Loan origination is the process by qui a borrower Applies for a new loan , and a lender processes That application. (Or declining the application). For mortgages, there is a specific mortgage origination process. Loan servicingcovers everything after disbursing the funds until the loan is fully paid off. Loan origination is a specialized version of a new account opening for financial services organizations. Certain people and organizations specialize in loan origination. Mortgage brokers and other mortgage originator companies.

There are many different types of loans. For more information on loans, see the loan and consumer lending articles. Steps involved in loan origination by loan type, various kinds of loan risk, regulator, lender policy, and other factors.

Application Process

Applications for loans may be made through several different channels and the length of the application process, from initial application to funding, which means different organizations may use various channels for customer interactions over time. In general, loan applications may be split into three distinct types:

  • Agent (branch-based)
  • Agent assisted (telephone-based)
  • Broker sale (third-party sales agent)
  • Self-service

Retail loans and mortgages are typically highly competitive products that can not be offered to a large margin to their providers. The business model of the individual financial institution and the products they offer therefore affect the decision of which application model they will offer

Agent Assisted (Branch-Based) Loan Application

The typical types of financial services organizations offering loans through the front-line have a long-term investment in ‘brick and mortar’ branches. Typically these are:

  • Banks
  • Credit Unions
  • Building Societies

This article is based on the results of a series of surveys conducted by the Government of Canada. Organization may lead to better terms. From a bank’s standpoint, cross-selling products to current customers offers an effective marketing opportunity, and agents in branches may be trained to handle the sale of many different types of financial products.

In a branch, customers Typically sit with a sales agent Who will assist the customer in Completing the application form, Selecting Appropriate product options (Such As payment terms and rates), collecting required documentation ( new account opening compliance requirements must be met at this internship ) Selecting add-on products (Such as Payment protection insurance ), and Eventually signing a completed application.

Dependent on the institution and product being offered, the application may be completed on a paper application form, or directly into an application via the desktop system. In either case, this phase of application is mostly concerned with the accurate capture of customer’s details, and does not incorporate any of the background decision-making work required to assess the suitability of the customer and the risk of default. To the risk of fraud and money laundering activities.

A major complexity for the branch origination channel is making the process simple enough that sales agents can be easily trained to handle many different products, while ensuring the many due diligence and disclosure requirements of the financial and banking regulators regionally are met.

Many back-office functions of loan origination continue from this point and are described in the Processing section below.

Self-service Loan Application

  • Self-service web applications are taken in a variety of ways, and the state of this business has evolved over time
  • Print and fax applications or pre-qualification forms. Some financial institutions still use these.
    • Print, write or type in the form, send it to the financial institution
    • Form fill on the web, print, and send to the financial institution (not much better)
  • Web forms filled out and saved by the applicant on the web site, which are then sent to or retrieved by (ostensibly securely)
  • True web applications with interfaces to a loan origination system
    • Many of the early solutions had a lot of problems in general forms (bad work flows,
  • Wizard-style applications that are very intuitive and do not ask superfluous questions

Jobs the online application should perform:

  1. Present required disclosures, comply with various lending regulations )
  2. Be compliant with security requirements (such as Multi-Factor Authentication ) where applicable.
  3. Collect the necessary applicant data
    1. Exactly what is needed varies by loan type. The application should not be for a predictable decision for the loan type (s) they seek.
    2. The application should pre-fill demographic data if the applicant is an existing client and has logged in.
  4. Make it easy, quick, and friendly for the applicant
  5. Get a current credit report
  6. Prequalify (self-decision) the application and return a quick response to the applicant. Typically this would be approved subject to stipulations, referred to the financial institution, declined (many FIs shy away from this preferring to refer any application that can not be automatically pre-approved.)

Processing

Decisioning & credit risk

The mortgage business of a few people: the borrower, the lender, and sometimes the mortgage broker . The people who originate the loans are usually the mortgage broker or the lender. Depending if the borrower has credit worthiness, then he / she can be qualified for a loan. The norm qualifying FICO is not a static number. Lender guidelines and mitigating factors determine this number. Fannie Mae and Freddie Mac back mortgage securities. Fannie Mae and Freddie Mac back mortgage securities. Not only does this credit score affect their qualification, the fact of the matter also lies in the question, “Can I (the borrower) afford this mortgage?” In most cases the borrower can afford their mortgage. However, some borrowers seek to incorporate their unsecured debt into their mortgage (secured debt.) They seek to pay off the debt that is outstanding in amount. These debts are called “liabilities,” these liabilities are calculated in a ratio that lenders use to calculate risk. This ratio is called the ” Debt-to-income ratio ” (DTI). If the borrower has excessive debt, he / she wishes to pay off, and that ratio should be increased to a maximum of one per cent per annum. When the borrower refinances his / her loan, they can pay off the remainder of the debt. Some borrowers seek to incorporate their unsecured debt into their mortgage (secured debt.) They seek to pay off the debt that is outstanding in amount. These debts are called “liabilities,” these liabilities are calculated in a ratio that lenders use to calculate risk. This ratio is called the ” Debt-to-income ratio ” (DTI). If the borrower has excessive debt, he / she wishes to pay off, and that ratio should be increased to a maximum of one per cent per annum. When the borrower refinances his / her loan, they can pay off the remainder of the debt. Some borrowers seek to incorporate their unsecured debt into their mortgage (secured debt.) They seek to pay off the debt that is outstanding in amount. These debts are called “liabilities,” these liabilities are calculated in a ratio that lenders use to calculate risk. This ratio is called the ” Debt-to-income ratio ” (DTI). If the borrower has excessive debt, he / she wishes to pay off, and that ratio should be increased to a maximum of one per cent per annum. When the borrower refinances his / her loan, they can pay off the remainder of the debt. These liabilities are calculated to a ratio that lenders use to calculate risk. This ratio is called the ” Debt-to-income ratio ” (DTI). If the borrower has excessive debt, he / she wishes to pay off, and that ratio should be increased to a maximum of one per cent per annum. When the borrower refinances his / her loan, they can pay off the remainder of the debt. These liabilities are calculated to a ratio that lenders use to calculate risk. This ratio is called the ” Debt-to-income ratio ” (DTI). If the borrower has excessive debt, he / she wishes to pay off, and that ratio should be increased to a maximum of one per cent per annum. When the borrower refinances his / her loan, they can pay off the remainder of the debt. Then the borrower has the same debt. When the borrower refinances his / her loan, they can pay off the remainder of the debt. Then the borrower has the same debt. When the borrower refinances his / her loan, they can pay off the remainder of the debt.

