The borrowers meet with a Loan Officer, such as myself, to complete a loan application and bank disclosures. This can take place by mail, telephone, fax, or face-to-face. 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. This process may begin before the 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. It usually takes 24-48 hours to receive a pre approval letter from a lending institution.
This is where all the information used to make a 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 the processor, using the information contained in the application, will order the full credit report and appraisal. The processor then reviews the application information for accuracy against the various support documents. In many organizations the processor uses a variety of technologies along with his or 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 or validation.
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:
1) Credit: the borrowers' willingness to repay the loan in accordance
to the loan terms based on their prior use of credit.
2) Capacity: the borrowers' ability to repay based on the amount and
stability of income and availability of reserves.
3) Collateral: the property's value and marketability to provide adequate
security for the loan based on an appraisal.
Once the information in the loan file has been underwritten, the underwriter approves, denies, or suspends the loan for additional information.
Once the loan is approved, there is the matter of signing papers and the transferring of money between the different parties involved in the purchase or refinance transaction. This step 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.
New York State Banking Department
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