Chapter 8:
Processing: Verifications and
Stacking Order
By Dr. D. Grogan
M.C. “Buzz” Chambers
©2011 Cengage Learning
PREVIEW
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The mortgage loan broker brings the borrower and lender together.
The loan broker fulfills the lender’s requirements and aids the
borrower by performing duties and obtaining documents that result
in close the loan.
The loan broker often utilizes a trained loan processor to
accompany the details entailed in moving the loan application to
submission of the loan package to the underwriter for approval.
The loan processing would include verifying the information
contained on the application, clarification on any questionable items
that surface about either the borrower or the property.
The purpose of this unit is to show the flow of work to move towards
loan approval.
©2011 Cengage Learning
STUDENT LEARNING OUTCOMES
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Determine the tools a processor needs.
List the items the processor would have to
obtain to complete a loan file.
Outline the guidelines used for a complete
loan package, including borrower
documentation and verifications.
Describe the criteria list that a lender
requires in order to accept a loan package.
©2011 Cengage Learning
The Loan Processor
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The individual who:
 Prepares a loan file for submission to an underwriter
 Informs their employer of discrepancies found
 Coordinates information about the property
 Verifies information about the borrower
Duties: Verify data from all sources and notifies others of
problems
Responsibilities: Mail verifications, assemble appraisal
property data & coordinate paperwork such as credit
report and certified escrow instructions for borrower.
©2011 Cengage Learning
8.1 Processing Tools
Basic tools to begin work:
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Computer
Computer software
Internet connection
Laser printer/scanner
Fax machine
E-mail address
Web page
Copy machine
Telephone
Calculator
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©2011 Cengage Learning
Dictionary & thesaurus
Desk calendar
Self-stick and
removable note pads
Over-size Rolodex
Highlighter pens
Pens, pencils, staple
remover, tape, scissors,
glue stick, stapler, etc
External materials for the processor
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Lane Guide or Map Quest via Internet
FNMA Selling Guide
FHLMC underwriting guidelines
Underwriting guidelines from your private
investors
Legal forms:
www.efanniemae.com/sf/formsdocs/forms/index.jsp
 FNMA 1003 (loan application)
 FNMA 1004 (appraisal)
 FNMA 1005 (VOE-Verification of Employment)
 FNMA 1006 (VOD-Verification of Deposit)
©2011 Cengage Learning
8.2 The Processor’s File
Reasons for delays in funding:
1. The borrower may be slow to return or complete all of the 1003 loan
application form.
2. The borrower does not give a check to start the loan process
3. Creditors will not respond in a timely manner.
4. Creditors do not respond correctly.
5. Employers will not respond in a timely manner.
6. Employers do not complete the verification form properly.
7. An explanation is needed for any late payment.
8. Bad credit complicates the transaction and delays loan approval.
9. Income is less than what the prospective borrower reported on the
application.
©2011 Cengage Learning
Reasons for delays in funding:
10. Additional creditors show up that were not reported on the loan
application.
11. Appraisal value is lower than the sales price.
12. Property is unacceptable to the underwriter for the lender.
13. Inspections or repairs must be completed prior to the funding of the
loan.
14. The file must be restructured because of a change in the loan type
applied for.
15. Closing documents are incorrectly signed.
16. Closing requirements are not satisfied.
17. Workload backup, because of the market conditions, by the
appraiser, underwriter, or lender.
©2011 Cengage Learning
8.2 Conversation sheet
Borrower: _______
Loan #: ___________
Date
Spoke With
Remarks
Employee’s Name
_________________________________________________________
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_________________________________________________________
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_________________________________________________________
_
All information that might have any bearing on the loan, the property, or the borrower, whether it
be phone call, information received through other channels, or just knowledge, should be
written down here.
WRITE IT DOWN NOW!!
