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CENTRE FOR HOUSING FINANCE, MONEY AND BANKING
CERTIFIED MORTGAGE BANKERS DIPLOMACHAPTER 6 (SIX): LOAN ORGINATION
MORTGAGE BANKING SCHOOL OF SOUTHERN AFRICA6th Floor, Throgmorton House, Julius Nyerere Way & Sam Machel Avenue,
Harare. Zimbabwewww.mbssa.net; [email protected] [email protected]
Telephone 263-4 750447 / 48
MBSSA
MORTGAGE BANKING SCHOOL OF SOUTHERN AFRICA
Facilitator: Dr Sam [email protected] or [email protected]
: LOAN ORIGINATION
INTRODUCTION – PROCESSING RESIDENTIAL MORTGAGE LOANS
LOAN ORIGINATION
MARKETING
INTERVIEWS
APPLICATION
DATA CAPTURE
LOAN PROCESSING
LOAN FILE SETUP
VERIFICATIONS:EMPLOYMENT
CREDITCLEARING
PROPERTY VALUATION
LOAN UNDERWRITING
PROPERTYLOAN TO VALUE
BORROWER’SINCOME RATIO
BACK-ENDRATIOS
FRONT-END RATIOs
LOAN REGISTRATION
INSTRUCTION TOCONVEYANCER
LIFE ASSURERS
HOC INSURERS
REGISTRATIONSBOND, PROPERTY TRANSFER
LOAN SERVICING
LOANCOLLECTIONS
DELINQUENCY &FORECLOSURE
PREMIUMRENEWAL
PROPERTY INSPECTION & REVALUATION
PROCESSING RESIDENTIAL MORTGAGE LOANS
LEARNING OUTCOMES: LOAN ORIGINATION
Define mortgage loan origination
Determine the various methods used to generate mortgage business
Determine the responsibilities of mortgage loan originators
State and describe the different types of mortgage loan programs
Determine the rationale for waving a standard or uniform loan application program.
CHAPTER SIX – LOAN ORIGINATION Loan Origination
Loan origination is the creation of mortgages.
LoanProcessing
is the process of collecting of documentations and verifications to support information provided.
Loan Underwriting
Underwriting is the evaluation of loan documentation to facilitate the decision making process of either approvingor decline the loan application.
Loan registration
If a loan is granted and accepted by the applicant, the societyInstructs its attorneys to draw up the necessary documents.
LoanServicing / Administration
This is the collection of monthly instalments, management of delinquencies and default, insurance renewals of both property and life covers, deceased and insolvent estate administration, cancellation of mortgage bonds and management of properties in possession.
Underwriting a Residential mortgage loan
After submission the loan application is subjected to rigorous checks and verifications in order to determine the suitability of the borrower as a good credit risk and the property as good collateral security for the loan.
RESIDENTIAL MORTGAGE UNDERWRITING PROCESS
5Cs OF CREDITUNDERWRITING
GUIDELINES
IS THE PROCESS OF ARRIVING AT A DECISION TO APPROVE OR REJECT A LOAN APPLICATION
COLLATERALPROPERTY AS GOOD
SECURITYFOR DEBT
IS THE PROPERTY OFFERED AS SECURITY WELL LOCATED OF GOOD APPEAL AESTHETICALLY
CAPITAL LOAN-TO VALUE RATIOIS THE DOWN-PAYMENT / DEPOSIT.IS THEE PROPERTY CORRECTLY PRICED VIS-A-VIZ VALUE TO THE LOAN BEING APPLIED FOR.
BORROWER AS GOODCREDIT RISK
IS THERE ABILITY OF BORROWER TO PAY DEBT?IS THERE BORROWER WILLINGNESS TO PAY DEBT?
CAPACITYFRONT-END RATIO
RATIO OF INCOME WHICH GOES TOWARDS SERVICING MORTGAGE DEBT.
CHARACTER BACK-END RATIORATIO OF INCOME WHICH GOES TOWARDS PAYING OTHER HOUSEHOLD DEBTS.
CONDITION ECONOMIC, LEGAL & SOCIAL CONDITIONS
ARE ECONOMIC CONDITIONS FAVOURABLE FOR THE BORROWER TO AFFORD TIMELY PAYMENTS FOR THE LOAN.
INTRODUCTION – PROCESSING RESIDENTIAL MORTGAGE LOANS
Capacity refers to the applicant’s ability to make monthly housing paymentsand other financial resources such as money at the bank.
Character refers to the applicant’s motivation to make monthly mortgage payments.
Capital refers to the liquid assets the borrower has available to make thedown payment on the loan, meet loan transfer.
Collateral refers to the underwriter’s evaluation of the subject property using a professionally prepared appraisal.
Conditionrefers to the prevailing economic climate which determines thepreparedness of a borrower to make timely payment towards the loan.
