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Behind The Wall – An Insider’s View Of The Mortgage Process

Mortgage-Refinance-Door-Key

Ok, if you’ve ever refinanced, you’ve probably wondered at some point just what the hell goes on between the time you complete an application and the time your loan funds. I mean, if you’ve had a half-way decent loan officer, he or she has probably given you a little insight, but nowhere near what I’m going to tell you. Now, keep in mind, this is the process your file goes through if you’re dealing with a mortgage broker; maybe someday when I feel like writing about something boring I’ll key you in on what goes on at a bank, but to be quite honest, I don’t really know because I’ve never worked at one thank God. I’ll keep this concise, but if there are any questions, by all means, fire away in the comments section. On with the show…

After The Application:

So you’ve spent a boring hour while your Loan Officer takes down a complete 1003 (pronounced Ten-oh-three), also known as a Uniform Residential Loan Application. If you’re lucky that Loan Officer at least made an attempt at keeping you from tearing up with boredom and took the opportunity to get to know you a bit during the process. Once the application is complete, you hang up the phone and the LO goes to work.

At this point your Loan Officer is in a position to accurately research the loan program that suits you best. By the way, for all you weirdos out there that call brokers and ask what their rates are, if you haven’t gotten at least to the application stage, any rate-quoting is merely a tactic to keep you interested. Realistically, rate and program qualifications cannot be determined without a complete application, especially in the current market, so don’t ask and expect a real answer. Anyway, back to business. Now your LO either contacts as many Lenders as possible through some sort of automated system or he contacts just a few of the lenders he thinks, based on his experience, offer the best rates for the loan program that suits you best.

The Broker – Account Executive Relationship:

When Mortgage Brokers, or Loan Officers working for a Mortgage Broker, contact a lender, they don’t just call customer service and get the rates of the day…that would be too easy. The banks/lenders your LO deals with are the Wholesale Divisions of that bank, which is completely different from the side of the bank that the average consumer deals with. Your LO has one assigned contact at each lender he does business with, that contact is called an Account Executive, or AE. AEs relay pricing information to the LO and are the “experts” on a given lenders programs; I put the word “experts” in quotes because, all too often, AEs have no idea what they’re doing. Essentially, AEs act as liaisons between the lender and the LO; the Loan Officer is the AE’s client, just like you are the loan officer’s client.

After The Loan Has Been Researched:

I’ll go into what’s involved in researching a loan in another post, because it can be complicated, for now we’ll just move on to the “after-research stage.” At this point, the LO analyzes the programs he’s researched and figures out the best way to present these options to the client, whether that be via email, telephone, mail, or whatever the hell he comes up with. In an ideal world, the client choses the program he or she likes best after short deliberation, hangs up the phone, and the LO puts together a set of disclosures to send to and have signed by the client.

Submitting The Loan:

After you’ve signed and returned the disclosures to your LO, he moves onto the submission stage of the loan process. If you’ve ever heard an LO talk about his processor, this is where she comes into the picture. The LO decides to lock or float the interest rate at this point and then hands the file off to his processor to be submitted to the lender. A good LO will have all the potential problems with your file worked out before he hands it off to his processor, and a good processor will review the file before submission as a last line of defense; once the file is submitted, it can be too late to correct any issues that may cause your file to be declined by the lender. A good processor takes over the file almost completely at this point and updates your LO with the progress; the better a processor is, the less the loan officer has to be involved in the post-submission process.

The Processor’s Job:

Now the waiting begins, at least on the part of you and your LO; the processor’s job, on the other hand is just beginning. The processor handles things like opening title and escrow, ordering verifications of employment, and supplying the lender with any requested conditions.

The Four Steps In The Approval Process:

A loan processor has four major steps to complete before your loan closes; all presenting varying degrees of difficulty and frustration depending on the specifics of your file. The four steps are Submission, Approval, Docs, and Funding, and we’ve already went over the submission process, so let’s tackle the three others.

Approval:

Once your file is submitted, the processor waits, and depending on the lender, waits some more, for news back from the lender that your loan has been approved. The lender will usually issue one of two types of approvals, either a conditional approval or just an approval. When the lender issues a conditional approval, it means that the loan is approved on the condition that certain things happen. Usually those things involve submitting more documents to the lender. If you’ve ever wondered why your LO calls you late in the loan process asking for you to send in more documents, it’s probably because the lender issued a conditional approval and those documents are required to meet the lender’s conditions. In addition to a conditional or full approval, the lender may issue Prior to Doc and Prior to Funding Conditions; these are conditions that don’t need to be met for an approval but must be met before the lender will send out your loan documents or fund your loan.

Docs:

After your loan is approved, the processor fills the Prior to Doc Conditions, if any, and orders your loan documents from the lender, she also lines up a notary for your signing at this point. The lender sends your loan docs to the escrow company and sends a HUD-1 to the processor; the HUD-1 is a final breakdown of the terms of the loan. Your LO should call you at this point to go over the HUD-1 and ensure everything appears as expected. The notary picks up your loan docs from the escrow company and heads to the signing location, at which point you sign the loan docs. Meanwhile, the processor is working on filling the prior to funding conditions, if any, issued by the lender.

