Residential Mortgage Loan Processing Class

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+ Residential Mortgage Loan Processing Jillayne Schlicke

Transcript of Residential Mortgage Loan Processing Class

Page 1: Residential Mortgage Loan Processing Class

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Residential Mortgage Loan Processing Jillayne Schlicke

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+MiscBreaks, LunchBathroomsCoffee, WaterCell phone ringer, laptops, audible alerts: OFF

Photo ID

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+Course OutlineDay 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.

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+Residential Mortgage Loan Processing

Agenda DAY ONEIntroductionsProcessor’s Role and DutiesReviewing the Loan ApplicationAnalyzing DocumentationVerifications:VOE, paystubs, W-2sVOD, assets, bank statements Case StudyDFA and Ability to RepayCreditTitle, EscrowAppraisals

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+ Introductions

Who are youWhere do you workWhat do you doDoes your company require you to do the early disclosures?

What do you want to learn during this course?

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+ Learning StylesAuditory-learns by listeningVisual-learns by processing imagesTactile-learns best when writing Whole Body-learns best when entire

body is engagedEmotional-learns best when complex

info can be tied to an emotionInteresting learning styles:

can’t hear while writing or verbal learner—must repeat verbally

what is being learned.

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+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….

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+The mortgage machine Appraisers Title, escrow Realtors Underwriters LOs Processors Credit reporting agencies Insurance…MI, Fire, Flood. Title Builders/HOAs….secondary market…regulators

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+Different Ways of Originating LoansDepository

Bank

Checking, savings

CAN fund its own loans

LOs are “registered”

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Mortgage Broker

No ck/svgsDoes NOT fund

its own loans Pure middlemanFor 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/svgsCAN fund its own

loans via lines of credit with banks

LOs are licensed

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+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?

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+Section 2 Module 2.2 IncomeEmploymentDebtsAssetsMarital statusChild support paidChild support receivedANY new information could turn an

approval into a decline

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+Section 2 Module 2.2Compare 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.

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+Credit Reports

Mike OldenAmerican Reporting CompanyVice President, Sales and [email protected]

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+FICOA 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.

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+What makes up a FICO score?Consistency in making on time payments

Type of credit you haveHow long you’ve been using creditThe amount of outstanding debtDerogatory items (late payments)Q: How does an inquiry effect the score?

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+annualcreditreport.comFICO and the Vantage Score—two most

commonly used credit scoresScore Model section

derogatory items are listed in order of importance. Example: Joseph TestcaseEquifax“Serious delinquency”

Codes at the bottomB= Borrower, C= Co-borrower

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+Chapter 7Complete 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.

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+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.)

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+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!

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+Student loansIf paid on time, will help credit scoreUncollateralized, but considered a

“secured” loanBalance to loan limit, not necessarily

important on a student loan.

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+Inquiries

Multiple inquiries within a 45 day period are only counted as ONE inquiry

Mortgage, auto and student loans

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+Difference between…

SupplementUpdating a particular account. Perhaps correcting an error. Does not effect the FICO

Rapid Re-ScoreProcess developed and monitored by the credit bureau based on creditor documentation stating what can be changed, updated, or deleted. A permanent change

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+Credit Repair Companies AVOID AVOID AVOID AVOID AVOID AVOID AVOID

AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID AVOID

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+AVOID Credit Repair Companies We are not allowed to share a consumer’s

credit report with a “credit repair” company

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+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

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+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

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+Section 3 Loan Processor DutiesLoan ProcessingAs 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.

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+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/LegalDocuments/Pages/SuspendedCounterpartyProgram.aspx

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+Analyzing the VOE and W-2

Review your case studyTalk about it with your groupPresent your case to the rest of the class

AckermanLioceRobertson

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+Section 3 Module 3.2 Verifying Income

The Work Number

https://www.theworknumber.com

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+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.

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+Section 3 Module 3.3 W-2s When reviewing the applicant's W-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.

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+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.

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+Section 3.5 Analyzing the VOECurrent gross payIncome 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 incomeExample:Joan Jett is paid $100,000 annually.

