Is that all there is? Maybe, maybe not…

I’m sure I could go on and on with the boring details of the loan process. But, I hope you found this information the mortgage industry fun and useful for the next time you go to get a mortgage loan. I know I always like to have some background information when I’m making a big purchase or large decision. So, if you have any questions, let me know…I’d be happy to try to answer them.

Can there be any more people involved in the loan process? Well, it turns out there can be…

So here are descriptions of more of the outside services that lenders must use during the process, what they are and how they are used.

Other Related Mortgage Services (continued)

Credit Reporting Agencies: These companies research the credit records of consumers and
memorialize the findings on a factual credit report. They have access to data bases that store credit information on most consumers in the country. Additionally, they search the public records for derogatory items that may have been filed against a consumer, such as judgments, bankruptcies and liens. Frequently, credit reporting agencies will research other items, such as place of employment, banking relationships and previous residency.

Private Mortgage Insurance Companies (PMI): When the loan exceeds 80 percent of the lower of the appraised value or the purchase price, lenders usually require private mortgage insurance that insures the lender in the event a borrower defaults and the property ends up in foreclosure. There are a small number of companies that provide this insurance. Borrowers pay for this insurance as part of the monthly payment.

Hazard Insurance Companies: Lenders require hazard insurance that covers the outstanding loan on the property. There are many casualty insurance companies that provide hazard insurance. In most cases, the lender is the loss payee on the policy and will receive the proceeds on a claim. The proceeds will then be used to pay for the repairs.

Flood Certification Companies: Provides all required flood map and community status information to ensure property flood status.

Can there be any more people involved in the loan process? Well, maybe…

So here I’m providing a description of some of the outside services that lenders must use during the process, what they are and how they are used.

Other Related Mortgage Services

Real Estate Brokers and Real Estate Sales Associate: These professionals assist consumers in the buying and selling of real estate. The real estate professional is usually the first contact consumers have when deciding on a real estate loan and they refer their clients to a mortgage professional.

Title Companies: Title companies perform a title search on the property and issue a title policy for the lender and the purchaser to insure there is a valid mortgage lien against the property and the title is clear.

Closing Agent (Escrow): This entity facilitates the closing of a mortgage loan by acting as an impartial third party. The closing agent can be an escrow company, an attorney or title company agent depending on the region.

Appraisers: This professional evaluates the market value of real estate for the buyer and the lender.

The Secondary Mortgage Market…where the loans are sold and money is really made…

Now onto the Secondary Mortgage Market. This is the market where lenders sell the loans they fund. Now, some lenders “portfolio” their loans, or keep them on their books and collect monthly payments (or service them), but, many lenders sell their loans to investors.

Secondary Mortgage Market

There are several ways to handle loans on the Secondary Market.

• Single Loan Trades – Lender sells loans on an individual loan basis to an investor


• Bulk Loan Trades – Lenders sell several loans of the same type to an investor


• Creating Mortgage Backed Securities – Lenders combine loans of the same type and create a mortgage backed securities (a bond which represents a securitized interest in a pool of residential mortgages) sold on the market.

The following process is involved in selling loans to the secondary market:

• On an individual loan basis, Secondary Marketing staff locks the loan with an investor. The loan is then sent to Shipping after Funding. The Shipping Department packages the loan to submit to the investor. The investor reviews the loan and, if approved, purchases the loan. When the investor purchases the loan, the warehouse bank is paid off.


• On a bulk loan basis, Secondary Marketing staff creates a spreadsheet of similar loan types and submits to investors. The investors review information in the spread sheet and “bids” the price of the loan. The lender then submits the loans in the bulk to the investor. The investor reviews the loans, and if approved, purchases the loans.

FHA, VA, FNMA (Fannie Mae) and FHLMC (Freddie Mac) are the major entities in the Secondary market. However, many lenders sell to investors who in turn will sell the loans to these entities or create their own Mortgage Backed Securities.

You’ve got to be kidding? There’s more?

So here is information on what happens once the loan is submitted to a wholesale lender, or has had the processing completed on the retail side.

Lender/Wholesale Responsibilities:

When the loan package is completed it is sent to the Lender. The Lender’s function includes:

• Data Entry (Wholesale only – would already be in system in Retail)
  - Enter data from loan file into computer; send out early disclosures (which include an estimated list of fees) and run a “backup” credit report


• Underwriting
  - Review loan package for creditworthiness


• Lock (this function can happen any time before Docs)
  - Confirm the rate and price the loan will be locked with (which means the lender will guarantee that rate/price if the loan funds in the allotted time period).


• Docs
  - Legal documents that the borrower will sign for the loan are drawn
  - Documents are then sent to Escrow or some type of signing agent who handles the signing of Documents


• Funding
  - Review loan package to ensure all conditions are signed off, documents are signed correctly and in order, and authorize funding.
  - Utilize a Warehouse Bank to fund the money (like a credit card), borrow money from the Warehouse bank, putting up a “haircut” of the money up front, typically one to five percent of the loan amount.
  - Warehouse bank then sends a wire to the Title Company who disburses the money per the instructions given.

Really…all of that for a loan? There has to be a better way!

Mortgage Brokers or Retail Responsibilities:

Loan Officers (with the assistance of processors) finds borrower and assists in:

• Identifying appropriate loan programs, based on the consumer's needs;
• Completion of the loan application form;
• Obtaining documentation necessary to validate credit (credit report) and property value (appraisal);
  - Initial credit report typically is run with one or more credit bureaus
  - For a first trust deed mortgage, a RMCR (Residential Mortgage Credit Report) which is a three file merge (it has the information from the three primary sources and removes duplicates, mistakes, etc.) is required; For a second trust deed mortgage a single bureau is all that is needed.
• Compiling supporting information in a package suitable to submit to lenders;
  -Verification of Employment (VOE), could include an actual VOE form, or may be paystubs
  -Verification of Deposit (VOD), could include an actual VOD, or may be copies of bank statements
  -Verification of Mortgage (VOM), could include an actual VOM, or a credit rating on a credit report
  -Verification of Rent (VOR)
• Communications between the lender and the consumer