Steven W. Driscoll i COPYRIGHT © Copyright 2004 Steven W. Driscoll ISBN E-Book: 978-1-4140-1765-5 Updated & Revised for 2020 All rights reserved. No part of this book may be reproduced stored in a retrieval system or transmitted by any means electronic, mechanical, photocopying recording, or otherwise without written permission from the author. ii TABLE OF CONTENTS CHAPTER PAGE Acknowledgments v Introduction vi SECTION I: BASIC STUFF 1 1 Basic Stuff You Should Know 2 2 Common Mortgage Lending Terms 15 SECTION II: LOAN QUALIFYING 75 3 Qualifying Your Borrowers 76 4 Loan Underwriting 90 5 Qualifying Documents 119 6 Ability-To-Repay & Qualified Mortgage Rules 141 7 Subject Property Concerns 156 8 Types of Mortgage Loans 168 9 Types of Loan Documentation 204 SECTION III: THE PAPERWORK 207 10 Uniform Residential Loan Application 209 11 Mortgage Loan Disclosures 243 12 The Loan Estimate 260 13 The Transmittal Summary Report 283 14 The Property Profile 290 15 The Purchase and Sales Agreement 295 16 Out of Town Customers 301 17 The Closing Disclosure 304 SECTION IV: THE REPORTS 328 18 Reading the Credit Reports 329 19 Reading the Rate Sheets 340 iii TABLE OF CONTENTS CHAPTER PAGE SECTION IV: THE REPORTS 20 Title Insurance Report 349 21 The Appraisal Report 359 SECTION V: LOAN PROCESSING 371 22 Processing Your Loans 372 23 The Remarks Page 389 24 Loan File Stacking Order 392 25 Mortgage Lending Regulations 394 26 Putting It All Together 435 SECTION VI: MARKETING 441 27 Marketing Your Services 442 28 Closing Thoughts 460 Bibliographic Note 463 Index 476 About the Author 487 EXHIBITS Exhibit I Weekly Loan Status Worksheet 464 Exhibit II Customer Pre-Qual Worksheet 465 Exhibit III Letter to Customer re: PMI 466 Exhibit IV Loan Application Needs List 468 Exhibit V Temporary Leave Income Worksheet 469 Exhibit VI Private Mortgage Insurance Schedule 470 Exhibit VII APR Calculation Worksheet 471 Exhibit VIII TIP Calculation Worksheet 472 Exhibit IX Property Profile 473 Exhibit X Lender Rate Sheet 474 iv ACKNOWLEDGMENTS I would like to thank the many people who helped me make this book possible since its first edition in 2003. Many of those are Mortgage Branch Managers, Loan Processors, and Mortgage loan originators I have worked with and know. To name a few they are: Tim Swartout, Terry Jo Carter, Ed Latscha, and Gary Wisben. My many thanks to those who have reviewed and edited this book, in whole or in part, prior to first publishing it in 2003. They are: Ernie Kroll, Debbie Herman, Steven Johnson, Tiffany Ipock, Barney Barnhart, Leslie Wilson, and Robert Van Hemel. Their comments and recommendations (which I have included) made this book better than it would have been otherwise. I would be remiss if I didn’t thank Gary Grahn for patiently teaching me how to effectively write business reports and memos in my early years in banking. On too many occasions to recount he mercilessly showed me, by using his red marker pen, how to reduce a multi- paged business report summary into one small paragraph. Also, thanks to Gary, I learned to express and state information in business memos the same way as if I were speaking to that person in the same room. And I hope, dear reader, that as you read this book you get a sense of that as well: Like I am speaking to you personally. I also thank those of you who have previously purchased this book and emailed me with requests and suggestions of subjects to expound upon and/or include certain lending subjects in this book. I listened to you and have followed up as you requested. You know who you are and, again, I thank you. And finally, to all of my family, friends, and working associates who have influenced and stood behind me throughout the years. I thank you all. v INTRODUCTION T his mortgage-training manual is the 2020 edition of The Loan Officer’s Handbook for Success. Whenever I update this book, I research the mortgage lending business and market as much as I can. That means reviewing the latest version of Fannie Mae’s Selling Guide and Eligibility Matrix, what new mortgage lending laws have become effective (since the previous year), and any new originating and processing documents, forms, and maximum loan amounts that are now required. Thus, a lot of time is spent reviewing Fannie Mae’s and the Consumer Financial Protection Bureau (CFPB) website. And, sometimes I contact my friends, who are Escrow Officers, Mortgage Branch Managers, Appraisers, Loan Processors, and Underwriters and ask them what, if any, changes have occurred within the past year and in their particular area of mortgage lending that should be included in this book. I take their suggestions, along with what I feel needs to be included, and the revised 2020 edition of The Loan Officer’s Handbook for Success is what you are reading. I should also mention that the “Powers that Be” have been very busy burning the midnight oil in researching and implementing changes for originating and processing mortgage loans - so that the mortgage lending industry does not have (hopefully) another