100,000 divided by 12 = ________________ per month

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+Section 3.5 Analyzing the VOEHourly: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

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+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

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+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

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+Section 3 Analyzing the VOEBi-weekly salary x 26* (pay periods) divided by12 (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

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+Section 3 Module 3.6 Tax Returns

Consistency of income, address, and other informationInformation on the return matches information provided on the loan applicationUndisclosed businesses or partnerships, rental properties, alimony, or student loansCopies of all pages, including all schedules, and signaturesUnreimbursed business expenses not disclosed on the loan applicationIndependent contractor; commission, bonus, or part-time income; net rental income; or interest and dividend income

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+Section 3 Module 3.7 Misc IncomeThe processor should verify:The amount and frequency of the incomeThe duration of the income must continue for at least three years from the date of the mortgage application in order to be consideredThat the income is actually being received

A processor’s job is to gather documentation to prove income has been stable, and will continue.

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+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.

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+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.

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+Residential Mortgage Loan Processing

Agenda DAY ONEIntroductionsProcessor’s Role and DutiesReviewing the Loan ApplicationAnalyzing DocumentationVerifications:VOE, paystubs, W-2sVOD, assets, bank statements UnderwritingCase StudyDFA and Ability to RepayCreditTitle, EscrowAppraisals

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+Residential Mortgage Loan Processing

Agenda DAY TWOQ from Day One?Gift FundsEscrowUnderwritingAppraisalsHOAsSecondary MarketLoan ProgramsAdditional DocumentationFair HousingFraudFederal Laws

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+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.)

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+Section 4 Module 4.2Qualifying the ApplicantThe Four Cs

Character = credit historyCapacity = incomeCapital = where is the cash for the down

payment coming from?Collateral = how much is the house

worth?

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Capacity

FIRST RATIOPITIPrincipal, Interest, Taxes, Insuranceplus home owner’s assoc dues, if applicableDivided byTotal gross monthly income= __________%

SECOND RATIOPITI plus all other monthly revolving debtDivided byTotal gross monthly income= __________%

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+ High LTV = High Default Rate

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+ 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?

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+Section 4 Module 4.4 Ability to Repay Rule under Dodd Frank ActEight factors:1.Current income and assets2.Current employment3.Monthly mortgage payment4.Monthly payment on simultaneous loans5.Property taxes, fire/flood insurance, HOA dues6.Debts including alimony or child support7.Monthly total DTI ratio8.Credit history

Underwriters CAN consider other factors

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+Section 5 Credit Reports

Special Guest Speaker

Mike OldenVice President, Sales and EducationAmerican Reporting [email protected]

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+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?

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+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.

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+ 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 divorce7.Seller credits to buyer8.Seller agrees to pay X toward buyer’s closing costs and buyer’s closing costs come to less than X.9.Marital status questions10.Out of state buyer11.Power of attorney issues

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+Section 8 Appraisals

Review a residential appraisal

Home Owner’s Associations

Review a resale certificate

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+Section 9 The Secondary Market

Fannie MaeFreddie MacFHAVAUSDA

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+Section 9 Module 9.2 FHA

FHA = Federal Housing AdministrationFHA 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:

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+ Section 9 Module 9.2 FHA

What does HUD do?

Provides opportunities for homeownershipProvides housing assistance for low income personsHelps to rehabilitate and maintain affordable housingEnforces Fair Housing lawsHelps the homelessSpurs economic growth in distressed neighborhoods

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+Section 9 Module 9.2Insuring and EndorsementWhen 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.)

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+Section 9 Module 9.2GNMA = 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

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+Section 9 Module 9.2

Only an FHA-approved lender can originate FHA loansProperty Types: 1 to 4 unit propertiesPurchases up to 96.5% LTV

Borrower Contributions3.5% cash investment100% gift acceptable

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+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 housingFHA loans are fully assumable No income limitationsOwner Occupied

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+Section 9 Module 9.2FHA Home Mortgage Insurance Programs:

203b Single Family234c Condo203h Disaster Victims255 HECM203k RehabEEM Energy Efficient Mortgage

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+Section 9 Module 9.2RolesLoan originator satisfies the processorProcessor satisfies the underwriterUnderwriter satisfies managementManagement satisfies FHARole of the underwriter is to build a defensible positionFHA satisfies minimum risk for FHALenders set minimum risk for themselvesFHA might say yes but your lender might say no.