©2011 Cengage Learning
Verifications
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Personal identification
Employment and income verification (VOE)
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1099’s or W 2’s
Self employment for 2 years include tax returns
Last two pay stubs
Sources for wages, salary, pension, commission
Bank verification (VOD)
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Checking and savings accounts
Past 3 months bank statements
Credit union, retirement fund & investment accounts
©2011 Cengage Learning
Verifications
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Address verification: landlord or lender
Credit verification:
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from independent reporting company
debts including student loans
may use 3 month’s utility bills
Property verification: rental agreements &
appraisal report with appraiser signature
Disposition of work requirements by review
appraiser and Association data (CC&R’s)
©2011 Cengage Learning
Lane Guide
http://www.laneguide.com
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Provides correct lender mailing address for:
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Reconveyance deed, payoff quotes and documents
Assignee & Assumption
Payoff documents
Foreclosure documents & REO
Fax, 800 numbers and email contact
Wholesale lending
Account rating and verifications of deposit
Rates and fees, hours & location of loan accounts
Contains a master list of thousands of closed lenders for
locating the originator of a document for subsequent
trustee needs.
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Figure 8.7: IRS Form 4506-T
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Request for Transcript of Tax Return
Transmitted for fax or mail
Contains
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1040 and W-2 information
Attachments for various schedules
Instructions if copy must be certified for court or
administrative proceeding
©2011 Cengage Learning
8.3 Income and Guidelines for Processing
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Loan broker’s key responsibility: to make the job of the
underwriter as ease as possible and get the loan
approved.
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Figure 8.3. File checklist
Figure 8.4 Verification of social security number
Figure 8.5 DMV consent form
Figure 8.6 Loan processor document certification
Four basic forms of loan files are:
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Full documentation file
Time Saver Documentation file
Streamline Documentation file
Sub Prime loan file
©2011 Cengage Learning
Income
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Military Income
Commission Income
Overtime & Bonus Income
Part-time or Second-job Income
Retirement Income
Social Security Income
Alimony or Child Support
Notes Receivable
Interest Income & Dividends
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Net Rental Income
GSI
- Vac/BD
= EGI
- OE
= NOI
OE = T
I
M
M
U
R
Gross scheduled income
Vacancy & bad debt
Effective gross income
Operating Expenses (TIMMUR)*
Net operating income
Taxes (property)
Insurance (property, flood, earthquake)
Maintenance & repairs
Management (property)
Utilities
Reserves for replacement
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Loan Package
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Credit data, gift letter, child support
Cover letter & transmittal summary
Underwriting guidelines & quality control
Association information
Broker fee
Rental agreements & Purchase agreement
Work completion and pest control
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8.4 Borrower Documentation
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Self-Employment
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Minimum two years (24 months) documented
income.
Copy of business card
Copy of business license
Bank statements for the past six months
Quarterly tax estimates payment records
Profit & Loss (P&L)
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Borrower Documentation
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Gift letter
Undisclosed debt written explanation
Revolving debt: 5% of outstanding balance
Judgments, garnishments or Liens
Bankruptcy
Cosigned
Student loans
Cosigner documentation
For cash out, include a statement of loan purpose.
©2011 Cengage Learning
8.5 Sample Loan File
1.
Credit authorization
5.
Figure 7.2
2.
Figure 8.14
Gift letter
6.
Figure 8.11
3.
Purpose of the loan
letter
Figure 8.12
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Cover letter
Child care statement
Figure 8.13
7.
Underwriting “red
flags” (Chapter 10)
Homeowner
association
http://www.hoasites.com/homeowners_associ
ation_website.php?gclid=COG
Wy8byi6CFctx5QodNw0xOA
5.
File order
Figure 8.16
Figure 8.17
©2011 Cengage Learning
8.6 Stacking Order
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The file content of materials must be
placed in an exact, particular order when
submitted to the lender.
The lender’s underwriter reviews the
documents in the order that is unique to
that company, firm or individual investor.
Each loan type has separate criteria.
Different lenders use different file formats.
The processor needs to know the order.
©2011 Cengage Learning
File Loan Compliance documents
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HUD/RESPA good faith estimates
Disclosures: lead-based paint, earthquake
Equal Opportunity (ECOA) notice
Adjustable interest rate (ARM) disclosure
Mortgage insurance (MIP) letter
FHA/VA assumption letter
Loan servicing agreement
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Title Document Clearance
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Disposition of liens
Documentation of bankruptcy, divorce,
judgments
Preliminary title report
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