LOAN PROCESSING 101
“THE BASICS”
CampusMortgage®
Presidential Circle
4000 Hollywood Blvd. Suite 555-South
Hollywood, FL 33021
questions@campusmortgage.org
1-800-423-1510
1
DISCLAIMER
The views and opinions expressed in this course are those
of the instructor and do not necessarily reflect any official
CampusMortgage® policy or position. Examples of analysis
performed within the course content are only examples.
They should not be utilized in real-world application as they
are based only on very limited and dated open source
information. Assumptions made within the analysis are not
reflective of the position of CampusMortgage®. Nothing
contained in this course should be considered legal
advice. Due to ongoing changes to mortgage regulations
and guidelines, the information presented in the webinars,
as well as the course materials downloaded as PDF files, is
time sensitive and subject to change without notice. This
training is based solely on Agency Guidelines. Each
Investor and/or Lender may have additional overlays,
which you need to be aware of.
CampusMortgage®. ALL RIGHTS RESERVED. Without the
prior written permission of CampusMortgage, no part of
this work may be used, reproduced or transmitted in any
form.
2
TABLE OF CONTENTS
 Mortgage Terminology – Pg. 4
 Ratio Terminology – Pg. 18
 Examples – Pg. 21
 Additional Mortgage Terminology – Pg. 25
 The Loan Cycle – Pg. 36
 Loan Processor Duties – Pg. 38
 Loan Documentation – Pg. 43
 Breaking Down the Forms – Pg. 47
 Practice Quiz – Pg. 51
3
MORTGAGE TERMINOLOGY
• There are several terms within the mortgage
industry that are the industry’s standard in
mortgage communication.
• In this section, we will cover those terms and
help you to become familiar with the
definitions.
4
MORTGAGE TERMINOLOGY
•
Mortgage note (also known as a real estate
lien) is a promissory note associated with a
specified mortgage loan;
• It is a written promise to repay a specified
sum of money plus interest at a specified
rate and length of time to fulfill the
promise.
• While the mortgage itself pledges the title
to real property as security for a loan, the
mortgage note states the amount of debt
and the rate of interest, and obligates the
borrower, who signs the note, personally
responsible for repayment.
SOURCE: FNMA Selling Guide: B8-3-01, Notes for Conventional Mortgages (03/06/2019)
https://www.fanniemae.com/content/guide/sel030619.pdf
5
MORTGAGE TERMINOLOGY
•
The mortgage itself is a security instrument
and public record. The mortgage is
recorded, typically at the county tax
assessor’s office, with the land records in the
jurisdiction where the property is located.
•
Most borrowers confuse the mortgage with
the mortgage note.
•
Remember, the mortgage is a recorded,
public land record.
• The mortgage note is a promise to pay.
SOURCE: FNMA Selling Guide B8-2-01, Security Instruments for Conventional Mortgages (03/06/2019)
6
https://www.fanniemae.com/content/guide/sel030619.pdf
MORTGAGE TERMINOLOGY
• A “first mortgage” is a mortgage on a
property in which the lender has the right to
full payment before any other lenders or liens
on the same property are paid.
• That is, if the borrower defaults on the
mortgage, the lender of the first mortgage
has first right to the property and other
lenders using the same property as
collateral may only use it after the first
lender has been fully satisfied.
SOURCE: FNMA Selling Guide Chapter B8-6, Mortgage Assignments
https://www.fanniemae.com/content/guide/sel030619.pdf
7
MORTGAGE TERMINOLOGY
• A “second mortgage” or “subordinate lien” is a
mortgage (or deed of trust) that is placed on a
property after another mortgage. Typically, the
first mortgage provides security for the loan used
to finance the bulk of the purchase price. The
second mortgage could be seller financing for
some portion of the purchase price, a home
equity line of credit, or any other reason.
• A home equity line of credit (HELOC) is usually a
second mortgage also, but instead of being paid
out at one time, it is structured as a line of credit.
(They are frequently referred to as “home equity
lines.”) A HELOC allows the borrower to draw an
amount at any time up to the line maximum. They
are almost always adjustable rates, and are similar
to revolving credit accounts.
