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Residential Mortgage Lending: Principles and Practices, 6e

Residential Mortgage Lending: Principles and Practices, 6e. Chapter 18 Strategies for Generating Residential Loans. Objectives. After completing this chapter, you should be able to: Identify the requirements for successful mortgage lending

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Residential Mortgage Lending: Principles and Practices, 6e

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  1. Residential Mortgage Lending:Principles and Practices, 6e Chapter 18 Strategies for Generating Residential Loans

  2. Objectives • After completing this chapter, you should be able to: • Identify the requirements for successful mortgage lending • Describe the importance of the origination function and what it consists of • Explain the reasons for some of the recent developments in serving the public in the requests for mortgage loans • Identify those attributes which attract customers to mortgage lenders • Distinguish between the retail and wholesale methods of loan origination • Explain the advantages and disadvantages of the retail and wholesale methods • Understand some of the expenses associated with the origination function.

  3. Measuring Customer Satisfaction ● Application/approval process ● Closing process ● Loan officer/representative or banker ● Problem resolution

  4. Attracting Consumers • Referral by real estate sales agents • Low interest rates on loans • Good company reputation • Friendliness of loan officers • Previous experience with company/institution • Recognition of company/institution name • Availability of various loan products • Convenience of home or office application

  5. Successful Mortgage Lending Operation Requirements ● Trained personnel ● Program offerings ● Competitive pricing ● Targeted marketing ● Loan demand ● Effective origination channel(s)

  6. Methods of Origination • Retail loan origination • Wholesale loan origination • Combination of retail and wholesale

  7. Retail Lenders • Completes application with borrower • Verifies all employment, income, and deposits • Orders appraisal • Obtains a credit report • Prepares loan for underwriting/automated underwriting • Underwrites the loan application • Approves or rejects the loan application • Closes and funds approved loan • Portfolios or warehouses/sells loan

  8. WHOLESALE LOAN ORIGINATION ● Greater volatility in mortgage interest rates ● Massive annual swings in one- to four-family mortgage originations from year to year, exceeding $1 trillion ● Increased geographical variations in real estate market and origination volume

  9. WHOLESALE LOAN ORIGINATION ● New, dynamic origination competition from traditional and nontraditional lenders ● Cheaper and more sophisticated technological support for mortgage lending ● Large variations in mortgage servicing right pricing

  10. INTERNET LENDING • In this computer and Internet era, it is not surprising that the use of the Internet for residential mortgage originations is rapidly growing. • In addition to using the PC and Internet to underwrite, appraise, and obtain credit reports, many mortgage lenders are now using the Net to originate loans.

  11. What Do You Think? • Discuss the six keys for a successful lending operation. • Identify the various methods of loan origination. Discuss the pros and cons of each method.

  12. What Do You Think? • What functions are normally performed by a retail loan originator? • What features or attributes attract consumers to a particular mortgage lender?

  13. What Do You Think? • Many mortgage lenders compensate their originators by commission – what is the typical commission for a loan officer – how is it calculated? • How do mortgage originators offset their expenses in producing a residential mortgage loan? What are the expenses in originating a residential loan?

  14. Check Your Understanding • In today’s market place, all a lender has to do is advertise that it is offering mortgages and it will get all of the business it can handle. • The largest originator of residential mortgages over the past couple of years was thrifts. • The realtor is considered among the most important factors in a borrowers selection of a mortgage lender. • The retail method of loan origination is the traditional method familiar to most borrowers. • A commissioned loan agent generally earns a 50 basis points commission.

  15. Check Your Understanding • Loan demand is driven more by demographic issues than interest rates. • The average percentage of yearly originations that are refinancing is about 50 percent. • One point equals one percent of the mortgage amount. • Table funding occurs when a broker closes a mortgage loan with funds belonging to an acquiring lender. • Yield spread premiums are illegal under RESPA.

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