CMB- Loan Production: Overview and Origination

• production is possible through funds from mortgage lenders and secondary market investors
• since loan production is made possible through funds from mortgage lenders and sale of loans to investors, mortgage loan originators must follow mortgage lender/investor guidelines when originating loans

Mortgage lenders rely on two assets created during loan production

• stream of loan payments
• servicing rights

The process of producing a closed and funded loan that then may be sold or kept in portfolio

• origination
• processing
• underwriting
• closing

Entire loan production handled by originating mortgage lender

• application taken by mortgage broker
• loan fulfilled by separate mortgage bank

Correspondent- the servicing mortgage lender buys closed loans made by a correspondent. Correspondent generally originates, processes, underwrites, and closes loans using its own funds but does not service the loans.Brokers- the servicing mortgage lender funds loans originated and processed by a mortgage broker. Broker generally takes the loan to the underwriting stage and then forwards the file to the investor/mortgage lender for closing and funding

Benefits

• the ability to generate large volumes of loans quickly
• the ability to achieve a geographic diversity in the servicing portfolio
• the ability to reduce overall loan origination costs

Disadvantages

• greater risk of losses due to fraud
• price competition
• potential higher prepayment risk

A system of internal controls that provides management with an opportunity to examine and, if necessary, adjust its policies and procedures. It is vital in loan production

• verify the existence and accuracy of information
• evaluate the quality of originations from mortgage loan originators, mortgage brokers, and correspondents
• identify ineffective, inconsistent or ambiguous procedures
• uncover single and/or recurring errors
• pinpoint communication deficiencies
• ensure compliance and investor/insurer requirements
• keep pace with changes in the industry
• identify training deficiencies

The securing of a completed loan application from a prospective borrower and beginning of the process of gathering supporting loan documentationOrigination may be performed either by a mortgage loan originator working for the mortgage lender or by a mortgage broker, Realtor, builder, or other tpo

• developing a marketing plan and soliciting clients
• prequalifying potential borrowers
• obtaining a completed, signed, dated loan application and supporting documentation
• counseling borrowers
• providing required disclosures
• obtaining fees

• geographic area
• neighborhood
• population
• competition

After taking an application, mlo prequalifies the applicant based on the applicant's income and borrowing needs to determine if applicant can afford the property.Ratios

• loan to value ratio
• housing to income ratio
• debt to income ratio

• principal and interest
• property taxes
• insurance payments
• HOA or condo dues

Loan Amount x Interest Rate=I/O pay 12 months