SOURCE: FNMA Selling Guide Chapter B8-6, Mortgage Assignments
https://www.fanniemae.com/content/guide/sel030619.pdf
8
MORTGAGE TERMINOLOGY
• A mortgage is a contractual agreement
between the borrower, also known as a
“mortgagor” and lender, also known as a
“mortgagee” that requires the mortgagor to
pledge their home as security or collateral
for repayment of a loan.
SOURCE: FNMA Selling Guide Chapter B8-6, Mortgage Assignments
https://www.fanniemae.com/content/guide/sel030619.pdf
9
MORTGAGE TERMINOLOGY
Foreclosure
• The mortgage gives the mortgagee the
right to sell the secured property through
foreclosure if the mortgagor does not pay
the debt. Judicial foreclosures (where the
foreclosure must go through the state court
system) are typical in states that have
mortgages as the security instrument.
SOURCE: FNMA Selling Guide Section B3-5.3, Traditional Credit History
https://www.fanniemae.com/content/guide/sel030619.pdf
10
MORTGAGE TERMINOLOGY
• In a foreclosure, no money can be paid to
the second mortgage holder until all
principal, interest, and expenses of the first
mortgage have been paid in full.
• This results in a greater risk that the second
mortgage lender might not receive
payment of its debt, so it usually charges a
higher interest rate than the first.
SOURCE: FNMA Selling Guide Section B3-5.3, Traditional Credit History
https://www.fanniemae.com/content/guide/sel030619.pdf
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MORTGAGE TERMINOLOGY
EXAMPLE: First and Second Mortgage
• A borrower defaults on a loan secured by a
property worth $100,000 net of sale costs.
• The property has a first mortgage with a
balance of $90,000 and a second mortgage
with a balance of $15,000.
• The first mortgage lender can collect $90,000
plus any unpaid interest and foreclosure
costs.
• The second mortgage lender can collect
only what is left of the $100,000.
12
MORTGAGE TERMINOLOGY
• Deed of Trust vs. Mortgage
• Deed of Trust - a written instrument legally
conveying property to a trustee often
used to secure an obligation such as a
mortgage or promissory note
• Mortgage - the giving of property, usually
real property, as security to a creditor for
payment of a debt. It is the deed
pledging the security
SOURCE: FNMA Selling Guide Chapter B8-1, General Information on Legal Documents
https://www.fanniemae.com/content/guide/sel030619.pdf
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MORTGAGE TERMINOLOGY
Deeds of Trust
• A deed of trust, like a mortgage, pledges real
property to secure a loan. It is used instead of a
mortgage in certain states.
• A deed of trust involves three parties:
• the trustor (the borrower)
• the beneficiary (the lender), and
• the trustee.
• (The trustee is an independent third party
that holds “bare” or “legal” title to the
property. The main function of a trustee is
to sell the property at public auction if
the trustor defaults on payments.)
SOURCE: FNMA Selling Guide Chapter B8-1, General Information on Legal Documents
https://www.fanniemae.com/content/guide/sel030619.pdf
14
MORTGAGE TERMINOLOGY
Mortgage Transfers
• Mortgage transfers between banks are
common. When a mortgage is transferred or
sold from one lender or servicer to another, it
must be documented and recorded in the
county records. The document used to
transfer a mortgage from one mortgagee to
another is called an assignment of mortgage.
SOURCE: FNMA Selling Guide Chapter B8-1, General Information on Legal Documents
https://www.fanniemae.com/content/guide/sel030619.pdf
15
MORTGAGE TERMINOLOGY
• Refinance transactions replace an existing
mortgage on a property the borrower
already owns. The 2 most common reasons
to refinance are:
• Cash-Out for Debt Consolidation, or
another purpose
• Rate and term refi / Limited Cash-Out refi
the restructure of current financing and/or
reduce interest rate and principal and
interest (P&I) payment
SOURCE: FNMA Selling Guide B2-1.2-02 and 03, Refinance Transactions
https://www.fanniemae.com/content/guide/sel030619.pdf
16
MORTGAGE TERMINOLOGY
• Mortgage Insurance protects lenders against loss
in case of default. All conventional loans with a
Loan To Value greater than 80%, require
mortgage insurance.
• The borrower pays the insurance premium monthly
or up-front or within the interest rate
• The Lender can file a claim to the mortgage
insurance carrier to reimburse for losses incurred as
a result of the borrower’s default
• Attorney’s fees, recording charges, securing
the property, eviction, etc.
