Chapter 11
Processing: DOCS, FUNDING,
AND CLOSING
By Dr. D. Grogan
M.C. “Buzz” Chambers
©2011 Cengage Learning
PREVIEW
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The file is sent to the document department, which draws the loan
documents. Computer generated documents are printed and reviewed by
a funder in the doc department. A complete set of loan documents is
shown in Appendix G and reviewed in this chapter.
After checking the accuracy of all the papers, the loan go to the borrower
for signing. All documents are returned to the lender’s funding department
so that the lender may have final review of the loan file to set up closing.
If the file is approved, the lender notifies escrow and the title company
when the loan will be funded.
The funds are wire transferred to the title company from the lender. The
title company notifies the lender and escrow upon receipt of the funds and
advises both that they are in a position to record. Escrow instructs title to
record. The loan records and the funder prepares the file to forward for
shipping and servicing.
©2011 Cengage Learning
Student Learning Outcomes
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5.
Explain the loan document process from underwriting up to
shipping and servicing.
Discuss the reasons that the funder would review the
loan documents.
Indicate examples of discrepancies the funder may find on
loan docs.
Describe components of the various loan docs that the funder
would verify.
Outline the steps involving the loan broker that lead to the
loan being funded.
©2011 Cengage Learning
11.1 Conditions Prior to Docs
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When the underwriter is unable to approve
the loan as submitted to the lender from the
mortgage loan broker.
Other parties must complete various items.
©2011 Cengage Learning
LOAN APPROVAL CONDITIONS
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Definition: The process to determine
documentation requirements to
 Satisfy loan approval conditions
 Weigh title items
 Prepare loan file for funding
“Subject to conditions” items include:
•Termite clearance
•Insurance policy
©2011 Cengage Learning
UNDERWRITING GUIDELINES FOR
LOAN APPROVAL
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Balances on borrower’s loans
Copy of closing statement on borrower’s
other owned property
Indebtedness to be paid in escrow
Evidence of no junior liens
Endorsements on the title insurance policy
Signatures on various disclosures
©2011 Cengage Learning
ADVERSE ACTION
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When applicants do not meet underwriting
requirements
 Federal Reserve Regulation B
 Inadequate length of employment
 Debt service coverage inadequate
 Credit history problems
 Borrower may challenge inadequacies under
the Federal Fair Credit Reporting Act.
©2011 Cengage Learning
11.2 Drawing Docs
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The loan funder or loan doc verifier receives
the file in the document department.
The funder makes sure the loan is locked in
and the investor’s funds are still available at
the rate and terms stated on the loan docs.
The funder verifies all the loan details, the
borrower data and the property information
using computer software programs to
generate the loan docs (DOC MGIC)(MORT
PRO).
©2011 Cengage Learning
11.3 Conditions Prior to Funding
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The loan will not fund when:
 The conditions prior to funding has not been met
 When discrepancies are found in the file
The loan is “pulled”
The loan papers are thoroughly checked before
funding and closing.
Errors become enforceable, permanent documents
The reviewer may check credit, source of funds and
vesting.
©2011 Cengage Learning
LOAN FUNDING
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The process AFTER taking the application
and initial approval, but PRIOR to drawing
loan documents, which includes:
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Reviewing the title report and requirements
Obtaining a certified copy of escrow instructions
Determining status on supporting documents:
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Promissory Note
Trust Deed
Homeowner association documents
©2011 Cengage Learning
11.4 Loan Documents
See Appendix G
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Effective July 1, 2010, a borrower may request
within 90 days a translation of the loan contract or
agreement must be delivered in the foreign
language, and no later than 3 business days after
receiving the written application.
The borrower must receive a specified form in that
language summarizing the terms of the loan contract
or agreement for Industrial Loan Law and California
Financial Lenders Law.
©2011 Cengage Learning
Loan Document Package List
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Conditions Prior to Funding
The Loan Document Audit Sheet
Lender Escrow Instructions to Title & Escrow
Addendum to Escrow Instructions
Title Wire Instructions
HUD Settlement
Trust Note
Loan Application Disclosure
Deed of Trust
©2011 Cengage Learning
Loan Document Package List (cont)
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Federal Truth-in-Lending (TIL)-Reg Z and HOEPA
Statement & Itemization of Amount Financed
Occupancy Affidavit & Financial Status
Borrower’s Certification & Authorization
Borrower’s Certification as to other loans
Hardship Letter
Fair Lending Notice
Document Correction Compliance Agreement
Notice of Availability of Real Estate Appraisal
©2011 Cengage Learning
Loan Document Package List (cont)
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Federal Flood Disaster Protection Act of 1973
Loan Servicing Disclosure Statement
Authorization for Impound Account
Assignment of Deed of Trust
Request for Change to Insurance Policy
©2011 Cengage Learning
Loan provisions
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Acceleration clause
Alienation clause
Assumption clause
Foreclosure
Prepayment penalty clause
Transaction fee
Subordination clause
©2011 Cengage Learning
PRIOR LOAN DOCUMENTS
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Consumer disclosures, including:
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Truth-in-lending (TIL)
Variable rate loan data
Impound account status
Loan insurance
Affidavit of Occupancy: Borrower’s intent to
occupy the property as principal residence
©2011 Cengage Learning
11.5 Funding
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The funder advises the
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Loan broker of any underwriting conditions
Escrow of any conditions
Title of title conditions
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Title receives wire transfer information
Title instructed to record
Loan docs signed and notarized
The funder orders release of funds to close
©2011 Cengage Learning
11.6 LOAN CLOSING
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Assuring all documents are properly prepared
Review documents assuring correctly executed
All conditions met for all parties & underwriting
Order funding of the loan
Notify escrow of funding
Order document recordation and transaction
closing
Obtain all third party affiliated documents
Lender notifies mortgage broker of completion
©2011 Cengage Learning
AFFILIATES FUNCTIONS
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Insurance agent: Provides lender coverage
Title Company: Provides lender endorsements
Escrow Company: Compiles documents:
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Certified copies, notarized signatures
Accounting HUD-1 fee, prorations, & payoffs
Inspectors: Termite report completion
Appraiser: URAR report
Credit Bureau:
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Credit history of borrower
Run by independent third party
©2011 Cengage Learning
LOAN SERVICING
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Documents in loan package
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Signed by borrower
Disclosing loan servicing
Prepares documents for transfer
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To loan servicing provider
According to instruction of lender
©2011 Cengage Learning