Loan Processing has Changed
June 29, 2010
Remember the old saying: If a loan applicant could fog a mirror, he/she would be approved for a loan. Then came the housing bust and the crash of the financial markets. Like many corrective regulations, the present loan approval requirements may be the result of over reaction to the laxity of the process in the past.
Just to review. Many loans are originated and packaged by mortgage brokers/bankers. These loans are then sold to an investor - usually Fannie Mae or Freddie Mac. If Fannie or Freddie reject a loan package, the mortgage broker must keep it in inventory thus limiting the mortgage broker's/banker's ability to process new loans.
Today, prospective borrower completes a detailed loan application. It is important that the borrower list all credit liabilities (credit cards, car loans, student loans, other mortgages, etc.)
The lender will run a credit check to verify the information furnished as well as obtain the borrower's FICO scores, usually from more than one credit agency. If the information obtained by the lender passes muster, a letter of loan approval subject to appraisal may then be issued. Hooray ! the borrower, the seller and the agents thinks they are on the way to a successful transaction .
However, in today's world there are more steps to the process of obtaining a loan. An underwriter will look at the package and may question some of the items. For instance: Why are you moving just a mile and a half from your present home? Explain. (A red flag that suggest the borrower is really an investor. )
The underwriter will also review the appraisal when it comes back from the appraisal service. If the desk reviewer believes that some of the comparables are not sufficiently comparable, the review has the power to change the appraisal.
If a borrower successfully passes all these hoops, the borrower must be well counseled ahead of the application for a loan that he/she should not make large (or maybe even small purchases) until the transaction is closed. Any new liabilities could change the FICO or the debt-to-income ratio.
Obtaining loan approval these days requires a clear understanding of the new underwriting rules.
Remember the old saying: If a loan applicant could fog a mirror, he/she would be approved for a loan. Then came the housing bust and the crash of the financial markets. Like many corrective regulations, the present loan approval requirements may be the result of over reaction to the laxity of the process in the past.
Just to review. Many loans are originated and packaged by mortgage brokers/bankers. These loans are then sold to an investor - usually Fannie Mae or Freddie Mac. If Fannie or Freddie reject a loan package, the mortgage broker must keep it in inventory thus limiting the mortgage broker's/banker's ability to process new loans.
Today, prospective borrower completes a detailed loan application. It is important that the borrower list all credit liabilities (credit cards, car loans, student loans, other mortgages, etc.)
The lender will run a credit check to verify the information furnished as well as obtain the borrower's FICO scores, usually from more than one credit agency. If the information obtained by the lender passes muster, a letter of loan approval subject to appraisal may then be issued. Hooray ! the borrower, the seller and the agents thinks they are on the way to a successful transaction .
However, in today's world there are more steps to the process of obtaining a loan. An underwriter will look at the package and may question some of the items. For instance: Why are you moving just a mile and a half from your present home? Explain. (A red flag that suggest the borrower is really an investor. )
The underwriter will also review the appraisal when it comes back from the appraisal service. If the desk reviewer believes that some of the comparables are not sufficiently comparable, the review has the power to change the appraisal.
If a borrower successfully passes all these hoops, the borrower must be well counseled ahead of the application for a loan that he/she should not make large (or maybe even small purchases) until the transaction is closed. Any new liabilities could change the FICO or the debt-to-income ratio.
Obtaining loan approval these days requires a clear understanding of the new underwriting rules.
posted by shirley harry at 7:48 AM
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