SOURCE: FNMA Selling Guide Chapter B7-1, Mortgage Insurance/Loan Guaranty
https://www.fanniemae.com/content/guide/sel030619.pdf
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MORTGAGE TERMINOLOGY
Loan to Value (LTV) is the relationship between
the first mortgage loan amount and the lower
of the appraised value or purchase price as
expressed in a percentage (%).
LTV = First Loan Amount / Lesser of the
Appraised Value or Purchase Price
IMPORTANT NOTE:
AUS (LPA or DU) will shorten the result to two
decimal points and then round up to the
nearest, whole percentage when calculating
all LTV’s.
SOURCE: FNMA Selling Guide B2-1.1-01, Loan-to-Value (LTV) Ratios (03/29/2016)
https://www.fanniemae.com/content/guide/sel030619.pdf
18
MORTGAGE TERMINOLOGY
• Combined Loan to Value (CLTV) includes the
first mortgage and the outstanding balance
on all subordinate liens.
CLTV = (First Loan Amount + Second
Loan Balance) / Lesser of the
Appraised Value or Purchase Price
SOURCE: FNMA Selling Guide B2-1.1-01, Loan-to-Value (LTV) Ratios (03/29/2016)
https://www.fanniemae.com/content/guide/sel030619.pdf
19
MORTGAGE TERMINOLOGY
• High Combined Loan to Value (HCLTV)
includes the first loan amount and the total
credit limit of all subordinate liens when at least
one subordinate lien is a HELOC.
HCLTV = (First Loan Amount + Total
Credit LIMIT of HELOC) / Lesser of
the Appraised Value or Purchase
Price
SOURCE: FNMA Selling Guide B2-1.1-01, Loan-to-Value (LTV) Ratios (03/29/2016)
https://www.fanniemae.com/content/guide/sel030619.pdf
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MORTGAGE TERMINOLOGY
CALCULATING THE LTV
LTV = First Loan Amount / Lesser of the
Appraised Value or Purchase Price
EXAMPLE
• Loan Amount: $125,000
• Appraised Value: $200,000
• $125,000 / $200,000 = 62.50% (.625)
• *** Reminder: AUS (LP/A or DU) will round up to
the nearest, whole percentage. ***
• Therefore, the correct LTV is 63%.
21
LTV EXAMPLE
LTV = First Loan Amount / Lesser of the
Appraised Value or Purchase Price
EXAMPLE
• Loan Amount: $235,000
• Purchase Price: $350,000
• Appraised Value: $352,000
Which are you going to use: $350,000 or $352,000?
$235,000 / $350,000 = 67.14% (or .6714)
AUS LTV = 68%
The LTV is 68% as FNMA rounds the LTV to the
nearest, whole percentage.
22
CLTV EXAMPLE
CLTV = (First loan amount + Second
Loan Balance) / Lesser of the
Appraised Value or Purchase Price
EXAMPLE
• Loan Amount: $125,000
• Balance on 2nd Lien: $30,000
• Appraised Value: $200,000
• LTV = $125,000 / $200,000 = 62.50% (.625)
• AUS LTV = 63%
$125,000 + $30,000 = $155,000
$155,000 / $200,000 = 77.50% (.775)
AUS CLTV = 78%
23
HCLTV EXAMPLE
EXAMPLE
• Loan Amount: $125,000
• Balance on 2nd Lien: $30,000
• Total HELOC Line of Credit: $45,000
• Appraised Value: $200,000
$125,000 + $45,000 = $170,000
$170,000 / $200,000 = 85% HCLTV
AUS HCLTV = 85%
24
MORTGAGE TERMINOLOGY
• PITI is an acronym for Principal, Interest, Taxes,
Insurance, and Mortgage Insurance.
• Combined, these represent the total
monthly housing expense.
• PITIA is an additional acronym that represents
Principal, Interest, Taxes, Insurance, and
Homeowner’s Association (HOA) dues and
special assessments when applicable
25
MORTGAGE TERMINOLOGY
• Debt to Income Ratio (DTI): compares
monthly housing and total debts to the
borrower’s monthly qualifying/effective
income.
Housing Ratio DTI (Front End) = PITIA / Total
qualifying income.
Total Ratio DTI (Back End) = All monthly debts
including PITIA / Total qualifying/effective
income.
