Welcome to Fast-Start for Mortgage Pros



Welcome to Fast-Start for Mortgage Pros!        (Link to CVS Home Page)                              

Below are the study notes for the first study topic. Please review the points carefully and proceed to the next section of the tutorial once you are comfortable with your understanding of the subject matter. Note that the quiz you will take at the end of this topic section is not a "cakewalk". The states we seek pre-license and continuing education approval in for these courses require a certain degree of academic rigor in our online courses to make sure you are learning the material. The quizzes are time restricted and the questions are scrambled and/or different after each quiz attempt so study well because you only have 3 attempts to pass with at least 70% correct. Printing out the notes may seem to be a convenient option over taking the time to study the material for the test, but you'll find this strategy to be ineffective in most cases. You'll simply, not have time to look up the answers during the quiz and still pass at the minimum standards unless you really study.

This topic resource gives you information on the Mortgage Cycle so you can become familiar with how mortgage loans are continuously funded for the rotation of borrowers. It also identifies the key players in the system so you can orient your place within it. As with all CVS online courses, this class is fully human-proctored meaning that your instructor is always an email away for questions or loan scenarios.

His/Her contact information is listed below:

Special Note: When you see a new term specific to the mortgage industry, it will normally be highlighted in blue. Click on it to access the online mortgage glossary. At the beginning, most of terms are defined within the text but in the latter topics you will need to access the mortgage glossary for review.

Cary Valentine, FHA DE Underwriter

Email: admin@

Direct Phone: 816-985-2437

Topic 1 - The Mortgage Cycle and It’s Key Players

 

To better prepare you to guide customers through the loan application process, we’re first going to take you on a journey of the inner workings of the mortgage loan industry. We’ll be covering the different stops a loan makes as it goes through the mortgage process; and we’ll take a look at some of the key players who make the process work.

 

At the end of this topic section you will be able to:

 

• Identity the eight steps of the mortgage cycle

• Identify the key players and their specific roles in the mortgage cycle

 

First, let’s examine the different steps that make up the mortgage cycle and where you and your customers fit into the process. From there, we’ll take a closer look a key players and their role in the mortgage process. We’ll begin where your customers do – at origination.

 

The Mortgage Cycle

 

Origination

 

Like we said, this is where the journey begins. The Loan Officer (AKA Loan Originator) interviews the borrowers* in order to complete the Uniform Residential Loan Application (URLA), commonly referred to as the 1003.

 

Note: “1003” is code number issued to the Uniform Residential Loan Application by authorities.

 

The interview process could take place over the phone, the internet or face-to-face. The 1003 is the document that drives the rest of the mortgage origination process. Working together, the LO and borrowers begin to gather the information and documentation that paints a picture of the borrowers and the property being financed. The origination process may begin even before borrowers have found the perfect home. Often the borrowers will choose a lending institution to request pre-approval from a lender before searching for a home.

 

Processing

 

This is where all the information used to make the loan decision is centralized and organized into a single file or loan package. This one file, representing the borrowers and the property, will remain intact and be added to throughout the entire mortgage loan journey. It’s here that the processor, using the information contained in the 1003,  will order the credit report (s), property appraisal and instigate the collection of additional documents as dictated by the 1003 and/or the reports generated by automated underwriting systems such as Desktop Underwriter (DU) or Loan Prospector (LP), Assetwise, etc. (More on this later.)

 

The processor then reviews the 1003 information for accuracy against the various support documents provided. In many organizations the processor uses a variety of technologies along with his/her knowledge of lender and investor requirements to determine what information and documentation is required for completing the file. Once the file is complete and reviewed for accuracy, the processor hands the file off for underwriting and validation.

 

Underwriting

 

This is where the rubber meets the road, so to speak. It’s in underwriting where the decision to lend money is made.  The underwriter reviews and evaluates the information contained in the loan file to ensure the loan meets investor guidelines and is of investment quality (a good credit risk). This may be done with or without the assistance of an automated underwriting system. The underwriter’s evaluation process looks at three critical areas of risk – credit, capacity and collateral further described below:

 

• Credit: The borrowers’ willingness to repay the loan in accordance to the loan terms based on their prior use of credit.

• Capacity: The borrowers’ ability to repay based on the amount and stability of income and availability of reserves.

• Collateral: The property’s value and marketability to provide adequate security for the loan based on an appraisal.

 

Once the loan file has been underwritten to the acceptable standards of the lender’s standards of the “3 C’s”, the underwriter approves, denies or suspends the loan for additional information.

 

Closing

 

Once the loan is approved, there is the matter of signing papers and the transferring of money between the different parties involved in a purchase or refinance transaction. This is known as "the closing." The closing date is scheduled and documents are created reflecting the repayment terms of the mortgage.  This is where the borrowers sign the documents and receive the keys to the house. While here you may say “good-bye" to your borrowers, the mortgage cycle does not stop for the lender. This is because closed loans are now marketable assets that generate future revenue. The lender has several options to consider as to the disposition of a closed loan. For example, the lender may be a portfolio lender (Note: A “portfolio lender” is an institution capable of holding a collection of loans as an investment for sometime.) This type of lender may decide to keep the servicing but sell the loan into the secondary market or perhaps sell both the loan and servicing rights to an investor. (More on this later when we discuss Secondary Market and Servicing.)

 

Warehousing

 

Some lenders will hold closed loans for a short period of time before selling them to investors. The period of time they hold these loans is called "warehousing".

