Mortgage Loan Processing Quiz

Mortgage Loan Processing

• Loan processing prepares for lending decisions, gathering and verifying information and conducting preliminary evaluations.
• Changes in information may require corrections and re-disclosures.
• Mortgage Loan Originators (MLOs) need to understand processing steps to inform applicants.
• Processing may involve specialists, or the MLO can handle it depending on the lender.

Documentation and Verification

Appraisals

• Appraisals are performed by state-licensed/certified appraisers to estimate property value.
• Home appraisals are opinions on market value based on recent sales, property inspection, and appraiser judgment.
• Appraisals are usually ordered after the loan proposal is indicated.
• Some transactions may not require appraisals if property value is corroborated by automated valuation models (AVMs).
• Streamline refinances, which refinance loans without cash-out risk, interest rate/payment reduction, or matching the same agency/investor, might not need appraisals.
• If a recent appraisal exists, the lender may accept an update/recertification instead of a full appraisal.
• The appraisal helps determine loan risk based on the property's value which is the lower of sales price or appraised value (purchases), or appraised value (refinances).
• Under TILA/Reg Z, lenders must protect appraiser independence, preventing influences.
• Examples of these prohibited influences include influencing appraisal value, withholding or threatening to withhold appraisal fees due to value, conditioning appraiser future assignments on transaction approval or influencing the appraiser's future services (e.g. future work dependence on specific value).
• Lending personnel must be kept separate from appraisers and appraisal processes.
• Appraisal Management Companies (AMCs) help lenders ensure separation.
• AMCs are regulated and oversee appraisers, recruit/select/retain appraisers, hire appraisers manage appraisal processes/confirm payments, and review/verify appraisal work.
• Lender personnel can interact with appraisers to ask for additional comparable sales information, clarity about valuation conclusions, correction of appraisal errors.
• Traditional appraisals use the Market, Income, and Cost Approaches.
• The Market Approach compares recently sold similar properties to adjust for present or absent property features to determine market value.
• The Income Approach estimates value based on rental potential. This is often not relevant for single-family homes but relevant for 2-4 unit residential properties.
• The Cost Approach estimates value based on construction cost, less depreciation.
• Appraisals are typically paid for by the buyer in purchase transactions, and the homeowner in refinance transactions.
• Lenders must provide appraisal copies promptly or three business days before consummation, whichever is earlier. There are exceptions for high-risk loans.

Verifying Borrower Qualifications

• Lenders verify borrower ability to repay a loan.
• MLOs acquire documentation at the time of application.
• The lender will gather the rest of the documentation as needed during the processing.
• Income and employment are verified through applicant-provided or third-party information.
• Typical verification of income includes two years of W-2 forms, recent paystubs, and a phone confirmation of employment.
• Lenders can send "Verification of Employment" (VOE) forms to employers.
• VOEs cannot be delivered to the employer directly by the borrower and must be delivered by the lender.
• Alimony and child support are verifiable as income sources for qualification, if reliable and consistent.
• Non-salary income (tips, commissions, self-employment) is verified with tax returns, profit/loss statements, and balance sheets from the past two years.
• Retirement or disability income is verified with benefit verification letters or statements from providers.
• Assets are verified through statements from financial institutions, or borrower-provided documentation.
• Checking accounts include the most recent two months' bank statements, and unusual deposits/balances are examined.
• Investment/retirement accounts must show a vested balance.
• Non-cash assets requiring downpayment verification must show actual transfer of the asset.
• Lenders use "Verification of Deposit" (VOD) forms for asset verification. VODs cannot be handed directly to the bank and must be handled by the lender.
• Borrower authorization is required for third-party information release (employer, banks).
• Automated Underwriting Systems (AUS) describe acceptable verification types for application information.

This quiz covers essential concepts in mortgage loan processing, including the roles of Mortgage Loan Originators, documentation verification, and the appraisal process. Understanding these components is crucial for making informed lending decisions and guiding applicants effectively. Test your knowledge on the steps involved in processing mortgage loans.