by Dean Hartman on September 30, 2010
One thing I have learned is that many customers meet with a loan officer and fill out an application and then they feel like they enter a black hole. They don’t know “what happens next” or “who all these people are”. Today, I thought I might shed some light on the typical roles and responsibilities of the participants. Now not every company has the same job descriptions and workflow procedures, but since we all have to end up in the same place, they are fairly similar.
I will assume your loan officer helped you complete your application and explained all the disclosures, including the Good Faith Estimate and Truth-In-Lending, and they gathered much of your documentation to support your income, assets and credit-worthiness. Further, they ran your credit report and maybe even obtained an approval through an automated underwriting system. Of course they advised you as to loan product options and discussed rate lock choices. For most, the amount of information can be overwhelming. But what happens next?
Your file is submitted to the Processing Department. The main function of the Processor is to verify all the information on your application, as well as order the appraisal. They will verify your employment history and income via the mail, the phone and/or confirmation from the IRS. They will source the necessary funds for closing and reserves; they will help dispute and/or explain any credit reporting challenges. They will review the Contract of Sale and the appraisal. Then they will assemble all of the relevant documents and submit them to the Underwriting Department.
The Appraiser is an independent third party who gathers information about the home and gives their opinion of value. Appraisers weigh many factors- comparable homes that have sold recently in similar locations, homes currently for sale, the condition of the property, the replacement cost, what the home could rent for, etc. The appraiser is supposed to protect the borrower and the lender. No one wants the buyer to pay too much, and the lender needs to make sure their cash investment is satisfactorily secure. The appraiser is not usually an engineer. They do not certify as to the “life expectancy” of the home or its improvements; however, they do often raise issues that should be addressed by a home inspector.
I have long referred to underwriting as “the speed bump of the mortgage process”. Underwriters are charged with protecting the company from fraud and unsound decision making. While the borrower, the loan officer and the processor are pushing to get a closing, the underwriter says “slow down”. They look at the quality and consistency of the documentation. They add common-sense to the factual analysis of the automated systems. Files are approved, suspended or rejected. (If the LO and Processor did their jobs correctly, rejections are rare.) Most of the time, the underwriter will find some areas that need further clarification or documentation….and so the file goes back to the Processing department.
The processor and LO work with the borrower to satisfy the conditions. The file is then given back to the underwriter for review and hopefully the issuance of a Clear To Close.
The Closing Department
The Closing Department is focused on making sure the lender is covered legally. They review the title report (checking for gaps in the chain of title, certificates of occupancy, real estate tax numbers and payments, as well as judgment, bankruptcy and Patriot Act searches). They prepare the closing documents for the lender and have them executed and delivered for recording.
As you can see, there are many people who are working towards a successful closing. Each of them are trying to make sure the borrower is qualified and informed of what their future holds, and, at the same time, they are trying to protect the lender from making faulty underwriting decisions.