 

Delivery

 

Some loans are not held in a portfolio nor warehoused but are instead, immediately presented to or delivered to an investor in what is referred to as a “pool” or “bulk” of loans. This step in the mortgage cycle is referred to as “delivery” and it’s where the loans have been underwritten to “specific investor” requirements and are packaged for delivery to investors. In today’s mortgage lending environment, the majority of loans are sold to investors as part of a complex world that buys and sells mortgage-backed investments known as the “secondary mortgage market” (a.k.a. secondary market), and is the next step in the cycle.

 

Secondary Mortgage Market

 

Here is where lenders and investors buy and sell mortgages. Although the borrowers may not realize it, most likely the sale of their mortgage was arranged during origination at the time the interest rate was locked. Locking the interest rate at the time of origination protects the borrower against any interest rate changes that may occur while the loan is being processed. By selling the loan to an investor, the lender gets its money back to begin the whole cycle over again for new supply of borrowers. Without the secondary market, lenders would soon run out of money to lend.

 

Special Note: The largest buyer of mortgages in the Secondary Market was created by the US Government in 1938 – The Federal National Mortgage Association (Fannie Mae, as it is known today). In 1970, Congress chartered the second-largest buyer – The Federal Home Loan Mortgage Corporation (Freddie Mac).

 

Secondary Market investors “package” or “pool” the loans they purchase in order to securitize them and sell the package as a Mortgage-Backed Security (MBS).

 

Special Note: 'Securitizing' is the process of taking a group of individual loans and pooling them together to form an investment very similar to a bond. This bond is known as a 'mortgage-backed security' or 'MBS' and each month the mortgage’s principal and interest payments are passed on to the owner’s of the security.

 

Servicing

 

Regardless of whether or not the loan is held in portfolio or sold, it must be serviced.  Servicing, sometimes referred to as Loan Administration, typically consists of collecting mortgage payments, funding escrow accounts to pay property taxes and insurance premiums, and passing principal and interest on to the investor.  It also deals with collections and foreclosures.

 

Key Players

 

It might seem overwhelming to consider all the different key players who make the mortgage cycle work but we're off to a good start. It you are seeking to become one of these players, you have special interest in understanding what your role will be in the cycle. In contrast to studying borrowers, it's easier to break down the players into groups – lenders, intermediaries, and investors. Briefly stated, lenders work with the borrowers to create loans; intermediaries collect (aggregate) and move the loans from the lenders to the investors, who are ultimately the source of the funds to lend.

 

Borrowers

 

These are the consumers. People just like you and me, taking out loans to finance primary, secondary, or investment residences.

 

Lenders

 

This is a broad term used to describe a role played by individuals, companies or institutions that lend money secured by real estate (a mortgage). Lenders include retail originators, mortgage brokers and a mixture of these two known as correspondents.

 

• Retail Originators – Originate mortgage loans for their employer. Loans are closed in their employer’s name and funded with their employer’s money. Employees or retail originators include banks, thrifts, credit unions, and mortgage banks.

• Mortgage Brokers – Originate mortgage loans for multiple wholesalers. Loans are closed in the wholesaler’s name with the wholesaler’s funds.

• Correspondents – Combine features of retail originators and mortgage brokers. Mortgage loans are originated or secured using the correspondent’s funds with the intent to sell them to various intermediaries or investors. They may use a retail channel to originate loans and a wholesale channel to secure loans from mortgage brokers.

 

Intermediaries

 

This role-player moves loans from the origination to the end investor.

 

• Wholesalers – Organizations that provide funds for mortgage brokers. They aggregate loans and sell them to correspondents, conduits, Government Sponsored Enterprises (GSE’s), etc…

• Conduits – Companies whose purpose is to aggregate mortgage loans for whole loan and mortgage back securities sales to investors.

 

Investors

 

Government Sponsored Enterprises (GSE’s) – These include Fannie Mae and Freddie Mac who provide a network for the purchase, sale and guarantee of existing mortgages and mortgage pools in the secondary market. GSE’s sell mortgage-backed securities and in this role, could fall into the intermediary function. However, they also act as an investor holding mortgages as assets.

 

Special Note: Fannie Mae and Freddie Mac are the nation’s largest mortgage investors respectively. Ginnie Mae (Government National Mortgage Association) differs from Fannie Mae and Freddie Mac in that it does not purchase mortgages. Instead, it guarantees mortgage backed securities.

 

Other Buyers of Mortgage Backed Securities

 

• Organizations that provide funds for mortgage brokers. They aggregate loans and sell them to correspondents, conduits, Government Sponsored Enterprises (GSE’s), etc…

• Conduits – Companies whose purpose is to aggregate mortgage loans for whole loan and mortgage back securities sales to investors.

• Depository Institutions – Includes banks, thrifts and credit unions that need to invest their customer’s deposits.

• Insurance Companies and Pension Funds – Insurance companies seek a safe haven to create a steady yield on their received premiums but with minimal risk. Pension funds have a similar purpose in investing in mortgage-backed securities.

 

Other Key Specialized Players

 

In addition to those players mentioned here, you will learn more about the role specialized partners including private mortgage insurers (PMI), “HUD” (Department of Housing and Urban Development) and the “VA” (Veteran’s Administration). Appraisal companies provide market valuation expertise and title companies insure against defects while credit bureaus play a key component in delivering data regarding the borrower’s willingness to pay.

 

Do you have questions or comments about what you just read? Contact your instructor at:

 

admin@

 

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