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+Section 9 Module 9.2Social Security NumberHandbook 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

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+ Section 9 Module 9.2U.S. Citizenship Not RequiredFHA will insure mortgages made to lawful permanent and non-permanent resident aliensPermanent resident alien:

Must have evidence of permanent resident statusHave a valid social security number

Non-permanent resident alienProperty must be their principal residenceMust be eligible to work in the U.S.Have a valid social security numberHave likelihood of continued lawful status

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+Section 9 Module 9.2Documentation acceptable to verify social security number includes:

PaystubValid tax returnCopy of SSN cardDriver’s licenseMedical informationService provider with access to SSA

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+Section 9 Module 9.2FHA Underwriting

TOTAL Scorecard Factors:Credit FICO scoreMonthly housing expense ratioNumber of monthly payments in reserveLoan to value ratioLoan term

These are the five biggest risk factors and the only things TOTAL looks at.Accept or Refer

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+Section 9 Module 9.2FHA Underwriting:

What must an FHA borrower possess?

Decent and reasonable credit historyPerfect credit is not a requirement.

Stable, reliable, and sufficient incomeVerified funds to closeSufficient security for the loan

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+Section 9 Module 9.2The Four Cs of Underwriting:

CharacterCredit

CapacityIncome

CollateralValue

CapitalLiquid assets

Does the borrower have the ability and willingness to repay the loan?

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+Section 9 Module 9.3

VA = Veteran’s AdministrationSee course book

USDA = U.S. Department of Agriculture. Rural LoansSee course book

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Section 9 Module 9.4

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+Section 9 Module 9.5additional 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.

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+Section 10Fair Housing

1968 Civil Rights Act

1968 Fair Housing Act~

Protected Classes:

Race

Color

Religion (Creed)

Sex

National Origin

Familial StatusSexual orientation added in

2012 (lending only)

Disability

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Intent v. Effect

Realtors and lenders have great power to affect neighborhoods

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+Washington Stateadditional protected classes:LGBTQ

lesbian, gay, bisexual, transgender, queer

Honorably discharged military veteranUse of a service animal

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+ Section 10 Fair LendingIn 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 loanRefuse to provide information regarding loansImpose different terms or conditions on a loan, such as different interest rates, points, or feesDiscriminate in appraising propertyRefuse to purchase a loan orSet different terms or conditions for purchasing a loan

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+Section 10 Case StudiesGlenn and Maggie: Maternity leave

Herschel: Disability income

Daryl and Carol: Native American land

Enid: Zip code mailer

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Fair Housing/Fair Lending http://www.hud.gov/offices/fheo/lending/index.cfm

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+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.

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FBI US Department of JusticeFinancial Crimes Report to the Public 2010-2011http://www.fbi.gov/stats-services/publications/financial-crimes-report-2010-2011

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+Section 11 Module 11.2Fraud 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

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FBI US Department of JusticeFinancial Crimes Report to the Public 2010-2011http://www.fbi.gov/stats-services/publications/financial-crimes-report-2010-2011

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+Section 11 Module 11.2Property FlippingSilent SecondStraw BorrowersIdentity TheftAppraisal FraudForeclosure RescueEquity SkimmingLoan Mod ScamsShort Sale Fraud

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FBI US Department of JusticeFinancial Crimes Report to the Public 2010-2011http://www.fbi.gov/stats-services/publications/financial-crimes-report-2010-2011

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+Section 11SARSSuspicious Activity ReportsAMLAnti Money Laundering

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+Section 11 Module 11.1

Fraud Case StudiesDarleneElliotAngelaTyrell and Joanna

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+Section 12SAFE 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.

