Mortgage Origination – Processing Steps for funding a Real Estate Loan

Processing a real estate loan requires the work of many people and takes lot of time. The following detailed loan processing steps explain, “What happens next.”

First, the loan originator takes the loan application from the borrower. Usually the loan application is taken over the telephone. With the completed loan application in hand, the loan officer has enough information to determine if there is a loan program available to meet the goals of the client.

Once a possible loan program is know, the loan officer prepares the Initial Fees Worksheet and sends to the applying borrower. If the client likes the loan program terms, the loan officer sends all the initial disclosures to the borrower.

In the old days, prior to this year (2010), we didn’t have initial disclosures. We sent the entire loan package as soon as the borrower expressed his interest in the loan. Today we have approximately 20 pages of initial disclosures the client must sign before they can receive the loan package.

Included in the initial disclosure package is a consent form, which the borrower signs, accepting the terms of the loan, and expressing their interest in continuing the loan process. The package includes a Credit Authorization as well. Upon receipt of the signed Credit Application form, the loan officer can run the credit. The loan package consists of another 20-30 pages.

Many pages of the initial disclosures and loan package contain the same information, written in a different form. My belief is that too many disclosures, giving the same information, all in different forms, confuse the borrower rather than provide him with more information.

If the client has a way to sign the documents and scan them, he can return the signed copies via email or fax. To accomplish this, the client needs sophisticated electronic equipment. He needs a computer with internet access, a printer, capable of printing both standard and legal size paper, a scanner, able to scan both paper sizes, and a way to print or copy the 40-50 page loan application so that he has a copy for himself. Alternatively, he can keep a copy on his computer. This is asking a lot of a client, but most people have access to these kinds of equipment. USPS mail is an alternative, however the trade off is the time lost by using this method.

At this point, the loan process has officially begun. The loan originator orders third party services from title and escrow. The loan officer can run an automated loan approval engine, either Desktop Underwriter, or Desktop Originator. The automated program will either approve or disapprove the loan, subject to certain conditions. It is up to the underwriter, yes a real person, to determine if the required loan conditions (proof of what the borrower claims), satisfy the requirements of the automated loan approval engine.

While waiting for the loan conditions to be approved, the loan officer orders the appraisal through the Mortgage Banker (funding lender) website, and the client can pay for the appraisal on line, using a credit card or PayPal. The appraiser has 10 days, from the date he receives the appraisal request, to produce the appraisal, and send it to the lender and the loan officer. The loan officer forwards a copy of the appraisal to the borrower. The lender must review the appraisal and the borrower signs a document stating that they have received a copy.

The borrower instructs the loan officer to lock in the loan interest rate at some point in the process. After the underwriter, who works for the funding lender, approves the loan conditions, the funding lender electronically sends the loan documents to escrow, and the borrower arranges an appointment and sign.

The signed loan documents are reviewed for completeness, the loan is funded, and the borrower gets the money.

The loan process seems streamlined, and it can be. Still, best case, it takes an average of thirty days, from start to finish, to fund a loan. Refinance closing times are more predictable because there is only one principal to deal with.

Once you add a seller, and two real estate agents, and a termite company and overworked escrow staff, additional time layers exist. Even with a refinance loan, approximately 10 people touch the paperwork on each loan. There are fewer available loan programs now, than there were in recent years, so the staff of each of the remaining companies handles many more loan applications than they did in the past. More transactions produce bottlenecks in the workflow.

In addition, our new disclosure laws are complicated and the required forms are not readily available. Preparation of the initial disclosures, including the Good Faith Estimate and Truth In Lending forms, take up to four uninterrupted hours to complete.

Mortgage loan originators have a new incentive; if they make a mistake in the initial disclosure estimates, the borrower pays the lesser fee, and the difference in the money comes out of the loan originators pocket.

Borrowers are assured that any mistakes made, in estimating fees, are strictly unintentional. Loan originators, responsible for estimating their fees, as well as all the fees charged by the other parties in the transaction, work hard to get the Good Faith Estimates right. It’s a complicated lending world right now, both for the borrower and the loan originator.