V600 Introduction to Mortgage Lending. Robin J Wybenga, CFO, TBA Credit Union

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1 V600 Introduction to Mortgage Lending Robin J Wybenga, CFO, TBA Credit Union

2 Introduction Objectives 1. Identify the key benefits your CU gains by offering real estate lending services to members. 2. Understand the steps in the mortgage process. 3. Understand the options your CU has for origination, selling, and servicing of mortgage loans. 4. Name the types of risks that exist when your CU engages in mortgage lending and learn strategies for managing those risks. 5. Describe the marketing issues related to mortgage lending. 6. Identify the regulations the apply to mortgage lending. 2

3 Why Mortgages? Four Key Benefits 1. Service to the members 2. Increased member retention 3. Fee income Investment income Percentage of CUs Offering First Mortgages Asset Size in Millions First Mortgages $ % $ % $ % $200-1, % 3

4 What is Mortgage Lending? Common Mortgage Terms * Mortgage * Loan origination * Closing * Servicing * Secondary market * Servicing released * Investor * Sale of loan * Sale of servicing * Subservicing * Servicing fees * Underwriting 4

5 What is Mortgage Lending? Mortgage Product Options * Fixed-rate mortgage * Adjustable-rate mortgage * Balloon loans * Buydowns * Pledged asset mortgage * Affordable housing programs * Sub-prime loans * Construction-permanent mortgage * Reverse mortgage 5

6 What is Mortgage Lending? 6

7 The Mortgage Lending Process Loan Originating includes counseling the CU member, taking the mortgage application, documenting creditworthiness, evaluating the property, and closing and funding the mortgage loan. Responsibilities: a. Know federal and state regulations b. Take loan applications c. Within 3 days, provide disclosures d. Verify information on application, pull credit report, pull information together for underwriting e. Submit original documents and application to the underwriter. 7

8 The Mortgage Lending Process Loan Originating includes counseling the CU member, taking the mortgage application, documenting creditworthiness, evaluating the property, and closing and funding the mortgage loan. Responsibilities: e. continued If loan amount is greater than 80% of property value, private mortgage insurance (PMI) may be required f. Before loan is closed, review and clear conditions from the underwriter g. Notify all parties of process, order hazard insurance policy and have member pay first year s premium 8

9 The Mortgage Lending Process Loan Originating includes counseling the CU member, taking the mortgage application, documenting creditworthiness, evaluating the property, and closing and funding the mortgage loan. Responsibilities: h. Order title insurance and survey i. Prepare documents for closing j. Close loan 9

10 The Mortgage Lending Process Selling a sale of the mortgage to the secondary market involves underwriting the loan to secondary market standards, examining the documents for completeness and accuracy, and pricing and delivering the loan documents to the investor usually Fannie Mae or Freddie Mac. Steps in a secondary market sale: Commit to member to guarantee interest rate and discount points Sell security or whole loans for delivery in the future Underwrite member mortgage for closing before commitment period expires. 10

11 The Mortgage Lending Process Selling a sale of the mortgage to the secondary market involves underwriting the loan to secondary market standards, examining the documents for completeness and accuracy, and pricing and delivering the loan documents to the investor usually Fannie Mae or Freddie Mac. Steps in a secondary market sale: Check for completeness of documents before delivery to investor Deliver mortgage documents to investor for review and funding Notify servicing department that loan is sold and identify the investor 11

12 The Mortgage Lending Process Servicing Servicing includes collecting monthly payments, managing escrow accounts, monitoring and dealing with delinquencies, and overseeing foreclosures and payoffs. Servicing loans sold to the secondary market also involves providing information and remittance to the investor. Mortgage servicing responsibilities are complex, and there are consequences for improperly performing the duties, including substantial penalties. 12

13 The Risks Interest-Rate Risk Delivery Risk Collateral Risk 13

14 Marketing Mortgage Know your mortgage market potential CU Positioning Product Positioning Market Positioning 14

15 Regulations The Fair Housing Act Equal Credit Opportunity Act & Regulation B Fair Credit Reporting Act and Regulation V The National Flood Insurance Act Appraisals Home Mortgage Disclosure Act and Regulation C Safe Act and Regulation G Homeowners Protection Act of 1998 Borrower Requested Cancellation Automatic Termination Final Termination 15

16 Regulations Real Estate Settlement Procedures Act and Regulation X (RESPA) Truth-in-Lending Act and Regulations Z Fair Debt Collection Practices Act 16

17 Putting It All Together You don t date a mortgage program, you marry it. And like a happy marriage, it can be a long and productive relationship. 17

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