Example: If the borrower owes $ 1,500 in credit card payments and has a gross monthly income of $ 3,000, his DTI ratio would be 50%. But if the borrower owes $ 1,500 in payments and has a gross monthly income of $ 2,000, his DTI ratio would be 75%. Both a 50% and 75% DTI ratio would be too high for most lenders, as DTI ratio of 43% is the cutoff for conventional mortgages. All other factors aside, the higher the DTI ratio, the less likely the borrower will be able to afford a monthly payment, hence the more risky it is for the lender.

Pricing, including Risk-based pricing & Relationship based pricing

Pricing policy varies a great deal. While you may not be able to influence the pricing policy of a given financial institution, you can:

  • Shop around
  • Ask for a better rate – some financial institutions
  • Price Match – many financial institutions [1]

Pricing is often done in one of these ways. Follow the internal links for more details:

  • Everyone pays the same rate. This article is about a financial institution that has been involved in the development of the financial institution. Lower rate of return on the loan than the risk might imply.
  • Risk-based pricing . With this approach, pricing is based on various risk factors including loan to value , credit score , loan term [1]
  • Relationship based pricing is often used to offer a substantial business relationship with the financial institution. This is a complementary rate.

Loan Specific Compliance Requirements

Many of the customer identification and due diligence requirements of loan origination are common to new account opening of other financial products.

The following sections describe the specific requirements of loans and mortgages.

Cross Selling, Add-on Selling

  • Add-on Credit insurance & debt cancellation
  • Credit cross selling
  • Up-selling
  • Down-selling
  • Refinancing
  • Loan Recapture

Appraising Collateral

The next step is to have-have Real Estate appraiser appraise the borrower’s property That he wishes to avez la contre loan. This is done to prevent fraud of any kind by either the borrower or the mortgage broker. This prevents fraud like “equity stripping” and money embezzlement. The amount that can be borrowed from the borrower’s side or the lender’s side is the amount that the borrower can loan up to. This amount is divided by the debt that the borrower wants to pay off plus other disbursements (ie cash-out, 1st mortgage, 2nd mortgage, etc.) and the appraised value (if a refinance) qui ever amount is lower} and converted into yet Reviews another ratio called Expired the Loan to value (LTV) ratio. This ratio determines the type of loan and risk the lender is put up against. For example: if the borrower’s house appraises for $ 415,000 and they want to refinance the $ 373,500 – the LTV ratio would be 90%. LTV can be – for example, if the borrower’s credit is bad, the lender may limit the LTV that the borrower can loan. However, if the borrower’s credit is in good condition, then the lender will most likely put a restriction on the borrower’s LTV. LTV for loans may or may not exceed 100% depending on many factors. LTV can be – for example, if the borrower’s credit is bad, the lender may limit the LTV that the borrower can loan. However, if the borrower’s credit is in good condition, then the lender will most likely put a restriction on the borrower’s LTV. LTV for loans may or may not exceed 100% depending on many factors. LTV can be – for example, if the borrower’s credit is bad, the lender may limit the LTV that the borrower can loan. However, if the borrower’s credit is in good condition, then the lender will most likely put a restriction on the borrower’s LTV. LTV for loans may or may not exceed 100% depending on many factors.

The appraisal would take place on the borrower’s property. The appraiser may take pictures of the house from many angles and will take notes on how the property looks. The appraisal is written in the format compliant to FNMA Form 1004 . The 1004 is the standard appraisal form used by appraisers nationwide.

Processing Documents / Loan Underwriting

Document Preparation

Document Preparation or Doc Prep is the process of arranging and preparing the borrowers closing contracts. These documents vary from one industry to another.

Mortgage Underwriting

An underwriter is a person who evaluates the loan documentation and determines whether or not the loan complies with the particular mortgage program. It is the underwriter’s responsibility to assess the risk of the loan and decide to approve or decline the loan. A processor is the one who gathers and submits the loan documents to the underwriter. Underwriters take at least 48 hours to underwrite the loan and after the borrower signs the package it takes 24 hours for a processor to process the documents.

Funding of Loan

  • Booking
  • Disbursal of funds
  • Decide the Mode of Payment-
- Cash
- Online Transfer
- Check

Regulation

Lending is a highly regulated business, at both the federal and state levels. Some of the main regulations that apply to lending are listed here. For more details, see Bank regulation .

  • Truth in lending act (aka Regulation Z)
  • Equal Credit Opportunity Act (aka Regulation B)
  • Home Mortgage Disclosure Act (HMDA)

Other related topics include:

  • Predatory lending
  • Usury
  • Loan sharking

See also

  • Loan servicing
    • Making payments
    • Credit bureau reporting
    • Loan default
    • Collateral Repossession & remarketing
  • Loan Types are covered to a degree in the Loan Article
  • e-Lending

References

  1. ^ Jump up to:b What Affects My Loan Interest Rate (article)