Chapter 11 Processing: DOCS, FUNDING, AND CLOSING

1. Chapter 11 Processing: DOCS, FUNDING, AND CLOSING By Dr. D. Grogan M.C. “Buzz” Chambers

2. PREVIEW The file is sent to the document department, which draws the loan documents. Computer generated documents are printed and reviewed by a funder in the doc department. A complete set of loan documents is shown in Appendix G and reviewed in this chapter. After checking the accuracy of all the papers, the loan go to the borrower for signing. All documents are returned to the lender’s funding department so that the lender may have final review of the loan file to set up closing. If the file is approved, the lender notifies escrow and the title company when the loan will be funded. The funds are wire transferred to the title company from the lender. The title company notifies the lender and escrow upon receipt of the funds and advises both that they are in a position to record. Escrow instructs title to record. The loan records and the funder prepares the file to forward for shipping and servicing.

3. Student Learning Outcomes Explain the loan document process from underwriting up to shipping and servicing. Discuss the reasons that the funder would review the loan documents. Indicate examples of discrepancies the funder may find on loan docs. Describe components of the various loan docs that the funder would verify. Outline the steps involving the loan broker that lead to the loan being funded.

4. 11.1 Conditions Prior to Docs When the underwriter is unable to approve the loan as submitted to the lender from the mortgage loan broker. Other parties must complete various items.

5. LOAN APPROVAL CONDITIONS Definition: The process to determine documentation requirements to Satisfy loan approval conditions Weigh title items Prepare loan file for funding • “Subject to conditions” items include: • Termite clearance • Insurance policy

6. UNDERWRITING GUIDELINES FOR LOAN APPROVAL Balances on borrower’s loans Copy of closing statement on borrower’s other owned property Indebtedness to be paid in escrow Evidence of no junior liens Endorsements on the title insurance policy Signatures on various disclosures

7. ADVERSE ACTION When applicants do not meet underwriting requirements Federal Reserve Regulation B Inadequate length of employment Debt service coverage inadequate Credit history problems Borrower may challenge inadequacies under the Federal Fair Credit Reporting Act.

8. 11.2 Drawing Docs The loan funder or loan doc verifier receives the file in the document department. The funder makes sure the loan is locked in and the investor’s funds are still available at the rate and terms stated on the loan docs. The funder verifies all the loan details, the borrower data and the property information using computer software programs to generate the loan docs (DOC MGIC)(MORT PRO).

9. 11.3 Conditions Prior to Funding • The loan will not fund when: • The conditions prior to funding has not been met • When discrepancies are found in the file • The loan is “pulled” • The loan papers are thoroughly checked before funding and closing. • Errors become enforceable, permanent documents • The reviewer may check credit, source of funds and vesting.

10. LOAN FUNDING The process AFTER taking the application and initial approval, but PRIOR to drawing loan documents, which includes: Reviewing the title report and requirements Obtaining a certified copy of escrow instructions Determining status on supporting documents: Promissory Note Trust Deed Homeowner association documents

11. 11.4 Loan DocumentsSee Appendix G Effective July 1, 2010, a borrower may request within 90 days a translation of the loan contract or agreement must be delivered in the foreign language, and no later than 3 business days after receiving the written application. The borrower must receive a specified form in that language summarizing the terms of the loan contract or agreement for Industrial Loan Law and California Financial Lenders Law.

12. Loan Document Package List Conditions Prior to Funding The Loan Document Audit Sheet Lender Escrow Instructions to Title & Escrow Addendum to Escrow Instructions Title Wire Instructions HUD Settlement Trust Note Loan Application Disclosure Deed of Trust

13. Loan Document Package List (cont) Federal Truth-in-Lending (TIL)-Reg Z and HOEPA Statement & Itemization of Amount Financed Occupancy Affidavit & Financial Status Borrower’s Certification & Authorization Borrower’s Certification as to other loans Hardship Letter Fair Lending Notice Document Correction Compliance Agreement Notice of Availability of Real Estate Appraisal

14. Loan Document Package List (cont) Federal Flood Disaster Protection Act of 1973 Loan Servicing Disclosure Statement Authorization for Impound Account Assignment of Deed of Trust Request for Change to Insurance Policy

15. Loan provisions Acceleration clause Alienation clause Assumption clause Foreclosure Prepayment penalty clause Transaction fee Subordination clause

16. PRIOR LOAN DOCUMENTS Consumer disclosures, including: Truth-in-lending (TIL) Variable rate loan data Impound account status Loan insurance Affidavit of Occupancy: Borrower’s intent to occupy the property as principal residence

17. 11.5 Funding • The funder advises the • Loan broker of any underwriting conditions • Escrow of any conditions • Title of title conditions • Title receives wire transfer information • Title instructed to record • Loan docs signed and notarized • The funder orders release of funds to close

18. 11.6 LOAN CLOSING Assuring all documents are properly prepared Review documents assuring correctly executed All conditions met for all parties & underwriting Order funding of the loan Notify escrow of funding Order document recordation and transaction closing Obtain all third party affiliated documents Lender notifies mortgage broker of completion

19. AFFILIATES FUNCTIONS Insurance agent: Provides lender coverage Title Company: Provides lender endorsements Escrow Company: Compiles documents: Certified copies, notarized signatures Accounting HUD-1 fee, prorations, & payoffs Inspectors: Termite report completion Appraiser: URAR report Credit Bureau: Credit history of borrower Run by independent third party

20. LOAN SERVICING Documents in loan package Signed by borrower Disclosing loan servicing Prepares documents for transfer To loan servicing provider According to instruction of lender