SOURCE: FNMA Selling Guide B3-6-02, Debt-to-Income Ratios (12/04/2018)
https://www.fanniemae.com/content/guide/sel030619.pdf
26
MORTGAGE TERMINOLOGY
You will need a calculator for these examples
What is the total PITIA?
• Principal & Interest: $500
• Property Taxes: $215
• Homeowners Insurance: $95
• Mortgage Insurance: $63
• HOA Dues: $25
PITIA = $500 + $215 + $95 + $63 + $25 = = $898
27
MORTGAGE TERMINOLOGY
You will need a calculator for these examples
Total Ratio (Back End) = All monthly debts /
Total qualifying/effective income.
• Total Monthly PITIA : $898
• Total All Other Payments: $1,200 Total
• Monthly Income: $4,750
$898 + $1200 = $2098 Total Monthly Debts
$2098 / $4750 = .4417 or 44.17% DTI
28
MORTGAGE TERMINOLOGY
You will need a calculator for these examples
Housing Ratio (Front End) = PITIA / Total
qualifying income
• Total Monthly PITIA : $898
• Total All Other Payments: 1,200 Total
• Monthly Income: $4,750
Front End Ratio $898 / $4750 = .1891 or 18.91%
29
MORTGAGE TERMINOLOGY
• Down Payment: Difference between the
purchase price or loan payoff and the new
loan amount.
• Closing Costs: The costs incurred to close on
a real estate transaction
• Cash to Close: Cash that is required to meet
the down payment and closing costs.
• Escrow Account or Impound Account: A
deposit account maintained by the lender
and funded by the borrower. The account is
used to disburse property tax and
homeowners’ insurance payments.
30
MORTGAGE TERMINOLOGY
You will need a calculator for these examples
Purchase Example:
• Sales Price: $400,000
• Loan Amount: $340,000
• Closing Costs: $12,000
• $400,000 - $340,000 = $60,000
Down Payment
• $12,000 + $60,000 = $72,000
Cash to Close
31
MORTGAGE TERMINOLOGY
Refinance Example:
• Payoff : $276,000
• Loan Amount: $275,000
• Closing Costs: $3,000
$276,000 - $275,000 = $1,000 Down Payment
$1,000 + $3,000 = $4,000 Cash to Close
* Payoff can include mortgage balance,
interest, and other debts
32
MORTGAGE TERMINOLOGY
• FHA (Federal Housing Administration) is a
federal agency within the Department of
Housing and Urban Development (HUD) that
provides mortgage insurance to lenders in
order to promote lending to credit-worthy
borrowers who may not qualify for
conventional financing.
• VA (Veterans Affairs) is a government
agency that guarantees mortgages for
approved lenders on loans issued to qualified
veterans of the U.S. Armed Forces.
33
MORTGAGE TERMINOLOGY
• Private Mortgage Insurance (PMI) is
mortgage insurance obtained from a nongovernment agency.
• USDA Rural Development is a government
agency within the Department of Agriculture
that provides mortgage insurance.
34
MORTGAGE TERMINOLOGY
• Broker – Originates a loan to sell it. The loan is
pledged to a lender and closes in that lender's
name.
• Correspondent Lender – is a mortgage lender
that originates and funds home loans in their
own name using the correspondent’s line of
credit and is sold to an investor after funding.
• Seller – Closes the loan in their name and
services the loan for an extended period of
time before selling to an investor on the
secondary mortgage market.
35
THE LOAN CYCLE
• Takes the initial application and consults with
the client on various loan program options.
Loan Officer
Locks the interest rate and works on loan
restructuring if required.
• Performs initial data entry into the loan
origination system. May order
Loan Setup
documentation such as flood certifications,
appraisals, and title work.
• Main point of contact for the borrower and
loan officer. Obtains missing documents and
Loan
Processor
packages the loan for the underwriter to
review.
36
THE LOAN CYCLE
• Analyzes overall risk, reviews all documents
for accuracy, and issues the final decision.
Underwriter
Responsible for verifying program
qualification and loan quality.
• Receives file from underwriting and obtains
any approval conditions. Resubmits loan to
Loan
Processor
underwriting for sign off and clear to close.
Moves loan to closing.
• Prepares final Closing Disclosures and closing
Closer
package. Wires funds to the title company.
