(Printed with permission from the North Carolina Bar Association Real Property Section Annual Meeting)
Scope: Discuss residential mortgage lending process-application, processing, underwriting, and closing, plus why some closing packages arrive day of closing and future trends in the mortgage industry over the next 12-18 months.
Application: REALTORS and lenders prefer for prospective homebuyers to contact their lender and pre-qualify over the phone or in person before starting the house hunting process.
The actual loan application may take place in person, either at the lenders office, by mail, by FAX or by telephone. Most lenders will use their PC or laptop computer so the application may be transmitted electronically to their home office.
The applicant should bring the following to application: Offer to Purchase, pay stubs,
W-2 forms, tax returns if self employed, and bank statements.
Credit reports are pulled up during the application meeting so any problems may be discussed on a timely basis.
Many lenders, using Freddie Mac "Loan Prospector", will be able to, electronically, obtain loan approval within 15-30 minutes after the loan application is complete.
Processing: Loan documents are sent, via UPS, to a specific Loan Counselor. The Appraisal is ordered within 24 hours after receipt of the package. It is presently ordered by FAX to the appraiser chosen by the loan officer. We require it to be returned via UPS "next day delivery". Review and underwriting of the appraisal will take 2-3 days.
The counselor will make an introduction telephone call to the buyer, reviewing any documents needed for final loan approval and discussing closing arrangements.
The counselor will maintain communications with the buyer and loan officer during the time up to when the closing package is sent to the Closing Attorney. Any documents needed at closing (HUD-1 on present house, 1st pay stub, etc.) are discussed with the buyer in order to eliminate problems at closings.
Underwriting: All FHA and VA loans and some conventional loans will need to go to the lenders underwriting department for final loan approval. Turnaround time is usually only 2-3 business days.
The results are communicated to the buyer, loan officer, and Realtor on a timely basis.
Closing: Several weeks prior to closing we will fax the title order to the Closing Attorney. The final closing package is sent, via UPS, to arrive at the Attorneys office 2-3 days prior to closing. We do our best to keep the package from arriving on the date of closing, but there are rare instances where this is the best we can do.
Loan Officer did not set a realistic closing date
Appraisal came in late or value was less than sales price. Therefor, the price may need to be renegotiated.
Loan was slow going to Underwriting or Underwriting has questions or concerns that must be satisfied prior to releasing the package.
Homebuyer changes loan amount or closing date without consulting the lender.
Homebuyer is late submitting required documents that were requested early in the Application/Processing process.
After closing, the attorney is expected to return the closed loan to the lender within 2 days. The lender will review the package, and if necessary, send specific papers to FHA and PMI companies for mortgage insurance or VA for guaranty.
The Next 12-18 Months: Appraisal-The lender will E-Mail the appraisal request to the appraiser and the appraisal will be returned via e-mail. Lender will use Automatic Underwriting to reduce the review down to 1 day. Also, if the LTV is 65% or less, an appraisal may not even be required.
Underwriting-More lenders will use Freddie Mac "Loan Prospector". Homebuyers then will be able to learn of loan approval much quicker than in the past.
Closing-Lenders will become clients of attorneys with all closings from a specific lender being handled by 1 or 2 attorney firms. Note the growth of financial service companies such as GE, GMAC, and Cendant who will start to control large chunks of business. The growth of E-Commerce will see major lenders moving towards using the Internet to order & confirm title work. This may be done through Title Companies or direct to the attorney. Lenders will look for attorneys who are able to receive a closing package electronically, possibly through the Title Companies.