My 15 year career in the Mortgage Banking Industry began in the best way possible. The first position of employment that I held was that of a floater. As a floater, I spent 2 to 4 weeks in each of the company’s departments, learning hands-on the processes and procedures involved in making a mortgage loan. Most mortgage institutions have the following departments devoted to their mortgage lending practice:
* Originations
* Processing
* Underwriting
* Legal Review/Closing
* Mortgage Sales/Delivery
* Servicing
Originations
In loan originations is where the public meets the mortgage lender. Most lenders employ a staff of Loan Officers, or Field Representatives, who solicit mortgage loans. These representatives call on Real Estate Brokerage Firms, or other prospective sources for home loans, and are ultimately introduced to mortgage-seeking home buyers. The Loan Officer makes an appointment with the prospective borrower and takes a mortgage application. Once this application is completed, the loan is said to be originated. The prospective borrower most often pays an application fee at this point, which usually includes the cost of property appraisal and credit report. In some cases, a mortgage lender will also accept applications taken by a Mortgage Broker, and hence pays the commission that would normally go to the Loan Officer to the Broker instead.
Processing
Processing of a mortgage can take up to 30 days, depending on the complexity of the case or other delays the lender may experience. During loan processing, all of the information stated on the mortgage loan application is verified and documented. An appraisal of the property is ordered and a credit report on the borrower is obtained.
Underwriting
In loan underwriting, the final decision on whether or not to grant the mortgage is made. An underwriter will review the loan in accordance with set guidelines, such as the underwriting guidelines established by the Federal National Mortgage Association (Fannie Mae). If the underwriter approves the loan, the mortgage lender will issue its commitment to the borrower, specifying the loan terms (which may be subject to change at time of closing if the terms are not “locked in”) and the conditions of closing. Conditions of closing include usual, satisfactory title search and legal review, and may include the requirement of additional documentation that may be necessary from the borrower. If the loan is not approved, the lender sends a notice of “Adverse Action” to the borrower.
Legal Review/Closing
During the legal review and closing process, all of the aspects involved in making the mortgage a legal and valid lien on the property are reviewed, and the loan documents are prepared. A closing date is scheduled and, at the closing, a representative of the lender, the borrower and property seller meet. All of the necessary documents are signed and the loan proceeds are disbursed. Legal documents are subsequently recorded in the appropriate public recording offices and the completed mortgage documents are forwarded to the mortgage lender.
Mortgage Sales/Delivery
Most mortgage lenders are involved in mortgage sales. In the mortgage sales department, commitments to purchase closed loans are obtained from either an institution, such as a Savings and Loan, or from an entity, such as the Federal National Mortgage Association. Loans can be sold at “par” (100% of the outstanding principal balance of the loan), below par (at a “discount” of a certain percentage) or above par (at a “premium” of a certain percentage). In many cases, the lender will have to pay a commitment fee to obtain the purchase commitment. This is commonly 1% of the loan amount. Once the commitment is procured by the lender, the loan is packaged for delivery. The package includes the original loan note and mortgage documents, as well as all of the supporting documents from loan underwriting and regulatory compliance.
Servicing
When a mortgage loan is sold, it is sold either “with servicing” (servicing of the loan retained by the mortgage lender) or with “servicing released” (the institution purchasing the loan will service the loan themselves). If the loan is sold “with servicing”, the mortgage lender tends to the collection and application of the monthly mortgage payments until the loan is paid in full or otherwise satisfied. The lender is paid for this service, usually a small percentage of the monthly payments collected (such as 3/8ths of 1%). Loan servicing entails the collection of principal and interest payments as well as, in most cases, the collection of escrow deposits for the payment of property taxes and homeowner’s insurance premiums. A lender’s loan servicing department usually has sub-departments devoted to the different aspects of loan servicing. It is not uncommon for there to be a Loan Collections Department, an Insurance Department, a Tax Department, a Pay-offs Department and a Loan Foreclosure Department.
I enjoyed my days as a floater in that I was able to obtain a basic understanding and knowledge of the mortgage loan process. Mortgage lenders also have supportive departments, such as Quality Control and Computer Operations, in which I also spent some time.
Once a borrower becomes aware of all that is involved in the process of making a mortgage loan, they can start to understand why there are so many fees involved in a mortgage loan undertaking. Yes, the lender makes a profit on the loan, but considering the overhead, the fees the lender must pay themselves and the discount at which many loans must be sold, that profit is not as large as some people might have been lead to believe.
