Intro to Mortgage Banking

Types of technology in loan production?

1) Borrower digital application technology 2) Loan origination system (LOS) 3) Product and pricing engine (PPE) 4) Automated underwriting system (AUS) 5) Automated Valuation Model (AVM) 6) Credit Alert Interactive Voice Response System (CAIVRS); Used to check the credit history with the federal government 7) Document management system (ex: Docusign) 8) Customer Relationship management system (CRM) 9) Data Standardization and MISMO 10) eMortgage/eNote/Remote Online Notary (RON) 11) eSignature 12) MERS eRegistry and eDelivery

Who are the closing players?

1) Closer 2) Settlement Agent 3) Shipper

What does Loan Administration / Servicing consist of? (5)

1) Collecting the monthly mortgage payments 2) Forwarding the principal and interest portion of the mortgage payments to the investors 3) Maintaining escrow accounts for payment of taxes, private mortgage insurance and hazard insurance 4) Paying escrowed items 5) Acting as the investors collection, loss mitigation and property preservation representative should problems arise with the loan

What are the two areas of wholesale lending?

1) Correspondent --> the servicing mortgage lender buys loans closed by correspondent 2) Brokered --> the servicing mortgage lender funds loans originated and processed by broker **Wholesale lender may also perform the underwriting and/or closing function (especially when the loan is table funded). And after closing, wholesaler will perform post-closing, shipping and QC review functions.

What are the tasks of Secondary Marketing?

1) Forecasting to manage the risk of originating/producing loans that are not salable in secondary market 2) Informing loan pricing in coordination with other departments (finance and account, shipping and delivery) 3) Managing the loan production pipeline 4) Negotiating sales (via securities or as whole loans), which may include bundling for sale to Wall Street firms or GSE's

Secondary Market Players

1) Investors - GSEs, Life Insurance Companies, Financial Institutions, Pension Funds 2) Wall Street - Brokerage firms that buy loans and sell mortgage-backed securities to investors 3) Conduits & Aggregators - Intermediaries that aggregate closed loans purchase from various loan correspondents to sell or securitize

What are the four basic functions within the primary market? In order.

1) Loan Production 2) Warehousing 3) Secondary Marketing 4) Loan Administration

Results of the development of mortgage lending in the U.S?

1) Mortgage banking is at the center the global credit market 2) Global credit crisis ensues 3) Dodd-Frank Act significantly changes the face of mortgage lending

What are the two essential mortgage loan documents that serve as evidence of the creation of the asset?

1) Note (evidence of the debt; borrowers promise to pay. The negotiable instrument transferred to the investor(s) in the second market) 2) Mortgage/Deed of Trust (Security instrument that secures collateral (real property) for the debt) ** Lender secures the repayment of the note WITH the mortgage deed of trust

What are the four phases of loan production?

1) Origination (solicit customers, provide information, take application) 2) Processing (Obtain & verify supporting documents regarding customer and property) 3) Underwriting (analyze risk of default and make loan decision) 4) Closing (Finalize loan transactions through signing of legal documents and transfer of funds)

Who are the mortgage insurance and guarantee players?

1) Private mortgage insurance companies (for loans with >80% LTV) 2) Ginnie Mae: Guarantee securities backed by mortgages insured by other government agencies such as FHA, VA, USDA) 3) GSEs (FNMA & FRE): Guarantee securities backed by mortgages by the conventional mortgages they buy

MBA Canon of Ethics (12)

1) Professionalism 2) Integrity and Confidentiality 3) Public trust 4) Fiduciary Responsibilities 5) Disclosure of Information 6) Conflicts of Interest 7) Compliance with Laws 8) Non-Discrimination 9) Honesty in Advertising 10) Sanctity of Agreements 11) Competition 12) Ethics Compliance

Loan Servicing Goals

1) Reduce and control risk 2) Manage and minimize costs 3) Maximize income 4) Create customer good will

What are the goals of Secondary Marketing?

