Loan Officer Training - 10/24/2024 - Mastering Loan Applications: Essential Strategies LOs

In this episode of Loan Officer Training, we dive into the core of your daily responsibilities—mastering loan applications. Navigating the loan application process efficiently is one of the most critical skills for any loan officer, and in this episode, we’ll equip you with the essential strategies to streamline your workflow, improve client satisfaction, and increase your approval rates.

We’ll cover the key components of a loan application, from gathering the right documentation and verifying income to assessing creditworthiness and understanding underwriting guidelines. You’ll also learn how to identify common pitfalls that can slow down the process and how to avoid them. Discover expert tips for communicating with clients to ensure they provide complete and accurate information upfront, speeding up the application process and minimizing delays.

Whether you’re a new loan officer looking to master the basics or a seasoned professional aiming to refine your process, this episode will give you the practical tools and strategies to excel in managing loan applications. Tune in to elevate your loan officer game and boost your success in helping clients secure their dream loans!

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About The Mortgage Calculator:

The Mortgage Calculator is a licensed Mortgage Lender (NMLS #2377459) that specializes in using technology to enable borrowers to access Conventional, FHA, VA, and USDA Programs, as well as over 5,000 Non-QM mortgage loan programs using alternative income documentation! 

Using The Mortgage Calculator proprietary technology, borrowers can instantly price and quote thousands of mortgage loan programs in just a few clicks. The Mortgage Calculator technology also enables borrowers to instantly complete a full loan application and upload documents to our AI powered software to get qualified in just minutes!

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Catch all the episodes of the Loan Officer Training Podcast at https://themortgagecalculator.com/Page/Loan-Officer-Training-Series-Podcast

Catch all the episodes of the Loan Officer Training Podcast at https://themortgagecalculator.com/Page/Loan-Officer-Training-Series-Podcast

Loan Officers for Unlimited Free Non-QM Leads & Trainings Join The Mortgage Calculator at https://themortgagecalculator.com/join

The Mortgage Calculator is a licensed Mortgage Lender (NMLS #2377459) that specializes in using technology to enable borrowers to access Conventional, FHA, VA, and USDA Programs, as well as thousands of Non-QM mortgage loan program variations using alternative income documentation!

Using The Mortgage Calculator proprietary technology, borrowers can instantly price and quote thousands of mortgage loan programs in just a few clicks. The Mortgage Calculator technology also enables borrowers to instantly complete a full loan application and upload documents to our AI powered software to get qualified in just minutes!

Our team of licensed Mortgage Loan Originators can assist our customers with Conventional, FHA, VA and USDA mortgages as well as acc...