mortgage meltdown and crisis that we all went through. This mortgage loan originator’s training manual contains those changes that have been implemented and are required that you now need to be familiar with and employ in loan origination and processing for 2020. That includes regulatory requirements from the Consumer Financial Protection Bureau (CFPB) for the mortgage industry and mortgage loan originators. For example, included within this revised and updated mortgage loan originator’s manual are: • Ability-To-Repay Rule • Qualified Mortgage Rule • High-Cost Mortgage Rule • The Loan Origination Compensation Rule • The new and revised Uniform Residential Loan Application (effective 2/1/2020) • The Loan Estimate (replaced the Good Faith Estimate and Truth-In-Lending Statement) • The Closing Disclosure (replaced the HUD-1 Settlement Statement) • The Appraisal Rule • New Home Loan Underwriting guidelines from Fannie Mae’s Eligibility Matrix and Selling Guide (both dated October 2, 2019) • Fannie Mae’s Lender Letter LL-2019-09, dated November 26, 2019 showing the new maximum loan limits for 2020 that become effective on January 1, 2020. The information in this book is also from actual trainings I have given to mortgage loan originators (when I was a mortgage Branch Manager), from seminars I have given to first- time homebuyers, and from my own personal experiences as a mortgage loan originator. I have structured this book with the new mortgage loan originators in mind and doing it this way I felt I could be more certain that “no stone would be unturned”. And, after you have vi read this book I felt I could rest assured that you have the information you need to go forward and do your job professionally and hopefully make some good money while doing it. The sequence of subjects presented within this book also follows very closely the way I have trained mortgage loan originators. It’s kind of a funny thing that when the opportunity for me to become a mortgage loan originator first presented itself, in early 1995, I wanted to obtain and read a book that wrote about being a mortgage loan originator and about all the steps in originating mortgage loans. Or, more importantly, a book that would introduce me to this profession and train me on what I needed to know and how to do the things mortgage loan originators do in originating loans. At that time I could not find one book on this subject. I looked in books stores and libraries and found zilch! I thought perhaps knowing the ins and outs of this profession might be like knowing the secrets of magic. However, I must say that today, on the Internet, there are many mortgage training materials and resources that were not available when I first wrote this book. If you are thinking about getting into this profession, are just starting out as a mortgage loan originator, or have been in this profession for a while but would like to have a good reference guide then this is the book for you. I have tried to present the information in this book as if you were in one of my training classes. I have also tried to make it as interesting as possible, throw in a story here and there, and go beyond what any technical book might discuss. I will be presenting the information contained within this book in my own words and in a way that (I hope) will be easily understandable to you. Also, because this is a training manual you will find that throughout this book I have capitalized, highlighted, and underlined certain words. I have done this because I believe that word or phrase deserves capitalizing and/or I wish to bring attention to that word or phrase. If I have made any grammatical errors in doing this (or any others) I apologize for that. I was in the banking business for many years as an internal consultant and provided training seminars to employees and managers. For me, training was both exciting and gave me a great deal of personal satisfaction. Especially when I saw how that training improved an individual’s job performance. As a manager, within the banking and mortgage lending areas, I have found that 80% of an employee’s problems, with his or her job (often referred to as non-performance), could usually be attributed to the employee not knowing what they were supposed to do or were unaware of what they were not supposed to do. I learned, at that time, how important it is for managers to provide or see to it that their new employees received that all-important thing called training. Training, that gives new employees the necessary informational tools that can enhance their chances of realizing success in their new job and career. I bring this up because after I had been a mortgage loan originator for only about a year I began attending some parties and gatherings that title and escrow companies give on holidays and special occasions for people in the mortgage lending business. When I first started attending those I felt somewhat conscious of myself because I felt I was still “wet behind the ears.” However, when I spoke with some other