORTGAGE BANKING BUSINESS Loan Officer is responsible for generating mortgage banking business i.e. seeking out loan applicants The Loan Officer’s business comes from spot originations, builder & developer originations and walk-in originations
- 10. QUALITIES & RESPONSIBILITIESOF LOAN ORIGINATOR Must have excellent sales skills to sell themselves, their company and products Must possess a high degree of personal integrity Well developed presentation skills and a thorough knowledge of mortgage lending practices and products, origination market area and competitive forces The loan originator is responsible for initial interview with the prospective borrower The loan originator determines if the applicant can afford the property pre-qualification involves two ratios, these are:- Housing-to-income ratio and total debt-to-income ratio
- 11. RISKS PRESENT INTHE PRIMARY & SECONDARY MORTGAGE MARKETS RISK TYPE PRIMARY MARKET SECONDARY MARKET BOTH: IN DIFFERENT FORMS LEGAL: Loan Agreement Enforceability Property Consumer Protection Business Fraud BORROWER CREDIT/DEFAULT: Repayment Collateral INTEREST RATE: Prepayment Pipeline OPERATIONS: LIQUIDITY:
- 12. CREDIT ENHANCEMENT MECHANISMS InternalCredit Enhancements External Credit Enhancements the full cash amount deposited with the society; the full amount of deposits with a permanent building society or fixed deposits with a bank; the full paid up amount of shares in a permanent society; the surrender value of a life assurance policy; the full amount from a bank or another acceptable guarantee; 75% of the value reasonably determined of the collateral acceptance in the case of a fixed-term bond over immovable property.
- 13. MORTGAGE BANKING LOANPROGRAMS Graduated payment mortgages (GPMs) Growing equity mortgages (GEMs) Fixed-rate mortgages (FRMs) Adjustable-rate mortgages (ARMs) or variable-rate mortgages (VRMs) Balloon mortgages
- 14. INTERVIEWS Be careful notto discourage an application explains the general nature and financial obligations inherent in a mortgage loan.
- 15. LOAN APPLICATION names inwhich title to the property will be held; physical address of property to be purchased; date of birth and national identity number of applicant (s); brochure should request information on the following topics copy of Agreement of sale and proof of income name and address of current employer and if employed for less than two years, previous employers; principal residential address for the previous two years; list of liquid assets and where held with account numbers.
- 16. COMPLETION OF THELOAN APPLICATION borrower’s address, phone, and social security number, borrower’s income (primary, rental, interest, and child support), mortgage information (loan program, amount, rate, term), borrower’s employer (past and present, plus military status if VA) borrower’s assets (cash, stocks, real estate and businesses), UNIFORM APPLICATION
- 17. COMPLETION OF THELOAN APPLICATION 2. property address and sales price, and 1. borrower’s liabilities (credit cards and consumer and real estate loans), 3. legal information (how title will be held, past judgements) UNIFORM APPLICATION (Contd.)
- 18. UNIFORM APPLICATION Supporting documentationincludes:- certificate of eligibility, if a veteran, past W-2s, current year pay stubs, evidence of Social Security benefits, past tax returns and financial statements (if any) bank statements (savings, checking investments), debt statements (any loans outstanding) and property sales contract.
- 19. REGULATORY COMPLIANCE Equal CreditOpportunity Act (Regulation B) Fair Credit Reporting Act, Real Estate Settlement Procedures Act (Regulation X), Truth in Lending Act (Regulation Z).
- 20. Loan officer’s dutiescontinues after application, document collection and regulatory closure Loan officer communicates with internal departments – processing, underwriting, & closing to ensure progress according to schedule Loan officer communicates with the borrower on the status of loan approval and the anticipated closing date APLLICATION FOLLOW-UP
- 21. Building Society needsto be specific as possible in Transmittal letter concerning requesting additional information; how to complete the application MAILING OUT APPLICATION FORMS Signing the various verifications where necessary
- 22. Loan originator shouldconsider the applicant’s employment status, whether formally employed or self employed, nature of regular income Be mindful of the fact that the borrower has contractual capacity to enter into credit agreement. QUALIFYING AN APPLICANT A credit reference will be required by the lender for mortgage applicant
- 23. Salary or wages APPLICANTS– POSSIBLE SOURCES OF INCOME Rent, interest or commission Self employment Child support, alimony or maintenance Pension, disability or welfare As a rule income from such sources as commission may need to be taken over at least two or three years to establish the average level.
- 24. Chapter 6: AssessmentExercise 1. What are the major sources of mortgage business which loan originator relies on? 2. State and give examples of the qualities and responsibilities of a mortgage loan originator 3. What are your misgivings as regards the serve-for-your-own home scheme as one of the special loan programs which has been used in Zimbabwe? 4. Explain the concept of the Graduated Payment Mortgage (GPM) loan programme, under what circumstances may this scheme be used in Zimbabwe? Give three examples.
- 25. 1. Explain thedifference between sources, credit mechanisms and credit enhancement mechanisms as concepts used in financing housing. Use three examples of each to demonstrate how each concept operates. 2. Give an overview of how an efficient cooperative development system operate in the delivery of housing finance. 3. Explain the properties which are included in the definition of urban immovable property in terms of the building Societies Act Chapter 24:02. 4. Use the concept of Current Housing Finance Schemes to give a short account of how an employer assisted housing scheme operates. ASSESSMENT QUESTIONS
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