1) Risk management; Loans salable in the secondary market 2) Pipeline management; Loans sold in the secondary market with an 'efficient' time period after origination 3) Profitable sales of mortgages loans in the secondary market

Seven considerations for making business decisions

1) Risk: What is the cost of doing/not doing? 2) Win-win: what are the impacts for all stakeholders? 3) Confidentiality: Will confidentiality be compromised or protected? 4) Transparency: Any hidden agendas? 5) Agreements: Any contracts or understandings that need to be considered? 6) Fairness: Is there a precedent? 7) Wisdom: Is that the "right" thing to do?

What are the two valuable, salable assets of a loan "product"?

1) The stream of loan payments 2) Loan administration / Servicing Rights

What occurs at closing? (3)

1) Title passes from Seller to borrower 2) Mortgage lender establishes various legal repayment, collateral and default rights 3) Borrower signs various loan documents, including the note and the mortgage / deed of trust

Warehousing Cycle (6)

1) Warehouse money goes to mortgage banker 2) Mortgage banker collateralizes warehouse lender's loan with borrower's loan in process 3) Warehouse money funds closing of borrower's loan 4) After closing, investor pays mortgage banker for purchase of borrower's closed loan; connecting Main Street and Wall Street 5) Mortgage banker pays off warehouse loan with investor's funds 6) Warehouse lender releases collateral

What does the underwriters analysis include? (2)

1) a review of the creditworthiness of the applicant and his/or ability and willingness to repay the mortgage in a timely manner in accordance with the mortgage terms 2) a review of the property value to ensure that sufficient value exists to recover the loan balance should loan default occur

Two main functions of a processor?

1) gathering verified documents that confirm credit, income and collateral information about the applicant, the loan and the real estate 2) collection of various data required for the closing of the loan

What are the primary functions of a closer?

1) prepare, assemble and review the closing documents 2) fund the mortgage loan 3) verify that all closing conditions are met 4) verify that all fees, costs, and premiums are collected

Primary Market vs Secondary Market?

Mortgages are MADE on the primary market, and mortgages are TRADED on the secondary market

Who are the origination players? What are the origination channels? and How does origination generate income?

Players: borrowers, Loan officers, brokers, correspondent, wholesale lender Channels: Retail/consumer direct (mortgage banker), Wholesale, Correspondent Income: Origination fee (1% of the principal amount of the borrower's loan; commissioned to LO)

Quality Assurance vs Quality Control

QA: Internal systems focused on data integrity, accuracy, compliance and fruit prevention in the loan production space. Goal is to improve the production processes that occur before a loan is sold. QC: the review of closed loans

What is the most profitable loan function?

Servicing

How did mortgage lending help level set capital inefficiencies?

Some regions of the country were experiencing excess of capital (capital that investors needed to invest), while other regions were experiencing shortages of capital (capital needed to build & purchase homes). Mortgage companies came to the rescue by moving capital from regions with surplus capital to regions with capital deficiencies

What is a correspondent lender?

The correspondent generally originates and processes loans, and then SELLS the closed loan to a servicing mortgage lender. Unlike brokers, correspondents fund the loan at close.

Why are mortgage lender & investor guidelines important?

They ensure the loan product is profitable

What is a table fund?

When a mortgage lenders buys the loan at closing and funds it at the same time

Mortgage banker (Retail origination channel) vs Wholesale Lender (Wholesale origination channel)

Wholesale lender does not have direct contact with the borrower, rather purchases and services loans obtain only from other specialists (ex: broker, correspondents, credit unions, etc). Mortgage banker will perform every task of loan production

Who does the loan originator work for?

A mortgage lender; originating loan products specific to the mortgage lender she/he represents

Why is lending profitable?

Because banks don't have tons of cash on deck to lend; they require liquidity to function

Who does a broker work for?

Brokers work independently to generate leads, then work with a lender for fulfillment (underwriting, funding/closing and shipping); generating loans at a 'low cost'. A broker does not fund the loans at closing.

What is the global credit market?

Collection of financial intermediaries that provide credit opportunities to households, business, government and international sector. Ex: Mortgage Companies, Banks, Thrifts, Insurance, Brokers.

Who are the two parties that the mortgage lenders provide transaction services too?

Consumers (the borrower) and ultimate Owner of the loan (the investor)

What is Warehouse Lending?

The short-term, asset-backed lending by warehouse lenders to mortgage bankers while awaiting investor funding for closed mortgage loans.