37
LOAN PROCESSOR DUTIES
• Review loan documents for completeness.
 All pages included and signatures of all
parties
 Legibility
 Inconsistencies
• Update the loan application
• Review loan notes
• Update the loan notes with status updates:
 Borrower correspondence
 L/O correspondence
 Comments on when loan docs ordered
(VOE’s, payoffs, Title, etc.)
38
LOAN PROCESSOR DUTIES
• Validate the expiration dates of the
documentation:
 All documentation expires between 90-120
days (180 days for new construction)*Always
check your program guidelines
 Utilize the most conservative expiration date
as your marker by finding the first document
that will expire.
 Utilize the online tool to verify the correct
expiration date: Time and Date Calculator
SOURCE: FNMA Selling Guide B1-1-03, Allowable Age of Credit Documents and Federal Income Tax
39
Returns (02/27/2018) https://www.fanniemae.com/content/guide/sel030619.pdf
LOAN PROCESSOR DUTIES
• Prepare the file for submission to underwriting.
• Review the conditions of the underwriting decision
and gather additional documentation.
• Communicate with the loan officer and borrower
to assist in getting the loan closed and funded.
• Keep borrower informed about the status of the
loan process.
• Receives the clear-to-close (CTC) from the
underwriter.
• Schedule the loan to close and submit to the
closing department
40
LOAN PROCESSOR DUTIES
• Order payoff statements
• Order subordination agreements
 Required when the borrower has a second
mortgage or HELOC that is NOT being paid
off in the transaction
• Monitor rate lock expiration dates
• Pipeline management
• Clearing out inactive loans
• Prompting loan officers/clients to submit
conditions
41
LOAN PROCESSOR DUTIES
Welcome Call Tips
• Review the loan application and be prepared for
customer questions.
• Set proper turn time expectations.
• Let the customer know what their responsibilities
are (setting a date with the appraiser, required
documentation, etc.)
• Utilize a welcome call checklist.
Documentation Requirements
• Review the loan application
• Review the AUS findings report
• Review the underwriting decision report
42
TYPICAL INITIAL LOAN
DOCUMENTATION
 Loan Application (1003)
 Underwriting Transmittal (1008)
 The Loan Estimate (LE)
 Servicing Disclosure
 ECOA & Fair Lending
 Right to a copy of the appraisal
 Borrower’s Authorization
 FACTA Disclosure
 Lender specific disclosures
 FHA Disclosures
 VA Disclosures
SOURCE: FNMA Selling Guide B1-1-01, Contents of the Application Package
(12/16/2014)
https://www.fanniemae.com/content/guide/sel030619.pdf
43
TYPICAL LOAN FILE
DOCUMENTATION
Credit Documentation:
• Credit report
• Credit supplements
• Credit comparison report
• Verification of mortgage / rent
• Letters of explanation
• Payoff statements
SOURCE: FNMA Selling Guide Chapter B3-5, Credit Assessment
https://www.fanniemae.com/content/guide/sel030619.pdf
44
TYPICAL LOAN FILE
DOCUMENTATION
Income Documentation:
• Paystubs
• W2’s and 1099’s
• Verifications of employment
• Tax Returns
• Award Letters
SOURCE: FNMA Selling Guide Chapter B3-3, Income Assessment
https://www.fanniemae.com/content/guide/sel030619.pdf
45
TYPICAL LOAN FILE
DOCUMENTATION
Title Documentation:
• Title Commitment
• Tax Certificate
• Wiring Instructions
• Closing Protection Letter
• Subordination Agreement
• Trust agreement
• Power of attorney
46
BREAKING DOWN THE FORMS
Fannie Mae Form1003
URLA: Universal Residential Loan Application
• Provides detailed information about the loan
transaction and the borrower’s financial history.
• All information stated on the 1003 must be
verified with supporting documentation
retained in the loan file.
• Requires a 2-year address and employment
history.
• Should be completed as fully and accurately
as possible.
NOTE: This training will review the current Form 1003 and
the NEW Form 1003, which becomes effective in 2021.
SOURCE: Fannie Mae Selling Guide Chapter B1-1, Application Package Documentation
https://www.fanniemae.com/content/guide_form/1003rev.pdf
47
BREAKING DOWN THE FORMS
Fannie Mae Form1008
• Provides detailed information about the loan
characteristics.
