Mortgage Loan Application Process

Loan Inquiry and Application Process

• Mortgage loan origination is the process of creating a mortgage loan
• A Mortgage Loan Originator (MLO) is a licensed individual who processes and negotiates mortgage loans, acting on behalf of a state-regulated lender or broker
• The complexity of MLO activities varies depending on the size of the originating company
• A one-person broker may handle the entire loan process or hire a processor
• A small lender might have loan officers, processors, and closers, but no underwriters; the investor underwrites the loans
• A larger operation may have individuals specializing in each step, forming a loan processing assembly line
• The process can be broken down into application, processing, underwriting, closing, and servicing stages.

Application Stage

• MLOs are the initial point of contact for loan inquiries and applications
• MLO duties include providing information, receiving applications, and assisting with the application process
• Reviewing documents, helping consumers enter data into the LOS and/or Automated Underwriting System(AUS)
• Describing loan programs and processes
• Evaluating the suitability of loan products
• Determining and verifying the borrower's repayment ability
• This includes ensuring the borrower's financial situation is comparable with the loan terms; illegal to approve solely based on initial or introductory rates or collateral value
• Refinance loans must offer a net benefit to the borrower (e.g., lower payments, rates, term, or loan type)
• Providing required disclosures
• Gathering information during the process
• Evaluating applications and ensuring loan readiness for underwriting
• Assisting in decision-making and closing
• Negotiating credit terms and attracting applications through sales efforts

Pre-qualification vs. Pre-approval

• Pre-qualification: an initial discussion between a borrower and an MLO to estimate the possible loan amount based on disclosed information; not a loan commitment
  • MLO discusses loan types, programs, underwriting guidelines with the borrower about financing options
  • Allows an estimate for the potential mortgage a consumer may receive based on income, assets, and credit
  • Disclosures needed if a credit decision is anticipated. Pre-qualification doesn't indicate approval.
• Pre-approval: -Requires a full mortgage application; lender seeks credit report and verifies income/assets
  • A formal written pre-approval is issued, outlining lender's commitment subject to property restrictions.
  • Borrower goes through the same steps as a full application process
  • Includes disclosures and HMDA reporting
• Real estate transactions start when all parties agree to the sales terms ("In Contract"); mortgage lenders have no involvement but must try their best to provide the financing needed.

This quiz explores the intricacies of the mortgage loan origination process, focusing on the role of Mortgage Loan Originators (MLOs) in facilitating loan inquiries and applications. It covers the various stages involved, from application to servicing, and highlights the different sizes and complexities of lending operations.