Transcript

Restream recording Oct 24, 2024 • 04:02:12 PM: 0:13

So, uh, my name is Kyle Hiersche. I'm the COO of the Mortgage Calculator joined here by our CSO, Jose Gonzalez, and he will take us through mastering loan applications. Let's go ahead and get into it, Jose. Good afternoon, everybody. Thank you for joining us for today's training on mastering loan applications, essential strategies for loan officers. Um, this is basically, this is getting back to the basics here, but this is a very important topic. This goes hand in hand with the mortgage preapproval versus mortgage prequalification training that we had yesterday. Um, this is one of the essential, this is one of the essential components. of basically building that credibility with the borrower and getting the deal to the closing table and hopefully doing a great job and getting future business. That's what it's all about here. This is not about one and done. This is about establishing long term relationships so that you can have a sustainable MLO career. And obviously, you know, you want to be able to close your loans, right? That's what the customer wants when they come to see you for the loan application. So let's go ahead and get into it right now. So that's a sample application there, by the way, it's a test application. So that's not actually a real customer for those of you that may be concerned. So let's get into loan application essentials, right? What are we talking about? Well, um, if one thing to note here is that efficient loan officers process applications quickly, build trust, and foster long term relationships, right? I mean, I put that up there front and center so everyone can understand what is the purpose of this training today, right? To allow you to do your job in the most, uh, efficient manner possible to allow you to build trust and obviously, uh, get those deals, the referrals. So what are the common challenges? that we face, uh, in the loan application. Well, incomplete documentation, right? You, uh, customer doesn't provide everything you need for a full doc loan. Maybe you're not aware of everything that you need. That could be another issue. Remember the customers, uh, are not the licensee. Uh, you're the licensee and you're the one that has the checklist and should be able to provide those checklists to the customer so that they know exactly. What you need. Now we're going to get into the document collection section a little bit further down there, but it's all about the communication here, right? Because if not, it's, it's going to create some client confusion, right? So common challenges, incomplete documentation. Client confusion. They have no idea what you need for that complicated, self employed borrower, uh, with multiple LLCs and delays in processing. So you can see how one leads to the other, the incomplete documentation, client confusion, which both are going to lead to delay in processing. Um, not a good experience. Once you get those delays for the borrower, definitely not a way to build trust and foster longterm relationships. If your messaging is not clear to the borrower about what they need to provide to you in order to get this file. So, uh, first, uh, bullet point there, I guess that I want to cover is effective, which builds on what we're talking about right now is effective client communication, right? That's the first key there that's going to allow you to avoid client confusion, which then will everything will work together. So you don't have any delays. The effective client communication is going to build trust. You also, in this effective, uh, client communication, uh, mode, you have to set realistic expectations this. Now, this takes us back to the preapproval stage, right? When we're going over the, the deal with the borrower, sizing up the deal, analyzing everything, providing that preapproval, that's the moment that you have to start setting the expectations on what may and may not happen. Right. So if there's a, any point of the income calculations, for example, where you, you feel the calculations could go either way, may result in a higher DTI, a higher interest rate, a lower LTV for the borrower. The analysis doesn't work in the way that we hoped it would. You have to let the customer know that don't just, you know, keep that to yourself, not communicate that to the borrower. And then all of a sudden, when that negative scenario does occur, First thing the bar is going to say is why didn't you let me know Jose that there was a problem here that could arise that would result in my having to give 20 percent down instead of 5 percent down, you know, I don't have the money. I put deposits on this contract and the appraisals and inspections and you know, a whole slew of of issues that may arise if they don't close. You need to provide the customer frequent updates throughout the process, right? As the loan goes through the process, as documentation is reviewed, The scenario may change, right? The DTI may change. Uh, there may be issues with credit scores, a lot, a lot of things that may occur, so just make sure that you provide frequent updates to the customer so that they are aware of exactly where the loan is and they don't get caught off guard. All of a sudden, when you tell them five days before closing, That they have to come up with an extra 20 or 30, 000. And now they're running around like a chicken without a head, seeing where they're going to get that extra money, or else they're going to lose 50, 000 that they put on deposit for the contract. That's a really big problem. And if there are any issues or concerns that do arise, please address those concerns promptly. Do not procrastinate on taking care of whatever needs to take care of. informing the customer of what needs to be done so that the necessary documentation to hopefully clear the issue can be provided on a timely manner and not one or two days before you're trying to close. The transaction, and this leads us, uh, to the challenge of incomplete documentation to our document collection and verification, uh, recommendations here, right? First one, first and foremost, use a loan origination system. Now, um, we're lenders. So as lenders, uh, we use encompass, but there's many other loan origination systems out there. Uh, Calix is another one that's popular. That one is more for the broker channel and a, and a few others, but