mortgage loan originators, who had been in the mortgage business longer than I had (with some of them having quite a few vii more years), I found that some of them did not know, understand, or had been trained in some very basic things regarding originating and processing of mortgage loans. Some of those mortgage loan originators told me that when they first started - their manager showed them to their desk and said, “There’s the telephone, the phone book, and your telephone script. Call me if you have any questions.” I could hardly believe it! But I have heard this story (or something similar to it) more than once. So, what happened to their training? There really wasn’t any. When I first got into the mortgage lending business, as a mortgage loan originator, my manager didn’t have a structured training program but gave me the information he felt I needed to do the best job possible. For example, on my first morning as a new mortgage loan originator he put on my desk a stack of papers three inches thick, covering subjects such as FHA, VA, and conventional conforming loan processing and lending regulations. When I finished with that stack he tested me and gave me another stack to read. After that he did the same. This went on for about four weeks. I hadn’t taken a call or met with any loan customers yet. It was his mortgage company and I’m sure he wanted me to be knowledgeable and professional when I finally did meet with loan customers. Since I was representing his mortgage company he wanted me to know what I was doing and to be able to provide the best customer service possible to them. Into my fifth week I told him, “Look, I have demonstrated that I know the lending information (he had given me). I think it’s time for me to begin applying this.” He agreed and that’s when all the material I had read really started to come together and make sense. On reflection, there was a lot of information he gave me to read that I really didn’t need to know or read at that time. But that will not happen here. I have specifically designed this book to contain just the nuts and bolts and real world information of mortgage lending that you need to know, as a new mortgage loan originator, to be knowledgeable, professional, and provide the best customer service to your prospective borrowing customers. And, of course, make a good living while doing it. I realize that this training manual now contains 498 pages - but let me assure you: Everything in this training manual is the “meat and potatoes” of what every mortgage loan originator should be familiar with. I absolutely refuse to put any fluff in any of my training manuals. As I mentioned previously, I have designed this book pretty much the way I have trained mortgage loan originators in the past. Thus, the subjects being covered are presented in a sequential order that goes from the simple to the more complex, while building on the information previously discussed. And, the flow of the chapters, within each section of this book and what they cover, follows very closely the sequence of originating and processing home loans by a mortgage loan originator (if that is possible): 1. How to Setup Your Work Station to make your time more productive. 2. Understanding the Basic Concepts and Terms of mortgage lending. 3. Qualifying Customers: When they call-in and/or you meet with them. 4. The different Types of Mortgage Loans and their Underwriting Guidelines. 5. Completing the Loan Application and Packaging the Loan for Submission. 6. Reading and Understanding the various Reports that can affect your loans and are required. viii 7. Processing Loans from Start (loan application) to Finish (loan closing). 8. Lending Regulations you need to be familiar with and apply. 9. Marketing Your Services as a mortgage loan originator. Also, I wanted to make this book as self-contained as possible. I did this because some of you may not be currently working at a mortgage or lending company and may either not be aware of these forms or have them available to you. I therefore have included some exhibits of those forms and reports discussed in this book. And, where available, I also show the website addresses of those forms so you can download them in PDF format to your computer. To make it easy for you to refer to those forms I have included hyperlinks throughout this book - that allows you to immediately go to any exhibit (of a form or report being discussed) by simply clicking that respective Link (blue underlined word). I have also included Links that allow you to quickly go to and read and obtain additional information on a subject being discussed at that time. And, I have included a comprehensive Index to make it easy for you to find the subject matter you are researching or working on. Thus, I have composed this book to be not only a training manual for mortgage loan originators but also a reference guide for new and experienced mortgage loan originators as well. It is my hope that I have done this in a way that enables you to obtain the information you need