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+Section 12 SAFE Act“Registered Loan Originator”An employee of:

a depository institution;a subsidiary that is:

owned and controlled by a depositoryinstitution ANDregulated by a federal banking agency OR

an institution regulated by the Farm Credit Admin

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+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

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+Section 12 SAFE ActIssuance of a License:Never revokedNo felony last 7 yearsNo felony at any time re fraud, dishonesty, breach of

trust, money launderingFinancial responsibilityPre-licensing educationWritten testNet worth and surety bond

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+Section 12 SAFE ActLO 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

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+Section 10 SAFE ActContinuing 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.

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+Section 13CFPB =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.

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+The Main Fed Law AcronymsTILATruth in Lending ActMDIAMortgage Disclosure Improvement ActRESPAReal Estate SettlementAnd Procedures ActTRIDTILA/RESPA Integrated DisclosureECOAEqual Credit Opportunity ActFCRAFair Credit Reporting Act

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+Federal LawsThe 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 = MDIA2011 FRB Rule on LO Comp

R.E. Settlement and Proc. Act

2010 Dodd Frank Act2015 TRID

Equal Credit Opportunity ActFair Credit Reporting Act

Fair HousingOther Fed Laws

2008 SAFE Act

2010 Dodd Frank Act2015 TILA/RESPA Integrated Discl.

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Purpose: To promote informed use of credit.Gives consumers the right to cancel some

transactions (owner occupied refi)

Imposes cost limits on home equity loansRegulates variable rate loans

CHARM Booklet required on ARM loansEarly disclosures:

3 days from date of application, final disclosure at settlement

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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

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Section 14 Truth in Lending Act

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+APR Tolerances…Can we make a mistakeand still be in compliance? Yes:

Example:

|___________|__________ APR 7.75__________|___________|.25 .125 .125 .25

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ARM FRM FRM ARM

ARM = Adjustable Rate Mortgage

FRM = Fixed Rate Mortgage

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+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.

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+IncludedPrepaid interestMortgage insurance premiumsWire transfer feesRecording feesLoan origination feeUW, proc, adminMortgage broker feeEscrow (closing fee)Discount pointsPest 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

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Hazard Insurance (IF obtained from a neutral company)

Seller paid discount points

Document prep feeTitle insurance (lender

policy)Notary feeAppraisalCredit reportImpounds for taxes &

insFlood Hazard Check

Excluded

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+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.

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Costs excluded

These are costs that are paid to and benefit third parties other than the lender.

Truth in Lending Acthttp://www.fdic.gov/regulations/laws/rules/6500-200.html

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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?

97Section 14 Truth in Lending Act

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+Section 14 TILA

Case Study: What is the first business day onwhich funds may be disbursed if:

Signing date: Thurs, May 21st bus. day: Fri, May 32nd bus. day: Sat, May 4

Sun, May 53rd bus. day: Mon, May 6

The loan can fund on Tuesday May 7th

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+Section 15Truth In Lending 2009 AmendmentsMortgage Disclosure Improvement ActMDIA

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+Section 16 RESPAEarly Disclosure PackageWithin 3 days of the date on the loan application, we send the early disclosures to our borrowers.

The Loan EstimateIf Adjustable Rate Mortgage, the CHARM BookletIf HOEPA, the extra required HOEPA disclosuresIf purchase-money loan, Your Home Loan Toolkit.Any other disclosures required by state and federal law.

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Section 16 RESPA

PurposeTimely disclosure of settlement costsProhibits seller-directed title insuranceForbids kickbacks (Section 8. See next

slide)Disclosure of Affiliated Business

ArrangementsDisclosure of potential loan servicing

chargesYour Home Loan ToolkitLender required use agreements

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102

Section 16 Real Estate Settlement and Procedures ActRESPA

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?

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RESPA Which entities must comply?Lenders (banks, brokers, etc.)Real estate agents/RealtorsTitle and XOAppraisersHome inspectorsMortgage insurance companiesCredit reporting agenciesFlood hazard check companiesAttorneysHazard insurance companiesHome warranty companiesBuilders

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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.