the two main ones are probably encompass and Calix that's essential because that is where the, uh, The application originates and that is where you generate all of your documents to submit to underwriting. Which leads us to digital tools for document procurement, right? You notice there we have CRM slash secure online portals for document uploads. Now, in some cases, uh, The loan originator may have at their disposal a separate system just for secure, uh, document uploads. In our case, we have our CRM, which incorporates a function, uh, where we request documents from the borrower. Borrower gets an email and they click on the link. Takes them to their portal where they can log in and then they can click on the document links and just securely upload all the documents that you have requested. A lot simpler than having the borrower email you any of these documents. Also, Much more secure because, you know, emails can be hacked. You definitely do not want borrowers emailing you social security cards, W two's tax returns or any other documentation that has their personal and private information. Because if. If your email gets hacked, all that information is going to be at the disposal of the hackers, and then the next thing you know, Bower may be reaching out to you, letting you know that there's 20, 000 missing from their account. It happened two days after they, they applied. And what the heck is going on, Jose, right? And that happens, obviously the chances are they're going to cancel the loan because now they don't have the money to close. And on top of that, there may be some kind of an investigation that may draw you into it as to what happened to their money. So to avoid any of that and to follow best business practices and to, and for you also to be able to operate more efficiently, never have customers email your documents, always use some type of a secure online portal. And if you're a team member of the mortgage calculator, use your CRM, uh, and the tools that are within the CRM to make sure that you use that for all of your document requests. Now I did mention checklists. Uh, you should definitely as early on in the process as possible provide your borrower with a checklist of then what may be needed for their loan. Obviously, that will change as documents are received. And there may be additional documents required, like if there's large deposits in a bank statement that you notice, but the initial document checklists are going to be very similar for all the different loan types. Make sure that you provide your customer with a checklist of what they will need to provide to you so that they can make sure that they have everything and that they don't. They can start, um, procuring those documents on a timely basis. Now, identification, excuse me, and employment history is another. Very important, uh, topic there. You're going to be provided their IDs, so secure numbers and all the information there, and it's going to be your job to verify it as much as possible. Now that's going to be verified, obviously when it goes to underwriting, but you can look at the documentation, you can look at their ID, you can look at the W 2s, you can look at the pay stubs, uh, you can look at the bank statements. And you can see if everything matches. If there, if the information does not match, then you have to make sure to request, uh, additional documentation or letters of explanation for the borrower as to why certain documentation, um, does not match like we recently had one where a borrower is applying for a cash out refi on a property that they have listed as their primary residence. But all of the documentation in the file, their driver's license, uh, bank statements, um, all show a different address, not the subject property. And when we look at the bank statements, we don't really find any transactions. in locations that may be close to the subject property, but rather close to where the addresses are listed in the bank statements. So that's a big issue. You know, the only, um, that's, that's something where then you have to start worrying about occupancy fraud. Is it really a primary residence? Is it a rental property, right? Is it an investment property? Uh, what is It's actually going on where you have to delve deeper, request additional documentation and, um, letters of explanation, uh, income, excuse me, income verification for the loan type is very critical. And again, a lot of this is what you are doing. Like you are pre underwriting the file when you're completing the loan application, essentially, right? That's what this whole process is about. So depending on the loan type, so obviously if it's a DSCR loan, debt service coverage ratio loan, where you qualify the borrower based on the rental income of the property, then there's no need, excuse me, then there, then there's no need for pay stubs. No tax returns. But again, like I just mentioned, um, when you're reviewing the documentation, you have to make sure that everything coincides, right? So security number, uh, dates of birth addresses, all that stuff, whatever may be needed. And especially if, for example, you have a self employed borrower and, um, he has a corporation. and they haven't provided you the corporate tax returns and on the personal tax returns on the Schedule E It shows that he's receiving royalties from an S Corp, where then you need, uh, the K 1 to see what is their percentage of ownership. Are they 25 percent or more owner of that entity if it's an S Corp? Remember, C Corps, you have to be 100 percent owner. But S Corps, 75, uh, 25 percent owner or more, uh, you're considered, uh, an owner. of the company, in which case then we would need the additional tax returns, right? Um, send out that written verification of employment and reconcile it to the pay stubs. Does it match? Does it show the same year to date? Are there entries, information missing on the pay stubs that's not on the written verification of employment that would entail asking for additional letters of explanation? I recently had one on a loan that is about to close where The written verification of employment showed a bonus recently received, but the bonus was not reflected in the pay stubs. So I had to delve deep into it and I had to reach out to the employer and get a letter of explanation from the employer as to why the bonus was not reflected on the pay stubs, but was reflected on the written verification of employment. And in this case, the reason being is that the employer. Paid the bonus, which was a substantial bonus. 