• The 1008 gives a summary of loan ratios, including
LTV and DTI.
• Discloses the method of underwrite and the
Agency used for underwriting guidelines.
• This form is completed by the Underwriter and will
be executed on government loan transactions.
• The Underwriter can use this form to make notes
regarding the approval.
SOURCE: FNMA Selling Guide Chapter B1-1, Application Package Documentation
https://www.fanniemae.com/content/guide_form/1008irev.pdf
48
BREAKING DOWN THE FORMS
Regulation B Equal Credit Opportunity Act (ECOA)
• Prohibits lenders from discriminating against credit
applicants for race, religion, sex and more.
• Requires all financial institutions to make credit
available to all credit worthy customers without
prejudice.
RESPA-TILA Loan Estimate (LE)
• Provides a summary of key loan terms and
estimates of loan closing costs.
• Used to promote loan comparison shopping by
the consumer.
• Must be given to consumer within three business
days after submission of loan application.
SOURCE: FNMA Selling Guide Announcement SEL-2015-07 New Closing Disclosure and
Loan Estimate Forms https://www.fanniemae.com/content/announcement/sel1507.pdf
49
BREAKING DOWN THE FORMS
Loan Estimate (LE) Disclosure continued:
• Discloses the loan terms and estimates of loan
closing costs
Servicing Disclosure:
• Informs borrower how many of lenders loans
are sold on the secondary market
All three disclosures must go out within three
days of application.
SOURCE: FNMA Selling Guide Announcement SEL-2015-07 New Closing Disclosure and Loan
Estimate Forms https://www.fanniemae.com/content/announcement/sel1507.pdf
50
LOAN PROCESSING
101
“THE BASICS”
PRACTICE QUIZ
51
QUESTION 1
WHAT IS THE WRITTEN
PROMISE TO PAY CALLED?
A. DEED OF TRUST
B. MORTGAGE
C. PROMISSORY NOTE
Answer:
Promissory Note
52
QUESTION 2
ANOTHER NAME FOR A SECOND
MORTGAGE IS A _________ LIEN.
A. SUPERIOR
B. FIRST
C. SUBORDINATE
Answer:
Subordinate
53
QUESTION 3
NAME TWO TYPES OF REFINANCES
A. CASH OUT / MONEY IN
B. RATE AND TERM / LIMITED CASH OUT
C. EQUITY PULL / LIABILITY WAIVER
Answer:
Rate and Term/
Limited Cash Out
54
QUESTION 4
TRUE OR FALSE:
MORTGAGE INSURANCE
PROTECTS THE BORROWER
AGAINST DEFAULT
Answer:
False - It protects the lender.
55
QUESTION 5
ANOTHER NAME FOR
THE ‘HOUSING RATIO’ IS…
A. BACK END RATIO
B. FRONT END RATIO
Answer:
Front End Ratio
56
QUESTION 6
WHO PREPARES FINAL CLOSING
DISCLOSURES, THE CLOSING
PACKAGE AND WIRES FUNDS TO
THE TITLE COMPANY?
A.) CLOSER
B.) UNDERWRITER
C.) LOAN PROCESSOR
Answer:
Closer
57
QUESTION 7
TRUE OR FALSE:
ALL DOCUMENTATION EXPIRES
AFTER 170 DAYS.
Answer:
False
58
QUESTION 8
AFTER RECEIVING A (CTC),
THE PROCESSOR SCHEDULES THE
LOAN TO CLOSE AND SUBMITS THE
LOAN TO THE _______ DEPARTMENT.
A.) UNDERWRITING
B.) ORIGINATION
C.) CLOSING
Answer:
Closing
59
QUESTION 9
WHICH DOCUMENT DISCLOSES
THE LOAN TERMS AND ESTIMATES
OF LOAN CLOSING COSTS?
A.) LOAN ESTIMATE
B.) LOAN APPLICATION 1003
C.) ECOA
Answer:
Loan Estimate
60
QUESTION 10
THE INITIAL DISCLOSURES MUST
BE DELIVERED TO THE BORROWER
WITHIN ____ DAYS OF THE APPLICATION.
A.) 10
B.) 15
C.) 3
Answer:
3
61
QUESTIONS?
QUESTIONS@CAMPUSMORTGAGE.ORG
62