Ch. 8 - Underwriting Residential Property

What are the three approaches to estimating a property's value?

Sales comparison approach Cost approach Income approach

What is the Request for Verification of Deposit form?

A verification form that allows the bank to give the lender information about current balances in the borrower's accounts.

What is detailed in the Assets and Liabilities section of the loan application?

All things of value that are owned by the borrower, including cash, stocks, bonds, life insurance policies, value of real estate owned, value of businesses, and value of automobiles and other personal property are detailed in the assets section. What the borrower owes, including auto loans, charge accounts, real estate loans, medical bills, insurance premiums and any long-term liabilities such as alimony and child support payments are detailed in the liabilities section.

Which of the following can do appraisals of residential and nonresidential properties without limitations?

Certified general

What the market recognizes as the change in value an improvement makes to a property is known as what?

Contribution

The cost approach would be most reliable for which of these properties?

County court house

What are the four critical procedures for processing a loan?

Determine the ability of the borrower to repay the loan Estimate the value of the property that is collateral for the loan Research and analyze the marketability of the title. Prepare the documents necessary to approve the loan and close the transaction.

What is the most important aspect of a credit report?

It shows the borrower's attitude about handling credit and debt.

The highest price a buyer is willing to pay and the lowest price the seller will accept for a property is known as:

Market value

Explain the difference between market value and market price.

Market value is an opinion of the value of a property based on analyzing data collected about the property. The market price of a property is the actual sales price.

All of the following are conditions for highest and best use EXCEPT which one?

Minimally productive

At the same time the underwriter is reviewing financial and employment information, the underwriter will also send a request for a borrower's credit reports to the three reporting agencies. The credit report indicates the status of current and past accounts. It indicates the dates that payments were made and how regularly they were made, whether or not they were delinquent or if there are any outstanding balances. The borrower's payment history is the most important part of the report.

Once the loan processor has reviewed all of the information provided with the application, in addition to all other information that was collected, he or she will decide either to approve or reject the loan application. Once the lender has determined that the borrower is qualified to receive a loan, the lender will move on to the job of qualifying the property to determine if the property is a good risk. It is important for the lender to determine the market value of a particular piece of property at any given point in time. The Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) of 1989 requires that real estate appraisals be in writing and be performed by competent individuals in accordance with a set of uniform standards. There are three approaches to estimating the value of a property: Sales comparison approach Cost approach Income approach The Uniform Residential Appraisal Report (URAR), referred to as the 1004 Form, has become the standard in the industry. This report requires the appraiser to do all of the following tasks: Perform a visual inspection of the interior and exterior areas of the subject property. Inspect the neighborhood. Inspect each of the comparable sale properties (at least from the street). Collect, confirm and analyze data from reliable public or private sources. Submit his or her analysis, opinions and conclusions in the report. After the underwriting process is complete and after the lender and borrower have negotiated, if the loan is approved, the lender will issue a loan commitment. Click here if you would like to open this summary as a pdf, which you can then print or save to your device: Chapter 8 Summary

The sales comparison approach is based on what principle of value?

Substitution

What does the term anticipation mean as it relates to property value?

The benefits a buyer expects to receive over the period of time he or she holds the property.

What is the most important part of the credit report?

The borrower's payment history.

Name two red flags that might appear on a borrower's credit report. (See other correct answers on screen 17.)

The employment or residence data on the credit report is different from the application. There are several recent inquiries from credit card companies or other mortgage lenders

When a lender is processing a loan, there are four critical procedures involved. The lender or its designee must: Determine the ability of the borrower to repay the loan. Estimate the value of the property that is collateral for the loan. Research and analyze the marketability of the title. Prepare the documents necessary to approve the loan and close the transaction.

The evaluation process used to determine the borrower's ability to repay a loan and estimating the value of the property being used as collateral is called underwriting. Underwriting is usually performed by a loan officer at a financial institution and is based on information contained in the borrower's loan application and an appraisal of the property. Underwriting is the most important and last approval step in the loan process before the loan is forwarded to the closing department to draw up the actual loan documents. The loan process starts when a borrower completes a loan application and gives it to a lender for evaluation. Most lenders use some version of the Uniform Residential Loan Application published by Fannie Mae. Once the borrower has submitted the loan application to the lender, the actual underwriting process begins. The underwriter must evaluate the borrower's ability to repay the loan To qualify for a mortgage loan, a borrower must meet the lender's qualifications in terms of income, debt, cash, and net worth. In addition, the borrower must demonstrate sufficient creditworthiness to be an acceptable risk. The loan officer who will be doing the underwriting will verify all of the information included on the application by actually contacting the references given. The underwriter will check the banks where the borrower has deposits and will check with the borrower's employer or employers.

Define underwriting.

The evaluation process used to determine the borrower's ability to repay a loan and estimating the value of the property being used as collateral.

What kinds of information does an employer provide on the Verification of Employment form?

The information includes the borrower's wages and length of employment, an opinion of the borrower's attitude on the job, the probability of continued employment and a prediction of what the borrower's prospects are for pay increases or promotions.

Who usually performs the underwriting tasks?

The loan officer at the financial institution

The underwriter must be able to validate all EXCEPT which of the following?

The seller

What are the four levels of appraiser licensing?

Trainee License Residential License Certified Residential License Certified General License

The standard appraisal form is the

URAR.

Determining a borrower's ability to repay a loan and evaluating a property are known as what?

Underwriting