20, 000 paid the bonus from a different account other than the payroll account, and the payroll account is the one that has the year to date earnings. This other account. Does, uh, does not, uh, populate in the pay stub. So it was a very simple explanation, uh, but one that would cause issues on your file if you did not have that letter of explanation from the employer because then they're not going to, uh, allow that income if they thought there was any funny business going on. Whereas is it really a bonus or what is actually going on with this deposit? Credit report is an essential part of the whole process, right? You got, you have to make sure that all the information is correct on the credit report. Start with the basics. I just, I just had a credit report, uh, on a loan that did not pull. One of the bureaus, right? Uh, Experian Bureau was missing. Now that was a application submitted by the borrower. So as part of the process, we requested the borrower's identification information. In this case is his driver's license and his social security card. And wouldn't you know it now also, I borrowers complete the application and then they submit the application and the credit report is pulled. Automatically, the credit report is not pulled, uh, independently by the loan officer. So in this case, the borrower input the information in the application and apparently input some wrong information. He input the social security number incorrectly and he input, uh, the address missing part of the address so that experience is very picky. So Experian didn't report, uh, any information. So once we did receive the identification, the identifying information from the borrower, and once we were able to reconcile, um, the, um, the file, right, uh, the credit report information to the ID, We uncovered that's when we uncovered the mistakes, right? That the social security number was incorrect and the address was incorrect. So as soon as I reached out to the credit bureau and had them update the address and update social security number and repool the report, voila. All three bureaus reported, right? So now I need to request a letter of explanation for the borrower asking him why he submitted the application with the incorrect social security number to ensure that it was just a mistaken data entry and not fraud, right? Because risk management and compliance, as you can see, is our last section there. But the credit report is an integral part Of of that whole process. So that's the one missing link. I need there to get the letter of explanation for the borrower as to what occurred there and include that with my file to make sure that there are no red flags that everything's addressed and that if we do close this file, we're not going to get stuck. Uh, later an issue come up that this is actually a fraudulent loan submission. Obviously, one other thing that I'm going to do as part of this whole process is request a social security number verification via our credit reporting agency that's, uh, accomplished via the SSA, uh, Dash 89 form. Customer completes it, signs it, we send it in to the agency that processes it, and then they will confirm the social security number as belonging to our borrower. All right, want to make sure there's no fraud going on there. And I've already touched on the asset and liability statements. What we're talking about here is bank statements, mortgage statements, credit card statements, any documentation that you may need to obtain Uh, as part of your verification, in this case, not only are we verifying the money that they have available for the transaction, if it's a purchase, or if it's a rate and term refi, where you need to, you need to verify reserves because they're not coming from the cash out, but that's also where, again, you reconcile it to everything, just like I did in the application to make sure that there's no funny business going on, that everything actually matches up before we submit the money. The application now, very important part here. Uh, that's why it's it's last bullet point there, but not last by order of importance, more or less just by order of you need to complete all the other items first before then you do the final step. of either submitting the loan to automated underwriting if it's an agency loan. And by agency, I'm talking about conventional, uh, FHA, USDA, or BA. Those are agency loans. Those are the ones that are submitted to automated underwriting. Or you complete your guidelines review if it's a non QM loan, uh, reviewing the specific guideline, uh, for the loan option that is being selected because. Please remember, we always stress this point, that non QM has guidelines that are specific to each, to each investor. The investor here are the companies that we sell the loans to. Those are the guidelines that we have to conform to, um, For that specific non Q. M. Loans. We cannot generalize and say all D. S. C. R. Loans are handled this way, right? It just has to be done. Um, according to whatever the guidelines are and only after you get that automated. Underwriting approval that matches everything in the file, or only after you review the guidelines and conform, confirm that the borrower actually qualifies based on the DTI requirements, the FICO score requirements, the asset requirements, reserves, income, any other requirements that the, that the guidelines may have, and only then, obviously, do you, um, issue the pre approval letter. That's where we were, and then, uh, proceed Uh, with the loan application, the formal loan application, because when we're in this process, if we have already pre approved the borrower previously and, and gave them a TBD pre approval, like for a purchase. Then what we're talking about here will already have been completed at this point, then all we would be waiting for would be for the borrower if it's a purchase to get a fully executed contract provided to us, we put the address in the file, rerun or automated underwriting with the specific information of their property or review the guidelines, uh, taking into consideration the specific information on their property. And then we submit our file to the investor for underwriting review and hopefully our loan