Funding:

Most loans come with a 3-day Right of Rescission, meaning even after you’ve signed your loan docs, you usually have 3 full days to change your mind, or rescind. As an example, if you sign docs on Thursday morning, the 3-Day Right of Rescission begins the next day, so it’s in effect on Friday, Saturday, skips Sunday, and Monday. In this example your loan funds on Tuesday. After the 3 full days have elapsed, and the processor has submitted the Prior to Funding Conditions, if any, your loan funds the next day. One day after that your loan is recorded in public records. Public records? That’s right. Have you ever received phone calls from brokers/lenders soliciting your business and they seem to have a bunch of information about your loan that you never gave them? They usually get that information from public record; you’d be surprised how much of your information is accessible this way. The recording date is also the day your Broker/Loan Officer’s paycheck is sent out for delivery (or wire transfered if your Broker is smart ;-) ).

Wow, did you get all that? If not I’m happy to answer questions posted in the comments section. Just don’t ask me what kind of rate I can get you ;-) .

Tags: What to Expect

9 responses so far ↓

  • 1 sally // Aug 17, 2007 at 2:24 am

    me and my husband are trying to refinance with the help of a broker lendersedgeonline.com
    we been with them since the begining of june and we still haven’t refinanced they have been telling us for two months well be closed in two weeks they have given us dates when we would be closing those dates have come and gone and still were waiting to refinance .this week and last month they told us not to pay our mortgage they never even told us the name of the mortgage company that would be refinancing our house I found out this week that it was aurora I saw alot of bad reports on that mortgage company so I asked them which company were we going to refinance with it turns out that it’s wells fargo now they switched on 8/16/2007 what should we do?

  • 2 John // Aug 17, 2007 at 8:29 am

    You should never do business with a company that tells you not to pay your mortgage. In most cases that’s the dumbest thing a broker can tell you, especially in today’s market and it’s one of my signs for recognizing a mortgage “salesman” as compared to a mortgage adviser.

    Anyway, I’ll tell you what probably happened. A lot of lenders are canceling loan programs left and right, and if a certain file is not far enough along in the process, it’s left in the dust and your broker needs to find a new lender. They should have explained this to you and the fact that you’re asking me this now shows me that they haven’t explained what is going on.

    My #1 tip is make your mortgage payment. You have no idea how long this is going to take and if you end up with a mortgage late on your credit report, you get to take a little trip to subprime land where the rates are high and so are the payments.

    My #2 tip is stop thinking of your mortgage as a commodity, like a can of Campbell’s Soup that you can buy at any number of different places and it’s the same no matter what. Find a broker who is willing to take your entire financial situation into account, not just someone who sells mortgages.

    What you do from here needs to be your choice, but if you decide to look elsewhere, I’d be happy to see what I can do…just let me know.

  • 3 Devin // Aug 18, 2007 at 6:05 pm

    hi nice post, i enjoyed it

  • 4 John // Aug 19, 2007 at 11:23 am

    Thanks for stopping by Devin, I’m glad you enjoyed it.

  • 5 Friday Link-Up Day // Aug 24, 2007 at 8:40 pm

    [...] John Crenshaw’s Link Behind The Wall – An Insider’s View Of The Mortgage Process [...]

  • 6 Tim Riley // Mar 11, 2009 at 2:44 pm

    The one thing I was hoping for should be somewhere in or after the funding paragraph, when do I get the keys? How is that worked out? My loan funded today and is supposed to record tomorrow, when do I actually get to take delivery of the house? After all, as a buyer, thats the only part I really care about in the whole process.

    Thanks very much, great article!

  • 7 shirley // Jun 6, 2009 at 7:06 am

    I have a question what are my legal rights when I rescinded my 2nd mortgage flex line account within the 3 days and the bank processed it anyway?

  • 8 Oliver // Aug 18, 2010 at 7:50 am

    I have begun with New Beginnings as an account manager. After the signing, an audit of the loan is conducted. What I need to do is to find work for our CPA’s auditing these loans. In speaking with someone who is a loan officer I was directe to Mortgae Bankers, Wholesale Lenders and Mortgage Brokers. On the internet and in the Scotsman I ocated a number of these. Any insights?
    Olli

  • 9 Lori graci // Apr 20, 2012 at 4:42 pm

    Sir , this is the BEST article I have read about the refinancing process.. and believe me , I have google searched everyday , trying to find out information on what was going on .. Its been just over 35 days ( and I am trying not to torture) my loan processor.. but I am just dying to know if I am approved or not, or if there is any problem , or If they need any more paperwork to make things quicker.
    The loan officer at the Sun bank says it was a slam dunk ( but I am an oldy , and know , if something is too good to be true ….ya ya ya ) ..
    but then I found your article, THANKYOU so far , from the little information I gathered from my loan processor , she says it was in the ‘pipeline ” and in underwriting .. so I figured if there was a problem , she or my loan officer would have informed me.. He is the senior loan officer of the bank , and I called him after 30 days ( which was two days ago) , he said , “its in this pipeline > and to pay May mortgage , which I can always get back.
    so , hopefully ,this torture will be over soon. I have alot of equity in my home , which I am trying to pull out for doing more work on the back of the house.
    thankyou very much ( I am no financial wizard , so I am going back above to your article and reading it again!
    take care
    lori