Clients often ask, “Why can I get financing for a car in one day but it can take months to get a mortgage?” In our age of fax machines, ATMs and the Internet, it is hard to understand and explain why the mortgage process should take so long to complete. Securing a mortgage is a very complicated process. To be successful in this business, you need the skills to advise your clients, keep them informed on the application process and foresee ways to solve problems that may come up, and believe me, they always do!

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First we need to talk about who and what is involved in a mortgage application.

A mortgage is a loan from a lender, which a borrower pays back over time with interest. The lender uses the mortgage as a claim against the property until the loan is paid in full.

The written agreement that spells out the terms of the loan is called the Note. A borrower can secure a mortgage from a lender who can be a bank, a mortgage bank or a mortgage broker.

A bank lends money and offers mortgages they either hold or sell on the secondary mortgage market.

A bank that holds a mortgage and does not sell it on the secondary mortgage market is called a Portfolio Lender. A portfolio lender uses their own funds so they are able to create their own underwriting guidelines, which can be more lenient than conforming guidelines.

A mortgage bank is not actually a bank. It takes no deposits. The mortgage banker has a line-of-credit established with an investment bank. The mortgage banker borrows from this line-of-credit to provide mortgages. When the mortgage banker has enough existing mortgages in their pipeline, they are grouped together and sold on the secondary mortgage market. The money received from the sale of the mortgages is used to pay off the line-of-credit, make new loans and start the cycle over again.

A mortgage broker brings together a mortgage lender and a borrower who needs a loan. A mortgage broker does not lend money. A mortgage broker takes an application and then “shops the loan” for the best rate and terms. A mortgage broker may work with many lenders. A lender will approve the mortgage and provide the funds to close the loan. When the borrower closes on the loan, the mortgage broker’s job is done. The lender providing the money for this transaction will more than likely service the loan.

The Secondary Mortgage Market is the place where mortgages are bought and sold. Lenders sell their mortgages to other lenders, investors and agencies that then sell the loans or the interest on these loans to Wall Street. Today the two biggest mortgage investors/agencies are Fannie Mae and Freddie Mac.

Loan Officers, also known as Originators, take mortgage applications and are often responsible for generating new mortgage business. They collect all supporting data at the time of application and explain all required forms and documents to the borrower. A loan officer discusses all mortgage loan program options along with any points or fees that will be charged.

On a more personal note, as a loan officer you will take many applications during your career. For each borrower you see, however, it may be one of the very few times in his life that they will apply for a mortgage. A client will never be as familiar with the process as you are. It is easy to be anxious and forgetful. Don’t assume that borrowers will remember everything you tell them. Explain the whole process and then re-explain as you go through the application. If you need information from the borrowers, write it down for them. Establish a checklist you can use with your clients. It will make everyone’s job easier and you will have a much less frazzled borrower.

A Processor organizes the loan application and all required supporting documentation. The processor orders, collects and reviews the appraisal, credit report, and all income and asset verifications so that an informed underwriting decision can be made by the lender/investor.

The Underwriter approves or denies a mortgage that has been submitted by the loan officer and/or the processor. The underwriting evaluation is based on the property, the borrower’s income, credit history and ability to repay the loan. An underwriter analyzes any risks involved in approving a loan. If the underwriter feels more information is needed to make a decision, the loan is sent back to the loan officer/processor as a “Suspended File” until information requested is submitted to the underwriter.

I hope these brief descriptions have given you a better understanding of who and what is involved in the mortgage process. Now let’s get to work and originate some mortgages!

NOTE: The terms in bold above are explained in greater detail in Jeannine Doyle’s book, Managing the Mortgage Maze.

©2004, Jeannine Doyle, D&S Publications. Jeannine Doyle has turned her 25+ years experience into manuals and CDs that explain the complexities of lending in plain language for loan officers, real estate agents, students, and those considering a career in lending. This article is an excerpt from Managing the Mortgage Maze. For more about this comprehensive guide, visit www.MortgageMazes.com. Jeannine is a member of the National Advisory Council for GoGetLoan.com. Visit her page here.