commitment, our conditional loan approval. Uh, so the, the final section here about risk management and compliance is an intertwining thread in this whole process, right? It's not like, okay, now we're done here. Now we are in the risk management section. I mean, fraud prevention Uh, and being alert to any signs of fraud is an essential component throughout the whole process right from the moment that you start speaking with the borrower about what they want to do right being on the alert if there's any occupancy fraud where they may be trying to purchase an investment property as a primary, right? Uh, so that's, uh, or, or, uh, vice versa. You know, I mean, you get sometimes where they're purchasing the investment property. And it's, and it's actually going to be a primary, like they're purchasing it with a DSCR loan because they don't really qualify full doc or anything like that. And then, and then they're wanting to buy the DSCR loan property to live in it, which is not, you know, not allowed. So fraud prevention and alertness is an integral part of the whole loan application process. But when we get to the stage here where we are about to submit the file, to underwriting, right? Submitted to the investor for underwriting review. That's when we do our our final compliance checks, right? To make sure that the file is ready to be disclosed in a compliant manner, right? According to TRID, for example, right? When was your file triggered for disclosure? Have more than three days passed from that moment that it was triggered for disclosure. Is the interest rate, uh, that is on the file, uh, is it out of compliance because the cost of the rate is too high and you're failing the points and fees test? Because remember, if it's a, if it's a TRID loan, You're, you're going to be at 3 percent points and fees. And if it's a non trade loan, like a DSCR loan, for example, you're going to be at 5 percent maximum for points and fees. So the file gets set up properly. You run your compliance test and see where you stand regarding points and fees as well as all of the other compliance checks that the compliance review does, right? Is the interest rate, uh, too high because it's comparing the APOR to the APR that's in the file and it's above a certain, uh, threshold and it's a QM loan. Now you're going to be stuck, right? That loan would need a lower interest rate, uh, or like I was just mentioning, um, How did you miss the disclosure window? Has it been more than three days since the loan application was triggered? And you're trying to disclose a file and now the system's letting you know, hey, it's too late. You missed the window. You, you gotta, you gotta reset here. So, real important before, uh, finalizing your loan application, Um, And, uh, submitting it to your, uh, you know, intake department, uh, for submission to underwriting. You want to make sure that you run your compliance tests and you have a green light. on all of the different, uh, test components. And last point here, which again, we've touched on this is, uh, the fraud guard. Okay. A lot of people, this is a, this is a mystery to a lot of MLOs, right? Fraud guard, but just be aware what fraud guard is. Fraud guard is just a test. Uh, there's a number of different databases. that are being reviewed by Fraud Guard, right? Uh, it reviews the OFAC, O F A C, OFAC list to see if any of the participants in the loan are on the OFAC list, which is basically a list of, uh, Um, undesirables. I guess we would want to call that people that really would not be able to do business here in the US because they are on the list. So, that's one of the components or is there, are there any kind of risky or fraudulent, possibly transactions prior real estate transactions that the borrower has completed. Fraud guards going to analyze any sale or any purchases. Uh, of any properties, uh, transacted by the borrower to make sure that there wasn't a straw buyer to make sure that it wasn't some type of a scenario where maybe, um, it was a foreclosure bailout, um, or what's the phone number that they're using, right? Is their phone number actually attached to their address? Or is it attached to some other address? And is there maybe some type of occupancy fraud where maybe they don't really live where they say that they're living for the refinance, for example. So a lot of things to consider here, but the main thing to note about fraud guard is. Open it up, open the report, read it, see what's there. And if you have any questions that you don't understand regarding the fraud guard, you would definitely want to reach out to your mentor or to your processing team. Uh, so, so you can collaborate to try to make sure you provide any of these documents. In a timely basis, because you do not want to wait till your file is clear to close and then all of a sudden you're not really clear to close because Fraud Guard has five critical alerts on it that haven't been addressed. Addressing the alert could be as simple as just providing an explanation. Or it could be more involved where actual documentation would need to be provided to clear the alert. So do be aware of all of these processes here in the loan application process. Remember these are also an integral part of the pre approval process because when we are pre approving the borrower, right, we are completing the loan application. Right. So this is just within that whole pre approval process is the loan application process. Follow these steps here and you should have a pretty successful MLO career because you're definitely going to meet all your closings and have a lot of satisfied clients. All right. Thank you, Jose. I don't see any questions about the loan program, so we'll go ahead and, uh, uh, wrap it up, or I guess about the loan topic here, but, uh, definitely amazing info to have. And remember, you can always pull this up later, look at that checklist, and then, of course, at the Mortgage Calculator, we have plenty of resources for this as well. So thank you everybody for tuning in. We appreciate it. Remember that we do this every Tuesday, Wednesday and Thursday at 12 p. m. Eastern, where we go through a new loan officer training topic. So we appreciate everybody tuning in and we will see you on Tuesday at 12 p. m. Eastern for the next episode of the Loan Officer Training Series with the Mortgage Calculator. Have a great day, everyone.