easily and quickly. Now, if you plan on printing this book then I suggest copying this e-book onto a CD or thumb drive, take that to your favorite printing place and have them print it on both sides of the papers and insert those into a binder. And, have them place page this book’s cover page as your cover page. Following that, you will have a professional looking training manual on originating and processing mortgage loans. Or, simply purchase this book in paperback format, on Amazon.com. You’ll find that will save you time and money as well. In writing this mortgage loan originator’s training manual I wanted it to be as complete and comprehensive as possible. Therefore, the training material in this book is primarily for mortgage loan professionals that work for a mortgage company. If you work for a bank, credit union, financial institution, or correspondent lender then some of the lending procedures, stated in this book may not apply to you. For example: 1. Shopping your mortgage loans to Wholesale Lenders: Your bank or financial institution may require you to submit all your mortgage loans to your bank or financial institution versus shopping the Wholesale Lender Market for the right loan program with the best interest rates and terms for your loan customers. 2. Loan Disclosures to your Loan Customers: Working for a bank or financial institution may require you to provide more or less mortgage Loan Disclosures, given to your loan customers, than what a mortgage loan originator working for a mortgage company may be required to provide. 3. Processing of your mortgage loans: This training manual was written for mortgage loan originators who process their own loans as well as for those who pass their home loan files over to their Loan ix Processor. If you work for a bank or financial institution then you would most likely pass your home loan files over to your Loan Processor after you have originated that loan. There may be a few more minor differences that may exist but those would most likely depend on what bank or financial institution you work for. However, although these small differences may exist for you - that would not affect the rest of the other 98% of the material within this training manual. It has been my experience that most banks and financial institutions have an in-house mortgage loan originator training program - which should enable you to make those distinctions and differences in what is expected of you as a mortgage loan originator for that bank or financial institution and what is stated in this book. If you are uncertain of this then please contact me at: [email protected] I love the mortgage lending business because it allows me to do many of the things I enjoy doing: Meeting with customers - sometimes in their home, doing the financial stuff that needs to be done, and interacting with all the different mortgage lending related professionals necessary to make a home loan happen. There are times when I felt I have really helped some folks financially by savings them hundreds of dollars per month on their monthly bills or helped some young couple get a mortgage loan for their first home. Sometimes these types of loans give you what I call a “warm fuzzy” - it just makes you feel good to be in a profession you enjoy and can truly help people. I hope that once you have read the information in this book, get your feet wet with a few loans, then you too will love this business. And finally, I wish to include in this Introduction something I would rather not have to - but have been advised that I should: A Disclaimer. First, let me say that the information in this book has been well researched and, as I previously mentioned, much of it is based on my personal experiences as a branch manager, mortgage loan originator, and trainer of mortgage loan professionals. Now, when I first told other experienced mortgage professionals that I was writing a training book for new mortgage loan originators, back in 2003, some of them asked me if I was including a chapter on mortgage lending regulations. I told them that, of course, I was. After hearing my reply some of them looked startled and looked at me like I had two heads. When this occurred I just asked them, “How can I write a book for training new mortgage loan originators on mortgage lending if I do not include a chapter on lending regulations? Many of the very things we must do in originating and processing loans is influenced and dictated by lending regulations that determine if our home loans and we are “In Compliance”. And, the consequences for being out of compliance can be quite severe. Besides, a mortgage lending training manual without a discussion on lending regulations and laws would just not be complete.” On these points they did agree. However, one thing is for sure: I am not an Attorney and do not have the legal right and/or capacity to advice on any legal matters. And yet, many of the required procedures for processing mortgage loans presented in this book are based on lending regulations and x