Generating Mortgage Banking Business
Mortgage Banking Loan Programs
Completion Of The Loan Application
Qualities And Responsibilities Of The Loan Originator
Regulatory Compliance
Application Follow-up
LOAN ORIGINATION
MARKETING – GENERATING MORTGAGE BANKING BUSINESS
Loan Officer is responsible for generating mortgagebanking business i.e. seeking out loan applicants
The Loan Officer’s business comes from spot originations, builder & developer originations and walk-in originations
QUALITIES & RESPONSIBILITIES OF LOAN ORIGINATOR
Must have excellent sales skills to sell themselves, their company and products
Must possess a high degree of personal integrity
Well developed presentation skills and a thorough knowledge ofmortgage lending practices and products, origination market area and competitive forces
The loan originator is responsible for initial interview with the prospective borrower
The loan originator determines if the applicant can afford the property pre-qualification involves two ratios, these are:-
Housing-to-income ratio and total debt-to-income ratio
RISKS PRESENT IN THE PRIMARY & SECONDARY MORTGAGE MARKETS
RISK TYPE PRIMARY MARKET
SECONDARY MARKET
BOTH: IN DIFFERENT FORMS
LEGAL:
Loan Agreement
Enforceability
Property
Consumer Protection
Business Fraud
BORROWER CREDIT/DEFAULT:
Repayment
Collateral
INTEREST RATE:
Prepayment
Pipeline
OPERATIONS:
LIQUIDITY:
CREDIT ENHANCEMENT MECHANISMS
Internal Credit Enhancements
External Credit Enhancements
the full cash amount deposited with the society; the full amount of deposits with a permanent building society or fixed
deposits with a bank; the full paid up amount of shares in a permanent society; the surrender value of a life assurance policy; the full amount from a bank or another acceptable guarantee; 75% of the value reasonably determined of the collateral acceptance in the case of a fixed-term bond over immovable property.
MORTGAGE BANKING LOAN PROGRAMS
Graduated payment mortgages (GPMs)
Growing equity mortgages (GEMs)
Fixed-rate mortgages (FRMs)
Adjustable-rate mortgages (ARMs) or variable-rate mortgages (VRMs)
Balloon mortgages
INTERVIEWS
Be careful not to discourage an application
explains the general nature and financial obligations inherent in a mortgage loan.
LOAN APPLICATION
names in which title to the property will be held;
physical address of property to be purchased;
date of birth and national identity number of applicant (s);
brochure should request information on the following topics
copy of Agreement of sale and proof of income
name and address of current employer and if employed for lessthan two years, previous employers;
principal residential address for the previous two years;
list of liquid assets and where held with account numbers.
COMPLETION OF THE LOAN APPLICATION
borrower’s address, phone, and social security number,
borrower’s income (primary, rental, interest, and child support),
mortgage information (loan program, amount, rate, term),
borrower’s employer (past and present, plus military status if VA)
borrower’s assets (cash, stocks, real estate and businesses),
UNIFORM APPLICATION
COMPLETION OF THE LOAN APPLICATION
2. property address and sales price, and
1. borrower’s liabilities (credit cards and consumer and real estate loans),
3. legal information (how title will be held, past judgements)
UNIFORM APPLICATION (Contd.)
UNIFORM APPLICATION
Supporting documentation includes:-
certificate of eligibility, if a veteran,
past W-2s, current year pay stubs, evidence of Social Security benefits,
past tax returns and financial statements (if any)
bank statements (savings, checking investments),
debt statements (any loans outstanding) and property sales contract.
REGULATORY COMPLIANCE
Equal Credit Opportunity Act (Regulation B)
Fair Credit Reporting Act,
Real Estate Settlement Procedures Act (Regulation X),
Truth in Lending Act (Regulation Z).
Loan officer’s duties continues after application, document collectionand regulatory closure
Loan officer communicates with internal departments – processing,underwriting, & closing to ensure progress according to schedule
Loan officer communicates with the borrower on the status of loanapproval and the anticipated closing date
APLLICATION FOLLOW-UP
Building Society needs to be specific as possible inTransmittal letter concerning
requesting additional information;
how to complete the application
MAILING OUT APPLICATION FORMS
Signing the various verifications where necessary
Loan originator should consider the applicant’s employmentstatus, whether formally employed or self employed, nature of regular income
Be mindful of the fact that the borrower has contractual capacity toenter into credit agreement.
QUALIFYING AN APPLICANT
A credit reference will be required by the lender for mortgageapplicant
Salary or wages
APPLICANTS – POSSIBLE SOURCES OF INCOME
Rent, interest or commissionSelf employment
Child support, alimony or maintenance
Pension, disability or welfare
As a rule income from such sources as commission mayneed to be taken over at least two or three years to establish the average level.
Chapter 6: Assessment Exercise
1. What are the major sources of mortgage business which loan originator relies
on?
2. State and give examples of the qualities and responsibilities of a mortgage loan
originator
3. What are your misgivings as regards the serve-for-your-own home scheme as
one of the special loan programs which has been used in Zimbabwe?
4. Explain the concept of the Graduated Payment Mortgage (GPM) loan programme,
under what circumstances may this scheme be used in Zimbabwe? Give three
examples.
1. Explain the difference between sources, credit mechanisms and credit enhancement mechanisms as concepts used in financing housing. Use three examples of each to demonstrate how each concept operates.
2. Give an overview of how an efficient cooperative development system operate in the delivery of housing finance.
3. Explain the properties which are included in the definition of urban immovable property in terms of the building Societies Act Chapter 24:02.
4. Use the concept of Current Housing Finance Schemes to give a short account of how an employer assisted housing scheme operates.
ASSESSMENT QUESTIONS
Seriously, Any Questions?
THE END
THANK YOU!