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Section 16 RESPA

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+Section 16 RESPAViolations 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.

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+TILA/RESPA Definition of “an Application”Financial Data

Borrower’s NameSocial Security NumberIncomeEstimated valueLoan Amount…..

Prop address (will have this if refi, might not have this right away if borrower is still house-shopping.)

…..

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LE --- (loan estimate)------EllieCD ---- (closing disclosure)-------Seedy

“CD” means something different to Realtors:Commission Disbursement

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Part of the Dodd Frank ActWent into effect Oct 3, 2015TRIDTILA RESPA Integrated Disclosure

Rule

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Section 17TILA RESPA Integrated Disclosure

RuleIntent To ProceedImposing 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.

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+ Section 17TILA RESPA Integrated Disclosure RuleRule 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.

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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.

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Section 17TILA RESPA Integrated Disclosure RuleBusiness Day Definition

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+TILA RESPA Integrated Disclosure

Review The Loan Estimate

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+ 761.78 x 360 = 274,240.80P & 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%

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LE --- (loan estimate)------EllieCD ---- (closing disclosure)-------Seedy

“CD” means something different to Realtors:Commission Disbursement

113

Part of the Dodd Frank ActWent into effect Oct 3, 2015TRIDTILA RESPA Integrated Disclosure

Rule

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114Section 18 Equal Credit Opportunity ActIt 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 FormEqual Credit Opportunity Act

http://www.fdic.gov/regulations/laws/rules/6500-1200.html

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+ECOA comparison to RaceColorReligionSexNational OriginMarital StatusIncome from PublicAssistanceAgeWhether an applicanthas exercised his orHer rights under thisAct.

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Fair HousingRaceColorReligion (Creed)SexNational OriginFamilial Status

Sexual orientation added in 2012 as a protected class in all 50 states to Fair Lending rules

Disability

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116

Section18Equal Credit Opportunity Act ECOAMarital Status

1. Unmarried =SingleDivorcedWidowed

2. Married

3. Separated

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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.

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Section 19 Home Mortgage Disclosure Act

HMDA

RaceEthnicityGender

If applicant refuses to provide, and the applicant is face to face, we are required to check the boxes based on visual observation

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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

itemAdverse Action: Name, address and phone

number of the CRA, reason, and info on how to obtain a free copy of their report.

Section 20Fair Credit Reporting Act FCRA

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+Guest Speaker

Laura ClaveroRegional Processing ManagerAmerican Pacific [email protected]

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+ 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

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+ 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!

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+ 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.

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+ 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.

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+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-TVerify 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.

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+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.”

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+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 Guardhttps://www.dataverify.com/content/

http://www.firstam.com/mortgagesolutions/solutions/fraud-verification/fraudguard.html

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+ 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.

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+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

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+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

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+ 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”

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+

“Do the task that will take the longest to get back…first!

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+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

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+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!

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+ 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.

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+

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!

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+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

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+Common conditionsLarge deposit, other owners on

accountsGaps in employmentAppraisal---missing any repairs “subject

to”CO2 detectors, and water heater strapsBorrower’s info has been consistent

throughout the file

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+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.

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+ 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.

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+Section 21File Review and Submission

Reviewing the loan packageIncome and employmentSource of fundsCompensating factors

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+Section 22Submitting to UnderwritingFinal loan applicationTransmittal summary

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+Section 23ConditionsPrior to closing conditionsAt closing conditions

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+Section 24Change of Circumstances After UWEffecting settlement chargesEffecting eligibilityConsumer requesting the change

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+Section 25TroubleshootingMost common conditionsWhat will slow down the file?How to be pro-active

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+Section 26Case 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…

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+Section 27 Final Exam

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+Section 28 CloseEvaluation formsPlease write a narrative description

about your experience in class.End-of-course completion certificates

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+ 149

Jillayne SchlickeCE Forward, Inc.National Assoc of Mortgage

[email protected]

CEForward.com

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+

Residential Mortgage Loan Processing Jillayne Schlicke